ASPEN AEROGELS INC 10-K

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included in this Annual Report on Form 10-K. In addition to historical information, some of the information contained in the following discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking information that involves risks, uncertainties and assumptions. You should read the Risk Factors set forth in Item 1A of this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our actual results and the timing of events could differ materially from those anticipated by these forward looking statements. 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 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, LNG 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. 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 insulation 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 also actively developing a number of promising aerogel products and technologies for the EV market. We have developed and are commercializing our proprietary line of PyroThin® aerogel thermal barriers for use in battery packs in EVs. 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 EV 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 EVs. 64 The commercial potential for our PyroThin thermal barriers and our carbon aerogel battery materials in the EV 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, or GM, to supply fabricated, multi-part thermal barriers for use in the battery system of its next-generation EVs. 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. We have also entered into production contracts with Toyota, Scania, ACC, a battery cell joint venture between Stellantis N.V, Saft-TotalEnergies and Mercedes-Benz, and Audi, a luxury brand of the Volkswagen Group. 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 meet expected growth in demand for our aerogel products in the EV market, we have been in the process of 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 ramp up construction, we expect to be able to substantially reduce our planned capital expenditures for 2024. At the same time, we believe that productivity improvements in our existing Rhode Island facility combined with the supplemental supply of our energy industrial products from one or more external manufacturing facilities in China will permit us to achieve a target revenue capacity of approximately $650 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 ramp up construction on 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 external manufacturing facilities in China will provide us with adequate manufacturing capacity or supply for that expected demand. Furthermore, when we ramp up 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 estimated costs for completion of the second plant. In 2023, we opened our 59,000-square-foot engineering and rapid prototyping facility in Marlborough, MA. Our Advanced Thermal Barrier Center (ATBC) is designed to be the engineering hub of PyroThin cell-to-cell barriers, which help manufacturers optimize the safety and performance of battery packs for eMobility and energy storage system (ESS) markets. Recent Developments On September 28, 2023 (the “First Amendment Effective Date”), Aspen Aerogels Georgia, LLC, a Georgia limited liability company (the “Borrower”), our wholly-owned subsidiary, entered into a first amendment (the “First Amendment”) to amend that certain loan agreement, dated as of November 28, 2022 (the “Loan Agreement”), by and among (i) the Borrower, (ii) us, as a guarantor and (iii) Aspen Aerogels Rhode Island, LLC, a Rhode Island limited liability company (“Aspen RI” and, together with the Borrower and us, each, a “Loan Party” and collectively, the “Loan Parties”), as a guarantor, and (iv) General Motors Holdings LLC (“GM”), as lender. Pursuant to the First Amendment, the Loan Parties and GM agreed to, among other things, (i) extend the draw period for the delayed draw senior secured term loans (the “Loan”), from beginning on January 1, 2023 and ending on September 30, 2023, to instead a period beginning on the date that is twelve (12) months prior to the date agreed upon by Borrower and GM for the start of production at an aerogel manufacturing facility in Bulloch County, Georgia (the “Plant”) under the applicable GM Purchase Contracts (as defined therein) and ending on March 31, 2024 (or any later date approved in writing by GM at its sole discretion); (ii) extend the maturity date of the Loan Agreement from March 31, 2025 to September 30, 2025; and (iii) add the following financial covenants measured starting from the fiscal quarter ending December 31, 2024 and at the end of each fiscal quarter thereafter (each such fiscal quarter end, a “Test Date”): (A) a covenant requiring that the Total Leverage Ratio (as defined therein) shall not exceed 5.00:1.00 as of the applicable Test Date and (B) a covenant requiring that the ratio of our total indebtedness and our subsidiaries (with certain exceptions) to our consolidated equity shall not be greater than 1.20x as of the applicable Test Date, in each case, with compliance demonstrated through the submission of a certain compliance certificate (the “Financial Covenants”), subject to customary equity cure rights with respect to the Financial Covenants. 65 The First Amendment also amended the conditions precedent to funding to (i) require the Borrower to provide evidence that cash proceeds of one or more equity and/or debt financing arrangements of not less than $500.0 million in the aggregate (inclusive of all equity investments contributed to the Borrower for use in connection with the Plant prior to the First Amendment Effective Date) have been contributed to and disbursed by the Borrower in the manner prescribed in a pre-determined project budget (subject to a permitted variance) to fund the construction of and equipment for the first phase of the Plant and (ii) require that 70% of the total cost in connection with the construction and operation of the Plant has been fully funded prior to such applicable borrowing under the Loan Agreement. Financial Summary On November 5, 2020, we entered into a sales agreement for an at-the-market (“ATM”) offering program with B. Riley Securities as our sales agent. During the year ended December 31, 2021, we sold 929,981 shares of our common stock through the ATM offering program with B. Riley Securities and received net proceeds of $19.4 million. 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, or the 2022 ATM offering program. During the year ended December 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. The 2022 ATM offering program was terminated on June 20, 2023. On February 3, 2021, we entered into a supply agreement with Silbond Corporation for the purchase of certain silanes products. Pursuant to the agreement, we agreed to purchase, and Silbond agreed to supply, all of our requirements for the specified silanes at our East Providence facility through the term of the agreement on September 30, 2023, unless either party terminates the agreement earlier pursuant to its terms. In October 2022, we extended the agreement through December 31, 2023, and the agreement has subsequently terminated. On June 29, 2021, we sold 3,462,124 shares to an affiliate of Koch, in a private placement of our common stock and received net proceeds of $73.5 million after deducting fees and offering expenses of $1.5 million. On 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 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, or 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, or SOFR, plus 5.50% per annum if interest is paid in cash, or 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, or 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 November 28, 2022, in connection with the Loan Agreement (described below) we entered into an amendment to the Notes, or the Convertible Note Amendment, to reduce the initial Conversion Price (as defined in the Notes) by $5.00 per share from $34.936625 per share to $29.936625 per share, by increasing the initial Conversion Rate (as defined in the Notes) from 28.623257 shares per $1,000 of Capitalized Principal Amount (as defined in the Notes) to 33.400100 shares per $1,000 of Capitalized Principal Amount under the Notes. On November 28, 2022, our wholly owned subsidiary, Aspen Aerogels Georgia, LLC, or the Borrower, entered into the Loan Agreement, by and between (i) the Borrower, (ii) Aspen Aerogels, Inc. and (iii) Aspen RI, and, together with the Borrower and Aspen Aerogels, Inc., each, a Loan Party and collectively, the Loan Parties), as guarantors, and (iv) GM, as lender. The Borrower is required to use the proceeds of the Loan in connection with the construction and operation of our planned aerogel manufacturing facility in Bulloch County, Georgia. The Loan Agreement provides for a multi-draw senior secured term loan in an aggregate principal amount of up to $100.0 million, or the Loan, available to the Borrower to draw on a delayed draw basis after January 1, 2023 to September 30, 2023, subject to certain conditions precedent to funding. The interest rate on the Loan is equal to the term Secured Overnight Financing Rate published by CME Group Benchmark Administration Limited for a six-month interest period, or Term SOFR, plus 8.0% per year, subject to a term SOFR floor of 1.0%, or the Floor, with a maturity date of the earlier of (i) March 31, 2025 and (ii) 90 days prior to the maturity date of any other debt facility to which the Loan Parties may be a party (other than any revolving loan agreement), or the Maturity Date. At the Borrower’s election and prior to the issuance of a certificate of occupancy for the Plant, interest may be paid-in-kind at a rate equal to Term SOFR (subject to the Floor) plus 9.0% per year. Refer to Recent Developments for details of the amendment to the Loan Agreement. On November 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. 66 On November 28, 2022, we terminated the Amended and Restated Loan and Security Agreement, or the SVB Loan Agreement, with Silicon Valley Bank, or SVB. As of the date of termination, we had no amounts due or owed to SVB under the SVB Loan Agreement for any principal, interest, or other amounts, other than approximately $1.2 million in letters of credit that were issued under the SVB Loan Agreement and will be cash collateralized in connection with the termination of the SVB Loan Agreement. In December 2023, we sold 6,060,607 shares of our common stock at an offering price of $12.38 per share in a registered direct offering for net proceeds of $74.4 million, after deducting offering expenses of approximately $0.6 million. 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, for the periods presented: Year Ended December 31, 2023 2022 2021 (Square feet in thousands) Product shipments in square feet 28,392 32,589 34,557 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, which in 2021 included a gain on the extinguishment of debt. 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; 67 • 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 the U.S. GAAP financial statements included elsewhere in this Annual Report on Form 10-K, 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 years presented: Year Ended December 31, 2023 2022 2021 ($ in thousands) Net loss $ (45,811 ) $ (82,738 ) $ (37,094 ) Depreciation and amortization 15,318 9,222 9,440 Stock-based compensation (1) 10,954 9,385 5,176 Gain on the extinguishment of debt — — (3,734 ) Other (income) expense (3,392 ) 3,493 229 Adjusted EBITDA $ (22,931 ) $ (60,638 ) $ (25,983 ) (1) Represents non-cash stock-based compensation related to vesting and modifications of stock option grants, vesting of restricted stock units and vesting and modification of restricted common stock. The following table presents a reconciliation of net loss, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA for the quarters presented: Three Months Ended Three Months Ended 2023 2022 March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 ($ in thousands) Net loss $ (16,796 ) $ (15,423 ) $ (13,073 ) $ (519 ) $ (19,484 ) $ (24,050 ) $ (29,595 ) $ (9,609 ) Depreciation and amortization 2,704 3,503 4,550 4,561 2,129 2,032 2,531 2,530 Stock-based compensation (1) 2,267 2,710 2,789 3,188 1,828 2,295 2,590 2,672 Other (income) expense (2,112 ) (1,621 ) (1,561 ) 1,902 860 1,404 1,286 (57 ) Adjusted EBITDA $ (13,937 ) $ (10,831 ) $ (7,295 ) $ 9,132 $ (14,667 ) $ (18,319 ) $ (23,188 ) $ (4,464 ) (1) Represents non-cash stock-based compensation related to vesting and modifications of stock option grants, vesting of restricted stock units and vesting and modification of restricted common stock. Our financial performance, including such measures as net income (loss), earnings per share and Adjusted EBITDA, are affected by a number of factors including volume and mix of aerogel products sold, average selling prices, our material costs and manufacturing expenses, the costs associated with capacity expansions and start-up of additional production capacity, and the amount and timing of operating expenses. Accordingly, we expect that our net income (loss), earnings per share and Adjusted EBITDA will vary from period to period. During 2023, we experienced strong volume growth in our thermal barrier products. As a result, we experienced total revenue growth of 32% during the year. We increased staffing and spending levels in support of the growing demand for our thermal barrier business and our carbon aerogel battery material opportunity in coming years. We also increased staffing and spending to expand and defend our IP portfolio, and to enhance our general and administrative functions to manage the anticipated strong growth in our business. 68 We expect to maintain strong revenue growth during 2024 driven by accelerating demand in the EV 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 negative Adjusted EBITDA during 2024. We also expect to incur reduced capital expenditures and expenses during 2024 related to our planned second aerogel manufacturing facility to be located in Bulloch County, Georgia. We may, from time to time, enter into leasing arrangements including sale and leaseback financing arrangements. In January 2024, we entered into a sale and leaseback arrangement, pursuant to which we sold certain equipment to an equipment leasing company (the “Leasing Company”) for a one-time cash payment of $5.0 million and leased back such equipment from the Leasing Company. The associated monthly lease rents will be paid over the term of three years. We intend to continue evaluating certain assets for potential sale and lease back arrangements in the future. This type of arrangement would provide us with one-time cash payments in the near term, in exchange for future lease payments. Revenue We recognize revenue from the sale of our energy industrial aerogel products and thermal barriers. Revenue is recognized upon the satisfaction of contractual performance obligations. We record deferred revenue for product sales when (i) we have delivered products but other revenue recognition criteria have not been satisfied or (ii) payments have been received in advance of the completion of required performance obligations. The following table sets forth the total revenue for the periods presented: Year Ended December 31, 2023 2022 2021 ($ in thousands) Revenue: Energy industrial $ 128,639 $ 124,807 $ 114,958 Thermal barrier 110,079 55,557 6,664 Total $ 238,718 $ 180,364 $ 121,622 Energy industrial revenue accounted for 54%, 69%, and greater than 95% of total revenue for the years ended December 31, 2023, 2022 and 2021, respectively. We experienced a 32% increase in total revenue during 2023 driven by the increase in our energy industrial business, particularly in Europe, and continued growth in the EV market. We project revenue growth during 2024 due to accelerating demand in the EV market and continued market share gains in the sustainable insulation materials market. A substantial majority of our revenue is generated from a limited number of direct customers, including distributors, contractors, fabricators, OEMs, partners and end-user customers. Our ten largest customers accounted for approximately 80% of our total revenue during the year ended December 31, 2023, and we expect that most of our revenue will continue to come from a relatively small number of customers for the foreseeable future. In 2023, sales to GM and Distribution International, Inc. represented 41% and 14% of our total revenue, respectively. In 2022, sales to GM and Distribution International, Inc. represented 25% and 22% of our total revenue, respectively. In 2021, sales to Distribution International, Inc. represented 28% of our total revenue. For each of the noted periods, there were no other customers that represented 10% or more of our total revenues. We conduct business across the globe and a substantial portion of our revenue is generated outside of the United States. Total revenue from outside of the United States, based on shipment destination, amounted to $87.7 million, or 37% of our total revenue, $66.4 million, or 37% of our total revenue, and $54.8 million, or 45% of our total revenue, in the years ended December 31, 2023, 2022 and 2021, respectively. 