Aspen Aerogels, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Aspen designs and manufactures aerogel insulation and performs contract research. Figures below are in millions of dollars unless otherwise stated.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $31.5 | $25.4 | $85.1 | $74.4 |
| Gross profit / margin | $5.2 / 16% | $5.1 / 20% | $14.8 / 17% | $11.8 / 16% |
| Operating loss | $(2.5) | $(2.4) | $(7.9) | $(13.4) |
| Net loss | $(2.5) | $(2.4) | $(8.1) | $(63.6) |
| Adjusted EBITDA, non-GAAP | $1.7 | $1.2 | $3.7 | $1.7 |
Q3 revenue rose 24%, driven by product sales (+26%); product shipments grew 12% and average selling price increased 13% to $2.96 per square foot. For the first nine months, revenue rose 14%, product shipments increased 8%, and average selling price rose 8% to $2.76 per square foot. Product revenue gains reflected price increases and a richer mix, especially in subsea markets. Research-services revenue fell 28% in Q3 and 49% year to date, partly because of reduced active government contracts and limits on eligibility for certain awards.
Q3 gross margin declined to 16% from 20%, as higher manufacturing costs and weaker yields offset pricing and volume gains. Nine-month margin improved to 17% from 16%. Q3 operating expenses were $7.6 million versus $7.4 million. Nine-month operating expenses fell to $22.7 million from $25.2 million, including lower general and administrative costs. Nine-month 2014 net loss included $50.2 million of interest expense, primarily fair-value adjustments on debt that was repaid or converted to equity at the 2014 IPO; the year-over-year net-loss comparison is therefore not like-for-like.
Cash, liquidity and investment
- Cash and cash equivalents were $30.0 million at September 30, 2015, down from $49.7 million at December 31, 2014. Current assets were $62.9 million and current liabilities $20.6 million.
- Operating cash flow was negative $0.1 million for the first nine months, versus positive $1.9 million a year earlier. Working-capital investment, including higher receivables and inventory, weighed on cash.
- Capital expenditures were $19.4 million, versus $4.6 million in the prior-year period; investing cash outflow was also $19.4 million. The company reported a $19.8 million net decrease in cash.
- Debt was limited to approximately $0.1 million of capital leases; no revolver borrowings were outstanding. The $20 million revolving facility had $13.0 million effectively available after borrowing-base limits and $2.7 million of letters of credit. The company reported compliance with financial covenants. Facility maturity was August 31, 2016.
- Deferred revenue increased to $5.6 million from $0.3 million at year-end. Total assets were $140.4 million; stockholders’ equity was $119.6 million.
Changes, outlook and risks
- The third East Providence production line entered service in March 2015, increasing estimated annual nameplate capacity to 50–55 million square feet. The company reported $31.8 million of construction cost for the line.
- A September carbon-dioxide supply curtailment idled the East Providence plant for the equivalent of 3.8 production days. Management estimated a $1.5 million revenue impact and $0.8 million reductions in gross profit and Adjusted EBITDA, as well as a six-percentage-point reduction in Q3 revenue growth and a $0.04-per-share impact.
- Management expected revenue growth, improving gross profit and operating cash flow, but anticipated significant capital spending through 2017. It said existing cash and available credit would fund only part of a second U.S. plant; anticipated operating cash flow, government grants, debt and potentially equity financing were identified as additional sources. Statesboro, Georgia, was selected for that plant on November 5, after quarter-end. No specific full-year revenue or earnings guidance is provided in the filing text.
- Management expected Q4 gross margin to improve from Q3 levels, citing higher production, product mix and anticipated yield and productivity improvements. It also cautioned that capacity expansions can raise manufacturing costs and cause period-to-period variability.
- Key risks include dependence on timely raw-material and utility supplies, short-term purchasing arrangements, no secure long-term supply of silica precursors, manufacturing yields and the ability to pass through cost increases. The filing also cites financing needs for expansion and limited eligibility for some federal research awards. No material litigation requiring accrual or disclosure was reported.
Investor verification priorities
- Track manufacturing yields, product mix and whether expected margin improvements materialize after the Q3 decline.
- Verify the recovery of supply reliability and the availability and pricing of carbon dioxide, silica precursors and other critical inputs.
- Assess the second-plant spending schedule, total funding requirements and access to grants, debt or equity financing.
- Monitor operating cash flow and working-capital needs against planned capital expenditures and the revolver’s borrowing base, covenants and 2016 maturity.
- Check product shipment and pricing trends, and whether reduced government-contract eligibility continues to constrain research-services revenue.