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OFFON

ASPEN AEROGELS, INC.

(ASPN)
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ASPEN AEROGELS INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/04/2021 | 04:13pm EST
The following information should be read in conjunction with the unaudited
financial information and the notes thereto included in this Quarterly Report on
Form 10-Q and the audited financial information and the notes thereto included
in the Annual Report on Form 10-K for the year ended December 31, 2020, filed
with the U.S. Securities and Exchange Commission (SEC) on March 12, 2021, which
we refer to as the Annual Report.

Certain matters discussed in this Quarterly Report on Form 10-Q may be deemed to
be forward-looking statements that involve risks and uncertainties. We make such
forward-looking statements pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and other federal securities laws. In
this Quarterly Report on Form 10-Q, words such as "may," "will," "anticipate,"
"estimate," "expects," "projects," "intends," "plans," "believes" and similar
expressions (as well as other words or expressions referencing future events,
conditions or circumstances) are intended to identify forward-looking
statements.

Our actual results and the timing of certain events may differ materially from
the results discussed, projected, anticipated, or indicated in any
forward-looking statements. We caution you that forward-looking statements are
not guarantees of future performance and that our actual results of operations,
financial condition and liquidity, and the development of the industry in which
we operate may differ materially from the forward-looking statements contained
in this Quarterly Report on Form 10-Q. In addition, even if our results of
operations, financial condition and liquidity, and the development of the
industry in which we operate are consistent with the forward-looking statements
contained in this Quarterly Report on Form 10-Q, they may not be predictive of
results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q and under "Risk Factors" in Item 1A of the Annual Report.


We caution readers not to place undue reliance on any forward-looking statements
made by us, which speak only as of the date they are made. We disclaim any
obligation, except as specifically required by law and the rules of the SEC, to
publicly update or revise any such statements to reflect any change in our
expectations or in events, conditions or circumstances on which any such
statements may be based, or that may affect the likelihood that actual results
will differ from those set forth in the forward-looking statements.

You should read the following discussion and analysis of financial condition and
results of operations together with Part I Item 1 "Financial Statements," which
includes our financial statements and related notes, elsewhere in this Quarterly
Report on Form 10-Q.

Investors and others should note that we routinely use the Investors section of
our website to announce material information to investors and the marketplace.
While not all of the information that we post on the Investors section of our
website is of a material nature, some information could be deemed to be
material. Accordingly, we encourage investors, the media, and others interested
in us to review the information that we share on the Investors section of our
website, https://www.aerogel.com.

Overview


We design, develop and manufacture innovative, high-performance aerogel
insulation used primarily in the energy infrastructure and sustainable building
materials markets. We believe our aerogel blankets deliver the best thermal
performance of any widely used insulation product available on the market today
and provide a combination of performance attributes unmatched by traditional
insulation materials. Our end-use customers select our products where thermal
performance is critical and to save money, improve resource efficiency, enhance
sustainability, preserve operating assets and protect workers.

Our insulation is used by oil producers and the owners and operators of refineries, petrochemical plants, liquefied natural gas facilities, power generating assets and other energy infrastructure. Our Pyrogel and Cryogel product lines have undergone rigorous technical validation by industry leading end-users and achieved significant market adoption.


We are also actively developing a number of promising aerogel products and
technologies for the electric vehicle market. We have developed and are
commercializing our proprietary line of PyroThin thermal barriers for use in
battery packs in electric vehicles. Our PyroThin product is an ultra-thin,
lightweight and flexible thermal barrier designed with other functional layers
to impede the propagation of thermal runaway across multiple lithium-ion battery
system architectures. Our thermal barrier technology is designed to offer a
unique combination of thermal management, mechanical performance and fire
protection properties that enable electric vehicle manufacturers to achieve
critical battery performance and safety goals. In addition, we are seeking to
leverage our patented carbon aerogel technology to develop industry-leading
battery materials for use in lithium-ion battery cells.

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These battery materials have the potential to increase the energy density of the battery cells, thus enabling an increase in the driving range of electric vehicles.


The commercial potential for our PyroThin thermal barriers and our carbon
aerogel battery materials in the electric vehicle market is significant.
Accordingly, we are hiring additional personnel, incurring additional operating
expenses, incurring significant capital expenditures to expand manufacturing
capacity, build an automated thermal barrier fabrication operation, enhance
research and development resources and construct a battery materials facility,
among other items.

We also derive product revenue from a number of other end markets, including the
sustainable building materials market. Customers in these markets use our
products for applications as diverse as wall systems, military and commercial
aircraft, trains, buses, appliances, apparel, footwear and outdoor gear. As we
continue to enhance our aerogel technology platform, we believe we will have
additional opportunities to address high-value applications in the global
insulation market, the electric vehicle market and in a number of new,
high-value markets.

We generate product revenue through the sale of our line of aerogel blankets and
thermal barriers. We market and sell our products primarily through a sales
force based in North America, Europe and Asia. The efforts of our sales force
are supported by a small number of sales consultants with extensive knowledge of
a particular market or region. Our sales force is responsible for establishing
and maintaining customer and partner relationships, delivering highly technical
information and ensuring high-quality customer service.

Our salespeople work directly with end-use customers and engineering firms to
promote the qualification, specification and acceptance of our products. We also
rely on an existing and well-established channel of qualified insulation
distributors and contractors in more than 50 countries around the world to
ensure rapid delivery of our products and strong end-user support.

We also perform research services under contracts with various agencies of the
U.S. government, including the Department of Defense and the Department of
Energy, and other institutions. We have decided to cease efforts to secure
additional funded research contracts and to wind down our existing contract
research activities. This decision reflected our desire to focus our research
and development resources on initiatives to improve the profitability of our
existing business and on efforts to develop new products and next-generation
technologies with application in new, potentially high-value markets.

We manufacture our products using our proprietary technology at our facility in
East Providence, Rhode Island. We have operated the East Providence facility
since 2008 and have increased our annual capacity in phases to approximately 55
million square feet of aerogel blankets. To meet expected growth in demand for
our aerogel products in the energy, sustainable building and electric vehicle
markets, we are planning to expand our aerogel blanket capacity by constructing
a second manufacturing plant at a site in the southeastern U.S. Subject to board
approval, finalization of zoning approvals and other arrangements, we expect to
have the second aerogel plant operational during the second half of 2023. In
addition, we are planning to construct a state-of-the-art, automated thermal
barrier fabrication operation and to hire dedicated thermal barrier fabrication
employees in Mexico in order to keep pace with the significant potential demand
for our PyroThin thermal barriers.

We have entered into production contracts with a major U.S. automotive original
equipment manufacturer to supply fabricated, multi-part thermal barriers for use
in the battery system of its next-generation electric vehicles. Pursuant to the
contracts, we are obligated to supply the barriers at fixed annual prices and at
volumes to be specified by the customer up to a daily maximum quantity through
the term of the agreements, which expire at various times from 2026 through
2034. While the customer has agreed to purchase its requirement for the barriers
from us at locations to be designated from time to time, it has no obligation to
purchase any minimum quantity of barriers under the contracts. In addition, the
customer may terminate the contracts any time and for any or no reason. All
other terms of the contracts are generally consistent with the customer's
standard purchase terms, including quality and warranty provisions customary in
the automotive industry.

We have been engaged in a strategic partnership with BASF to develop and
commercialize products for the sustainable building materials and other markets.
The strategic partnership includes a supply agreement governing the exclusive
sale of specified products to BASF and a joint development agreement targeting
innovative products and technologies. BASF has no obligation to purchase any
products under the supply agreement. Pursuant to the supply agreement, BASF may,
in its sole discretion, make prepayments to us in the aggregate amount of up to
$22.0 million during the term of the agreement. We may repay the prepayments to
BASF at any time in whole or in part for any reason.