69 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 a significant component of cost of product revenue and includes fibrous batting, silica materials and additives. Material costs as a percentage of product revenue were 36%, 51% and 48% for the years ended December 31, 2023, 2022 and 2021, respectively. 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, engineering changes, higher prototype sales 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 2024 due to projected growth in product shipments and contracts but remain stable as a percentage of revenue due to 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. Manufacturing expense as a percentage of product revenue was 40%, 46% and 44% for the years ended December 31, 2023, 2022 and 2021, respectively. We expect that manufacturing expense will increase in absolute dollars and decrease as a percentage of revenue during 2024 due to increased staffing and spending levels in support of our thermal barrier business, including the operation of an automated fabrication facility in Monterrey, Mexico. We are also continuing to monitor the impact of engaging one or more external manufacturing facilities in China to supply our aerogel products for the energy industrial market beginning in 2024 on our manufacturing expense and cost of product revenue. During 2024, we expect that cost of product revenue will increase in absolute dollars due to projected volume growth and a planned increase in staffing and spending levels, but decrease as a percentage of product revenue due to projected increases in average selling prices, improved manufacturing and fabrication yields and a favorable mix of products sold. 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. Gross profit as a percentage of total revenue was 24%, 3%, and 8% for the years ended December 31, 2023, 2022 and 2021, respectively. During 2024, 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 and manufacturing expense as a percentage of total 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. 70 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. We expect our research and development expenses will increase in absolute dollars and decrease as a percentage of revenue in 2024 and the longer term. 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 our sales and marketing expenses will increase in absolute dollars but decrease as a percentage of revenue in 2024 and in the longer term. 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 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 this Annual Report on Form 10-K, 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 and decrease as a percentage of revenue. Interest Expense, Convertible Note - Related Party Interest expense, convertible note - related party is net of the capitalized interest related to the $100.0 million in aggregate principal amount of our Convertible Senior PIK Toggle Notes. Other Income (Expense), Net For the years ended December 31, 2023, 2022 and 2021, interest expense, net consists of interest expense related to our revolving credit facility and in 2022 and 2023, included interest earned on the cash balances invested in deposit accounts, money market accounts, and high-quality debt securities issued by the U.S. government. Gain on Extinguishment of Debt On May 1, 2020, our wholly-owned subsidiary, Aspen Aerogels Rhode Island, LLC, executed a note for an unsecured PPP loan of $3.7 million pursuant to the CARES Act. On August 24, 2021, the SBA remitted $3.7 million in principal and accrued interest to the noteholder after approving the Aspen Aerogels Rhode Island, LLC’s application for forgiveness of the PPP Loan. Accordingly, we recorded a total gain on the extinguishment of debt of $3.7 million during the year ended December 31, 2021. Income from Employee Retention Credit Employee retention credit consists of other income related to our submitted filings for CARES Employee Retention Credits. 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. At December 31, 2023, we had $358.9 million of net operating losses available to offset future federal income tax, if any, of which $194.6 million expire on various dates through December 31, 2038. Net operating losses of $164.3 million generated from 2018 through 2023 have an unlimited carryforward . 71 Results of Operations The following tables set forth our results of operations for the periods presented: Year Ended December 31, 2023 2022 2021 ($ in thousands) Revenue $ 238,718 $ 180,364 $ 121,622 Cost of revenue 181,797 175,388 111,685 Gross profit 56,921 4,976 9,937 Operating expenses Research and development 16,356 16,930 11,441 Sales and marketing 33,008 28,792 16,581 General and administrative 56,760 38,499 22,514 Total operating expenses 106,124 84,221 50,536 Loss from operations (49,203 ) (79,245 ) (40,599 ) Other income (expense) Interest expense, convertible note - related party (5,328 ) (5,110 ) — Interest income (expense), net 6,534 1,617 (229 ) Gain on extinguishment of debt — — 3,734 Income from Employee Retention Credits 2,186 — — Total other income (expense) 3,392 (3,493 ) 3,505 Net loss $ (45,811 ) $ (82,738 ) $ (37,094 ) Year ended December 31, 2023 compared to year ended December 31, 2022 The following tables set forth our results of operations for the periods presented: Year Ended December 31, Year Ended December 31, 2023 2022 $ Change % Change 2023 2022 ($ in thousands) (Percentage of total revenue) Revenue $ 238,718 $ 180,364 $ 58,354 32 % 100 % 100 % Cost of revenue 181,797 175,388 6,409 4 % 76 % 97 % Gross profit 56,921 4,976 51,945 1,044 % 24 % 3 % Operating expenses Research and development 16,356 16,930 (574 ) (3 )% 7 % 9 % Sales and marketing 33,008 28,792 4,216 15 % 14 % 16 % General and administrative 56,760 38,499 18,261 47 % 24 % 21 % Total operating expenses 106,124 84,221 21,903 26 % 44 % 47 % Loss from operations (49,203 ) (79,245 ) 30,042 (38 )% (21 )% (44 )% Other income (expense) Interest expense, convertible note - related party (5,328 ) (5,110 ) (218 ) 100 % (2 )% -3 % Interest income, net 6,534 1,617 4,917 304 % 3 % 1 % Income from Employee Retention Credits 2,186 — 2,186 100 % 1 % — % Total other income (expense) 3,392 (3,493 ) 6,885 (197 )% 1 % (2 )% Net loss $ (45,811 ) $ (82,738 ) $ 36,927 45 % (19 )% (46 )% 72 Revenue Year Ended December 31, 2023 2022 Change Percentage of Percentage of Amount Revenue Amount Revenue Amount Percentage ($ in thousands) Revenue: Energy industrial $ 128,639 54% $ 124,807 69% $ 3,832 3% Thermal barrier 110,079 46% 55,557 31% 54,522 98% Total revenue $ 238,718 100% $ 180,364 100% $ 58,354 32% The following chart sets forth energy industrial product shipments in square feet associated with recognized revenue, including revenue recognized over time, for the periods presented: Year Ended December 31, Change 2023 2022 Amount Percentage Product shipments in square feet (in thousands) 28,392 32,589 (4,197 ) (13 )% Total revenue increased $58.3 million, or 32%, to $238.7 million in 2023 from $180.4 million in 2022. The increase in total revenue was the result of increases in both energy industrial and thermal barrier revenue. Energy industrial revenue increased by $3.8 million, or 3%, to $128.6 million in 2023 from $124.8 million in 2022. This increase was driven by a more favorable mix of product shipments in the global petrochemical and refinery markets, particularly in Latin America, project-based demand in the subsea market, offset, in part, by a decrease in maintenance-based demand in the global petrochemical and refinery markets in North America, Europe, and Asia. Energy industrial revenue for the years ended December 31, 2023 and 2022, included $33.6 million and $39.3 million in sales to Distribution International, Inc., respectively. The average selling price per square foot of our products increased by $0.70, or 18%, to $4.53 per square foot for the year ended December 31, 2023, from $3.83 per square foot for the year ended December 31, 2022. The increase in average selling price reflected the impact of price increases enacted in 2023 and a change in the mix of products sold, as we strive to maximize capacity in our aerogel manufacturing facility. This increase in average selling price had the effect of increasing product revenue by approximately $19.9 million for the year ended December 31, 2023. In volume terms, product shipments decreased by 4.2 million square feet, or 13%, to 28.4 million square feet of aerogel products for the year ended December 31, 2023, as compared to 32.6 million square feet in the year ended December 31, 2022. The decrease in product volume had the effect of decreasing product revenue by approximately $16.1 million for the year ended December 31, 2023. Thermal barrier revenue was $110.1 million for the year ended December 31, 2023, as compared to $55.6 million for the year ended December 31, 2022. Thermal barrier revenue for the year ended December 31, 2023 included $97.5 million to a major U.S. automotive OEM and $5.5 million to a major Asian automotive OEM. Thermal barrier revenue for the year ended December 31, 2022 included $45.8 million to a major U.S. automotive OEM and $5.1 million to a major Asian automotive OEM. Energy industrial revenue as a percentage of total revenue was 54% and 69% of total revenue in 2023 and in 2022, respectively. Thermal barrier revenue was 46% and 31% of total revenue in 2023 and in 2022, respectively. Cost of Revenue Year Ended December 31, 2023 2022 Change % of Related % of Related Amount Revenue Amount Revenue Amount Percentage ($ in thousands) Cost of revenue: Energy industrial $ 94,477 73% $ 105,963 85% $ (11,486 ) (11)% Thermal barrier 87,320 79% 69,425 125% 17,895 26% Total cost of revenue $ 181,797 76% $ 175,388 97% $ 6,409 4% Total cost of revenue increased $6.4 million, or 4%, to $181.8 million in 2023 from $175.4 million in 2022. The increase in total cost of revenue was the result of an increase in thermal barrier, offset, in part, by a decrease in energy industrial cost of revenue. 73 Energy industrial cost of revenue decreased $11.5 million, or 11%, to $94.5 million from $106.0 million in the comparable period in 2022. The $11.5 million decrease was the result of a $11.4 million decrease in material costs and a $0.1 million decrease in manufacturing and other operating costs from the comparable period in 2022. The decrease in material costs was the result of the lower revenue volume from the comparable period in 2022, and lower raw material costs in 2023 compared to 2022. Thermal barrier cost of revenue increased $17.9 million to $87.3 million as compared to $69.4 million in the comparable period in 2022. The $17.9 million increase was the result of a $5.8 million increase in material costs and a $12.1 million increase in manufacturing costs. The increase in material costs was the result of the increase in revenue volume from the comparable period in 2022, offset by lower raw material prices in 2023 compared to 2022. The increase in manufacturing costs was driven by increases in depreciation and facility costs of $7.1 million and utilities expenses of $3.3 million and other manufacturing and operating costs of $1.7 million. Gross Profit Year Ended December 31, 2023 2022 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Gross profit: Energy industrial $ 34,162 27% $ 18,844 15% $ 15,318 81% Thermal barrier 22,759 21% (13,868 ) (25)% 36,627 264% Total gross profit $ 56,921 24% $ 4,976 3% $ 51,945 1,044% Gross profit increased $51.9 million, or 1,044%, to $56.9 million in 2023 from $5.0 million in 2022. The increase in gross profit was the result of the $58.3 million increase in total revenue, partially offset by the $6.4 million increase in total cost of revenue. The increase in total cost of revenue was principally driven by the increase in overhead costs and additional resources to support our expected higher run-rate revenue in future periods for both our energy industrial and thermal barrier products. Research and Development Expenses Year Ended December 31, Change 2023 2022 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) Research and development expenses $ 16,356 7% $ 16,930 9% $ (574 ) (3)% Research and development expenses decreased by $0.5 million, or 3%, to $16.4 million in 2023 from $16.9 million in 2022. The $0.5 million decrease was the result of decreases in professional fees of $1.5 million, operating material and supplies costs of $0.7 million, compensation and related costs of $0.6 million, partially offset by an increase in depreciation and facility related expenses of $2.1 million and other research and development expenses of $0.2 million. Research and development expenses as a percentage of total revenue decreased to 7% during the year ended December 31, 2023 from 9% in the comparable period in 2022, primarily due to the decrease in professional fees. Sales and Marketing Expenses Year Ended December 31, Change 2023 2022 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) Sales and marketing expenses $ 33,008 14% $ 28,792 16% $ 4,216 15% Sales and marketing expenses increased by $4.2 million, or 15%, to $33.0 million in 2023 from $28.8 million in 2022. The increase was the result of increases in depreciation and facility related expenses of $2.9 million and compensation and related costs of $2.1 million, partially offset by a decrease in operating material and supplies costs of $0.8 million. 74 Sales and marketing expenses as a percentage of total revenue decreased to 14% in 2023 from 16% in 2022 primarily due to the 32% increase in revenue from the comparable period in 2022. General and Administrative Expenses Year Ended December 31, Change 2023 2022 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) General and administrative expenses $ 56,760 24% $ 38,499 21% $ 18,261 47% General and administrative expenses increased by $18.3 million, or 47%, to $56.8 million in 2023 from $38.5 million in 2022. The $18.3 million increase was the result of increases in compensation and related costs of $15.3 million and professional fees of $3.6 million, offset by a decrease in other costs of $0.6 million. General and administrative expenses as a percentage of total revenue increased to 24% in 2023 from 21% in 2022 primarily due to increased expenditures associated with the growth in our human resource, finance, information technology and general management organizations in preparation for the anticipated growth in our business. Other Income (Expense), net Year Ended December 31, Change 2023 2022 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) Other income (expense): Interest expense, related party $ (5,328 ) (2)% $ (5,110 ) (3)% $ (218 ) 4% Interest income, net 6,534 3% 1,617 1% 4,917 NM Income from Employee Retention Credits 2,186 1% — 0% 2,186 NM Total other income (expense), net $ 3,392 1% $ (3,493 ) (2)% $ 6,885 NM Other income (expense), net increased by $6.9 million to $3.4 million in 2023 from $(3.5) million in 2022. The $6.9 million increase was the result of $4.9 million of interest income, $2.2 million of Employee Retention Credits and a $(0.2) million net impact of capitalized interest relating to our Convertible Note in the comparable period in 2022. 