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ASPEN AEROGELS, INC.

(ASPN)
  Report
Real-time Estimate Cboe BZX  -  02:14 2022-10-06 pm EDT
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09/06Aspen Aerogels to Participate in 15th Annual Cowen Global Transportation & Sustainable Mobility Virtual Conference
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08/09Aspen Aerogels : IR Presentation
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ASPEN AEROGELS INC Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/04/2022 | 04:24pm EDT
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, 2021, filed
with the U.S. Securities and Exchange Commission (SEC) on March 1, 2022, 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.

Products

Our core businesses are organized into two reportable segments: Energy Industrial and Thermal Barrier. The following describes our key product offerings and new product innovations by reportable segment.

Energy Industrial


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-user 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. Our Spaceloft building materials are increasingly
used by building owners to improve the energy efficiency and to enhance fire
protection in buildings ranging from historic brownstones to modern high rises.

We also derive revenue from a number of other end markets. Customers in these
markets use our products for applications as diverse as 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

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insulation market, the electric vehicle market and in a number of new, high-value markets, including hydrogen energy, filtration, water purification, and gas sorption.

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-user customers and engineering firms to
promote the qualification, specification and acceptance of our aerogel and
thermal barrier 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 aerogel products and
strong end-user support.

Thermal Barrier

We are 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 aerogel 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. These properties 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. 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 aerogel
manufacturing capacity, establishing an automated thermal barrier fabrication
operation, enhancing research and development resources and expanding our
battery material research facilities, among other items.

We have entered into production contracts with certain major OEMs, including
General Motors LLC (GM) to supply fabricated, multi-part thermal barriers for
use in the battery system of its next-generation electric vehicles. Pursuant to
the contracts with GM, 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 GM 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, GM may terminate the contracts any time and for any or no reason. All
other terms of the contracts are generally consistent with GM's standard
purchase terms, including quality and warranty provisions customary in the
automotive industry.

Manufacturing Operations


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 capacity in phases to approximately $250.0
million in annual revenue. To meet expected growth in demand for our aerogel
products in the electric vehicle market, we are planning to expand our aerogel
blanket capacity by constructing a second manufacturing plant in Bulloch County,
Georgia.

On February 17, 2022, we entered into an Inducement Agreement with the
Development Authority of Bulloch County (the Development Authority), the City of
Statesboro, Bulloch County, Georgia (collectively, Statesboro Entities).
Pursuant to the Inducement Agreement, the Statesboro Entities will provide
various incentives to induce us to invest at least $325.0 million in
constructing and equipping our second manufacturing facility in Bulloch County,
Georgia and to create at least 250 full-time jobs. Separately, and concurrently,
the Company entered into a Memorandum of Understanding (the MOU) with the
Georgia Department of Economic Development (the GDEcD). Pursuant to both the
Inducement Agreement and the MOU, the Local Governmental Entities and the GDEcD
will provide various incentives to induce the Company to invest at least $325.0
million in constructing and equipping a facility to produce aerogel-based
products in Bulloch County, Georgia and to create at least 250 full-time jobs
(the Project). We will also receive statutory incentives for economic
development provided by the State of Georgia. Incentives afforded by the
Statesboro Entities to us include, but are not limited to, property tax
reductions and utility and site infrastructure improvements for the Project.
Additionally, the Development Authority, with assistance from the GDEcD, will
also apply for a grant, the proceeds of which shall be used by us for certain
equipment in connection with the Project. The Development Authority will lease
to us an approximately 90-acre property along with buildings and equipment to be
built therein, for a term of five years, with an option to renew for an
additional

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5 years, in consideration for the payment of nominal rent, and grant to us an option to purchase the property upon the earlier of the expiration or termination of the lease at a nominal price.


In addition, we entered into a (i) PILOT Agreement with the Statesboro Entities
that sets forth our rights and obligations with respect to the incentives
received pursuant to the Inducement Agreement and (ii) a Performance and
Accountability Agreement with other state authorities, which provides for a
grant of $1,000,000. Pursuant to these agreements, in the event that we fail to
meet at least 80% of the investment and job creation goals within 36 months
following the earlier to occur of (i) the completion and issuance of the
certificate of occupancy with respect to the planned second manufacturing
facility or (ii) December 31, 2024 (the Commencement Date), we may be required
to repay portions of property tax savings, the grant to the Development
Authority and other incentives. In addition, we must maintain our achievement of
80% of the investment and job creation goals for a period of 60 months
thereafter.

We expect to build the second plant in two phases at an estimated cost of $575.0
million for the first phase and $125.0 million for the second phase. We
currently expect the first phase of the plant will increase our annual revenue
capacity by approximately $650.0 million and the second phase by approximately
$700.0 million. We expect to have the first phase of the second plant
operational late in the second-half of 2023. In addition, we are constructing a
state-of-the-art, automated thermal barrier fabrication operation in Monterrey,
Mexico in order to keep pace with the significant potential demand for our
PyroThin thermal barriers.