BASF made a prepayment to us of $5.0 million during 2018. As of January 1, 2019,
25.3% of any amounts that we invoice for Spaceloft A2 sold to BASF will be
credited against the outstanding balance of the 2018 prepayment. If any amount
of the 2018 prepayment remains uncredited at December 31, 2021, BASF may require
that we repay the uncredited amount following a six-week notice period. In
January 2019, BASF made an additional prepayment to us of $5.0 million. As of
January 1, 2020, 50% of any

                                       19
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amounts that we invoice for a newly developed product sold to BASF will be
credited against the outstanding balance of the 2019 prepayment. After December
31, 2022, BASF may require that we credit 24.7% of any amounts we invoice for
Spaceloft A2 sold to BASF against the outstanding balance of the 2019 prepayment
or may require that we repay the uncredited amount following a six-week notice
period.

In October 2021, we announced with BASF that BASF will discontinue further
marketing of Spaceloft A2 effective November 15, 2021. After this date, BASF
customers will be able to purchase Spaceloft A2 directly from us. We are
currently working with BASF to terminate certain provisions of the supply and
joint development agreements other than those governing the prepayments. Subject
to finalization, approval and execution of pertinent amendments to the
agreements, we expect we will be solely responsible for future development and
commercialization of the specified products in the sustainable building
materials and other markets. In addition, we expect the uncredited prepayment
balances at the time of the execution of the amendments would remain outstanding
and subject to repayment upon BASF's request and following the requisite
six-week notice periods after December 31, 2021 and December 31, 2022,
respectively.

On March 12, 2021, we entered into an Amended and Restated Loan and Security
Agreement (Loan Agreement) with Silicon Valley Bank to extend the maturity date
of the revolving credit facility to April 28, 2022. Pursuant to the Loan
Agreement, we are permitted to borrow a maximum of $20.0 million, subject to
continued covenant compliance and borrowing base requirements. The interest rate
applicable to borrowings under the revolving credit facility is based on the
prime rate, as defined, subject to a minimum rate of 4.00% per annum. The rates
applicable to borrowings vary from prime rate plus 0.75% per annum to prime rate
plus 2.00% per annum. In addition, we are required to pay a monthly unused
revolving line facility fee of 0.50% per annum of the average unused portion of
the revolving credit facility. The credit facility has also been amended to
establish minimum Adjusted EBITDA and minimum Adjusted Quick Ratio covenants,
each as defined in the Loan Agreement. On September 29, 2021, the Company
entered into an amendment to the Loan Agreement to revise certain financial
covenants, among other things.

On May 1, 2020, our wholly owned subsidiary, Aspen Aerogels Rhode Island, LLC
(Borrower), executed a note for an unsecured loan of $3.7 million pursuant to
the Paycheck Protection Program (PPP Loan) under the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act), as amended, and administered by the U.S.
Small Business Administration (SBA). The Borrower conferred with representatives
of the SBA prior to finalizing the PPP Loan. The loan was unsecured, contained
customary events of default, carried an interest rate of 1% per year, and
matured on May 1, 2022. The Borrower had the right to repay the loan at any time
without penalty. In addition, the Borrower was permitted at any time to submit
an application to extend the maturity of the loan to May 1, 2025.

On August 24, 2021, the SBA remitted $3.7 million in principal and less than
$0.1 million in accrued interest after approving the Borrower's application for
forgiveness of the PPP Loan under the provisions of the CARES Act. Accordingly,
we recorded a total gain on the extinguishment of debt of $3.7 million during
the quarter ended September 30, 2021.

On February 3, 2021, we entered into a supply agreement (Supply Agreement) with
Silbond Corporation (Silbond), for the purchase of certain silanes (Product).
Pursuant to the Supply Agreement, we agreed to purchase, and Silbond agreed to
supply, all of our requirements for the Product at our East Providence facility
through the term of the Supply Agreement, which term ends on September 30, 2023,
unless either party terminates the agreement early pursuant to the terms of the
Supply Agreement.

On June 29, 2021, we entered into a securities purchase agreement (Purchase
Agreement) with an affiliate of Koch Strategic Platforms (Purchaser). Pursuant
to the terms of the Purchase Agreement, we sold to the Purchaser an aggregate of
3,462,124 shares of our common stock at a purchase price equal to $21.663 per
share, for aggregate gross proceeds of approximately $75.0 million (the Private
Placement).

Our revenue for the nine months ended September 30, 2021 was $90.1 million,
which represented an increase of $12.8 million, or 17%, from $77.3 million for
the nine months ended September 30, 2020. Net loss for the nine months ended
September 30, 2021 was $20.7 million and net loss per share was $0.70. Net loss
for the nine months ended September 30, 2020 was $15.6 million and net loss per
share was $0.60.

At present, we are not certain of the extent of the impact that the COVID-19
pandemic will continue to have on our business. Our manufacturing facility
remains operational and we have not encountered any significant disruption to
our supply chain or our ability to deliver to our customers.

In response to the COVID-19 pandemic, we have implemented and are following safe
practices recommended by public health authorities and other government
entities. We continue to focus on the safety and health of our employees,
customers and vendors. In addition, we have implemented various precautionary
measures, including remote work arrangements, restricted business travel and
procedures for social distancing, face coverings and safe hygiene. We continue
to monitor public health guidance as it evolves and

                                       20

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plan to adapt our practices as appropriate. Refer to "Risk Factors" in Item 1A of the Annual Report for more information concerning risks to our business associated with COVID-19.

Key Metrics and Non-GAAP Financial Measures


We regularly review a number of metrics, including the following key metrics, to
evaluate our business, measure our performance, identify trends affecting our
business, formulate financial projections and make strategic decisions.

Square Foot Operating Metric


We price our product and measure our product shipments in square feet. We
estimate our annual capacity was approximately 55 million square feet of aerogel
blankets at September 30, 2021. We believe the square foot operating metric
allows us and our investors to measure our manufacturing capacity and product
shipments on a uniform and consistent basis. The following chart sets forth
product shipments in square feet associated with recognized revenue, including
revenue recognized over time utilizing the input method, for the periods
presented:



                                     Three Months Ended          Nine Months Ended
                                        September 30,              September 30,
                                      2021          2020         2021          2020
                                                    (In thousands)

Product shipments in square feet 9,012 6,825 27,526

   22,307


Adjusted EBITDA

We use Adjusted EBITDA, a non-GAAP financial measure, as a means to assess our
operating performance. We define Adjusted EBITDA as net income (loss) before
interest expense, taxes, depreciation, amortization, stock-based compensation
expense and other items, from time to time, which we do not believe are
indicative of our core operating performance. Adjusted EBITDA is a supplemental
measure of our performance that is not presented in accordance with U.S. GAAP.
Adjusted EBITDA should not be considered as an alternative to net income (loss)
or any other measure of financial performance calculated and presented in
accordance with U.S. GAAP. In addition, our definition and presentation of
Adjusted EBITDA may not be comparable to similarly titled measures presented by
other companies.

We use Adjusted EBITDA:

• as a measure of operating performance because it does not include the

impact of items that we do not consider indicative of our core operating

performance;

• for planning purposes, including the preparation of our annual operating

        budget;


    •   to allocate resources to enhance the financial performance of our
        business; and


  • as a performance measure used under our bonus plan.


