Aspen Aerogels, Inc. — Q2 2015 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2015. Aspen Aerogels designs and manufactures aerogel insulation and also performs contract research. Figures below are in U.S. dollars; financial-statement amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $30.1 | $26.6 | $53.6 | $49.0 |
| Gross profit / margin | $5.1 / 17% | $3.4 / 13% | $9.6 / 18% | $6.8 / 14% |
| Operating expenses | $7.8 | $11.5 | $15.1 | $17.8 |
| Operating loss | $(2.7) | $(8.1) | $(5.4) | $(11.0) |
| Net loss | $(2.7) | $(42.1) | $(5.5) | $(61.2) |
| Adjusted EBITDA (non-GAAP) | $1.3 | $0.4 | $2.0 | $0.5 |
Q2 product revenue rose 15% to $29.8 million; shipments increased 11% to 11.15 million square feet, and average selling price rose 4% to $2.67 per square foot. For the first half, product revenue grew 12%, shipments rose 5% to 19.93 million square feet, and average selling price increased 6% to $2.66. Growth reflected sales in refinery and petrochemical markets, particularly in Asia and Europe, price increases implemented in late 2014, and output from the new production line. Research-services revenue fell 53% in Q2 and 60% for the first half, partly because fewer government research contracts were active.
Product cost of revenue declined as a share of product revenue to 83% in Q2 from 88%, and to 82% for the first half from 87%. Higher selling prices and improved productivity helped margins, while the new line added manufacturing costs. Operating expenses declined year over year, primarily reflecting lower stock-based compensation. The company remained loss-making at the operating and net-income levels.
Net loss comparisons are significantly affected by 2014 IPO-related and debt-accounting items: first-half 2014 interest expense was $50.2 million, largely fair-value changes on notes that were repaid or converted at the June 2014 IPO. The filing also identifies $38.8 million of IPO-related expense, including stock compensation and note accretion. Per-share comparisons are additionally affected by the IPO, conversion of notes into shares, and the reverse stock split; reported basic and diluted loss per share was $0.12 in Q2 2015 and $0.24 for the first half, versus $13.88 and $40.05 in 2014.
Cash, liquidity, debt and investment
- At June 30, 2015, cash and cash equivalents were $29.6 million and marketable securities were $2.5 million; current assets were $60.2 million and current liabilities were $16.5 million.
- Cash used in operating activities was $0.6 million for the first half, compared with $0.2 million provided in 2014. Capital expenditures were $17.0 million; total investing cash outflow was $19.5 million. Cash declined $20.1 million from year-end 2014 to $29.6 million.
- Debt was limited to approximately $0.1 million of capital leases. There were no revolver borrowings; letters of credit totaled $1.8 million. The credit facility had $12.8 million of effective availability after borrowing-base and letter-of-credit limits, and the company reported compliance with its covenants.
- Property, plant and equipment, net, was $78.1 million. The completed third East Providence production line, placed in service in March 2015, cost $31.8 million and is expected to add annual nameplate capacity of 10–11 million square feet. Total estimated capacity is 50–55 million square feet annually, depending on product mix.
Outlook, commentary and risks
Management expected continued revenue growth, higher gross profit and improving operating cash flow, while anticipating significant capital expenditures through 2017 to expand capacity and develop a second U.S. plant. Management said existing cash and available credit could fund remaining costs for the completed third line and part of the second plant; it expected to seek additional funding from operating cash flow, local government grants, debt and potentially equity financing. No specific revenue or earnings guidance was provided.
- Management expected third-line ramp-up costs to increase manufacturing expense in the near term, while anticipating improved productivity and gross margins as volumes rise. It cautioned that results and Adjusted EBITDA may vary during capacity expansion.
- Government research-contract revenue faces eligibility limitations related to factors including company revenue, employee count and ownership structure.
- Key execution and funding risks include substantial future capital needs, successful production ramp and yields, customer demand, product mix and pricing, and the availability and terms of additional financing. The filing reported no material change to the risk factors in the 2014 Form 10-K.
- No material litigation was reported, and management stated that no probable or reasonably possible litigation loss required accrual or disclosure. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
Most important facts for investors to verify
- Whether higher shipments, selling prices and gross margins persist as the third production line ramps, and whether added costs remain controlled.
- Cash burn, remaining third-line payables, capital spending plans through 2017, and the expected funding mix and terms for a second plant.
- Actual capacity, utilization, yields and demand relative to management’s 50–55 million-square-foot annual nameplate estimate.
- Effects of federal contract eligibility limitations on research-services revenue and any changes in the company’s access to government work.
- How 2014 IPO and debt fair-value items distort year-over-year net loss and per-share comparisons; also reconcile the first-half 2015 G&A expense, reported as $7.157 million in the statements and $7.152 million in MD&A.