Financial Summary


On February 18, 2022, we sold and issued to an affiliate of Koch $100.0 million
in aggregate principal amount of our Convertible Senior PIK Toggle Notes due
2027 (the Notes), pursuant to a note purchase agreement, dated as of February
15, 2022, by and between us and the affiliate of Koch. The Notes bear interest
at the Secured Overnight Financing Rate (SOFR) plus 5.50% per annum if interest
is paid in cash (the Cash Interest), or, if interest is paid in kind (through an
increase in the principal amount of the outstanding Notes or through the
issuance of additional Notes), at SOFR plus 6.50% per annum (PIK Interest).
Under the terms of the investment, SOFR has a floor of 1% and a cap of 3%. We
can elect to make any interest payment through Cash Interest, PIK Interest or
any combination thereof. Interest on the Notes is payable semi-annually in
arrears on June 30 and December 30, commencing on June 30, 2022. It is expected
that the Notes will mature on February 18, 2027, subject to earlier conversion,
redemption or repurchase.

On March 28, 2022, we sold to an affiliate of Koch 1,791,986 shares of our common stock for aggregate gross proceeds of $50.0 million, pursuant to a securities purchase agreement, dated as of February 15, 2022, by and between us and the affiliate of Koch.


On March 16, 2022, we entered into a sales agreement for an at-the-market (ATM)
offering program with Cowen and Company, LLC as our sales agent. During the six
months ended June 30, 2022, we sold 882,288 shares of our common stock, through
the ATM offering program and received net proceeds of $28.1 million, after
deducting commissions and estimated offering expenses payable by us.

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, subject to a minimum rate of 4.00% per annum, plus a margin. 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. At various dates in 2021, and
subsequently on March 31, 2022 and April 28, 2022, we entered into amendments to
the Loan Agreement to revise certain financial covenants, among other things. On
June 23, 2022, the Loan Agreement was amended to extend the maturity date of the
revolving credit facility to August 26, 2022.

Our revenue for the six months ended June 30, 2022 was $84.0 million, which
represented an increase of $24.2 million, or 41%, from $59.8 million for the six
months ended June 30, 2021. Net loss for the six months ended June 30, 2022 was
$43.5 million and net loss per share was $1.27. Net loss for the six months
ended June 30, 2021 was $12.9 million and net loss per share was $0.46.

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 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.

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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 energy industrial product and measure our shipments in square feet.
We believe the square foot operating metric allows us and our investors to
measure our manufacturing capacity and energy industrial product shipments on a
uniform and consistent basis. The following chart sets forth energy industrial
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          Six Months Ended
                                          June 30,                   June 30,
                                      2022          2021         2022         2021
                                                   (In thousands)

Product shipments in square feet 9,200 9,830 17,363

  18,444


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;


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


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• 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           Six Months Ended
                                       June 30,                    June 30,
                                   2022          2021         2022          2021
                                    (In thousands)              (In thousands)
Net loss                        $  (24,050 )   $ (6,669 )   $ (43,534 )   $ (12,919 )
Depreciation and amortization        2,032        2,104         4,161       

4,742

Stock-based compensation(1) 2,295 1,070 4,123

   2,046
Interest expense                     1,404           55         2,264           130
Adjusted EBITDA                 $  (18,319 )   $ (3,440 )   $ (32,986 )   $  (6,001 )



             (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.

We expect growth in revenue during 2022 driven by a continued post-COVID
recovery in the energy infrastructure market, accelerating demand in the
electric vehicle market and continued market share gains in the sustainable
building materials market. Our expectation to maintain revenue growth is based,
in part, on our original equipment manufacturer (OEM) customers' production
volume forecasts and targets as well as our expectation to successfully scale
our manufacturing capabilities and address any potential supply chain issues to
meet this expected demand. We are also planning a significant increase in
staffing and spending levels in support of our electric vehicle market
opportunities during the year, including expenses associated with the start-up
and operation of an automated fabrication facility in Monterrey, Mexico and the
initial staffing and operational requirements of our planned second aerogel
manufacturing facility in Bulloch County, Georgia. As a result, we expect to
experience an increase in net loss and a decrease in Adjusted EBITDA during
2022.

We also expect to incur significant capital expenditures and increased expenses
during the remainder of 2022, related to our planned second aerogel
manufacturing facility to be located in Bulloch County, Georgia. We are planning
to invest approximately $700.0 million in two phases in the construction of the
second facility. We expect to have the first phase of the second plant
operational late in the second-half of 2023.

Components of Our Results of Operations

Revenue


We recognize revenue from the sale of our energy industrial aerogel products and
thermal barriers. Revenue is recognized upon the satisfaction of contractual
performance obligations.

We record deferred revenue for 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.

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We project revenue growth during 2022 due to a continued post-COVID recovery in
the energy infrastructure market, accelerating demand in the electric vehicle
market for our thermal barrier product and continued market share gains in the
sustainable building materials market. Our projected revenue growth may be
constrained by a shortage of unskilled labor associated with the COVID-19
pandemic.