75 Year ended December 31, 2022 compared to year ended December 31, 2021 The following tables set forth our results of operations for the periods presented: Year Ended December 31, Year Ended December 31, 2022 2021 $ Change % Change 2022 2021 ($ in thousands) (Percentage of total revenue) Revenue $ 180,364 $ 121,622 $ 58,742 48% 100% 100% Cost of revenue 175,388 111,685 63,703 57% 97% 92% Gross profit 4,976 9,937 (4,961 ) (50)% 3% 8% Operating expenses Research and development 16,930 11,441 5,489 48% 9% 9% Sales and marketing 28,792 16,581 12,211 74% 16% 14% General and administrative 38,499 22,514 15,985 71% 21% 19% Total operating expenses 84,221 50,536 33,685 67% 47% 42% Loss from operations (79,245 ) (40,599 ) (38,646 ) 95% (44)% (33)% Other income (expense) Interest expense, convertible note - related party (5,110 ) — (5,110 ) 100% (3)% 0% Interest income (expense), net 1,617 (229 ) 1,846 (806)% 1% 0% Gain on extinguishment of debt — 3,734 (3,734 ) 100% —% 3% Total other income (expense) (3,493 ) 3,505 (6,998 ) (200)% (2)% 3% Net loss $ (82,738 ) $ (37,094 ) $ (45,644 ) (123)% (46)% (30)% Revenue Year Ended December 31, Change 2022 2021 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) Revenue: Energy industrial $ 124,807 69% $ 114,958 95% $ 9,849 9% Thermal barrier 55,557 31% 6,664 5% 48,893 NM Total revenue $ 180,364 100% $ 121,622 100% $ 58,742 48% The following chart sets forth product shipments in square feet associated with recognized revenue, including revenue recognized over time, for the periods presented: Year Ended December 31, Change 2022 2021 Amount Percentage Product shipments in square feet (in thousands) 32,589 34,557 (1,968 ) (6)% Total revenue increased $58.7 million, or 48%, to $180.3 million in 2022 from $121.6 million in 2021. The increase in total revenue was the result of increases in both energy industrial and thermal barrier revenue. Energy industrial revenue increased by $9.8 million, or 9%, to $124.8 million in 2022 from $115.0 million in 2021. This increase was driven by a more favorable mix of product shipments in the global petrochemical and refinery markets, particularly in Asia and North America, project-based demand in the subsea market, offset, in part, by a decrease in maintenance-based demand in the global petrochemical and refinery markets in Europe. Energy industrial revenue for the years ended December 31, 2022 and 2021, included $39.3 million and $34.1 million in sales to Distribution International, Inc., respectively. The average selling price per square foot of our products increased by $0.50, or 15%, to $3.83 per square foot for the year ended December 31, 2022, from $3.33 per square foot for the year ended December 31, 2021. This 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 approximately $16.3 million for the year ended December 31, 2022. 76 In volume terms, product shipments decreased by 2.0 million square feet, or 6%, to 32.6 million square feet of aerogel products for the year ended December 31, 2022, as compared to 34.6 million square feet in the year ended December 31, 2021. The decrease in product volume had the effect of decreasing product revenue by approximately $6.6 million for the year ended December 31, 2022. Thermal barrier revenue was $55.6 million for the year ended December 31, 2022, as compared to $6.7 million for the year ended December 31, 2021. Thermal barrier revenue for the year ended December 31, 2022 included $45.8 million to a major U.S. automotive OEM and $5.1 million to a major Asian automotive OEM. Energy industrial revenue as a percentage of total revenue was 69% and 95% of total revenue in 2022 and in 2021, respectively. Thermal barrier revenue was 31% and 5% of total revenue in 2022 and in 2021, respectively. Cost of Revenue Year Ended December 31, Change 2022 2021 Amount Percentage of Related Revenue Amount Percentage of Related Revenue Amount Percentage ($ in thousands) Cost of revenue: Energy industrial $ 105,963 85% $ 100,472 87% $ 5,491 5% Thermal barrier 69,425 125% 11,213 NM 58,212 NM Total cost of revenue $ 175,388 97% $ 111,685 92% $ 63,703 57% Total cost of revenue increased $63.7 million, or 57%, to $175.4 million in 2022 from $111.7 million in 2021. The increase in total cost of revenue was the result of an increases in thermal barrier and energy industrial cost of revenue. Energy industrial cost of revenue increased $5.5 million, or 5%, to $106.0 million from $100.5 million in the comparable period in 2021. The $5.5 million increase was the result of a $16.4 million increase in material costs, offset by a $10.9 million decrease in manufacturing and other operating costs from the comparable period in 2021. Thermal barrier cost of revenue increased $58.2 million to $69.4 million as compared to $11.2 million in the comparable period in 2021. The $58.2 million increase was the result of a $17.0 million increase in material costs and a $41.2 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. The increase in manufacturing was driven by increases in compensation and related costs of $11.7 million and other manufacturing and operating costs of $29.5 million. Gross Profit Year Ended December 31, Change 2022 2021 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage Gross profit: Energy industrial $ 18,844 15% $ 14,486 13% $ 4,358 30% Thermal barrier (13,868 ) (25)% (4,549 ) NM (9,319 ) NM Total gross profit $ 4,976 3% $ 9,937 8% $ (4,961 ) (50)% Gross profit decreased $4.9 million, or 50%, to $5.0 million in 2022 from $9.9 million in 2021. The decrease in gross profit was the result of the $63.7 million increase in total cost of revenue, partially offset by the $58.7 million increase in total revenue. The increase in total cost of revenue was principally driven by the increase in overhead costs and additional resources to support our expected higher run-rate revenue in future periods for both our energy industrial and thermal barrier products. 77 Research and Development Expenses Year Ended December 31, Change 2022 2021 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) Research and development expenses $ 16,930 9% $ 11,441 9% $ 5,489 48% Research and development expenses increased by $5.5 million, or 48%, to $16.9 million in 2022 from $11.4 million in 2021. The $5.5 million increase was the result of increases in compensation and related costs of $2.5 million, professional fees and materials costs of $1.1 million, equipment and lease costs of $0.9 million, depreciation expenses of $0.7 million and other research and development expenses of $0.3 million. Research and development expenses as a percentage of total revenue was 9% during the years ended December 31, 2022 and 2021. Sales and Marketing Expenses Year Ended December 31, Change 2022 2021 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) Sales and marketing expenses $ 28,792 16% $ 16,581 14% $ 12,211 74% Sales and marketing expenses increased by $12.2 million, or 74%, to $28.8 million in 2022 from $16.6 million in 2021. The increase was the result of increases in compensation and related costs of $7.2 million, operating material and supplies costs of $1.8 million, travel related costs of $1.6 million, marketing costs of $0.8 million and professional fees and other expenses of $0.8 million. Sales and marketing expenses as a percentage of total revenue increased to 16% in 2022 from 14% in 2021 primarily due to elevated levels of compensation associated with an increase in sales and marketing personnel. General and Administrative Expenses Year Ended December 31, Change 2022 2021 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) General and administrative expenses $ 38,499 21% $ 22,514 19% $ 15,985 71% General and administrative expenses increased by $16.0 million, or 71%, to $38.5 million in 2022 from $22.5 million in 2021. The $16.0 million increase was the result of increases in compensation and related costs of $8.8 million, professional fees and other costs of $3.3 million, leasing and facility costs of $1.5 million, information technology related costs of $1.3 million and legal related costs of $1.1 million. General and administrative expenses as a percentage of total revenue increased to 21% in 2022 from 19% in 2021 primarily due to increased expenditures associated with the growth in our human resource, finance, information technology and general management organizations in preparation for the anticipated growth in our business. 78 Interest Expense, net Year Ended December 31, Change 2022 2021 Amount Percentage of Revenue Amount Percentage of Revenue Amount Percentage ($ in thousands) Interest expense: Interest expense, related party $ (5,110 ) (3)% $ — 0% $ (5,110 ) NM Interest income (expense), net 1,617 1% (229 ) (0)% 1,846 NM Total interest expense, net $ (3,493 ) (2)% $ (229 ) (0)% $ (3,264 ) NM Interest expense, net increased by $3.3 million to $3.5 million in 2022 from $0.2 million in 2021. The $3.3 million increase was the result of increase in interest expense, related party by $5.1 million offset by increase in interest income, net of $1.8 million. Increase in interest expense, related party of $5.1 million was the result of interest relating to our Convertible Note. Interest income, net increased by $1.8 million to $1.6 million in 2022 from $(0.2) million in 2021 due to higher cash balances throughout 2022, in addition to more favorable interest rates. 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 EV market, we have been in the process of 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 of 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 ramp up construction, we expect to be able to substantially reduce our planned capital expenditures for 2024. At the same time, we believe that productivity improvements in our existing Rhode Island facility combined with the supplemental supply of our energy industrial products from one or more external manufacturing facilities in China will permit us to achieve a target revenue capacity of approximately $650 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 ramp up construction on 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 external manufacturing facilities in China will provide us with adequate manufacturing capacity or supply for that expected demand. Furthermore, when we ramp up 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 estimated costs 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 2024, we will continue to develop aerogel products and technologies for the EV market. We believe the commercial potential for our technology in the EV 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. During the year ended December 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. On November 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. 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. 79 On December 19, 2023, we entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which we issued and sold, in a registered direct offering directly to the Investors an aggregate of 6,060,607 shares of our common stock at an offering price of $12.38 per share. We received net proceeds of $74.4 million, after deducting offering expenses of approximately $0.6 million. We believe that our December 31, 2023 cash and cash equivalents balance of $139.7 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 EV market and other strategic business opportunities. We may, from time to time, enter into leasing arrangements including sale and leaseback financing arrangements. In January 2024, we entered into a sale and leaseback arrangement, pursuant to which we sold certain equipment to the Leasing Company for a one-time cash payment of $5.0 million and leased back such equipment from the Leasing Company. The associated monthly lease rents will be paid over the term of three years. However, we plan to supplement our cash balance and available credit with equity financings, debt financings, equipment leasing, sale-leaseback transactions, customer prepayments or government grant and loan programs 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. Furthermore, we have certain assets that are currently owned, which we are evaluating for potential sale and lease back arrangements. This type of arrangement would provide us with one-time cash payments in the near term, in exchange for future lease payments. We believe that 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 of December 31, 2023, we had $139.7 million of cash and cash equivalents. 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. 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 year ended December 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. The 2022 ATM offering program was terminated on June 20, 2023. On November 28, 2022, our wholly owned subsidiary, Aspen Aerogels Georgia, LLC, entered into a $100.0 million loan agreement with GM for which the proceeds to be used for the construction and operation of our planned aerogel manufacturing facility in Bulloch County, Georgia. The agreement allows for borrowings beginning in on the date that is twelve (12) months prior to the date agreed upon by Borrower and GM for the start of production at the Plant and ending on March 31, 2024 (or any later date approved in writing by GM at its sole discretion). On November 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. On December 19, 2023, we entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which we issued and sold, in a registered direct offering directly to the Investors an aggregate of 6,060,607 shares of our common stock at an offering price of $12.38 per share. We received net proceeds of $74.4 million, after deducting offering expenses of approximately $0.6 million. See “ Risk Factors - Risks Related to Our Business and Strategy - We will require significant additional capital to pursue our growth strategy, but we may not be able to obtain additional financing on acceptable terms or at all ” in this Annual Report on Form 10-K for the year ended December 31, 2022. 80 Analysis of Cash Flow The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2023 2022 2021 ($ in thousands) Net cash provided by (used in): Operating activities $ (42,612 ) $ (94,399 ) $ (18,628 ) Investing activities (175,455 ) (177,974 ) (13,778 ) Financing activities 75,477 478,370 92,474 Net increase (decrease) in cash (142,590 ) 205,997 60,068 Cash and cash equivalents, beginning of period 282,561 76,564 16,496 Cash and cash equivalents, end of period $ 139,971 $ 282,561 $ 76,564 Operating Activities During 2023, we used $42.6 million in net cash in operating activities, as compared to the use of $94.4 million in net cash during 2022, a decrease in the use of cash of $51.8 million. This decrease in the use of cash was the result of the decrease in net loss adjusted for non-cash items of $44.8 million, and a decrease in cash used by changes in working capital of $7.0 million. During 2022, we used $94.4 million in net cash in operating activities, as compared to the use of $18.6 million in net cash during 2021, an increase in the use of cash of $75.8 million. This increase in the use of cash was the result of the increase in net loss adjusted for non-cash items of $31.6 million, and a decrease in cash provided by changes in working capital of $44.2 million. 