ASPEN AEROGELS, INC. 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 endedDecember 31, 2022 , filed with theU.S. Securities and Exchange Commission (SEC) onMarch 16, 2023 , 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 theSEC , 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:
We design, develop and manufacture innovative, high-performance aerogel
insulation used primarily in the energy industrial and sustainable insulation
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 industrial. Our Pyrogel and Cryogel product lines have undergone rigorous
technical validation by industry leading end-users and achieved significant
market adoption. Our Spaceloft sustainable insulation 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
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 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 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, includingGeneral Motors LLC , orGM , to supply fabricated, multi-part thermal barriers for use in the battery system of its next-generation electric vehicles. Pursuant to the contracts withGM , 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. WhileGM 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 withGM'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 inEast Providence, Rhode Island . We have operated theEast 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 have been in the process of expanding our aerogel blanket capacity by constructing a second manufacturing plant inBulloch County, Georgia . However, in order to manage the development of the second plant so that its increased capacity comes online in a manner that aligns with our current expectations as to demand from our EV customers, we are extending the timeframe for construction and commissioning of the second plant until such time as its capacity is supported by increased demand. In the meantime, and until we restart construction, we expect to be able to substantially reduce our planned capital expenditures for 2023 and 2024. At the same time, we believe that productivity improvements in our existingRhode Island facility combined with supply of our energy industrial products from one or more contract manufacturers inChina beginning in 2024 will permit us to achieve a target revenue capacity of approximately$550.0 million in 2024 and prior to the completion and start-up of the second plant. Nonetheless, there can be no assurance as to when we will restart construction on the second plant and we are in the process of determining what remaining or additional capital expenditures and other costs may result from the decision to extend the timeframe for construction of the second plant. There can also be no assurance that our contract manufacturing strategy of meeting the demand of our energy industrial customers with supply from one or more contract manufacturers inChina will provide us with adequate manufacturing capacity or supply for that expected demand. Furthermore, if and when we restart construction on the second plant, further cost inflation and/or supply chain disruptions, as well as potential changes in the scope of the facilities, could lead to increases to our prior estimates for completion of the second plant. 19 --------------------------------------------------------------------------------
Financial Summary
Our revenue for the three months endedMarch 31, 2023 was$45.6 million , which represented an increase of$7.2 million , or 19%, from$38.4 million for the three months endedMarch 31, 2022 . Net loss for the three months endedMarch 31, 2023 was$16.8 million and net loss per share was$0.24 . Net loss for the three months endedMarch 31, 2022 was$19.5 million and net loss per share was$0.59 .
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
March 31,
2023 2022
(In thousands)Product shipments in square feet 8,183 8,163
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 withU.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 withU.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 underU.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;
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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;
•
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 theU.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
Three Months Ended
March 31,
2023 2022
(In thousands)
Net loss $ (16,796 ) $ (19,484 ) Depreciation and amortization 2,704 2,129 Stock-based compensation(1) 2,267 1,828 Interest (income) expense (2,112 ) 860 Adjusted EBITDA
$ (13,937 ) $ (14,667 )
(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 to maintain strong revenue growth during 2023 driven by a continued post-COVID recovery in the energy industrial market, accelerating demand in the electric vehicle market and continued market share gains in the sustainable insulation materials market. Our expectation to maintain strong revenue growth is based, in part, on our 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. As a result, we expect to experience a decrease in both net loss and Adjusted EBITDA during 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.
We project revenue growth during 2023 due to accelerating demand in the electric
vehicle market and continued market share gains in the sustainable insulation
materials market.
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--------------------------------------------------------------------------------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 in absolute dollars during 2023 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 of manufacturing employees and shipping costs. We expect that manufacturing expense will increase in absolute dollars and decrease as a percentage of revenue during 2023 due to increased staffing and spending levels in support of our thermal barrier business, including the start-up and operation of an automated fabrication facility inMonterrey, Mexico . We are also continuing to monitor the impact of engaging one or more contract manufacturers inChina to supply our aerogel products for the energy industrial market beginning in 2024 on our manufacturing expense and cost of product revenue.