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 energy industrial 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. In May 2022, one of our silanes suppliers,
Silbond Corporation, informed us that it needs to curtail supply of one of the
silanes we use, such that we may not receive all of our requirements in the near
term due to difficulties in arranging transportation of the silanes to us. We
are currently working with our supplier to identify and obtain an adequate
supply of silanes or otherwise fill the shortage. We are also exploring other
potential options for obtaining transportation and supply, including potentially
from other third parties including from Asia or by arranging transportation of
silanes ourselves. However, there can be no assurance that we will be able to
obtain sufficient supplies of silanes in a timely matter, which could result in
material adverse impacts on our business and our financial condition. We expect
that material costs will increase in absolute dollars during 2022 due to
projected growth in product shipments, but decrease as a percentage of revenue
due to projected increases in average selling prices, improved manufacturing,
and fabrication yields and a favorable mix of products sold.

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.
Manufacturing expense is our most significant component of cost of our thermal
barrier product revenue. We expect that manufacturing expense will increase in
absolute dollars and as a percentage of revenue during 2022 due to increased
manual fabrication staffing and spending levels in support of our thermal
barrier business, including the start-up and operation of a fabrication facility
in Monterrey, Mexico and the initial staffing and operational requirements of
our planned second aerogel manufacturing facility in Bulloch County, Georgia.

In total, we expect that cost of product revenue will increase in absolute dollars during 2022 versus 2021 and as a percentage of revenue versus 2021 driven by the costs to support our expected higher run-rate revenue in future periods.


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 to vary
significantly in absolute dollars and as a percentage of revenue from period to
period.

During 2022, we expect gross profit to increase in both absolute dollars and as
a percentage of total revenue due to the combination of a projected increase in
total revenue combined with projected reduction in material costs as a
percentage of total revenue related to our energy industrial products, offset,
in part, by a projected increase in manufacturing expense as a percentage of
revenue primarily related to our thermal barrier business.

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

                                       26
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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 2022, we expect to continue to hire additional technical, operational and
commercial personnel and incur additional operating expenses to support the
anticipated multi-year growth in our PyroThin thermal barrier business. As a
result, we expect that operating expenses will 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, in 2022, we expect these expenses will
increase in both absolute dollars and as a percentage of revenue.

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 2022
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 fees, compliance with securities, corporate governance and related laws and regulations, investor relations expenses and insurance premiums, including director and officer insurance.


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 I, Item 3 of our Annual Report on Form 10-K
for the year ended December 31, 2021, 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, in 2022, we expect such expenses will
increase in both absolute dollars and as a percentage of revenue.

Interest Expense, Net

Interest expense, net consists of interest expense on our convertible note and 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.

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Results of Operations

Three months ended June 30, 2022 compared to the three months ended June 30, 2021

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

Revenue

                                               Three Months Ended June 30,
                                           2022                          2021                          Change
                                               Percentage                    Percentage
                                  Amount       of Revenue       Amount       of Revenue       Amount       Percentage
                                                                    ($ in thousands)
Revenue:
Energy industrial                $ 34,877               76 %   $ 31,458               99 %   $  3,419                11 %
Thermal barrier                    10,763               24 %        212                1 %     10,551                NM
Total revenue                    $ 45,640              100 %   $ 31,670              100 %   $ 13,970                44 %


Total revenue increased $14.0 million, or 44%, to $45.6 million for the three
months ended June 30, 2022 from $31.6 million in the comparable period in 2021.
The increase in total revenue was the result of increases in both thermal
barrier and energy industrial revenue.

The following chart sets forth energy industrial 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 June 30,                  Change
                                             2022                2021            Amount        Percentage
Product shipments in square feet (in
thousands)                                       9,200               9,830           (630 )             (6 )%


Energy industrial revenue increased by $3.4 million, or 11%, to $34.9 million
for the three months ended June 30, 2022 from $31.5 million in the comparable
period in 2021. This increase was driven by project-based demand in the subsea
market in addition to an increase in maintenance-based demand in the Asia global
petrochemical and refinery markets offset by a decrease in Europe.

Energy industrial revenue for the three months ended June 30, 2022 included $9.3
million to a North American distributor. Energy industrial revenue for the three
months ended June 30, 2021 included $9.6 million to a North American distributor
and $3.7 million to a European LNG project contractor.

The average selling price per square foot of our energy industrial products
increased by $0.59, or 18%, to $3.79 per square foot for the three months ended
June 30, 2022 from $3.20 per square foot for the three months ended June 30,
2021. The increase in average selling price principally reflected the impact of
a change in the mix of products sold. This increase in average selling price had
the effect of increasing product revenue by $5.4 million for the three months
ended June 30, 2022 from the comparable period in 2021.

In volume terms, energy industrial product shipments decreased by 0.6 million
square feet, or 6%, to 9.2 million square feet for the three months ended
June 30, 2022, as compared to 9.8 million square feet for the three months ended
June 30, 2021. The decrease in volume had the effect of decreasing product
revenue by $2.0 million for the three months ended June 30, 2022 from the
comparable period in 2021.