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, our automated fabrication facility in Mexico and engineering designs for the planned aerogel manufacturing facility in Bulloch County, Georgia. Net cash used in investing activities for 2023 and 2022 totaled $175.5 million and $178.0 million, respectively. Financing Activities Net cash provided by financing activities in 2023 totaled $75.5 million and consisted of net proceeds from the registered direct offering of common stock of $74.2 million and $1.7 million in proceeds from employee stock option exercises, offset, in part, by $0.4 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 in 2022 totaled $478.4 million and consisted of $267.5 million of net proceeds from our underwritten public offering, $99.8 million in net proceeds from the issuance of convertible debt, $72.7 million of net proceeds from our 2022 ATM offering program, net proceeds from the private placement of common stock of $49.9 million, and proceeds from employee stock option exercises of $0.6 million, offset, in part, by $9.7 million for payments of a prepayment liability and $2.4 million for payments for employee tax withholdings associated with the vesting of restricted stock units. Capital Spending and Future Capital Requirements We have made capital expenditures primarily to develop and expand our manufacturing capacity. Our capital expenditures totaled $175.5 million in 2023, $178.0 million in 2022 and $13.8 million in 2021. As of December 31, 2023, we had capital commitments of approximately $202.6 million, which included commitments for which we have entered into contracts as well as commitments authorized by our Board of Directors. These commitments relate to the enhancement of our existing production lines in our East Providence facility and our fabrication operation in Mexico, and the planned aerogel manufacturing facility in Bulloch County, Georgia and consist primarily of costs for equipment and construction. As indicated in the overview of the liquidity and capital resources section, 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 ramp up construction, we expect to be able to substantially reduce our planned capital expenditures for 2024. 81 We intend to fund capital expenditures related to the expansion of capacity of our existing manufacturing facility with our existing cash balance and anticipated cash flows from operations. We plan to fund the capital expenditures required to build a carbon aerogel battery materials facility, and to construct a new aerogel blanket manufacturing facility with additional equity financings, debt financings, equipment leasing, sale-leaseback transactions, customer prepayments, government grant and loan programs or credit facilities. Contractual Obligations and Commitments Operating Leases We lease office space for our corporate offices in Northborough, Massachusetts, which expires in 2031. We also lease additional facilities in East Providence, Rhode Island; Marlborough, Massachusetts; Monterrey, Mexico; and Pawtucket, Rhode Island for research, administrative, fabrication, and warehousing purposes under leases expiring between January 31, 2024 and April 30, 2034. See “Item 2 — Properties.” We also lease vehicles and equipment under non-cancelable operating leases that expire at various dates. Thermal Barrier Contract We are party to production contracts with GM, to supply fabricated, multi-part thermal barriers, or Barriers, for use in the battery system of its next-generation EVs, or Contracts. Pursuant to the Contracts, we are obligated to supply Barriers at fixed annual prices and at volumes to be specified by the OEM up to a daily maximum quantity through the respective terms of the agreements, which expire at various times from 2026 through 2034. While the OEM has agreed to purchase its requirement for Barriers for locations to be designated from time to time by the OEM, it has no obligation to purchase any minimum quantity of Barriers under the Contracts. In addition, the OEM may terminate the Contracts any time and for any or no reason. All other terms of the Contracts are generally consistent with the OEM’s standard purchase terms, including quality and warranty provisions customary in the automotive industry. Revolving Credit Facility On March 12, 2021, we entered into an Amended and Restated Loan and Security Agreement, or the SVB Loan Agreement, with Silicon Valley Bank, or SVB. On November 28, 2022, we terminated the SVB Loan Agreement with Silicon Valley Bank. As of the date of termination, we had no amounts due or owed to SVB under the SVB Loan Agreement for any principal, interest, or other amounts, other than approximately $1.2 million in letters of credit that were issued under the SVB Loan Agreement and were cash collateralized in connection with the termination of the SVB Loan Agreement. Convertible Note - Related Party On February 18, 2022, we sold and issued to an affiliate of Koch $100.0 million in aggregate principal amount of Notes. The Notes bear interest at the rate of SOFR plus 5.50% per annum if interest is paid in cash, 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. 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. The Notes are convertible at the option of the holder at any time until the business day prior to the maturity date, including in connection with a redemption by us. On November 28, 2022, in connection with the Loan Agreement, we entered into an amendment to the Notes, or the Convertible Note Amendment, to reduce the initial Conversion Price (as defined in the Notes) by $5.00 per share from $34.936625 per share to $29.936625 per share, by increasing the initial Conversion Rate (as defined in the Notes) from 28.623257 shares per $1,000 of Capitalized Principal Amount (as defined in the Notes) to 33.400100 shares per $1,000 of Capitalized Principal Amount under the Notes, subject to customary anti-dilution and other adjustments (as described in the Indenture, which governs the Notes). If the closing price per share of our common stock on the New York Stock Exchange is at least 130% of the Conversion Price for 20 consecutive trading days, we may elect to convert the principal and accrued interest owing under the Notes, plus a make-whole amount equal to the sum of the present values of the remaining interest payments that would have otherwise been payable from the date of such conversion, redemption or repurchase, as applicable, through maturity, or the Make-Whole Amount, into our common stock at the Conversion Price. 82 The Notes are redeemable by us at any time and from time to time in the event that the volume weighted average price of our common stock for the 10 trading days immediately preceding the date on which we provide the redemption notice has been at least 130% of the Conversion Price then in effect, at a redemption price of 100% of the principal amount of such Notes, plus accrued and unpaid interest to, but excluding the redemption date, plus the Make-Whole Amount. Purchase Commitments As of December 31, 2023, we had purchase commitments of approximately $267.3 million, which included capital commitments of $202.6 million. Purchase commitments related to capital expenditures are anticipated to be spent over the next three years, while our remaining purchase commitments are anticipated to be spent throughout 2024. Purchase obligations relate primarily to open purchase orders for capital expenditures, inventories, and goods and services. Purchase obligations are entered into with various vendors in the normal course of business and are consistent with our expected requirements. Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies. Recently issued standards typically do not require adoption until a future effective date. Prior to their effective date, the Company evaluates the pronouncements to determine the potential effects of adoption to its consolidated financial statements. Standards Implemented Since December 31, 2023 The Company has not implemented any accounting standards that had a material impact on its consolidated financial statements during the year ended December 31, 2023. Standards to be Implemented In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2023-07 Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures to enhance disclosures about significant segment expenses. This ASU is effective for our fiscal year 2024 and interim periods in fiscal year 2025. Early adoption is permitted. We are currently evaluating segment expense disclosures related to its annual report for fiscal year 2024. In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) Improvements to Income Tax Disclosures that requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU is effective for our fiscal year 2025. Early adoption is permitted. We are currently evaluating income tax disclosures related to our annual report for fiscal year 2025. Although there are several other new accounting pronouncements issued by the FASB, we do not believe any of these accounting pronouncements had or will have a material impact on our Consolidated Financial Statements. We believe that the impact of recently issued accounting standards that are not yet effective will not have a material impact on our consolidated financial statements. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. 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 note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information about these critical accounting policies, as well as a description of our other significant accounting policies. 83 Revenue Recognition 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. Products are typically delivered without significant post-sale obligations to customers other than standard warranty obligations for product defects. We provide warranties for our products and record the estimated cost within cost of sales in the period that the revenue is recorded. Our standard warranty period extends one to two years from the date of shipment, depending on the type of product purchased. Our warranties provide that our products will be free from defects in material and workmanship, and will, under normal use, conform to the specifications for the product. We recorded warranty expense of $0.5 million during the year ended December 31, 2023. We recorded warranty expense of $0.2 million during the year ended December 31, 2022. We recorded warranty expense of less than $0.1 million during the year ended December 31, 2021. As of December 31, 2023, we had satisfied all outstanding warranty claims. Stock-based Compensation We maintain an equity incentive plan pursuant to which our Board of Directors may grant qualified and nonqualified stock options, restricted stock, restricted stock units and other stock-based awards to board members, officers, key employees and others who provide or have provided service to us. We measure the costs associated with stock-based awards based on their estimated fair value at date of grant. We recognize the cost of stock-based awards as service, performance or market conditions are met. Future expense amounts for any particular quarterly or annual period could be affected by changes in our assumptions or changes in market conditions. Stock Options We use the Black-Scholes option-pricing model to estimate the fair value of stock option awards. The determination of the estimated fair value of stock option awards is based on a number of complex and subjective assumptions. These assumptions include the determination of the estimated fair value of the underlying security, the expected volatility of the underlying security, a risk-free interest rate, the expected term of the option, and the forfeiture rate for the award class. The following assumptions were used to estimate the fair value of the option awards: Year Ended December 31, 2023 2022 2021 Weighted-average assumptions: Expected term (in years) 6.12 5.97 5.96 Expected volatility 70.04 % 61.85 % 59.80 % Risk free rate 4.08 % 2.13 % 0.86 % Expected dividend yield — % — % — % • The expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method described in ASC Topic 718, Compensation — Stock Compensation , for all grants. We believe this is a better representation of the estimated life than our actual limited historical exercise behavior. • For the years ended December 31, 2023, 2022 and 2021, we used our historical volatility as a basis to estimate expected volatility in the valuation of stock options. • The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. • We use an expected dividend yield of zero, since we do not intend to pay cash dividends on our common stock in the foreseeable future, nor have we paid dividends on our common stock in the past. For stock options that contain a market condition, we use a Monte-Carlo Simulation model to estimate the grant date fair value of awards expected to vest. We based the simulation model on the Black Scholes option-pricing model and a number of other complex assumptions including (i) whether the vesting condition would be satisfied within the time-vesting periods, and (ii) the date the common stock price target would be achieved per the terms of the agreement. For the restricted stock awards issued to our Chief Executive Officer during the year ended December 31, 2021 with vesting subject to achievement of certain volume weighted average common stock price targets over a three-to-five year period, we used a 84 Monte-Carlo simulation model to estimate the grant date fair value with respect to 461,616 shares of restricted common stock. The award had an aggregate grant date fair value of $6.5 million. On June 2, 2022, we issued 53,590 shares of restricted common stock, pursuant to a performance-based restricted stock agreement, to each of certain employees, with vesting in tranches, subject to achievement of certain time and performance vesting conditions, as defined, over a three-to-five year period. We used a Monte-Carlo simulation model to estimate the grant date fair value of the awards. The equity awards had a total aggregate fair value of $4.0 million at the time of grant. 85 Item 7A. QUANTITATIVE AND QUALITAT IVE 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. At December 31, 2023, we had unrestricted cash and cash equivalents of $139.7 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 major financial institutions 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. As of December 31, 2023, we had $0.2 million of restricted cash to support our outstanding letters of credit. We terminated our revolving credit facility agreement on November 28, 2022. 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. Virtually all of our revenue, receivables, purchases and debts are denominated in U.S. dollars. 86 Item 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Aspen Aerogels, Inc.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of Aspen Aerogels, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the 87 maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Net realizable value of certain inventories As discussed in Note 2 to the consolidated financial statements, inventories are stated at the lower of cost and net realizable value. As of December 31, 2023, the Company held inventories of $39.2 million. The excess, obsolete or damaged goods provision recorded for inventories is equal to the difference between the cost of inventory and the estimated net realizable value, which is based upon assumptions about future demand, selling prices, and market conditions. We identified the evaluation of the estimated net realizable value of certain inventories as a critical audit matter. A high degree of auditor judgment was required to evaluate the Company’s assumption of future demand through future consumption, including whether past consumption is indicative of future consumption and the related effect on the net realizable value of certain inventories. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s inventory process. This included a control related to the Company’s process to estimate future consumption. We assessed the Company’s assumption related to future consumption and its correlation to past consumption by inquiring of relevant Company personnel regarding the impact of relevant changes to the overall business environment, including key customers and product lines. We compared the actual quantities of inventory on hand to actual consumption during the current year and subsequent to year-end to evaluate whether the historic and subsequent period consumption supported the Company’s assumption related to future consumption. We recalculated the Company’s estimate of the inventory provision based on the actual quantities of inventory on hand compared to the estimate of future consumption. /s/ KPMG LLP We have served as the Company’s auditor since 2002. Boston, Massachusetts March 7, 2024 88 ASPEN AEROGELS, INC. Consolidated B alance Sheets December 31, 2023 2022 (In thousands, except share and per share data) Assets Current assets: Cash and cash equivalents $ 139,723 $ 281,335 Restricted cash 248 1,226 Accounts receivable, net of allowances of $ 230 and $ 255 69,995 57,350 Inventories 39,189 22,538 Prepaid expenses and other current assets 17,176 7,236 Total current assets 266,331 369,685 Property, plant and equipment, net 417,227 259,223 Operating lease right-of-use assets 17,212 11,990 Other long-term assets 2,278 2,518 Total assets $ 703,048 $ 643,416 Liabilities and Stockholders’ Equity Current liabilities: Accounts payable $ 51,094 $ 54,728 Accrued expenses 22,811 16,003 Deferred revenue 2,316 5,846 Operating lease liabilities 1,874 2,368 Total current liabilities 78,095 78,945 Convertible note - related party 114,992 103,580 Operating lease liabilities long-term 21,906 13,456 Total liabilities 214,993 195,981 Commitments and contingencies (Note 12) Stockholders' equity: Preferred stock, $ 0.00001 par value; 5,000,000 shares authorized, no shares issued or outstanding at December 31, 2023 and 2022 — — Common stock, $ 0.00001 par value; 250,000,000 shares authorized, 76,503,151 and 69,994,963 shares issued and outstanding at December 31, 2023 and December 31, 2022, respectively — — Additional paid-in capital 1,161,657 1,075,226 Accumulated deficit ( 673,602 ) ( 627,791 ) Total stockholders' equity 488,055 447,435 Total liabilities and stockholders' equity $ 703,048 $ 643,416 See accompanying notes to consolidated financial statements. 89 ASPEN AEROGELS, INC. Consolidated Statem ents of Operations Year Ended December 31, 2023 2022 2021 (In thousands, except share and per share data) Revenue $ 238,718 $ 180,364 $ 121,622 Cost of revenue 181,797 175,388 111,685 Gross profit 56,921 4,976 9,937 Operating expenses Research and development 16,356 16,930 11,441 Sales and marketing 33,008 28,792 16,581 General and administrative 56,760 38,499 22,514 Total operating expenses 106,124 84,221 50,536 Loss from operations ( 49,203 ) ( 79,245 ) ( 40,599 ) Other income (expense) Interest expense, convertible note - related party ( 5,328 ) ( 5,110 ) — Interest income (expense), net 6,534 1,617 ( 229 ) Income from Employee Retention Credits 2,186 — — Gain on extinguishment of debt — — 3,734 Total other income (expense) 3,392 ( 3,493 ) 3,505 Net loss $ ( 45,811 ) $ ( 82,738 ) $ ( 37,094 ) Net loss per share: Basic and diluted $ ( 0.66 ) $ ( 2.10 ) $ ( 1.22 ) Weighted-average common shares outstanding: Basic and diluted 69,439,034 39,363,114 30,433,154 See accompanying notes to consolidated financial statements. 90 ASPEN AEROGELS, INC. Consolidated Statements of St ockholders’ Equity (In thousands, except share and per share data) Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity Shares Value Shares Value Balance at December 31, 2020 — $ — 27,821,685 $ — $ 575,811 $ ( 507,959 ) $ 67,852 Net loss — — — — — ( 37,094 ) ( 37,094 ) Stock compensation expense — — — — 5,176 — 5,176 Issuance of restricted stock — — 476,550 — — — — Vesting of restricted stock units — — 254,513 — ( 2,713 ) — ( 2,713 ) Proceeds from employee stock option exercises — — 351,387 — 2,301 — 2,301 Proceeds from at-the-market offering, net of commissions and fees of $ 601 and issuance costs of $ 43 — — 929,981 — 19,377 — 19,377 Forfeiture of performance-based restricted stock — — ( 78,125 ) — — — — Proceeds from private placement of common stock, net of fees and issuance costs of $ 1,491 — — 3,462,124 — 73,509 — 73,509 Balance at December 31, 2021 — $ — 33,218,115 $ — $ 673,461 $ ( 545,053 ) $ 128,408 Net loss — — — — — ( 82,738 ) ( 82,738 ) Stock compensation expense — — — — 9,385 — 9,385 Issuance of restricted stock — — 399,016 — — — — Vesting of restricted stock units — — 173,263 — ( 2,362 ) — ( 2,362 ) Proceeds from employee stock option exercises — — 118,552 — 553 — 553 Proceeds from at-the-market offering, net of commissions and fees of $ 2,269 and issuance costs of $ 616 — — 5,241,400 — 72,733 — 72,733 Proceeds from private placement of common stock, net of fees and issuance costs of $ 137 — — 1,791,986 — 49,863 — 49,863 Proceeds from underwritten public offering, net of underwriting discounts and commissions of $ 8,052 and issuance costs of $ 452 — — 29,052,631 — 267,496 267,496 Increase in debt discount due to modification of convertible note – related party — — — — 4,097 — 4,097 Balance at December 31, 2022 — $ — 69,994,963 $ — $ 1,075,226 $ ( 627,791 ) $ 447,435 Net loss — — — — — ( 45,811 ) ( 45,811 ) Stock compensation expense — — — — 10,954 — 10,954 Issuance of restricted stock — — 44,928 — — — — Vesting of restricted stock units — — 79,151 — ( 420 ) — ( 420 ) Proceeds from employee stock option exercises — — 323,502 — 1,659 — 1,659 'Proceeds from registered direct offering of common stock, net of fees and issuance costs of $ 623 — — 6,060,607 — 74,377 — 74,377 Issuance costs from underwritten public offering — — — — ( 139 ) ( 139 ) Balance at December 31, 2023 — $ — 76,503,151 $ — $ 1,161,657 $ ( 673,602 ) $ 488,055 See accompanying notes to consolidated financial statements. 91 ASPEN AEROGELS, INC. Consolidated Statem ents of Cash Flows Year Ended December 31, 2023 2022 2021 (In thousands) Cash flows from operating activities: Net loss $ ( 45,811 ) $ ( 82,738 ) $ ( 37,094 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 15,318 9,222 9,440 Gain on extinguishment of debt — — ( 3,734 ) Accretion of interest on convertible note - related party 4,403 5,110 — Amortization of convertible note issuance costs 37 32 — Amortization of debt discount due to modification of convertible note – related party 888 — — Amortization of debt issuance costs — — 18 Provision for bad debt ( 93 ) 115 ( 85 ) Stock compensation expense 10,954 9,385 5,176 Reduction in the carrying amount of operating lease right-of-use assets 2,859 2,640 1,618 Changes in operating assets and liabilities: Accounts receivable ( 12,552 ) ( 37,042 ) ( 4,643 ) Inventories ( 16,651 ) ( 10,551 ) 1,112 Prepaid expenses and other assets ( 7,401 ) ( 3,155 ) ( 2,324 ) Accounts payable 4,583 5,318 7,379 Accrued expenses 6,808 5,184 6,983 Deferred revenue ( 3,530 ) 4,525 ( 543 ) Operating lease liabilities ( 2,424 ) ( 2,444 ) ( 1,497 ) Other liabilities — — ( 434 ) Net cash used in operating activities ( 42,612 ) ( 94,399 ) ( 18,628 ) Cash flows from investing activities: Capital expenditures ( 175,455 ) ( 177,974 ) ( 13,778 ) Net cash used in investing activities ( 175,455 ) ( 177,974 ) ( 13,778 ) Cash flows from financing activities: Proceeds from underwritten public offering, net of underwriting discounts and commissions — 267,948 — Issuance costs from underwritten public offering — ( 452 ) — Proceeds from issuance of convertible note related party — 100,000 — Issuance costs from convertible note — ( 185 ) — Proceeds from employee stock option exercises 1,659 553 2,301 Payments made for employee restricted stock tax withholdings ( 420 ) ( 2,362 ) ( 2,713 ) Proceeds from at-the-market offering net of commissions and fees of $ 2,269 and $ 601 — 73,349 19,420 Fees and issuance costs from at-the-market offering — ( 616 ) ( 43 ) Proceeds from registered direct offering of common stock 75,000 — — Fees and issuance costs from registered direct offering of common stock ( 623 ) — — Proceeds from private placement of common stock — 50,000 75,000 Fees and issuance costs from private placement of common stock ( 139 ) ( 137 ) ( 1,491 ) Repayment of prepayment liability — ( 9,728 ) — Net cash provided by financing activities 75,477 478,370 92,474 Net (decrease) increase in cash, cash equivalents and restricted cash ( 142,590 ) 205,997 60,068 Cash, cash equivalents and restricted cash at beginning of period 282,561 76,564 16,496 Cash, cash equivalents and restricted cash at end of period $ 139,971 $ 282,561 $ 76,564 Supplemental disclosures of cash flow information: Interest paid $ 1 $ 153 $ 236 Income taxes paid $ — $ — $ — Supplemental disclosures of non-cash activities: Right-of-use assets obtained in exchange for new operating lease liabilities $ 10,380 $ 3,030 $ 12,092 Capitalized Interest $ 6,084 $ 2,723 $ — Increase in debt discount due to modification of convertible note – related party $ — $ 4,097 $ — Changes in accrued capital expenditures $ ( 8,217 ) $ 31,970 $ 4,701 See accompanying notes to consolidated financial statements. 92 ASPEN AEROGELS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Description of Business Nature of Business Aspen Aerogels, Inc. (the Company) is an aerogel technology company that designs, develops and manufactures innovative, high-performance aerogel insulation used primarily in the energy industrial and sustainable insulation materials markets. In addition, the Company has introduced a line of aerogel thermal barriers for use in battery packs in the electric vehicle ("EV") market. The Company is also developing applications for its aerogel technology in the battery materials and a number of other high-potential markets. The Company maintains its corporate offices in Northborough, Massachusetts. The Company has three wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC, Aspen Aerogels Germany, GmbH and Aspen Aerogels Georgia, LLC. Liquidity During the year ended December 31, 2023, the Company incurred a net loss of $ 45.8 million and used $ 42.6 million of cash in operations and $ 175.5 million of cash for capital expenditures. On February 15, 2022, the Company entered into a note purchase agreement with an affiliate of Koch Disruptive Technologies, LLC (Koch), relating to the issuance and sale of $ 100.0 million of the Company’s convertible debt. On November 29, 2022, the Company completed an underwritten public offering of 29,052,631 shares of our common stock at a public offering price of $ 9.50 per share. The Company 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. On December 19, 2023, the Company entered into a securities purchase agreement with certain institutional investors named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering by the Company directly to the Investors an aggregate of 6,060,607 shares of the Company’s common stock, $ 0.00001 par value per share. The shares were sold to the Investors at a price per share of $ 12.375 per share. The net proceeds from the Offering, after deducting offering expenses, were approximately $ 74.4 million. The Company had unrestricted cash and cash equivalents of $ 139.7 million as of December 31, 2023. On November 28, 2022, the Company entered into a loan agreement with General Motors Holdings LLC, an entity affiliated with General Motors LLC, which provides for a multi-draw senior secured term loan in an aggregate principal amount of up to $ 100.0 million, available to the Company on a delayed draw basis beginning January 1, 2023 to September 30, 2023 , subject to certain conditions precedent to funding. On September 28, 2023, the Company amended the GM Loan Agreement to extend the draw period for the delayed GM Loan to a period beginning on the date that is twelve months prior to the date agreed upon by the Company and GM for the start of production at an aerogel manufacturing facility in Bulloch County, Georgia (the Plant) and ending on March 31, 2024 (or any later date approved in writing by GM at its sole discretion); extend the maturity date of the GM Loan from March 31, 2025 to September 30, 2025; and add financial covenants measured starting from the fiscal quarter ending December 31, 2024 and at the end of each fiscal quarter thereafter. The Company is increasing investment in the research and development of next-generation aerogel products and manufacturing process technologies. In addition, the Company has developed a number of promising aerogel products and technologies for the EV market. The Company believes that the commercial potential for the Company’s products and technology in the EV market is significant. Accordingly, the Company is hiring additional personnel, incurring additional operating expenses, and incurring significant capital expenditures to expand silica aerogel manufacturing capacity, build an automated thermal barrier fabrication operation, enhance research and development laboratory facilities and equipment, and construct a battery materials facility, among other efforts. The Company expects its existing cash balance will be sufficient to support current operating requirements, current research and development activities and the capital expenditures required to support the evolving commercial opportunity in the EV market and other strategic business initiatives. However, the Company plans to supplement its cash balance with equity financings, debt financings, equipment leasing, sale-leaseback transactions, customer prepayments, or government grant and loan programs to provide the additional capital necessary to purchase the capital equipment, construct the new facilities, establish the operations and complete the aerogel capacity expansions required to support these evolving commercial opportunities and strategic business initiatives. 93 (2) Summary of Basis of Presentation and Significant Accounting Policies Principles of Consolidation The accompanying condensed consolidated financial statements of the Company include the accounts of all its subsidiaries which are majority-owned, controlled by the Company or a variable interest entity (“VIE”) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated in consolidation. A VIE is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company consolidates a VIE in accordance with ASC 810, Consolidation ("ASC 810") when it is the primary beneficiary of such VIE. As primary beneficiary, the Company has both the power to direct the activities that most significantly impact the economic performance of the VIE and a right to receive benefits or absorb losses of the entity that could be potentially significant to the VIE. The Company is required to reconsider its evaluation of whether to consolidate a VIE each reporting period, based upon changes in the facts and circumstances pertaining to the VIE. The Company evaluates the initial consolidation of each consolidated VIE, which includes a determination of whether the VIE constitutes the definition of a business in accordance with ASC 805, Business Combinations ("ASC 805"), by considering if substantially all of the fair value of the gross assets within the VIE are concentrated in either a single identifiable asset or group of single identifiable assets. Upon consolidation, the Company recognizes the assets acquired, the liabilities assumed, and any third-party ownership of membership interests as non-controlling interest as of the consolidation or acquisition date, measured at their relative fair values. In April 2022, the Company engaged Prodensa Servicios de Consultora to establish OPE Manufacturer Mexico S de RL de CV, a maquiladora located in Mexico with the express purposes of manufacturing thermal barrier PyroThin products and ultimately operating an automated fabrication facility for PyroThin. OPE is currently owned by Prodensa, which charges a management fee though there is an option for OPE to be purchased by Aspen after a period of 18 months . During the period between inception and the exercise of the purchase option, OPE operations are consolidated within the Company financial statements as of and for the year ended December 31, 2023 . Use of Estimates The preparation of the consolidated financial statements requires the Company to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, sales returns and allowances, product warranty costs, inventory valuation, the carrying amount of property and equipment, right-of-use assets, lease liabilities, stock-based compensation, and deferred income taxes. The Company evaluates its estimates and assumptions on an on-going basis using historical experience and other factors, including current economic conditions, which are believed to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances warrant. Illiquid credit markets, volatile equity markets, and declines in business investment can increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. Cash and Cash Equivalents Cash equivalents include short-term, highly liquid instruments, which consist of money market accounts and high-quality debt securities issued by the U.S. government via cash sweep accounts. All cash and cash equivalents are maintained with major financial institutions in North America. Deposits with this financial institution may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. Restricted Cash As of December 31, 2023, the Company had $ 0.2 million of restricted cash to support its outstanding letters of credit. 