We also believe that the presentation of Adjusted EBITDA provides useful
information to investors with respect to our results of operations and in
assessing the performance and value of our business. Various measures of EBITDA
are widely used by investors to measure a company's operating performance
without regard to items that can vary substantially from company to company
depending upon financing and accounting methods, book values of assets, capital
structures and the methods by which assets were acquired.

Although measures similar to Adjusted EBITDA are frequently used by investors
and securities analysts in their evaluation of companies, we understand that
Adjusted EBITDA has limitations as an analytical tool, and you should not
consider it in isolation or as a substitute for net income (loss), income (loss)
from operations, net cash provided by (used in) operating activities or an
analysis of our results of operations as reported under U.S. GAAP. Some of these
limitations are:

    •   Adjusted EBITDA does not reflect our historical cash expenditures or
        future requirements for capital expenditures or other contractual
        commitments;

• Adjusted EBITDA does not reflect changes in, or cash requirements for, our

        working capital needs;


  • Adjusted EBITDA does not reflect stock-based compensation expense;


    •   Adjusted EBITDA does not reflect our income tax expense or cash
        requirements to pay our income taxes;


                                       21
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    •   Adjusted EBITDA does not reflect our interest expense, or the cash
        requirements necessary to service interest or principal payments on our
        debt;

• although depreciation, amortization and impairment charges are non-cash

charges, the assets being depreciated, amortized or impaired will often

have to be replaced in the future, and Adjusted EBITDA does not reflect

any cash requirements for these replacements; and

• other companies in our industry may calculate EBITDA or Adjusted EBITDA

differently than we do, limiting their usefulness as a comparative

measure.



Because of these limitations, our Adjusted EBITDA should not be considered as a
measure of discretionary cash available to us to reinvest in the growth of our
business or as a measure of cash available for us to meet our obligations.

To properly and prudently evaluate our business, we encourage you to review the
U.S. GAAP financial statements included elsewhere in this Quarterly Report on
Form 10-Q, and not to rely on any single financial measure to evaluate our
business.

The following table presents a reconciliation of net loss, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA for the periods presented:



                                   Three Months Ended           Nine Months Ended
                                      September 30,               September 30,
                                    2021          2020         2021          2020
                                                   (In thousands)
Net loss                         $   (7,822 )   $ (6,753 )   $ (20,741 )   $ (15,620 )
Depreciation and amortization         2,114        2,545         6,856      

7,670

Stock-based compensation(1)           1,554          991         3,600      

2,990

Gain on extinguishment of debt (3,734 ) - (3,734 )

        -
Interest expense                         58           49           188           182
Adjusted EBITDA                  $   (7,830 )   $ (3,168 )   $ (13,831 )   $  (4,778 )




             (1) Represents non-cash stock-based compensation related
                 to vesting and modifications of stock option grants,
                 vesting of restricted stock units and vesting of
                 restricted common stock.


Our financial performance, including such measures as net income (loss),
earnings per share and Adjusted EBITDA, are affected by a number of factors
including volume and mix of aerogel products sold, average selling prices, our
material costs and manufacturing expenses, the costs associated with capacity
expansions and start-up of additional production capacity, and the amount and
timing of operating expenses. Accordingly, we expect that our net income (loss),
earnings per share and Adjusted EBITDA will vary from period to period.

During 2021, we are projecting growth in total revenue principally due to an
anticipated increase in maintenance-based demand in the refinery and chemical
market, growth in the European sustainable building materials market and initial
thermal barrier revenue in the electric vehicle market. We have also increased
prices to offset an increase in raw material costs during 2021 that will
contribute to revenue growth.

However, we intend to increase our investment in the electric vehicle market and
our aerogel technology platform in 2021. We will use this investment to
accelerate thermal barrier business development, to establish industry-leading
thermal barrier fabrication capability, to progress from the development phase
to the commercialization phase of our silicon-rich carbon aerogel battery
materials, and to identify additional high-value markets for our aerogel
technology, among other items. As a result, we expect to experience a decrease
in Adjusted EBITDA and an increase in net loss in 2021 versus 2020.

Components of Our Results of Operations

Revenue


We recognize product revenue from the sale of our line of aerogel products and
research services revenue from the provision of services under contracts with
various agencies of the U.S. government and other institutions. Product and
research services revenue is recognized upon the satisfaction of contractual
performance obligations.

                                       22
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We record deferred revenue for product sales when (i) we have delivered products, but other revenue recognition criteria have not been satisfied, or (ii) payments have been received in advance of the completion of required performance obligations.


During 2021, we are projecting growth in total revenue principally due to an
anticipated increase in maintenance-based demand in the refinery and chemical
market, growth in the European sustainable building materials market and initial
thermal barrier revenue in the electric vehicle market. We have also announced a
price increase to offset an increase in raw material costs during 2021 that will
contribute to revenue growth.

Cost of Revenue

Cost of product revenue consists primarily of materials and manufacturing expense. Cost of product revenue is recorded when the related product revenue is recognized.


Material is our most significant component of cost of product revenue and
includes fibrous batting, silica materials and additives. Material costs as a
percentage of product revenue vary from product to product due to differences in
average selling prices, material requirements, product thicknesses and
manufacturing yields. In addition, we provide warranties for our products and
record the estimated cost within cost of revenue in the period that the related
revenue is recorded or when we become aware that a potential warranty claim is
probable and can be reasonably estimated. As a result of these factors, material
costs as a percentage of product revenue will vary from period to period due to
changes in the mix of aerogel products sold, the costs of our raw materials or
the estimated cost of warranties. In addition, global supply chain disturbances,
increased reliance on foreign materials procurement, industrial gas supply
constraints, increases in the cost of our raw materials, and other factors may
significantly impact our material costs and have a material impact on our
operations. We expect that material costs will increase both in absolute dollars
and as a percentage of revenue during 2021 due to (i) projected growth in
product shipments, (ii) the impact of projected growth in PyroThin thermal
barrier revenue, and (iii) recent increases in the costs of our raw materials.

Manufacturing expense is also a significant component of cost of revenue.
Manufacturing expense includes labor, utilities, maintenance expense, and
depreciation on manufacturing assets. Manufacturing expense also includes
stock-based compensation for manufacturing employees and shipping costs. We
expect that manufacturing expense will increase in absolute dollars and as a
percentage of revenue during 2021, principally due to our plan to hire
additional personnel and incur additional manufacturing expenses to establish
fabrication operations in support of projected growth in PyroThin thermal
barrier demand.

In total, we expect that cost of product revenue will increase in absolute dollars during 2021 versus 2020 and as a percentage of revenue versus 2020.


Cost of research services revenue consists of direct labor costs of research
personnel engaged in the contract research, third-party consulting and
subcontractor expense, and associated direct material costs. This cost of
revenue also includes overhead expenses associated with project resources,
development tools and supplies. Cost of research services revenue is recorded
when the related research services revenue is recognized. In 2021, we expect
cost of research services revenue will continue to decline as we wind down our
existing contract research activities.

Gross Profit


Our gross profit as a percentage of revenue is affected by a number of factors,
including the volume of aerogel products produced and sold, the mix of aerogel
products sold, average selling prices, our material and manufacturing costs,
realized capacity utilization and the costs associated with expansions and
start-up of production capacity. Accordingly, we expect our gross profit in
absolute dollars and as a percentage of revenue to vary significantly from
period to period.