Thermal barrier revenue was $10.8 million for the three months ended June 30,
2022 as compared to $0.2 million for the three months ended June 30, 2021.
Thermal barrier revenue for the three months ended June 30, 2022 included $7.4
million to a major U.S. automotive OEM and $1.9 million to a major Asian
automotive OEM.

                                       28
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Cost of Revenue

                                                               Three Months Ended June 30,
                                                   2022                                           2021                                 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:
Energy industrial               $ 28,893               83 %             63
%   $ 25,660               82 %             81 %   $  3,233               13 %
Thermal barrier                   17,958              167 %             39 %      1,430               NM                5 %     16,528               NM
Total cost of revenue           $ 46,851              103 %            103 %   $ 27,090               86 %             86 %   $ 19,761               73 %


Total cost of revenue increased $19.8 million, or 73%, to $46.9 million for the
three months ended June 30, 2022 from $27.1 million in the comparable period in
2021. The increase in total cost of revenue was the result of increases in
thermal barrier and energy industrial cost of revenue.

Energy industrial cost of revenue increased $3.2 million, or 13%, to $28.9
million for the three months ended June 30, 2022 from $25.7 million in the
comparable period in 2021. The $3.2 million increase was the result of a $6.2
million increase in material costs to support the 11% increase in energy
industrial revenue from the comparable period in 2021, offset by a $3.0 million
decrease in manufacturing and other operating costs.

Thermal barrier cost of revenue increased $16.6 million to $18.0 million for the
three months ended June 30, 2022 as compared to $1.4 million for the three
months ended June 30, 2021. The $16.6 million increase was the result of a $4.9
million increase in material costs and an $11.7 million increase in
manufacturing. The increase in material costs was the result of the increase in
revenue volume from the comparable period in 2021 in which there were minimal
thermal barrier sales. The increase in manufacturing was driven by increases in
compensation and related costs of $7.8 million and other manufacturing and
operating costs of $3.9 million.

Gross Profit

                                                 Three Months Ended June 30,
                                            2022                            2021                         Change
                                                Percentage                      Percentage
                                   Amount       of Revenue        Amount        of Revenue       Amount      Percentage
                                                                     ($ in thousands)
Gross profit:
Energy industrial                 $  5,984               17 %    $   5,798               18 %   $    186               3 %
Thermal barrier                     (7,195 )            (67 )%      (1,218 )             NM       (5,977 )            NM
Total gross (loss) profit         $ (1,211 )             (3 )%   $   4,580               14 %   $ (5,791 )          (126 )%


Gross profit decreased by $5.8 million, or 126%, to $(1.2) million for the three
months ended June 30, 2022 from $4.6 million in the comparable period in 2021.
The decrease in gross profit was the result of the $19.8 million increase in
total cost of revenue, offset, in part, by the $14.0 million increase in total
revenue. The decrease in gross profit reflects the increase in overhead costs
and additional resources to support our expected higher run-rate revenue in
future periods for both our energy industrial and thermal barrier products.

Research and Development Expenses

                                                  Three Months Ended June 30,
                                                2022                          2021                        Change
                                                     Percentage                  Percentage
                                     Amount          of Revenue      Amount      of Revenue      Amount       Percentage
                                                                      ($ in thousands)
Research and development expenses   $   4,447                 10 %   $ 2,609               8 %   $ 1,838               70 %


Research and development expenses increased by $1.8 million, or 70%, to $4.4
million for the three months ended June 30, 2022 from $2.6 million in the
comparable period in 2021. The $1.8 million increase reflects an increase in
compensation and related costs of $0.8 million, equipment and lease expenses of
$0.6 million and other research and development expenses of $0.4 million.

                                       29
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Research and development expenses as a percentage of total revenue increased to 10% of total revenue for three months ended June 30, 2022 from 8% in the comparable period in 2021.

Sales and Marketing Expenses

                                                 Three Months Ended June 30,
                                              2022                           2021                        Change
                                                   Percentage                   Percentage
                                    Amount         of Revenue      Amount       of Revenue      Amount       Percentage
                                                                     ($ in thousands)
Sales and marketing expenses       $   7,633                17 %   $ 3,568               11 %   $ 4,065              114 %


Sales and marketing expenses increased by $4.0 million, or 114%, to $7.6 million
for the three months ended June 30, 2022 from $3.6 million in the comparable
period in 2021. The $4.0 million increase was principally the result of
increases in compensation and related costs of $2.2 million, operating supplies
expenses of $0.9 million, travel-related expenditures of $0.4 million, marketing
expenses of $0.2 million and other sales and marketing expenses of $0.3 million.

Sales and marketing expenses as a percentage of total revenue increased to 17%
for the three months ended June 30, 2022 from 11% in the comparable period in
2021, 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 June 30,
                                                 2022                           2021                        Change
                                                      Percentage                   Percentage
                                       Amount         of Revenue      Amount       of Revenue      Amount       Percentage
                                                                        ($ in thousands)
General and administrative expenses   $   9,355                20 %   $ 5,017               16 %   $ 4,338               86 %


General and administrative expenses increased by $4.3 million, or 86%, to $9.3
million for the three months ended June 30, 2022 from $5.0 million in the
comparable period in 2021. The $4.3 million increase was the result of increases
in compensation and related costs of $2.6 million, operating and lease expenses
of $1.0 million, professional fees of $0.6 million and other general and
administrative expenses of $0.1 million.