In total, we expect that cost of product revenue will increase in absolute dollars during 2023 versus 2022 and decrease as a percentage of revenue versus 2022 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 products produced and sold, the mix of 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 2023, 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, offset, in part, by a projected increase in manufacturing expense as a percentage of revenue. In the longer term, we expect gross profit to improve in absolute dollars and as a percentage of revenue due to expected increases in total revenue, production volumes and manufacturing productivity. In addition, we expect the gross profit improvement derived from the increases in revenue, volume and productivity will be supported by the continued implementation of lower cost product formulations and realization of material purchasing efficiencies.
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 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 2023, we expect to continue to hire additional 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 absolute dollars, and remain consistent 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.
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--------------------------------------------------------------------------------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 2023 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 remain consistent as a percentage of revenue during 2023 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 endedDecember 31, 2022 and "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. 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 2023, we expect such expenses will increase in both absolute dollars and as a percentage of revenue.
Interest Income (Expense), Convertible Note -
Interest expense, convertible note - related party is net of the capitalized
interest related to the
Interest Income (Expense), Net
Interest expense, net consists of interest expense related to our revolving credit facility and included interest earned on the cash balances invested in deposit accounts, money market accounts, and high-quality debt securities issued by theU.S. government. We terminated our revolving credit facility agreement onNovember 28, 2022 . Provision for Income Taxes We have incurred net losses since inception and have not recorded benefit provisions forU.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. 23 --------------------------------------------------------------------------------
Results of Operations
Three months ended
The following tables set forth a comparison of the components of our results of operations for the periods presented:
Revenue
Three Months Ended March 31,
2023 2022 Change
Percentage Percentage
Amount of Revenue Amount of Revenue Amount Percentage
($ in thousands)
Revenue:
Energy industrial $ 33,875 74 % $ 30,775 80 % $ 3,100 10 %
Thermal barrier 11,711 26 % 7,632 20 % 4,079 53 %
Total revenue $ 45,586 100 % $ 38,407 100 % $ 7,179 19 %
Total revenue increased $7.2 million , or 19%, to $45.6 million for the three
months ended March 31, 2023 from $38.4 million in the comparable period in 2022.
The increase in total revenue was the result of an increase 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 March 31, Change
2023 2022 Amount Percentage
Product shipments in square feet (in
thousands) 8,183 8,163 20 0 %
Energy industrial revenue increased by $3.1 million , or 10%, to $33.9 million
for the three months ended March 31, 2023 from $30.8 million in the comparable
period in 2022. This increase was driven by a more favorable mix of product
shipments in the global petrochemical and refinery markets in Asia ,
project-based demand in the subsea market, offset, in part, by a decrease in the
volume of shipments in the global petrochemical and refinery markets of North
America and Europe .
Energy industrial revenue for the three months ended March 31, 2023 included
$10.9 million to a North American distributor. Energy industrial revenue for the
three months ended March 31, 2022 included $11.0 million to a North American
distributor.
The average selling price per square foot of our energy industrial products
increased by $0.37 , or 10%, to $4.14 per square foot for the three months ended
March 31, 2023 from $3.77 per square foot for the three months ended March 31,
2022 . 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 $3.0 million for the three months
ended March 31, 2023 from the comparable period in 2022.