During 2021, we project that gross profit will grow in absolute dollars versus
2020 due to projected growth in total revenue, offset, in part, by increases in
manufacturing expense and material costs. We expect that gross profit as a
percentage of revenue will decrease modestly during 2021 due to the projected
increase in material costs and manufacturing expense in support of projected
growth in PyroThin thermal barrier revenue

Operating Expenses


Operating expenses consist of research and development, sales and marketing, and
general and administrative expenses. Operating expenses include personnel costs,
legal fees, professional fees, service fees, insurance premiums, travel expense,
facilities related costs and other costs, expenses and fees. The largest
component of our operating expenses is personnel costs, consisting of salaries,
benefits, incentive compensation and stock-based compensation. In any particular
period, the timing and extent of personnel

                                       23

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additions or reductions, legal activities, including patent enforcement actions,
marketing programs, research efforts and a range of similar activities or
actions could materially affect our operating expenses, both in absolute dollars
and as a percentage of revenue.

During 2021, we are hiring additional personnel and incurring additional
operating expenses to support the anticipated multi-year growth in our PyroThin
thermal barrier business. In addition, we have recently encountered worker
shortages and experienced increased wages within the labor market for our
production personnel. Accordingly, (i) personnel-related expenses may exceed our
expectations and (ii) labor shortages may have a material impact on our
operations. As a result, we expect that operating expenses will continue to
increase in both absolute dollars and as a percentage of revenue during the
year. In the longer term, we expect that operating expenses will increase in
absolute dollars, but decrease as a percentage of revenue.

Research and Development Expenses


Research and development expenses consist primarily of expenses for personnel
engaged in the development of next-generation aerogel compositions, form factors
and manufacturing technologies. These expenses also include testing services,
prototype expenses, consulting services, trial formulations for new products,
equipment depreciation, facilities costs and related overhead. We expense
research and development costs as incurred. We expect to continue to devote
substantial resources to the development of new aerogel technologies, including
our carbon aerogel battery materials. We believe that these investments are
necessary to maintain and improve our competitive position. We also expect to
continue to invest in research and engineering personnel and the infrastructure
required in support of their efforts.

While we expect our research and development expenses will increase in absolute
dollars but decrease as a percentage of revenue in the longer term, we expect
these expenses will increase in both absolute dollars and as a percentage of
revenue in 2021.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel costs, incentive
compensation, marketing programs, travel and related costs, consulting expenses
and facilities related costs.

We expect that sales and marketing expenses will increase in absolute dollars
and as a percentage of revenue during 2021, principally due to an increase in
compensation associated with the addition of personnel in support of our
PyroThin thermal barrier business. In the longer term, we expect that sales and
marketing expenses will increase in absolute dollars, but decrease as a
percentage of revenue.

General and Administrative Expenses


General and administrative expenses consist primarily of personnel costs, legal
expenses, consulting and professional services, audit and tax consulting costs,
and expenses for our executive, finance, legal, human resources and information
technology organizations. General and administrative expenses have increased as
we have incurred additional costs related to operating as a publicly-traded
company, which include costs of compliance with securities, corporate governance
and related laws and regulations, investor relations expenses, increased
insurance premiums, including director and officer insurance, and increased
audit and legal fees.

We expect our general and administrative expenses to increase as we add general
and administrative personnel to support the anticipated growth of our business.
We also expect that the patent enforcement actions, described in more detail
under "Legal Proceedings" in Part II, Item 1 of this Quarterly Report on Form
10-Q, if protracted, could result in significant legal expense over the medium
to long-term. While we expect that our general and administrative expenses will
increase in absolute dollars but decrease as a percentage of revenue in the
longer term, we expect such expenses will increase in both absolute dollars and
as a percentage of revenue in 2021.

Gain on Extinguishment of Debt


On May 1, 2020, our wholly-owned subsidiary, Aspen Aerogels Rhode Island, LLC,
executed a note for an unsecured PPP loan of $3.7 million pursuant to the CARES
Act. On August 24, 2021, the SBA remitted $3.7 million in principal and accrued
interest to the noteholder after approving the Borrower's application for
forgiveness of the PPP Loan. Accordingly, we recorded a total gain on the
extinguishment of debt of $3.7 million during the three months ended September
30, 2021.

                                       24
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Interest Expense, Net

Interest expense, net consists primarily of fees and interest expense related to our revolving credit facility.

Provision for Income Taxes


We have incurred net losses since inception and have not recorded benefit
provisions for U.S. federal income taxes or state income taxes since the tax
benefits of our net losses have been offset by valuation allowances due to the
uncertainty associated with the utilization of net operating loss carryforwards.

Results of Operations

Three months ended September 30, 2021 compared to the three months ended September 30, 2020

The following tables set forth a comparison of the components of our results of operations for the periods presented:

Revenue

                                              Three Months Ended September 30,
                                             2021                            2020                         Change
                                                   Percentage                    Percentage
                                   Amount          of Revenue       Amount       of Revenue      Amount       Percentage
                                                                     ($ in thousands)
Revenue:
Product                          $   30,263                100 %   $ 23,939               99 %   $ 6,324               26 %
Research services                       117                  0 %        256                1 %      (139 )            (54 )%
Total revenue                    $   30,380                100 %   $ 24,195              100 %   $ 6,185               26 %


The following chart sets forth product shipments in square feet associated with
recognized revenue, including revenue recognized over time utilizing the input
method, for the periods presented:

                                             Three Months Ended September 30,                    Change
                                               2021                     2020            Amount        Percentage
Product shipments in square feet (in
thousands)                                          9,012                    6,825         2,187               32 %


Total revenue increased $6.2 million, or 26%, to $30.4 million for the three
months ended September 30, 2021 from $24.2 million in the comparable period in
2020. The increase in total revenue was the result of an increase in product
revenue.

Product revenue increased by $6.4 million, or 26%, to $30.3 million for the
three months ended September 30, 2021 from $23.9 million in the comparable
period in 2020. This increase was principally driven by growth in the refinery
and chemical markets, particularly in the United States and Europe, offset, in
part, by a decrease in project-based demand in the liquefied natural gas (LNG)
market.

Product revenue for the three months ended September 30, 2021 included $8.1
million to a North American distributor. Product revenue for the three months
ended September 30, 2020 included $5.2 million to an Asian LNG project
contractor, $4.2 million to a North American distributor and $3.0 million to a
subsea contractor.

The average selling price per square foot of our products decreased by $0.15, or
4%, to $3.36 per square foot for the three months ended September 30, 2021 from
$3.51 per square foot for the three months ended September 30, 2020. The
decrease in average selling price principally reflected the impact of a change
in the mix of products sold. This decrease in average selling price had the
effect of decreasing product revenue by $1.3 million for the three months ended
September 30, 2021 from the comparable period in 2020.

In volume terms, product shipments increased by 2.2 million square feet, or 32%,
to 9.0 million square feet of aerogel products for the three months ended
September 30, 2021, as compared to 6.8 million square feet for the three months
ended September 30, 2020. The increase in product volume had the effect of
increasing product revenue by $7.7 million for the three months ended
September 30, 2021 from the comparable period in 2020.

                                       25

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Research services revenue was $0.1 million for the three months ended September 30, 2021 and $0.3 million in the comparable period in 2020. The decline in research services revenue reflected our decision to wind down our existing contract research activities.

Cost of Revenue

                                                            Three Months Ended September 30,
                                                  2021                                            2020                                 Change
                                             Percentage       Percentage                     Percentage       Percentage
                                             of Related        of Total                      of Related        of Total
                                Amount        Revenue           Revenue         Amount        Revenue          Revenue        Amount       Percentage
                                                                                  ($ in thousands)
Cost of revenue:
Product                        $ 27,279               90 %              90 %   $ 22,243               93 %             92 %   $ 5,036               23 %
Research services                    34               29 %               0 %         52               20 %              0 %       (18 )            (35 )%
Total cost of revenue          $ 27,313               90 %              90 %   $ 22,295               92 %             92 %   $ 5,018               23 %


Total cost of revenue increased $5.0 million, or 23%, to $27.3 million for the three months ended September 30, 2021 from $22.3 million in the comparable period in 2020. The increase in total cost of revenue was the result of an increase in product cost of revenue.