General and administrative expenses as a percentage of total revenue increased
to 20% for the three months ended June 30, 2022 from 16% in the comparable
period in 2021.

Interest Expense, net

                                                   Three Months Ended June 30,
                                               2022                             2021                       Change
                                                     Percentage                    Percentage
                                     Amount          of Revenue        Amount      of Revenue       Amount      Percentage
                                                                      ($ in thousands)
Interest expense:
Interest expense, related party    $    (1,550 )              (3 )%   $      -               -     $ (1,550 )           NM
Interest expense, net                      146                 0 %         (55 )             -          201             NM
Total interest expense, net        $    (1,404 )              (3 )%   $    (55 )             0 %   $ (1,349 )           NM


Interest expense, net increased by $1.3 million to $1.4 million for the three
months ended June 30, 2022 from less than $0.1 million in the comparable period
in 2021. The $1.3 million increase was the result of interest relating to our
Convertible Note.









                                       30
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Results of Operations

Six months ended June 30, 2022 compared to the six months ended June 30, 2021

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

Revenue


                                                      Six Months Ended June 30,
                                                2022                             2021                          Change
                                                  Percentage of                    Percentage of
                                     Amount          Revenue          Amount          Revenue          Amount       Percentage
                                                                         ($ in thousands)
Revenue:
Energy industrial                   $ 65,652                  78 %   $
59,455                  99 %   $  6,197               10 %
Thermal barrier                       18,395                  22 %        312                   1 %     18,083               NM
Total revenue                       $ 84,047                 100 %   $ 59,767                 100 %   $ 24,280               41 %


Total revenue increased $24.2 million, or 41%, to $84.0 million for the three
months ended June 30, 2022 from $59.8 million in the comparable period in 2021.
The increase in total revenue was the result of increases in both thermal
barrier and energy industrial revenue.

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

                                               Six Months Ended June 30,                   Change
                                               2022                2021           Amount        Percentage
Product shipments in square feet (in
thousands)                                        17,363              18,444        (1,081 )             (6 )%


Energy industrial revenue increased by $6.2 million, or 10%, to $65.7 million
for the six months ended June 30, 2022 from $59.5 million in the comparable
period in 2021. This increase was driven by maintenance-based demand in the
global petrochemical and refinery markets, particularly in Asia and North
America, due to the continued post-COVID recovery, project based demand in the
subsea market, offset, in part, by a maintenance-based demand in the global
petrochemical and refinery markets, particularly in Europe.

Energy industrial revenue for the six months ended June 30, 2022 included $20.2
million to a North American distributor. Energy industrial revenue for the six
months ended June 30, 2021 included $17.0 million to a North American
distributor and $8.8 million to a European LNG project contractor.

The average selling price per square foot of our energy industrial products
increased by $0.56, or 17%, to $3.78 per square foot for the six months ended
June 30, 2022 from $3.22 per square foot for the six months ended June 30, 2021.
The increase in average selling price principally reflected the impact of a
change in the mix of products sold. This increase in average selling price had
the effect of increasing product revenue by $9.7 million for the six months
ended June 30, 2022 from the comparable period in 2021.

In volume terms, energy industrial product shipments decreased by 1.1 million
square feet, or 6%, to 17.4 million square feet for the six months ended
June 30, 2022, as compared to 18.4 million square feet for the six months ended
June 30, 2021. The decrease in volume had the effect of decreasing product
revenue by $3.5 million the six months ended June 30, 2022 from the comparable
period in 2021.

Thermal barrier revenue was $18.4 million for the six months ended June 30, 2022
as compared to $0.3 million for the six months ended June 30, 2021. Thermal
barrier revenue for the six months ended June 30, 2022 included $13.6 million to
a major U.S. automotive OEM and $3.1 million to a major Asian automotive OEM.

                                       31
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Cost of Revenue

                                                                     Six Months Ended June 30,
                                                        2022                                           2021                                 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:
Energy industrial                    $ 56,671               86 %             67 %   $ 48,780               82 %             82 %   $  7,891               16 %
Thermal barrier                        30,375              165 %             36 %      2,451               NM                4 %     27,924               NM
Total cost of revenue                $ 87,046              104 %            104 %   $ 51,231               86 %             86 %   $ 35,815               70 %


Total cost of revenue increased $35.8 million, or 70%, to $87.0 million for the
six months ended June 30, 2022 from $51.2 million in the comparable period in
2021. The increase in total cost of revenue was the result of increases in
thermal barrier and energy industrial cost of revenue.

Energy industrial cost of revenue increased $7.9 million, or 16%, to $56.7 million for the six months ended June 30, 2022 from $48.8 million in the comparable period in 2021. The $7.9 million increase was the result of a $9.6 million increase in material costs to support the 10% increase in energy industrial revenue from the comparable period in 2021 and a $1.7 million decrease in manufacturing and other operating costs.