94 Concentration of Credit Risk Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of accounts receivable. The Company’s customers are primarily insulation distributors, insulation contractors, insulation fabricators and select energy and automotive end-users located throughout the world. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of accounts receivable. The Company reviews the allowance for doubtful accounts quarterly. During the year ended December 31, 2023, the Company recorded a charge for estimated customer uncollectible accounts receivable of less than $ 0.1 million. During the year ended December 31, 2022, the Company recorded a charge for estimated customer uncollectible accounts receivable of $ 0.1 million. During the year ended December 31, 2021, the Company did not record any charges for uncollectible accounts receivable. Allowance for doubtful accounts was $ 0.2 million and $ 0.3 million at December 31, 2023 and 2022, respectively. The Company does not have any off-balance-sheet credit exposure related to its customers. For the year ended December 31, 2023 , two customers represented 41 % and 14 % of total revenue, respectively. For the year ended December 31, 2022 , two customers represented 25 % and 22 % of total revenue, respectively. For the year ended December 31, 2021 , one customer represented 28 % of total revenue. At December 31, 2023 , the Company had two customers which accounted for 60 % and 6 % of accounts receivable, respectively. At December 31, 2022 , the Company had two customers which accounted for 44 % and 10 % of accounts receivable, respectively. Inventories Inventory consists of finished products, work-in-process, and raw materials. Inventories are carried at lower of cost, determined using the first-in, first-out (FIFO) method, and net realizable value. Cost includes materials, labor and manufacturing overhead. Manufacturing overhead is allocated to the costs of conversion based on normal capacity of the Company’s production facility. Abnormal freight, handling costs and material waste are expensed in the period it occurs. The Company periodically reviews its inventories and makes provisions as necessary for estimated excess, obsolete or damaged goods to ensure values approximate the lower of cost and net realizable value. The amount of any such provision is equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand, selling prices and market conditions. Prepaid expenses and other current assets Prepaid expenses and other current assets primarily include value added tax and income tax receivables, prepayments of future services, and payments for pre-billed inventories. Property, Plant and Equipment, Net Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for major betterments are capitalized as additions to property, plant and equipment. Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Assets related to leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Assets utilized in the Company’s operations that are taken out of service with no future use are charged to cost of revenue or operating expenses, depending on the department in which the asset was utilized. Impairments of construction in progress are charged to operating expenses upon the determination of no future use. Other Assets Other assets primarily include long-term deposits. 95 Impairment of Long-Lived Assets Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recognition and measurement of a potential impairment is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. Revenue Recognition The Company recognizes revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606). See note 3 for further details. Warranty The Company provides warranties for its products and records the estimated cost within cost of revenue in the period that the related revenue is recorded. The Company’s standard warranty period extends to one year from the date of shipment. This standard warranty provides that the Company’s products will be free from defects in material and workmanship, and will, under normal use, conform to the specifications for the product. The Company’s products may be utilized in systems that involve new technical demands and new configurations. Accordingly, the Company regularly reviews and assesses whether warranty reserves should be recorded in the period the related revenue is recorded. For an initial shipment of product for use in a system with new technical demands or new configurations and where the Company is unsure of meeting the customer’s specifications, the Company will defer the recognition of product revenue and related costs until written customer acceptance is obtained. The Company recorded warranty expense of $ 0.5 million during the year ended December 31, 2023 . The Company recorded warranty expense of $ 0.2 million during the year ended December 31, 2022 . The Company recorded warranty expense of less than $ 0.1 million during the year ended December 31, 2021 . Shipping and Handling Costs Shipping and handling costs are classified as a component of cost of revenue. Customer payments of shipping and handling costs are recorded as product revenue. Stock-based Compensation The Company grants share-based awards to its employees and non-employee directors. All share-based awards granted, including grants of stock options, restricted stock and restricted stock units (RSUs), are recognized in the statement of operations based on their fair value as of the date of grant. Expense is recognized on a straight-line basis over the requisite service period for all awards with service conditions. For performance-based awards, the grant date fair value is recognized as expense when the condition is probable of being achieved, and then on a graded basis over the requisite service period. The Company uses the Black-Scholes option-pricing model to determine the fair value of service-based option awards. The Black-Scholes model requires the use of a number of complex and subjective assumptions including fair value of the underlying security, the expected volatility of the underlying security, a risk-free interest rate and the expected term of the option. The fair value of restricted stock and RSUs is determined using the closing price of the Company’s common stock on the date of grant. All shares of restricted stock are not transferable until vested. Restricted stock is typically issued to non-employee directors and typically vests over a one-year period from the date of issuance. RSUs are issued to employees and typically vest over a three-year period from the date of issuance. The fair value of restricted stock and RSUs upon which vesting is solely service-based is expensed ratably over the vesting period. If the service condition for shares of restricted stock is not met for any reason, the shares of unvested restricted stock will be forfeited and returned to the Company. For stock awards that contain a market condition, the Company uses the Monte-Carlo simulation model to determine the fair value of the awards. In addition to the input assumptions used in the Black-Scholes model, the Monte-Carlo simulation model factors 96 the probability that the specific market condition may or may not be satisfied into the valuation. Stock-based compensation expense for awards with a market condition is recognized on a straight-line basis over the requisite service period for each such award. Research and Development Costs incurred in the Company’s research and development activities include compensation and related costs, services provided by third-party contractors, materials and supplies and are classified as research and development expenses as incurred. Earnings per Share The Company calculates net loss per common share based on the weighted-average number of common shares outstanding during each period. Potential common stock equivalents are determined using the treasury stock method. The weighted-average number of common shares included in the computation of diluted net income (loss) gives effect to all potentially dilutive common equivalent shares, including outstanding stock options and RSUs. Common equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive. Income Taxes Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The Company accounts for uncertain tax positions using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes penalties and interest related to uncertain tax positions, if any, as a component of income tax expense. Segments Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s chief operating decision maker reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company presently views its operations and manages its business as two operating segments. Leases The Company accounts for leases in accordance with FASB ASC Topic 842, Leases. The Company determines whether an arrangement is a lease at inception. For leases where the Company is the lessee, a lease liability and a right-of-use (ROU) asset is recognized for all leases, with the exception of short-term leases with terms of twelve months or less. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s payment obligations under the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term. To measure its lease liabilities, the Company uses its incremental borrowing rate or the rate implicit in the lease, if available. The Company calculates its incremental borrowing rate using a synthetic credit rating analysis based on Moody’s Building Materials Industry Rating Methodology. ROU assets also include any direct costs and prepaid lease payments but exclude any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company elected the short-term lease recognition exemption for all leases that qualify. For leases that qualify for this exemption, the Company does not recognize ROU assets or lease liabilities. For lease agreements with lease and non-lease components, the Company accounts for each component separately. However, in the case of equipment leases, the Company accounts for lease and non-lease components as a single component. Refer to Note 11. Leases for additional information. 97 Foreign Currency Transactions The Company converts foreign currency transactions recognized in the Consolidated Statements of Operations to U.S. dollars by applying the exchange rate prevailing on the date of the transaction. Gains and losses arising from foreign currency transactions and the effects of remeasuring monetary assets and liabilities are recorded in general and administrative expenses, net in the Consolidated Statements of Operations . Employee Retention Credits In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the Employee Retention Credit: a refundable tax credit against certain employment taxes. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended and expanded the availability of the Employee Retention Credits. We qualified for the Employee Retention Credits in the third and fourth quarters of 2020 and the first quarter of 2021. In September 2023, we submitted filings for CARES Employee Retention Credits totaling $ 2.2 million that are reported in the accompanying condensed consolidated balance sheet within prepaid expenses and other current assets as of December 31, 2023, and in the accompanying statement of operations for the year ended December 31, 2023 . Recently Issued Accounting Standards From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies. Recently issued standards typically do not require adoption until a future effective date. Prior to their effective date, the Company evaluates the pronouncements to determine the potential effects of adoption to its consolidated financial statements. Standards Implemented Since December 31, 2022 The Company has not implemented any accounting standards that had a material impact on its consolidated financial statements during the year ended December 31, 2023. Standards to be Implemented After December 31, 2023 In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2023-07 Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures to enhance disclosures about significant segment expenses. This ASU is effective for the Company’s fiscal year 2024 and interim periods in fiscal year 2025. Early adoption is permitted. The Company is currently evaluating segment expense disclosures related to its annual report for fiscal year 2024. In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740) Improvements to Income Tax Disclosures that requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. This ASU is effective for the Company’s fiscal year 2025. Early adoption is permitted. The Company is currently evaluating income tax disclosures related to its annual report for fiscal year 2025. Although there are several other new accounting pronouncements issued by the FASB, the Company does not believe any of these accounting pronouncements had or will have a material impact on its Consolidated Financial Statements. The Company believes that the impact of recently issued accounting standards that are not yet effective will not have a material impact on its consolidated financial statements. (3) Revenue from Contracts with Customers Revenue Recognition Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the separate performance obligations in the contract; and (v) recognition of the revenue associated with performance obligations as they are satisfied. The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is 98 distinct. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone-selling prices of the promised products or services underlying each performance obligation. The Company determines standalone-selling prices based on the price at which the performance obligation is sold separately. If the standalone-selling price is not observable through past transactions, the Company estimates the standalone-selling price considering available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. The Company did not have any contracts outstanding at both December 31, 2023 and December 31, 2022 and did not enter into any contracts during each of the years ended December 31, 2023 and 2022 that contained a significant financing component. The Company records deferred revenue for product sales when (i) the Company has 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. Energy Industrial The Company generally enters into contracts containing one type of performance obligation. For a majority of the contracts, the Company recognizes revenue at a point in time when transfer of control of the products is passed to the customer, which is generally upon delivery according to contractual shipping terms within customer purchase orders. For a limited number of customer arrangements for customized products with no alternative use to the Company and an enforceable right to payment for progress completed to date, the Company recognizes revenue over time using units of production to measure progress toward satisfying the performance obligations. Units of production represent work performed as we do not generate significant work in process and thereby best depicts the transfer of control to the customer. Customer invoicing terms for contracts for which revenue is recognized under the over time methodology are typically based on certain milestones within the production and delivery schedule. The timing of revenue recognition is assessed on a contract-by-contract basis. The Company also enters into rebate agreements with certain customers. These agreements may be considered an additional performance obligation of the Company or variable consideration within a contract. Rebates are recorded as a reduction of revenue in the period the related revenue is recognized. A corresponding liability is recorded as a component of deferred revenue on the consolidated balance sheets. These arrangements are primarily based on the customer attaining contractually specified sales volumes. The Company estimates the amount of its sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related revenue is recognized. The Company currently estimates return liabilities using historical rates of return, current quarter credit sales, and specific items of exposure on a contract-by-contract basis. Sales return reserves were approximately $ 0.2 million and $ 0.1 million at December 31, 2023 and December 31, 2022, respectively. Thermal Barriers The Company supplies fabricated, multi-part thermal barriers for use in battery packs in the EV market. These thermal barriers are customized to meet customer specifications. Although thermal barrier products are customized with no alternative use to the Company, the Company does not always have an enforceable right to payment. Under the provisions of ASC 606, the Company recognizes revenue at a point in time when transfer of the control of the products is passed to the customer according to the terms of the contract, including under bill and hold arrangements. The timing of revenue recognition is assessed on a contract-by-contract basis. Shipping and Handling Costs Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in the cost of product revenue. The associated amount of revenue recognized includes the consideration to which the Company expects to be entitled to receive in exchange for incurring these shipping and handling costs. 99 Disaggregation of Revenue In the following tables, revenue is disaggregated by primary geographical region and source of revenue: December 31, 2023 U.S. International Total (In thousands) Geographical region Asia $ — $ 35,698 $ 35,698 Canada — 2,033 2,033 Europe — 42,731 42,731 Latin America — 7,219 7,219 U.S. 151,037 — 151,037 Total revenue $ 151,037 $ 87,681 $ 238,718 Source of revenue Energy industrial $ 52,838 $ 75,801 $ 128,639 Thermal barrier 98,199 11,880 110,079 Total revenue $ 151,037 $ 87,681 $ 238,718 December 31, 2022 U.S. International Total (In thousands) Geographical region Asia $ — $ 34,746 $ 34,746 Canada — 4,947 4,947 Europe — 22,239 22,239 Latin America — 4,464 4,464 U.S. 113,968 — 113,968 Total revenue $ 113,968 $ 66,396 $ 180,364 Source of revenue Energy industrial $ 64,699 $ 60,108 $ 124,807 Thermal barrier 49,269 6,288 55,557 Total revenue $ 113,968 $ 66,396 $ 180,364 December 31, 2021 U.S. International Total (In thousands) Geographical region Asia $ — $ 19,383 $ 19,383 Canada — 2,985 2,985 Europe — 27,924 27,924 Latin America — 4,493 4,493 U.S. 66,837 — 66,837 Total revenue $ 66,837 $ 54,785 $ 121,622 Source of revenue Energy industrial $ 60,299 $ 54,659 $ 114,958 Thermal barrier 6,538 126 6,664 Total revenue $ 66,837 $ 54,785 $ 121,622 100 Contract Balances The following table presents changes in the Company’s contract assets and contract liabilities during the year ended December 31, 2023: Balance at December 31, 2022 Additions Deductions Balance at December 31, 2023 (In thousands) Contract assets Thermal barrier 143 — ( 143 ) — Total contract assets $ 143 $ - $ ( 143 ) $ — Contract liabilities Deferred revenue Energy industrial $ 5,846 $ 17,484 $ ( 21,014 ) $ 2,316 Total contract liabilities $ 5,846 $ 17,484 $ ( 21,014 ) $ 2,316 During the year ended December 31, 2023, the Company recognized $ 5.8 million of revenue that was included in deferred revenue at December 31, 2022. A contract asset is recorded when the Company satisfies a performance obligation by transferring a promised good or service and has earned the right to consideration from its customer. These assets may represent a conditional right to consideration and are included within accounts receivable on the consolidated balance sheets. A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services under the terms of the contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met. (4) Inventories Inventories consist of the following: December 31, 2023 2022 (In thousands) Raw material $ 24,735 $ 19,876 Work in process 7,936 2,204 Finished goods 6,518 458 Total $ 39,189 $ 22,538 (5) Property, Plant and Equipment, Net Property, plant and equipment consist of the following: December 31, 2023 2022 Useful life (In thousands) Construction in progress $ 314,695 $ 209,056 — Buildings 25,473 24,016 30 years Machinery and equipment 185,339 136,607 3 — 10 years Computer equipment and software 9,495 10,239 3 years Leasehold improvements 23,514 9,226 Shorter of useful life or lease term Total 558,516 389,144 Accumulated depreciation and amortization ( 141,289 ) ( 129,921 ) Property, plant and equipment, net $ 417,227 $ 259,223 101 Depreciation expense was $ 15.3 million, $ 9.2 million and $ 9.4 million for the years ended December 31, 2023, 2022 and 2021, respectively. Construction in progress totaled $ 314.7 million and $ 209.1 million at December 31, 2023 and 2022, respectively. The balance at December 31, 2023 and 2022 included engineering designs and construction costs totaling $ 279.7 million and $ 164.5 million, respectively, for a planned aerogel manufacturing facility in Bulloch County, Georgia. The Company incurred $ 6.1 million and $ 2.7 million in capitalized interest for the years ended December 31, 2023 and December 31, 2022, respectively, for the construction in progress in Bulloch County, Georgia. (6) Accrued Expenses Accrued expenses consist of the following: December 31, 2023 2022 (In thousands) Employee compensation $ 16,876 $ 12,467 Other accrued expenses 5,935 3,536 Total $ 22,811 $ 16,003 (7) Revolving Line of Credit The Company was party to the Second Amended and Restated Loan and Security Agreement with Silicon Valley Bank (Loan Agreement). On March 12, 2021, the Loan Agreement was amended and restated to extend the maturity date of the revolving credit facility to April 28, 2022 and to establish financial covenants on certain minimum Adjusted EBITDA levels and minimum Adjusted Quick Ratio covenants, each as defined in the Loan Agreement. At various dates in 2021, and subsequently on March 31, 2022, April 28, 2022, June 23, 2022, August 26, 2022 and October 14, 2022, the Company entered into amendments to the Loan Agreement to revise certain financial covenants, among other things. On November 28, 2022, the Company terminated the Loan Agreement with Silicon Valley Bank. As of both December 31, 2022 and 2023 , the Company had no amounts drawn from the revolving credit facility. (8) Related Party Transactions Convertible Note During the year ended December 31, 2022, the Company issued a $ 100.0 million aggregate principal amount convertible note to Wood River Capital, LLC, an entity affiliated with Koch Strategic Platforms, LLC (the 2022 Convertible Note). Refer to note 9 for more information. Common Stock Sales On June 29, 2021, the Company sold 3,462,124 shares of common stock to Spring Creek Capital, LLC, an entity affiliated with Koch Strategic Platforms, LLC, in a private placement of our common stock and received net proceeds of $ 73.5 million after deducting fees and offering expenses of $ 1.5 million. On March 28, 2022, the Company sold 1,791,986 shares of common stock to Wood River Capital, LLC, an entity affiliated with Koch Strategic Platforms, LLC, at a purchase price equal to $ 27.902 per share, for aggregate gross proceeds of approximately $ 50.0 million. On November 28, 2022, the Company sold 10,526,316 shares of common stock to Wood River Capital, LLC, an entity affiliated with Koch Strategic Platforms, LLC, at a purchase price equal to $ 9.50 per share, for aggregate gross proceeds of approximately $ 100.0 million, in an underwritten offering of common stock. Other During the year ended December 31, 2023, the Company recorded costs of $ 8.6 million as a component of construction in process in connection with the planned aerogel manufacturing facility in Bulloch County, Georgia in fees from an entity affiliated with 102 Koch Disruptive Technologies, LLC for project management service. The Company had $ 2.8 million in accounts payable as of December 31, 2023 due to the entity affiliated with Koch Disruptive Technologies, LLC. During the year ended December 31, 2022, the Company recorded costs of $ 8.9 million as a component of construction in progress in connection with the planned aerogel manufacturing facility in Bulloch County, Georgia in fees from an entity affiliated with Koch Strategic Platforms, LLC for project management services. During the year ended December 31, 2022, the Company sold 135,870 shares of its common stock to Robert M. Gervis, a director of the Company at the time, in the Company’s at-the-market offering pursuant to a sales agreement, dated March 16, 2022, by and among the Company and Cowen and Company, LLC and Piper Sandler & Co. (the Sales Agreement), for net proceeds of $ 4.4 million. (9) Convertible Note - Related Party 2022 Convertible Note On February 15, 2022 , the Company entered into a note purchase agreement (the Note Purchase Agreement) with Wood River Capital LLC, an entity affiliated with Koch Strategic Platforms, LLC (Koch), relating to the issuance and sale to Koch of the 2022 Convertible Note in the aggregate principal amount of $ 100.0 million. The transactions contemplated by the Note Purchase Agreement closed on February 18, 2022 (the Issue Date). The maturity date of the 2022 Convertible Note is February 18, 2027 , subject to earlier conversion, redemption, or repurchase. The 2022 Convertible Note is a senior unsecured obligation of the Company and ranks equal in right of payment to all senior unsecured indebtedness of the Company, and will rank senior in right of payment to any indebtedness that is contractually subordinated to the 2022 Convertible Note. In accordance with ASU 2020-06, the 2022 Convertible Note is accounted for as a single unit of account and consists of the following: December 31, December 31, 2023 2022 Convertible note, principal $ 100,000 $ 100,000 Payment in-kind 18,318 7,830 Discount on convertible note ( 3,209 ) ( 4,097 ) Debt issuance costs, net of accumulated amortization ( 117 ) ( 153 ) Convertible note $ 114,992 $ 103,580 In general, fair values determined by Level 1 inputs utilize observable inputs such as quoted prices in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are either directly or indirectly observable, such as quoted prices for similar instruments in active markets, interest rates and yield curves. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the Company to develop its own assumptions for the asset or liability. The 2022 Convertible Note does not have current observable inputs such as recent trading prices (Level 3) and is measured at fair value using a combination of option pricing and discounted cash flow models and incorporate management’s assumptions for stock price, volatility and risk rate. The Company estimated the fair value of the 2022 Convertible Note is approximately $ 118.2 million as of December 31, 2023 . However, as the Company has not elected to utilize the fair value option, it is carried at amortized cost of $ 115.0 million. Contractual Interest Rates The 2022 Convertible Note was issued at par and 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 2022 Convertible Note, SOFR has a floor of 1 % and a cap of 3 %. Interest on the 2022 Convertible Note is payable semi-annually in arrears on June 30 and December 30. The Company, at its option, is permitted to settle each semi-annual interest payment in cash, in-kind, or any combination thereof. It is expected that the Notes will mature on February 18, 2027 , subject to earlier conversion, redemption or repurchase. 103 The Company elected to repay the contractual interest due on June 30, 2022, December 30, 2022, June 30, 2023, and December 30, 2023 in-kind as an increase to the principal amount of $ 2.9 million, $ 4.9 million, $ 5.1 million, and $ 5.4 million respectively. The contractual interest attributable to the 2022 Convertible Note was recorded as an addition to the convertible note – related party balance on the condensed consolidated balance sheets. During the year ended December 31, 2023, the Company incurred $ 10.5 million of interest from the 2022 Convertible Note, of which $ 6.1 million was capitalized as part of the construction in progress for the planned manufacturing facility in Bulloch County, Georgia. The Company paused the capitalization of interest related to the manufacturing facility being constructed in Bulloch County, Georgia during the year ended December 31, 2023 , as a result of the intentional slow down in construction. During the year ended December 31, 2022, the Company incurred $ 7.8 million of interest from the 2022 Convertible Note, of which $ 2.7 million was capitalized as part of the construction in progress for the planned manufacturing facility in Bulloch County, Georgia. Debt issuance costs comprised less than $ 0.2 million for the year ended December 31, 2023. The effective interest rate approximated the contract interest rate for the year ended December 31, 2023. Conversion Rights On November 28, 2022, the Company entered into an amendment to the Convertible Note with Wood River Capital, LLC to reduce the initial Conversion Price by $ 5.00 per share from $ 34.936625 per share to $ 29.936625 per share, by increasing the initial Conversion Rate from 28.623257 shares per $ 1,000 of Capitalized Principal Amount to 33.400100 shares per $ 1,000 of Capitalized Principal Amount under the Convertible Note. Accordingly, the 2022 Convertible Note is convertible at the option of the holder at any time prior to the business day immediately preceding the maturity date at an initial conversion rate of 33.400100 shares of the Company’s common stock per $ 1,000 of capitalized principal. The effective conversion price is approximately $ 29.936625 per share (the Conversion Price). The Conversion Price is subject to adjustment upon the occurrence of certain dilutive events such as stock splits and combinations, stock dividends, mergers and spin-off. As of December 31, 2023, 3,951,833 shares of the Company’s common stock were issuable upon conversion of the 2022 Convertible Note. The Company has the right to settle conversions in shares of common stock, cash, or any combination thereof. If the closing price per share of the Company’s common stock on the New York Stock Exchange is at least 130 % of the Conversion Price for 20 consecutive trading days , the Company may elect to convert the principal and accrued