Product cost of revenue increased by $5.1 million, or 23%, to $27.3 million for
the three months ended September 30, 2021 from $22.2 million in the comparable
period in 2020. The $5.1 million increase was the result of a $1.9 million
increase in material costs and a $3.2 million increase in manufacturing expense.
The increase in material costs was principally the result of the 2.2 million
square feet, or 32%, increase in total product shipments. The increase in
manufacturing expense was the result of increases in compensation and related
expenses of $2.5 million, operating supplies of $0.4 million, professional
services of $0.2 million and other manufacturing expenses of $0.1 million.

Product cost of revenue as a percentage of product revenue decreased to 90%
during the three months ended September 30, 2021 from 93% during the three
months ended September 30, 2020. This decrease was principally the result of the
decrease in material costs as a percentage of revenue during the three months
ended September 30, 2021.

Research services cost of revenue was less than $0.1 million for both the three months ended September 30, 2021 and 2020.

Gross Profit

                                                Three Months Ended September 30,
                                              2021                              2020                         Change
                                                    Percentage                      Percentage
                                    Amount          of Revenue         Amount       of Revenue      Amount       Percentage
                                                                       ($ in thousands)
Gross profit                      $    3,067                 10 %     $   1,900               8 %   $ 1,167               61 %


Gross profit increased by $1.2 million, or 61%, to $3.1 million for the three
months ended September 30, 2021 from $1.9 million in the comparable period in
2020. The increase in gross profit was the result of the $6.2 million increase
in total revenue, offset, in part, by the $5.0 million increase in total cost of
revenue. The increase in revenue was principally driven by growth in the
refinery and chemical markets, particularly in the United States and Europe,
offset, in part, by a decrease in project-based demand in the LNG market. The
increase in total cost of revenue was the result of the $1.9 million increase in
material costs associated with the 2.2 million square feet, or 32%, increase in
total product shipments and the $3.2 million increase in manufacturing expense
during 2021.

Gross profit as a percentage of total revenue increased to 10% of total revenue
for the three months ended September 30, 2021 from 8% in the comparable period
in 2020.

                                       26
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Research and Development Expenses

                                                 Three Months Ended September 30,
                                                2021                             2020                        Change
                                                      Percentage                    Percentage
                                      Amount          of Revenue        Amount      of Revenue       Amount       Percentage
                                                                        ($ in thousands)
Research and development expenses   $    3,077                 10 %     $ 2,088               9 %   $    989               47 %


Research and development expenses increased by $1.0 million, or 47%, to $3.1
million for the three months ended September 30, 2021 from $2.1 million in the
comparable period in 2020. The $1.0 million increase reflects an increase in
compensation and related costs of $0.7 million and other research and
development expenses of $0.3 million.

Research and development expenses as a percentage of total revenue increased to
10% for the three months ended September 30, 2021 from 9% in the comparable
period in 2020 due principally to increases in personnel and expenditures to
support our carbon aerogel battery materials initiative.

Sales and Marketing Expenses

                                                Three Months Ended September 30,
                                               2021                             2020                        Change
                                                     Percentage                    Percentage
                                     Amount          of Revenue       Amount       of Revenue      Amount       Percentage
                                                                       ($ in thousands)
Sales and marketing expenses       $    4,915                 16 %    $ 2,755               11 %   $ 2,160               78 %


Sales and marketing expenses increased by $2.1 million, or 78%, to $4.9 million
for the three months ended September 30, 2021 from $2.8 million in the
comparable period in 2020. The $2.1 million increase was principally the result
of increases in compensation and related costs of $2.0 million and
travel-related and other expenditures of $0.3 million, offset, in part, by a
decrease in sales consultant expenses of $0.2 million.

Sales and marketing expenses as a percentage of total revenue increased to 16%
for the three months ended September 30, 2021 from 11% in the comparable period
in 2020, due principally to the increase in compensation and related expenses
associated with an increase in sales and business development personnel.

General and Administrative Expenses

                                                   Three Months Ended September 30,
                                                  2021                             2020                        Change
                                                        Percentage                    Percentage
                                        Amount          of Revenue       Amount       of Revenue      Amount       Percentage
                                                                          ($ in thousands)
General and administrative expenses   $    6,573                 22 %    $ 3,761               16 %   $ 2,812               75 %


General and administrative expenses increased by $2.8 million, or 75%, to $6.6
million for the three months ended September 30, 2021 from $3.8 million in the
comparable period in 2020. The $2.8 million increase was the result of increases
in compensation and related costs of $1.8 million, recruiting and professional
services of $0.6 million, and other general and administrative expenses of $0.6
million, offset, in part, by a decrease in the provision for uncollectible
accounts of $0.2 million.

General and administrative expenses as a percentage of total revenue increased
to 22% for the three months ended September 30, 2021 from 16% in the comparable
period in 2020.

Gain on Extinguishment of Debt


On May 1, 2020, our wholly-owned subsidiary, Aspen Aerogels Rhode Island, LLC,
executed a note for an unsecured PPP loan of $3.7 million pursuant to the CARES
Act. On August 24, 2021, the SBA remitted $3.7 million in principal and accrued
interest to the noteholder after approving the Borrower's application for
forgiveness of the PPP Loan. Accordingly, we recorded a total gain on the
extinguishment of debt of $3.7 million during the three months ended September
30, 2021.

                                       27
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Interest Expense, net

                                                 Three Months Ended September 30,
                                              2021                               2020                          Change
                                                   Percentage                        Percentage
                                    Amount         of Revenue           Amount       of Revenue        Amount       Percentage
                                                                         ($ in thousands)
Interest expense, net              $    (58 )               (0 )%      $    (49 )             (0 )%   $     (9 )             18 %

Interest expense, net, consists primarily of fees and interest expense associated with our revolving credit agreement and was less than $0.1 million for both the three months ended September 30, 2021 and 2020.

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

The following tables set forth a comparison of the components of our results of operations for the periods presented:

Revenue

                                                   Nine Months Ended September 30,
                                                2021                               2020                          Change
                                                    Percentage of                    Percentage of
                                     Amount            Revenue          Amount          Revenue          Amount       Percentage
                                                                          ($ in thousands)
Revenue:
Product                            $   89,809                  100 %   $ 76,772                  99 %   $ 13,037               17 %
Research services                         338                    0 %        483                   1 %       (145 )            (30 )%
Total revenue                      $   90,147                  100 %   $ 77,255                 100 %   $ 12,892               17 %


The following chart sets forth product shipments in square feet for the periods
presented:



                                              Nine Months Ended September 30,                  Change
                                                2021                  2020            Amount        Percentage
Product shipments in square feet (in
thousands)                                          27,526                22,307         5,219               23 %


                                       28
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Total revenue increased $12.8 million, or 17%, to $90.1 million for the nine
months ended September 30, 2021 from $77.3 million in the comparable period in
2020. The increase in total revenue was the result of an increase in product
revenue.

Product revenue increased by $13.0 million, or 17%, to $89.8 million for the
nine months ended September 30, 2021 from $76.8 million in the comparable period
in 2020. This increase was principally driven by growth in the global refinery
and chemical markets, particularly in the United States and Europe, offset, in
part, by decreases in project-based revenue in the LNG market.