Thermal barrier cost of revenue increased $27.9 million to $30.4 million for the
six months ended June 30, 2022 as compared to $2.5 million in the comparable
period in 2021. The $27.9 million increase was the result of a $9.6 million
increase in material costs and an $18.3 million increase in manufacturing costs.
The increase in material costs was the result of the increase in revenue volume
from the comparable period in 2021 in which there were minimal thermal barrier
sales. The increase in manufacturing costs was driven by increases in
compensation and related costs of $14.3 million and other operating and
manufacturing costs of $4.0 million.

Gross Profit

                                                  Six Months Ended June 30,
                                             2022                            2021                         Change
                                                 Percentage                      Percentage
                                   Amount        of Revenue        Amount        of Revenue       Amount       Percentage
                                                                      ($ in thousands)
Gross profit:
Energy industrial                 $   8,981               14 %    $  10,675               18 %   $  (1,694 )           (16 )%
Thermal barrier                     (11,980 )            (65 )%      (2,139 )             NM        (9,841 )            NM
Total gross (loss) profit         $  (2,999 )             (4 )%   $   8,536               14 %   $ (11,535 )          (135 )%


Gross profit decreased by $11.5 million, or 135%, to $(3.0) million for the six
months ended June 30, 2022 from $8.5 million in the comparable period in 2021.
The decrease in gross profit was the result of the $35.8 million increase in
total cost of revenue, offset, in part, by the $24.2 million increase in total
revenue. The decrease in gross profit reflects the increase in overhead costs
and additional resources to support our expected higher run-rate revenue in
future periods for both our energy industrial and thermal barrier products.

Research and Development Expenses

                                                  Six Months Ended June 30,
                                               2022                         2021                        Change
                                                   Percentage                  Percentage
                                     Amount        of Revenue      Amount      of Revenue      Amount       Percentage
                                                                     ($ in thousands)
Research and development expenses   $   8,039               10 %   $ 5,051               8 %   $ 2,988               59 %


Research and development expenses increased by $3.0 million, or 59%, to $8.0
million for the six months ended June 30, 2022 from $5.0 million in the
comparable period in 2021. The $3.0 million increase reflects an increase in
compensation and related costs of $1.3 million, equipment and lease expenses of
$1.1 million and other research and development expenses of $0.6 million.

                                       32
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Research and development expenses as a percentage of total revenue increased to
10% for the six months ended June 30, 2022 from 8% in the comparable period in
2021.

Sales and Marketing Expenses

                                                 Six Months Ended June 30,
                                             2022                          2021                        Change
                                                 Percentage                   Percentage
                                    Amount       of Revenue      Amount       of Revenue      Amount       Percentage
                                                                    ($ in thousands)
Sales and marketing expenses       $ 13,651               16 %   $ 6,869               11 %   $ 6,782               99 %


Sales and marketing expenses increased by $6.8 million, or 99%, to $13.7 million
for the six months ended June 30, 2022 from $6.9 million in the comparable
period in 2021. The $6.8 million increase was principally the result of
increases in compensation and related costs of $4.3 million, operating supplies
expenses of $1.1 million, travel-related expenditures of $0.6 million, marketing
expenses of $0.4 million, and other sales and marketing expenses of $0.4
million.

Sales and marketing expenses as a percentage of total revenue increased to 16% for the six months ended June 30, 2022 from 11% in the comparable period in 2021, due principally to the increase in compensation and related expenses associated with an increase in sales and business development personnel.

General and Administrative Expenses

                                                    Six Months Ended June 30,
                                                2022                          2021                        Change
                                                    Percentage                   Percentage
                                       Amount       of Revenue      Amount       of Revenue      Amount       Percentage
                                                                       ($ in thousands)
General and administrative expenses   $ 16,581               20 %   $ 9,405               16 %   $ 7,176               76 %


General and administrative expenses increased by $7.2 million, or 76%, to $16.6
million for the six months ended June 30, 2022 from $9.4 million in the
comparable period in 2021. The $7.2 million increase was the result of increases
in compensation and related costs of $3.5 million, operating and lease expenses
of $2.1 million, an increase in professional fees of $0.8 million and other
general and administrative expenses of $0.8 million.

General and administrative expenses as a percentage of total revenue increased
to 20% for the six months ended June 30, 2022 from 16% in the comparable period
in 2021.

Interest Expense, net

                                                 Six Months Ended June 30,
                                             2022                           2021                        Change
                                                 Percentage                    Percentage
                                   Amount        of Revenue        Amount      of Revenue       Amount      Percentage
                                                                    ($ in thousands)
Interest expense:
Interest expense, related party   $  (2,369 )             (3 )%   $      -     $         -     $ (2,369 )            NM
Interest expense, net                   105                -          (130 )             -          235            (181 )%
Total interest expense, net       $  (2,264 )             (3 )%   $   (130 )             0 %   $ (2,134 )          1642 %


Interest expense, net increased by $2.1 million to $2.2 million for the six
months ended June 30, 2022 from $0.1 million in the comparable period in 2021.
The $2.1 million increase was the result of interest relating to our Convertible
Note.