In volume terms, energy industrial product shipments remained consistent at 8.2
million square feet for both of the three months ended
Thermal barrier revenue was$11.7 million for the three months endedMarch 31, 2023 as compared to$7.6 million for the three months endedMarch 31, 2022 . During the three months endedMarch 31, 2023 and 2022, thermal barrier revenue included$9.7 million and$6.1 million to a majorU.S. automotive OEM, respectively. 24 --------------------------------------------------------------------------------
Cost of Revenue
Three Months Ended March 31,
2023 2022 Change
Percentage Percentage Percentage Percentage
of Related of Total of Related of Total
Amount Revenue Revenue Amount Revenue Revenue Amount Percentage
($ in thousands)
Cost of revenue:
Energy industrial $ 24,994 74 % 55 % $ 27,778 90 % 72 % $ (2,784 ) (10 )%
Thermal barrier 15,506 132 % 34 % 12,417 163 % 32 % 3,089 25 %
Total cost of revenue $ 40,500 89 % 89 % $ 40,195 105 % 105 % $ 305 1 %
Total cost of revenue increased $0.3 million , or 1%, to $40.5 million for the
three months ended March 31, 2023 from $40.2 in the comparable period in 2022.
The increase in total cost of revenue was the result of increases in thermal
barrier cost of revenue, offset by a decrease in energy industrial cost of
revenue.
Energy industrial cost of revenue decreased $2.8 million , or 10%, to $25.0
million for the three months ended March 31, 2023 from $27.8 million in the
comparable period in 2022. The $2.8 million decrease was the result of a $1.6
million decrease in manufacturing and other operating costs and a $1.2 million
decrease in material costs due to change in the product mix from the comparable
period in 2022.
Thermal barrier cost of revenue increased $3.1 million to $15.5 million for the
three months ended March 31, 2023 as compared to $12.4 million for the three
months ended March 31, 2022 . The $3.1 million increase was the result of a $4.2
million increase in manufacturing costs, offset by a $1.1 million decrease in
material costs. The increase in manufacturing costs was driven by increases in
depreciation and facility costs of $2.6 million and other manufacturing and
operating costs of $1.6 million .
Gross Profit
Three Months Ended March 31,
2023 2022 Change
Percentage Percentage
Amount of Revenue Amount of Revenue Amount Percentage
($ in thousands)
Gross profit:
Energy industrial $ 8,881 26 % $ 2,997 10 % $ 5,884 196 %
Thermal barrier (3,795 ) (32 )% (4,785 ) (63 )% 990 21 %
Total gross (loss) profit $ 5,086 11 % $ (1,788 ) (5 )% $ 6,874 384 %
Gross profit increased by $6.9 million , or 384%, to $5.1 million for the three
months ended March 31, 2023 from $(1.8) million in the comparable period in
2022. The increase in gross profit was the result of the $7.2 million increase
in total revenue, offset, in part, by the $0.3 million increase in total cost of
revenue. The increase in gross profit reflects the decrease in costs and
additional resources to support our expected higher run-rate revenue in future
periods for both our energy industrial and thermal barrier products from the
comparable period in 2022.
Research and Development Expenses
Three Months Ended March 31,
2023 2022 Change
Percentage Percentage
Amount of Revenue Amount of Revenue Amount Percentage
($ in thousands)
Research and development expenses $ 4,099 9 % $ 3,592 9 % $ 507 14 %
Research and development expenses increased by $0.5 million , or 14%, to $4.1
million for the three months ended March 31, 2023 from $3.6 million in the
comparable period in 2022. The $0.5 million increase reflects an increase in
depreciation expenses of $0.3 million and compensation and related costs of $0.2
million .
Research and development expenses as a percentage of total revenue were 9% for
both the three months ended
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Sales and Marketing Expenses
Three Months Ended March 31,
2023 2022 Change
Percentage Percentage
Amount of Revenue Amount of Revenue Amount Percentage
($ in thousands)
Sales and marketing expenses $ 7,713 17 % $ 6,018 16 % $ 1,695 28 %
Sales and marketing expenses increased by $1.7 million , or 28%, to $7.7 million
for the three months ended March 31, 2023 from $6.0 million in the comparable
period in 2022. The $1.7 million increase was principally the result of
increases in compensation and related costs of $1.0 million , facility related
expenditures of $0.4 million and other sales and marketing expenses of $0.3
million .