Product revenue for the nine months ended September 30, 2021 included $25.0
million to a North American distributor and $9.2 million to a European LNG
project contractor. Product revenue for the nine months ended September 30, 2020
included $15.3 million to an Asian LNG project contractor and $13.6 million to a
North American distributor.

The average selling price per square foot of our products decreased by $0.18, or
5%, to $3.26 per square foot for the nine months ended September 30, 2021 from
$3.44 per square foot for the nine months ended September 30, 2020. The decrease
in average selling price principally reflected the impact of a change in the mix
of products sold for the nine months ended September 30, 2021 from the
comparable period in 2020. This decrease in average selling price had the effect
of decreasing product revenue by $5.0 million for the nine months ended
September 30, 2021 from the comparable period in 2020.

In volume terms, product shipments increased by 5.2 million square feet, or 23%,
to 27.5 million square feet of aerogel products for the nine months ended
September 30, 2021, as compared to 22.3 million square feet for the nine months
ended September 30, 2020. The increase in product volume had the effect of
increasing product revenue by $18.0 million for the nine months ended
September 30, 2021 from the comparable period in 2020.

Research services revenue was $0.3 million and $0.5 million for the nine months
ended September 30, 2021 and September 30, 2020, respectively. The decline in
research services revenue reflected our decision to wind down our existing
contract research activities.

Cost of Revenue

                                                                 Nine Months Ended September 30,
                                                       2021                                           2020                                 Change
                                                  Percentage       Percentage                    Percentage       Percentage
                                                  of Related        of Total                     of Related        of Total
                                     Amount        Revenue          Revenue         Amount        Revenue          Revenue         Amount       Percentage
                                                                                       ($ in thousands)
Cost of revenue:
Product                             $ 78,459               87 %             87 %   $ 66,403               86 %             86 %   $ 12,056               18 %
Research services                         85               25 %              0 %        121               25 %              0 %        (36 )            (30 )%
Total cost of revenue               $ 78,544               87 %             87 %   $ 66,524               86 %             86 %   $ 12,020               18 %


Total cost of revenue increased $12.0 million, or 18%, to $78.5 million for the
nine months ended September 30, 2021 from $66.5 million in the comparable period
in 2020. The increase in total cost of revenue was principally the result of an
increase in product cost of revenue.

Product cost of revenue increased $12.1 million, or 18%, to $78.5 million for
the nine months ended September 30, 2021 from $66.4 million in the comparable
period in 2020. The $12.1 million increase was the result of a $6.3 million
increase in material costs and a $5.8 million increase in manufacturing expense.
The increase in material costs was driven principally by the 5.2 million square
feet, or 23%, increase in product shipments. The increase in manufacturing
expense was the result of increases in compensation and related expenses of $4.0
million, operating supplies of $1.0 million, maintenance costs of $0.5 million
and other expenses of $0.3 million.

Product cost of revenue as a percentage of product revenue increased to 87%
during the nine months ended September 30, 2021 from 86% during the nine months
ended September 30, 2020. This increase was the result of the increase in both
material costs and manufacturing expense as a percentage of revenue during the
nine months ended September 30, 2021.

Research services cost of revenue was approximately $0.1 million for both the nine months ended September 30, 2021 and 2020.

                                       29

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Gross Profit

                                                 Nine Months Ended September 30,
                                                2021                            2020                         Change
                                                      Percentage                    Percentage
                                     Amount           of Revenue       Amount       of Revenue       Amount      Percentage
                                                                       ($ in thousands)
Gross profit                       $    11,603                 13 %   $ 10,731               14 %   $    872               8 %


Gross profit increased $0.8 million, or 8%, to $11.6 million for the nine months
ended September 30, 2021 from $10.7 million in the comparable period in 2020.
The increase in gross profit was the result of the $12.8 million increase in
total revenue, offset, in part, by the $12.0 million increase in total cost of
revenue. The increase in revenue was driven principally by the 23% increase in
product shipments. The increase in total cost of revenue was driven by the $6.3
million increase in material costs and the $5.8 million increase in
manufacturing expense.

Gross profit as a percentage of total revenue decreased to 13% of total revenue
for the nine months ended September 30, 2021 from 14% in the comparable period
in 2020.

Research and Development Expenses

                                                 Nine Months Ended September 30,
                                                2021                            2020                        Change
                                                      Percentage                   Percentage
                                      Amount          of Revenue       Amount      of Revenue      Amount       Percentage
                                                                       ($ in thousands)
Research and development expenses   $     8,128                 9 %    $ 6,436               8 %   $ 1,692               26 %


Research and development expenses increased $1.7 million, or 26%, to $8.1
million for the nine months ended September 30, 2021 from $6.4 million in the
comparable period in 2020. The $1.7 million increase was the result of increases
in compensation and related costs of $1.3 million and other research and
development expenses of $0.4 million.

Research and development expenses as a percentage of total revenue was 9% for
the nine months ended September 30, 2021 from 8% in the comparable period in
2020.

Sales and Marketing Expenses

                                                 Nine Months Ended September 30,
                                                2021                             2020                        Change
                                                      Percentage                    Percentage
                                     Amount           of Revenue       Amount       of Revenue      Amount       Percentage
                                                                       ($ in thousands)
Sales and marketing expenses       $    11,784                  13 %   $ 9,051               12 %   $ 2,733               30 %


Sales and marketing expenses increased by $2.7 million, or 30%, to $11.8 million
for the nine months ended September 30, 2021 from $9.1 million in the comparable
period in 2020. The $2.7 million increase was the result of increases in
compensation and related expenses of $3.2 million and other sales related
expenses of $0.3 million, offset, in part, by decreases in sales consultant
costs of $0.7 million and travel related expenses of $0.1 million.

Sales and marketing expenses as a percentage of total revenue was 13% for the nine months ended September 30, 2021 versus 12% in the comparable period in 2020.

General and Administrative Expenses

                                                    Nine Months Ended September 30,
                                                   2021                            2020                         Change
                                                         Percentage                    Percentage
                                        Amount           of Revenue       Amount       of Revenue      Amount       Percentage
                                                                          ($ in thousands)
General and administrative expenses   $    15,978                 18 %   $ 10,682               14 %   $ 5,296               50 %


                                       30
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General and administrative expenses increased by $5.3 million, or 50%, to $16.0
million during the nine months ended September 30, 2021 from $10.7 million in
the comparable period in 2020. The $5.3 million increase was the result of an
increase in compensation and related expenses of $2.9 million, recruiting and
professional services of $1.9 million, and other general and administrative
expenses of $1.0 million, offset, in part, by a decrease in the provision for
uncollectible accounts of $0.5 million.

General and administrative expenses as a percentage of total revenue increased
to 18% of total revenue for the nine months ended September 30, 2021 from 14%
during the comparable period in 2020.

Gain on Extinguishment of Debt


On May 1, 2020, our wholly owned subsidiary, Aspen Aerogels Rhode Island, LLC,
executed a note for an unsecured PPP loan of $3.7 million pursuant to the CARES
Act. On August 24, 2021, the SBA remitted $3.7 million in principal and accrued
interest after approving the Borrower's application for forgiveness of the PPP
Loan. Accordingly, we recorded a total gain on the extinguishment of debt of
$3.7 million during the nine months ended September 30, 2021.