                                       33
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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.

Our long-term financial projections anticipate revenue growth, increasing levels
of gross profit, and improved cash flows from operations. To meet expected
growth in demand for our aerogel products in the electric vehicle market, we are
planning to expand our aerogel blanket capacity by constructing a second
manufacturing plant in Bulloch County, Georgia. We expect to build the second
plant in two phases at an estimated cost of $575.0 million for the first phase
and $125.0 million for the second phase. We expect to have the first phase of
the second plant operational late in the second-half of 2023. In addition, we
are constructing and planning commence the operation of a state-of-the-art,
thermal barrier fabrication operation in Monterrey, Mexico during 2022 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 2022, 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. To meet the anticipated revenue growth and take advantage
of this market opportunity, we are adding personnel, incurring additional
operating expenses, and planning to construct a carbon aerogel battery materials
facility, among other items.

We took several actions during 2021 to increase the financial resources
available to support current operating requirements and capital expenditures. 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 after deducting fees and offering expenses of $1.5 million. During 2021,
we also sold shares of our common stock through our ATM offering program and
received net proceeds of $19.4 million.

In February 2022, we sold 1,791,986 shares to an affiliate of Koch Strategic
Platforms in a private placement of our common stock and received net proceeds
of $49.9 million after deducting fees and offering expenses of $0.1 million. In
addition, in February 2022, we sold and issued to an affiliate of Koch $100.0
million in aggregate principal amount of our Convertible Senior PIK Toggle
Notes. During the six months ended June 30, 2022, we sold 882,288 shares of our
common stock through our ATM offering program and received net proceeds of $28.1
million, after deducting commissions and estimated offering expenses payable by
us.

We believe that our June 30, 2022 cash and cash equivalents balance of $162.2
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. We believe that the consummation
of equity financings could potentially result in an ownership change under
Section 382 of the Internal Revenue Code. Such an ownership change would lead to
the use of our net operating loss carryforwards being restricted. Our inability
to use a substantial portion of our net operating loss carryforwards would
result in a higher effective tax rate and adversely affect our financial
condition and results of operations.

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 June 30, 2022, we had $162.2 million of cash and cash equivalents.

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.

                                       34
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In February 2022, we sold 1,791,986 shares to an affiliate of Koch Strategic
Platforms in a private placement of our common stock and received net proceeds
of $49.9 million after deducting fees and offering expenses of $0.1 million. In
addition, in February 2022, we sold and issued to an affiliate of Koch $100.0
million in aggregate principal amount of our Convertible Senior PIK Toggle
Notes.

On March 16, 2022, we entered into a sales agreement for an ATM offering program
with Cowen and Company, LLC and Piper Sandler & Co., as our sales agents. During
the six months ended June 30, 2022, we sold 882,288 shares of our common stock
through the ATM offering program and received net proceeds of $28.1 million,
after deducting commissions and estimated offering expenses payable by us.
Subsequent to June 30, 2022, we sold 3,959,798 shares of our common stock and
received net proceeds of $39.5 million through the ATM offering program.

We have a prepayment balance of $5.0 million associated with prepayments received pursuant to our supply agreement with BASF, which we expect to repay on or after January 1, 2023.


We have maintained our revolving credit facility, as amended from time to time,
with Silicon Valley Bank since March 2011. At various dates in 2021, and
subsequently on March 31, 2022 and April 28, 2022, the Company entered into
amendments to the Loan Agreement to revise certain financial covenants, among
other things. On June 23, 2022, the Loan Agreement was amended to extend the
maturity date of the revolving credit facility to August 26, 2022. 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.

As of June 30, 2022, we had no outstanding borrowings under our revolving credit facility and $1.2 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 June 30,
2022, we were in compliance with all such covenants.

The amount available to us under the revolving credit facility as of June 30,
2022 was $18.0 million after giving effect to the $1.2 million of letters of
credit outstanding.

Analysis of Cash Flow

Net Cash Used in Operating Activities


During the six months ended June 30, 2022, we used $32.9 million in net cash in
operating activities, as compared to the use of $0.5 million in net cash during
the comparable period in 2021, an increase in the use of cash of $32.4 million.
This increase in use of cash was the result of increases in net loss adjusted
for non-cash items of $25.9 million and in net cash used by changes in operating
assets and liabilities of $6.3 million.

Net Cash Used in Investing Activities


Net cash used in investing activities is for capital expenditures for machinery
and equipment principally to improve the throughput, efficiency and capacity of
our East Providence facility and engineering designs for the planned aerogel
manufacturing facility in Bulloch County, Georgia. Net cash used in investing
activities for the six months ended June 30, 2022 and 2021 was $52.4 million and
$3.9 million, respectively.