Sales and marketing expenses as a percentage of total revenue increased to 17%
for the three months ended March 31, 2023 from 16% in the comparable period in
2022, due principally to the increase in compensation and related expenses
associated with an increase in sales and business development personnel.
General and Administrative Expenses
Three Months Ended March 31,
2023 2022 Change
Percentage Percentage
Amount of Revenue Amount of Revenue Amount Percentage
($ in thousands)
General and administrative expenses $ 12,182 27 % $ 7,226 19 % $ 4,956 69 %
General and administrative expenses increased by $5.0 million , or 69%, to $12.2
million for the three months ended March 31, 2023 from $7.2 million in the
comparable period in 2022. The $5.0 million increase was the result of increases
in compensation and related costs of $3.8 million and professional services
expenses of $1.2 million .
General and administrative expenses as a percentage of total revenue increased
to 27% for the three months ended
Interest Income (Expense), net
Three Months Ended March 31,
2023 2022 Change
Percentage Percentage
Amount of Revenue Amount of Revenue Amount Percentage
($ in thousands)
Interest income (expense):
Interest (expense),
related party $ (275 ) (1 )% $ (819 ) (2 )% $ 544 (66 )%
Interest income (expense),
net 2,387 5 % (41 ) - 2,428 NM
Total interest income
(expense), net $ 2,112 5 % $ (860 ) 0 % $ 2,972 (346 )%
Interest income (expense), net increased by $3.0 million to $2.1 million of
interest income for the three months ended March 31, 2023 from $0.9 million of
interest expense in the comparable period in 2022. The $3.0 million increase was
the result of $2.4 million of interest income and a $0.6 million net impact of
capitalized interest relating to our Convertible Note in the comparable period
in 2022.
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
have been in the process of
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expanding our aerogel blanket capacity by constructing a second manufacturing
plant in Bulloch County, Georgia . However, in order to manage the development of
the second plant so that its increased capacity comes online in a manner that
aligns with our current expectations as to demand from our EV customers, we are
extending the timeframe for construction and commissioning of the second plant
until such time as its capacity is supported by increased demand. In the
meantime, and until we restart construction, we expect to be able to
substantially reduce our planned capital expenditures for 2023 and 2024. At the
same time, we believe that productivity improvements in our existing Rhode
Island facility combined with supply of our energy industrial products from one
or more contract manufacturers in China beginning in 2024 will permit us to
achieve a target revenue capacity of approximately $550.0 million in 2024 and
prior to the completion and start-up of the second plant. Nonetheless, there can
be no assurance as to when we will restart construction on the second plant and
we are in the process of determining what remaining or additional capital
expenditures and other costs may result from the decision to extend the
timeframe for construction of the second plant. There can also be no assurance
that our contract manufacturing strategy of meeting the demand of our energy
industrial customers with supply from one or more contract manufacturers in
China will provide us with adequate manufacturing capacity or supply for that
expected demand. Furthermore, if and when we restart construction on the second
plant, further cost inflation and/or supply chain disruptions, as well as
potential changes in the scope of the facilities, could lead to increases to our
prior estimates for completion of the second plant.
We are also increasing our investment in the research and development of
next-generation aerogel products and technologies. During 2023, 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.
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. In
addition, in March 2022 , pursuant to a securities purchase agreement dated
February 15, 2022 , we sold to an affiliate of Koch 1,791,986 shares of our
common stock, at a price of $27.902 per share, for net proceeds of $49.9 million
after deducting fees and offering expenses of $0.1 million .