Interest Expense, net

                                                 Nine Months Ended September 30,
                                               2021                             2020                          Change
                                                    Percentage                      Percentage
                                    Amount          of Revenue         Amount       of Revenue        Amount      Percentage
                                                                        ($ in thousands)
Interest expense, net              $    (188 )               (0 )%    $   (182 )             (0 )%   $     (6 )             3 %

Interest expense, net, consists primarily of fees and interest expense associated with our revolving credit agreement and was approximately $0.2 million during both the nine months ended September 30, 2021 and 2020.

Liquidity and Capital Resources

Overview


We have experienced significant losses and invested substantial resources since
our inception to develop, commercialize and protect our aerogel technology and
to build a manufacturing infrastructure capable of supplying aerogel products at
the volumes and costs required by our customers. These investments have included
research and development and other operating expenses, capital expenditures and
investment in working capital balances.

Through 2015, we experienced revenue growth and gained share in our target markets. Despite a decline in revenue in 2016, 2017 and 2018, our financial projections anticipated long-term revenue growth, increasing levels of gross profit and improved cash flow from operations. To support this growth, we increased the capacity of our East Providence, Rhode Island manufacturing facility in phases to approximately 55 million square feet of aerogel blankets.


To meet expected demand growth for our aerogel products in the energy,
sustainable building and electric vehicle markets, we are planning to expand our
aerogel blanket capacity by constructing a second manufacturing plant at a site
in the southeastern U.S. Subject to board approval, finalization of zoning
approvals and other arrangements, we expect to have the second aerogel plant
operational during the second half of 2023. In addition, we are planning to
construct a state-of-the-art, automated thermal barrier fabrication operation
and to hire dedicated thermal barrier fabrication employees at potential sites
in Mexico in order to keep pace with the significant potential demand for our
PyroThin thermal barriers.

We are also increasing our investment in the research and development of
next-generation aerogel products and technologies. During 2021, we will continue
to develop aerogel products and technologies for the electric vehicle market. We
believe the commercial potential for our technology in the electric vehicle
market is significant. Accordingly, we are hiring additional personnel,
incurring additional operating expenses, and plan to construct a carbon aerogel
battery materials facility, among other items.

We took several actions during 2020 to increase the financial resources
available to support current operating requirements and capital expenditures. In
February 2020, we completed an underwritten public offering of our common stock
and received net proceeds of $14.8 million. In March 2020, we extended the
maturity of our revolving credit facility with Silicon Valley Bank to April 28,
2021. In May 2020, our wholly owned subsidiary, Aspen Aerogels Rhode Island,
LLC, received PPP Loan proceeds of $3.7 million under

                                       31

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the CARES Act. During November and December 2020, we also sold shares of our common stock through our at-the-market offering program and received net proceeds of $9.5 million.


During the nine months ended September 30, 2021, we sold shares of our common
stock through our at-the-market offering program and received net proceeds of
$19.4 million. In June 2021, we sold 3,462,124 shares to an affiliate of Koch
Strategic Platforms in a private placement of our common stock and received net
proceeds of $73.5 million. In addition, during September 2021, the SBA remitted
$3.7 million in principal and accrued interest after approving Aspen Aerogels
Rhode Island, LLC's application for forgiveness of the PPP Loan under the
provisions of the CARES Act.

We believe that our existing cash balance of $95.5 million and funds available under our revolving credit facility will be sufficient to support current operating requirements, current research and development activities and the initial capital expenditures required to support the evolving commercial opportunities in the electric vehicle market and other strategic business opportunities.


However, we plan to supplement our cash balance and available credit with equity
financings, debt financings, customer prepayments or technology licensing fees
to provide the additional capital necessary to purchase the capital equipment,
construct the new facilities and complete the aerogel capacity expansions
required to support our evolving commercial opportunities and strategic business
initiatives. We also intend to extend or replace our revolving credit facility
with Silicon Valley Bank prior to its maturity.

Primary Sources of Liquidity


Our principal sources of liquidity are currently our cash and cash equivalents
and our revolving credit facility with Silicon Valley Bank. Cash and cash
equivalents consist primarily of cash and money market accounts on deposit with
banks. As of September 30, 2021, we had $95.5 million of cash and cash
equivalents.

On February 18, 2020, we completed an underwritten public offering of 1,955,000
shares of our common stock at an offering price of $8.25 per share. We received
net proceeds of $14.8 million after deducting underwriting discounts and
commissions of $1.1 million and offering expenses of approximately $0.3
million.

On November 5, 2020, we entered into a sales agreement for an ATM offering
program under which we could sell up to $33,871,250 of our common stock through
B. Riley Securities as our sales agent. We were not obligated to sell any stock
under the sales agreement. We agreed to pay B. Riley Securities a commission of
3.0% of the gross sales proceeds of shares sold under the agreement. During
2020, we sold 714,357 shares of our common stock through the ATM offering
program and received net proceeds of $9.5 million. During the nine months ended
September 30, 2021, we sold an additional 929,981 shares of our common stock
through the ATM offering program and received net proceeds of $19.4 million.

On June 29, 2021, we sold 3,462,124 shares to an affiliate of Koch Strategic
Platforms in a private placement of our common stock and received net proceeds
of $73.5 million after deducting fees and offering expenses of $1.5 million.

On May 1, 2020, our wholly-owned subsidiary, Aspen Aerogels Rhode Island, LLC
(Borrower) executed a note for a loan of $3.7 million pursuant to the PPP under
the CARES Act, as amended, and administered by the SBA. On August 24, 2021, the
SBA remitted $3.7 million in principal and accrued interest pursuant to the
Borrower's application for forgiveness of the PPP Loan under the provisions of
the CARES Act.

We have a prepayment balance of $9.7 million associated with prepayments received pursuant to our supply agreement with BASF.


We have maintained our revolving credit facility, as amended from time to time,
with Silicon Valley Bank since March 2011. On March 12, 2021, we amended and
restated our revolving credit facility with Silicon Valley Bank to extend the
maturity date of the revolving credit facility to April 28, 2022 and to
establish certain minimum Adjusted EBITDA and minimum Adjusted Quick Ratio
covenants. We intend to extend or replace the facility prior to its maturity.

Under our revolving credit facility, we may borrow a maximum of $20.0 million,
subject to continued covenant compliance and borrowing base requirements. The
interest rate applicable to borrowings under the revolving credit facility is
based on the prime rate, as defined, subject to a minimum rate of 4.00% per
annum. The rates applicable to borrowings vary from prime rate plus 0.75% per
annum to prime rate plus 2.00% per annum. In addition, we are required to pay a
monthly unused revolving line facility fee of 0.50% per annum of the average
unused portion of the revolving credit facility.

                                       32

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As of September 30, 2021, we had no outstanding borrowings under our revolving
credit facility and $1.3 million of outstanding letters of credit secured by the
revolving credit facility.

Under the revolving credit facility, we are required to comply with both non-financial and financial covenants, including minimum Adjusted EBITDA and Adjusted Quick Ratio covenants, as defined in the loan agreement. As of September 30, 2021, we were in compliance with all such covenants.

The amount available to us under the revolving credit facility as of September 30, 2021 was $9.5 million after giving effect to the $1.3 million of letters of credit outstanding.

Analysis of Cash Flow

Net Cash Used in Operating Activities


During the nine months ended September 30, 2021, we used $6.6 million in net
cash in operating activities, as compared to the use of $4.8 million in net cash
during the comparable period in 2020, an increase in the use of cash of $1.8
million. This increase in use of cash was the result of an increase in net loss
adjusted for non-cash items of $9.0 million, offset, in part, by an increase in
net cash provided by changes in operating assets and liabilities of $7.2
million.