Net Cash Provided by Financing Activities


Net cash provided by financing activities for the six months ended June 30, 2022
totaled $170.8 million and consisted of $99.8 million in net proceeds from the
issuance of convertible debt, $49.9 million in net proceeds from the private
placement of our common stock, $28.1 million in net proceeds from the ATM
offering program, and less than $0.2 million in proceeds from employee stock

                                       35
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option exercises, offset, in part, by $4.7 million in cash used for payments
made for repayments of a prepayment liability and $2.4 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 six months ended June 30, 2021
totaled $90.2 million and consisted of $73.6 million in net proceeds from the
Private Placement, $18.6 million in net proceeds from the ATM offering program,
and $0.7 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.

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.

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: the expected future growth of the market for our aerogel
products and our continued gain in market share, in particular in the electric
vehicle market, the energy infrastructure insulation market, the lithium-ion
battery thermal barrier markets, and other markets we target; 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 construction and
development of our second manufacturing facility in Bulloch County, Georgia, or
fabrication operations in Monterrey, Mexico, 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 expectations regarding
the investment to open a second manufacturing facility in Georgia and the
anticipated job creation as a result thereof; the anticipated capacity expansion
as a result of the planned second manufacturing facility in Georgia and the
expected commencement of production; 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; our expectations about the size and timing
of awarded business in the electric vehicle market, future revenues and profit
margins, arising from our supply relationship and contract with automotive OEMs
and our ability to win more business and increase revenue in the electric
vehicle market; beliefs about the performance of our thermal

                                       36
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barrier products in the battery systems of electric vehicles; beliefs about the
potential commercial opportunity for Aspen's thermal barrier products; the
current or future trends in the energy, energy infrastructure, chemical and
refinery, LNG, sustainable building materials, electric vehicle thermal barrier,
electric vehicle battery materials or other markets and the impact of these
trends on our business; our investments in the electric vehicle market and
aerogel technology platform; 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,
including in Mexico; 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.

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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.


Market risk represents the risk of loss that may impact our financial position
due to adverse changes in financial market prices and rates. Our market risk
exposure results primarily from fluctuations in interest rates as well as from
inflation. In the normal course of business, we are exposed to market risks,
including changes in interest rates which affect our line of credit under our
revolving credit facility as well as cash flows. We may also face additional
exchange rate risk in the future as we expand our business internationally.

Interest Rate Risk


We are exposed to changes in interest rates in the normal course of our
business. As of June 30, 2022, we had unrestricted cash and cash equivalents of
$162.2 million. These amounts were held for working capital and capital
expansion purposes and were invested primarily in deposit accounts, money market
accounts, and high-quality debt securities issued by the U.S. government via
cash sweep accounts at a major financial institution in North America. Due to
the short-term nature of these investments, we believe that our exposure to
changes in the fair value of our cash as a result of changes in interest
rates is not material.

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As of June 30, 2022, we had a convertible note outstanding with principal
balance of $100.0 million. Our convertible note bears interest at the Secured
Overnight Financing Rate (SOFR) plus 5.50% per annum if interest is paid in
cash, or, if interest is paid in-kind as an increase in the principal amount of
the outstanding note, at the SOFR plus 6.50% per annum. Under the terms of the
investment, SOFR has a floor of 1% and a cap of 3%. Interest is paid
semi-annually in arrears on June 30 and December 30. We, at our option, are
permitted to settle each semi-annual interest payment in cash, in-kind, or any
combination thereof.

As of June 30, 2022, we had no borrowings outstanding on our revolving credit
facility. As of June 30, 2022, we had $1.2 million of outstanding letters of
credit supported by the revolving credit facility.

Under our revolving credit facility, 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 of credit facility fee of
0.5% per annum of the average unused portion of the revolving credit facility.
The maturity date of our revolving credit facility is August 26, 2022. We intend
to extend or replace the facility prior to its maturity.

As of June 30, 2022, the amount available to us under the revolving credit facility was $18.0 million after giving effect to the $1.2 million of letters of credit outstanding under the facility.

Inflation Risk

Although we expect that our operating results will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations during the periods presented in this report. However, our business may be affected by inflation in the future.

Foreign Currency Exchange Risk


We are subject to inherent risks attributed to operating in a global economy.
Principally all our revenue, receivables, purchases and debts are denominated in
U.S. dollars.
Item 4. Controls and Procedures.


(a) Evaluation of Disclosure Controls and Procedures.


We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit under
the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, or
persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.

As of June 30, 2022, our management, with the participation of our principal
executive officer and principal financial officer, evaluated the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act). Our management recognizes that any controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives, and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on such evaluation, our principal executive
officer and principal financial officer have concluded that, as of June 30,
2022, our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms, and is accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure. In
addition, our principal executive officer and principal financial officer have
concluded that the impact of the COVID-19 pandemic did not impact our ability to
maintain our internal controls over financial reporting and disclosure controls
and procedures.

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(b) Changes in Internal Controls.


During the six months ended June 30, 2022, there were no changes in our internal
control over financial reporting, as such term is defined in Rules 13a-15(f) and
15(d)-15(f) promulgated under the Exchange Act, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

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