We believe that our March 31, 2023 cash and cash equivalents balance of $207.5
million 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 enter into a new revolving credit facility. 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. Cash and cash equivalents consist primarily of cash, money market accounts, and sweep accounts on deposit with banks. As ofMarch 31, 2023 , we had$207.5 million of unrestricted cash and cash equivalents. InFebruary 2022 , we sold and issued to an affiliate of Koch$100.0 million in aggregate principal amount of our Convertible Senior PIK Toggle Notes. In addition, inMarch 2022 , pursuant to a securities purchase agreement datedFebruary 15, 2022 , we sold to an affiliate of Koch 1,791,986 shares of our common stock, at a price of$27.902 per share, for net proceeds of$49.9 million after deducting fees and offering expenses of$0.1 million . OnMarch 16, 2022 , we entered into a sales agreement for an ATM offering program withCowen and Company, LLC andPiper Sandler & Co. , as our sales agents. During the year endedDecember 31, 2022 , we sold 5,241,400 shares of our common stock through the 2022 ATM offering program and received net proceeds of$72.7 million . OnNovember 28, 2022 , our wholly owned subsidiary,Aspen Aerogels Georgia, LLC , entered into a$100.0 million loan agreement withGM for which the proceeds to be used for the construction and operation of our planned aerogel manufacturing facility inBulloch County, Georgia . The agreement allows for borrowings beginning in 2023. 27 -------------------------------------------------------------------------------- OnNovember 29, 2022 , we completed an underwritten public offering of 29,052,631 shares of our common stock at a public offering price of$9.50 per share. We received net proceeds of$267.5 million after deducting underwriting discounts and commissions of$8.1 million and offering expenses of approximately$0.5 million .
Analysis of Cash Flow
During the three months endedMarch 31, 2023 , we used$24.7 million in net cash in operating activities, as compared to the use of$22.8 million in net cash during the comparable period in 2022, an increase in the use of cash of$1.9 million . This increase in use of cash was the result of cash provided by net loss adjusted for non-cash items of$3.3 million and in net cash used by changes in operating assets and liabilities of$5.2 million . During the three months endedMarch 31, 2022 , we used$22.8 million in net cash in operating activities, as compared to the use of$1.9 million in net cash during the comparable period in 2021, an increase in the use of cash of$20.9 million . This increase in use of cash was the result of increases in net loss adjusted for non-cash items of$11.7 million and in net cash used by changes in operating assets and liabilities of$9.2 million .
Net cash used in investing activities is for capital expenditures for machinery and equipment principally to improve the throughput, efficiency and capacity of ourEast Providence facility and engineering designs and construction costs for the planned aerogel manufacturing facility inBulloch County, Georgia . Net cash used in investing activities for the three months endedMarch 31, 2023 and 2022 was$49.4 million and$14.5 million , respectively.
Net Cash Provided by Financing Activities
Net cash used in financing activities for the three months endedMarch 31, 2023 totaled$0.4 million and consisted of$0.4 million in cash used for payments made for employee tax withholdings associated with the vesting of restricted stock units, offset, in part, by less than$0.1 million in proceeds from employee stock option exercises. Net cash provided by financing activities for the three months endedMarch 31, 2022 totaled$165.9 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,$23.3 million in net proceeds from the ATM offering program, and less than$0.1 million in proceeds from employee stock 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.
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 withU.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 28 --------------------------------------------------------------------------------
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
TheSEC 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, revenue capacity, 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 inBulloch County, Georgia , or fabrication operations inMonterrey, 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 inGeorgia , the extended construction and commissioning timeframe for the planned second manufacturing facility, our efforts to manage the construction of the second plant to align with our expectations of demand from EV customers, and our ability to complete the second plant; the anticipated capacity expansion as a result of the planned second manufacturing facility inGeorgia , if it were to be completed; our estimates of annual production capacity; 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 aboutAspen's contracts with the majorU.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 barrier products in the battery systems of electric vehicles; 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 financial metrics that are indicative of our core performance; 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 expectations about future material costs and manufacturing expenses as a percentage of revenue, including the impact of engaging one or more contract manufacturers inChina for supply of our energy industrial products; our expectation about the ability of the Chinese contract manufacturers that we engage to consistently supply the aerogel product that we order in a timely manner; 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 potential sources of future financing; and 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. 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 29 -------------------------------------------------------------------------------- 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 toAspen 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. 30
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