Net Cash Used in Investing Activities


Net cash used in investing activities is primarily related to capital
expenditures to support our growth. Net cash used in investing activities for
the nine months ended September 30, 2021 and 2020 was $6.1 million and $2.6
million, respectively, for capital expenditures primarily for machinery and
equipment to improve the capacity, throughput, efficiency and reliability of our
East Providence manufacturing facility.

Net Cash Provided by Financing Activities


Net cash provided by financing activities for the nine months ended
September 30, 2021 totaled $91.7 million and consisted of $73.5 million in net
proceeds from the private placement of our common stock, $19.4 million in net
proceeds from the ATM offering program, and $1.5 million in proceeds from
employee stock option exercises, offset, in part, by $2.7 million in cash used
for payments made for employee tax withholdings associated with the vesting of
restricted stock units.

Net cash provided by financing activities for the nine months ended September
30, 2020 totaled $15.1 million and consisted of $19.4 million in borrowings
under our line of credit, $14.8 million in net proceeds from an underwritten
public offering of our common stock, $3.7 million in net proceeds from the
issuance of long-term debt, and $1.0 million in proceeds from employee stock
option exercises, offset, in part, by $22.6 million of repayments under our line
of credit and $1.2 million in cash used for payments made for employee tax
withholdings associated with the vesting of restricted stock units.

Off Balance Sheet Arrangements

Since inception, we have not engaged in any off balance sheet activities as defined in Item 303(a)(4) of Regulation S-K.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations and commitments as reported in our Annual Report.

Recent Accounting Pronouncements

Information regarding new accounting pronouncements is included in note 2 to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.

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Critical Accounting Policies and Estimates


Our financial statements are prepared in accordance with U.S. GAAP. The
preparation of our financial statements and related disclosures requires us to
make estimates, assumptions and judgments that affect the reported amount of
assets, liabilities, revenue, costs and expenses and related disclosures. We
believe that the estimates, assumptions and judgments involved in these
accounting policies have the greatest potential impact on our financial
statements and, therefore, we consider these to be our critical accounting
policies. Accordingly, we evaluate our estimates and assumptions on an ongoing
basis. Our actual results may differ from these estimates under different
assumptions and conditions. See our Annual Report and note 2 to our consolidated
financial statements included elsewhere in this Quarterly Report on Form 10-Q
for information about these critical accounting policies, as well as a
description of our other significant accounting policies.

Certain Factors That May Affect Future Results of Operations


The SEC encourages companies to disclose forward-looking information so that
investors can better understand a company's future prospects and make informed
investment decisions. This Quarterly Report on Form 10-Q contains such
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks,
uncertainties and other important factors, which may cause our actual results,
performance or achievements to be materially different from any future results,
performances or achievements expressed or implied by the forward-looking
statements. Forward-looking statements include, but are not limited to,
statements about: our beliefs in the appropriateness of our assumptions, the
accuracy of our estimates regarding expenses, loss contingencies, future
revenues, future profits, uses of cash, available credit, capital requirements,
and the need for additional financing to operate our business, including to
complete the planned capacity expansion of our East Providence manufacturing
facility, and to fund our planned strategic business initiatives; the
performance of our aerogel blankets; our expectation that we will be successful
in obtaining, enforcing and defending our patents against competitors and that
such patents are valid and enforceable; our belief that our products possess
strong competitive advantages over traditional insulation materials, including
the superior thermal performance and the thin, easy-to-use and durable blanket
form of our products; our plans to expand capacity in our East Providence, Rhode
Island manufacturing facility; our estimates of annual production capacity; our
plans regarding the future capacity expansion, including the selection of a
manufacturing site and the construction and operation of the facility; our
ability to obtain approvals and terms that are acceptable to move forward with
the construction of a facility in the southeastern U.S. on a timely basis, or at
all; beliefs about the role of our technology and products in the electric
vehicle market; beliefs about the commercial potential for our technology in the
electric vehicle market; beliefs about our ability to produce and deliver
products to electric vehicle customers; beliefs about Aspen's contracts with the
major U.S. automotive manufacturer; beliefs about the potential for the major
U.S. automotive manufacturer to become a significant customer for Aspen's
products; beliefs about revenue, costs, expenses, profitability, investments or
cash flow associated with the contracts with the major U.S. automotive
manufacturer; beliefs about the performance of our thermal barrier products in
the battery systems of electric vehicles; beliefs about the potential commercial
opportunity for Aspen's thermal barrier products; our beliefs about the
usefulness of the square foot operating metric; our beliefs about the financial
metrics that are indicative of our core performance; our beliefs about the
usefulness of our presentation of Adjusted EBITDA; our expectations about the
effect of manufacturing capacity on financial metrics such as Adjusted EBITDA;
our expectations about future revenues, expenses, gross profit, net loss, loss
per share and Adjusted EBITDA, sources and uses of cash, capital requirements
and the sufficiency of our existing cash balance and available credit; our
beliefs about the outcome, effects or estimated costs of current or potential
litigation or their respective timing, including expected legal expense in
connection with our patent enforcement actions; our plans to devote substantial
resources to the development of new aerogel technology; our expectations about
product mix; our expectations about future material costs and manufacturing
expenses as a percentage of revenue; our expectations of future gross profit and
the effect of manufacturing expenses, manufacturing capacity and productivity on
gross profit; our expectations about our resources and other investments in new
technology and related research and development activities and associated
expenses; our expectations about short and long term (a) research and
development (b) general and administrative and (c) sales and marketing expenses;
our expectations of revenue growth, increased gross profit, and improving cash
flows over the long term; our intentions about managing capital expenditures and
working capital balances; our expectations about incurring significant capital
expenditures in the future; our expectations about the expansion of our
workforce and resources and its effect on sales and marketing, general and
administrative, and related expenses; our expectations about future product
revenue and demand for our products; our expectations about the effect of stock
based compensation on various costs and expenses; our expectations about
potential sources of future financing; our beliefs about the impact of
accounting policies on our financial statements; our beliefs about the effect of
interest rates, inflation and foreign currency fluctuations on our results of
operations and financial condition; our beliefs about the expansion of our
international operations; our statements about the impact of major public health
concerns, including the COVID-19 pandemic or other pandemics arising globally,
and the future, and currently unknown extent of, the impact of the COVID-19
pandemic on our business and operations; and our statements about the
sufficiency of our current and future actions to address the impact of the
COVID-19 pandemic on our business and operations, including our future revenue,
Adjusted EBITDA and other financial metrics.

                                       34

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Words such as "may," "will," "anticipate," "estimate," "expects," "projects,"
"intends," "plans," "believes" and words and terms of similar substance used in
connection with any discussion of future operating or financial performance,
identify forward-looking statements. All forward-looking statements are
management's present expectations of future events and are subject to a number
of risks and uncertainties that could cause actual results to differ materially
and adversely from those described in the forward-looking statements. These
risks include, but are not limited to, those set forth in this Quarterly Report
on Form 10-Q and under the heading "Risk Factors" contained in Item 1A of our
Annual Report.

In light of these assumptions, risks and uncertainties, the results and events
discussed in the forward-looking statements contained in this Quarterly Report
on Form 10-Q might not occur. Stockholders and other readers are cautioned not
to place undue reliance on the forward-looking statements, which speak only as
of the date of this Quarterly Report on Form 10-Q. We are not under any
obligation, and we expressly disclaim any obligation, to update or alter any
forward-looking statements, whether as a result of new information, future
events or otherwise. All subsequent forward-looking statements attributable to
Aspen Aerogels, Inc. or to any person acting on its behalf are expressly
qualified in their entirety by the cautionary statements contained or referred
to in this section.

© Edgar Online, source Glimpses

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