interest owing under the Notes, plus a make-whole amount equal to the sum of the present values of the remaining interest payments that would have otherwise been payable from the date of such conversion, redemption or repurchase, as applicable, through maturity (the Make-Whole Amount), into the Company’s common stock at the Conversion Price. Optional Redemption The 2022 Convertible Note is redeemable at the Company’s option at any time and in the event that the volume weighted average price of the Company’s common stock for the 10 trading days immediately preceding the date on which the Company provides the redemption notice has been at least 130 % of the Conversion Price then in effect at a redemption price of 100 % of the principal amount, plus accrued and unpaid interest (excluding the redemption date), plus the Make-Whole Amount. Contingent Redemption Upon the occurrence of certain fundamental changes described in the Indenture (each, a Fundamental Change), the Holder of the Note may require that the Company repurchase all or part of the principal amount of the Note at a purchase price of 100 % of the principal amount of such Note, plus accrued and unpaid interest to, but excluding, the Fundamental Change repurchase date, plus the Make-Whole Amount. The Indenture includes customary “events of default,” which may result in the acceleration of the maturity of the Note. Embedded Derivatives The Company determined that the Make-Whole feature of the 2022 Convertible Note requires bifurcation in accordance with Accounting Standards Codification 815, Derivatives and Hedging (ASC 815). Accordingly, the Company must separately account for the feature at fair value with changes in fair value reported in current period earnings. The fair value of the Make-Whole was determined to be immaterial as of February 18, 2022, December 31, 2022, and December 31, 2023 . (10) Other Income (Expense) Interest 104 For the years ended December 31, 2023, and 2022 , interest expense on the related party convertible note was $ 5.3 million and $ 5.1 million, respectively and interest income, net, of $ 6.5 million and $ 1.6 million, respectively, are primarily related to interest earned on unrestricted cash and cash equivalents. For the year ended December 2021, interest expense, net was $ 3.5 million, and consisted primarily of fees and interest expense related to the Company’s revolving credit facility with Silicon Valley Bank. Employee Retention Credits The CARES Act provides an employee retention credit (CARES Employee Retention Credit), which is a refundable tax credit against certain employment taxes of up to $ 5,000 per employee for eligible employers. The tax credit is equal to 50 % of qualified wages paid to employees during a quarter, capped at $ 10,000 of qualified wages per employee through December 31, 2020. Additional relief provisions were passed by the United States government, which extend and slightly expand the qualified wage caps on these credits through December 31, 2021. Based on these additional provisions, the tax credit is now equal to 70 % of qualified wages paid to employees during a quarter, and the limit on qualified wages per employee has been increased to $ 10,000 of qualified wages per quarter. The Company qualified for the tax credit under the CARES Act for qualified wages for the years ended December 31, 2020 and 2021. In September 2023, the Company submitted filings for CARES Employee Retention Credits totaling $ 2.2 million that are reported in the accompanying condensed consolidated balance sheet within prepaid expenses and other current assets as of December 31, 2023, and in the accompanying statement of operations for the year ended December 31, 2023. (11) Leases The Company leases office, laboratory, warehouse and fabrication space in Massachusetts, Rhode Island and Monterrey, Mexico under operating leases. Under these agreements, the Company is obligated to pay annual rent, real estate taxes, and certain other operating expenses. The Company also leases equipment under operating leases. The Company’s operating leases expire at various dates through 2034 . During 2016, the Company entered into an agreement to extend its lease of approximately 51,650 square feet of office space in Northborough, Massachusetts. The lease commenced on January 1, 2017 and will expire on December 31, 2031 . The annual base rent associated with the lease was $ 478,000 during 2023 and is increasing by approximately 3 % annually for the term of the lease. The lease also requires the payment by the Company of its pro rata share of real estate taxes and certain other expenses. Prior to the expiration of the lease, the Company will have the right to extend the lease for an additional term of five years . Under the terms of the lease extension, the landlord provided the Company with an allowance of $ 1.2 million to be utilized for improvements to the leased premises. These amounts were considered a lease incentive and were excluded from the Company’s ROU assets upon its adoption of ASU 2016-02 on January 1, 2019 (see note 11). At December 31, 2023 and 2022 , the Company had capitalized $ 1.2 million in associated leasehold improvement costs. The Company incurred operating lease costs of $ 5.3 million and $ 4.0 million during the years ended December 31, 2023 and 2022, respectively. Cash payments related to operating lease liabilities were $ 4.9 million and $ 3.6 million during the years ended December 31, 2023 and 2022, respectively. At December 31, 2023, the weighted average remaining lease term for operating leases was 9.0 years. At December 31, 2023, the weighted average discount rate for operating leases was 12.0 % . Maturities of operating lease liabilities at December 31, 2023 are as follows: Year Operating Leases (In thousands) 2024 $ 4,531 2025 4,373 2026 4,064 2027 3,793 2028 3,946 Thereafter 19,174 Total lease payments 39,881 Less imputed interest ( 16,101 ) Total lease liabilities $ 23,780 105 As of December 31, 2023 , the Company had no additional operating real estate or equipment leases that would commence during 2024. (12) Commitments and Contingencies Cloud Computing Agreement The Company is party to a cloud computing agreement that is a service contract for enterprise resource planning software. The agreement has a three-year term beginning on January 15, 2021, with option to renew. During the year ended December 31, 2023, the Company capitalized $ 1.3 million of costs related to implementation of the software that began to amortize during 2022 with a five year expected life. The capitalized implementation costs are classified on the consolidated balance sheets as follows: December 31, December 31, 2023 2022 (In thousands) Cloud computing costs included in other current assets $ 420 $ 420 Cloud computing costs included in other assets 1,590 1,590 Amortization of cloud computing costs ( 662 ) ( 242 ) Total capitalized cloud computing costs $ 1,348 $ 1,768 Thermal Barrier Contract The Company is party to production contracts with GM to supply fabricated, multi-part thermal barriers (Barriers) for use in the battery system of its next-generation EVs (Contracts). Pursuant to the Contracts, the Company is obligated to supply Barriers at fixed annual prices and at volumes to be specified by the OEM up to a daily maximum quantity through the respective terms of the agreements, which expire at various times from 2026 through 2034. While the OEM has agreed to purchase its requirement for Barriers from the Company for locations to be designated from time to time by the OEM, it has no obligation to purchase any minimum quantity of Barriers under the Contracts. In addition, the OEM may terminate the Contracts any time and for any or no reason. All other terms of the Contracts are generally consistent with the OEM’s standard purchase terms, including quality and warranty provisions that are customary in the automotive industry. Letters of Credit The Company has provided certain customers with letters of credit securing obligations under commercial contracts. As of December 31, 2023, the Company had $ 0.2 million of restricted cash to support our outstanding letters of credit. The Company had letters of credit outstanding of $ 1.2 million at December 31, 2022 . These letters of credit were secured by the Company’s revolving credit facility (see note 7). On November 28, 2022 , we terminated the Loan Agreement with Silicon Valley Bank. Litigation The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. See Part I, Item 3 (“Legal Proceedings”) of this Annual Report on Form 10-K for a description of certain of the Company’s current legal proceedings. The Company is not presently a party to any litigation for which it believes a loss is probable requiring an amount to be accrued or a possible loss contingency requiring disclosure. Purchase Commitments As of December 31, 2023, the Company had purchase commitments of approximately $ 267.3 million, which included capital commitments of $ 202.6 million. Purchase commitments related to capital expenditures are anticipated to be spent over the next three years , while the Company's remaining purchase commitments are anticipated to be spent throughout 2024. Purchase obligations relate primarily to open purchase orders for capital expenditures, inventories, and goods and services. Purchase obligations are entered into with various vendors in the normal course of business and are consistent with the Company's expected requirements. (13) Stockholders’ Equity At December 31, 2023 and 2022 , the Company was authorized to issue 255,000,000 shares of stock, of which 250,000,000 shares were designated as common stock and 5,000,000 shares were designated as preferred stock. 106 (14) Employee Benefit Plan The Company sponsors the Aspen Aerogels, Inc. 401(k) Plan. Under the terms of the plan, the Company’s employees may contribute a percentage of their pretax earnings. During the year ended December 31, 2023, 2022, and 2021, the Company provided matching contributions of $ 1.5 million, $ 1.2 million, and $ 0.3 million, respectively. (15) Employee Stock Ownership Plans Effective June 12, 2014, the Company adopted the 2014 Employee, Director and Consultant Equity Incentive Plan (the 2014 Equity Plan). Under the 2014 Equity Plan, the Company was authorized to grant incentive stock options (ISOs), non-qualified stock options (NSOs), restricted stock, restricted stock units (RSUs) and other stock-based awards. Stock options under the 2014 Equity Plan were granted with an exercise price not less than the fair market value of the Company’s common stock at the date of grant. The 2023 Equity Plan was approved by stockholders at the Company’s annual meeting of stockholders on June 1, 2023 as the successor to the 2014 Equity Plan, and no further awards may be made under the 2014 Equity Plan after that date. Under the 2023 Equity Plan, the Company may grant ISOs, NSOs, restricted stock, RSUs and other stock-based awards. Stock options under the 2023 Equity Plan are to be granted with an exercise price not less than the fair market value of the Company’s common stock at the date of grant. Equity awards granted to employees generally vest over a service period of three to four years . Restricted stock and stock options granted to nonemployee directors generally vest over a one-year service period. As of December 31, 2023, 5,808,440 shares of common stock were reserved for issuance upon the exercise or vesting of outstanding stock-based awards granted under the Company’s equity incentive plans. Any cancellations or forfeitures of awards outstanding under the 2023 Equity Plan, the 2014 Equity Plan or the 2001 Equity Incentive Plan, as amended (the 2001 Equity Plan) will result in the shares reserved for issuance pursuant to such awards becoming available for grant under the 2023 Equity Plan. As of December 31, 2023, the Company has either reserved in connection with statutory tax withholdings or issued a total of 5,173,760 shares under the Company’s equity incentive plans. As of December 31, 2023, there were 2,139,794 shares of common stock available for future grant under the 2023 Equity Plan. During the year ended December 31, 2023, the Company granted 523,783 restricted common stock units (RSUs) with a grant date fair value of $ 4.6 million and non-qualified stock options (NSOs) to purchase 1,974,978 shares of common stock with a grant date fair value of $ 9.7 million to employees under its equity incentive plans. The RSUs and NSOs granted to employees will vest over a three-year period from the applicable vesting commencement date. During the year ended December 31, 2023, the Company also granted 44,928 shares of restricted common stock with a grant date fair value of $ 0.3 million and NSOs to purchase 46,272 shares of common stock with a grant date fair value of $ 0.2 million to its non-employee directors under the 2023 Equity Plan. The restricted common stock and NSOs granted to non-employee directors vest upon the earlier of the date that is the one-year anniversary of the grant date or the day prior to the Company’s annual meeting of stockholders to be held in 2024. On June 29, 2021, the Company also awarded 461,616 shares of restricted common stock to its chief executive officer with vesting subject to the achievement of certain volume weighted average common stock price targets, over a three -to- five year period. The award had an aggregate grant date fair value of $ 6.5 million. On June 2, 2022, the Company issued 53,590 shares of restricted common stock, pursuant to a performance-based restricted stock agreement, to each of certain employees, with vesting in tranches, subject to achievement of certain time and performance vesting conditions, as defined, over a three -to- five year period. The equity awards had a total aggregate fair value of $ 4.0 million at the time of grant. Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following: Year Ended December 31, 2023 2022 2021 (In thousands) Cost of product revenue $ 583 $ 931 $ 510 Research and development expenses 799 1,166 750 Sales and marketing expenses 1,484 1,883 822 General and administrative expenses 8,088 5,405 3,094 Total stock-based compensation $ 10,954 $ 9,385 $ 5,176 107 Stock Options Valuation and Amortization Method The fair value of each stock option is estimated as of the date of grant using the Black-Scholes option-pricing model. Key inputs into this formula included expected term, expected volatility, expected dividend yield and the risk-free rate. Each assumption is set forth and discussed below. The Company used a Monte-Carlo Simulation model to estimate the original grant date fair value of the CEO Options as well as the subsequent modifications. The simulation model was based on the Black-Scholes option-pricing model and a number of complex assumptions including (i) whether the vesting condition is satisfied within the time-vesting periods, and (ii) the date the common stock price target is met per the terms of the agreement. For stock options with a service condition, the fair value is amortized on a straight-line basis over the requisite service period of the options, which is generally a three-year vesting period from the date of grant. Expected Term The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. Accordingly, the Company uses the simplified method to calculate the expected term for options granted. Expected Volatility In 2023, 2022 and 2021, the Company used its historical volatility as a basis to estimate expected volatility in the valuation of stock options. Expected Dividend The Company uses an expected dividend yield of zero . The Company does not intend to pay cash dividends on its common stock in the foreseeable future, nor has it paid dividends on its common stock in the past. Risk-free Interest Rate The Company uses a risk-free interest rate based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. Estimated Forfeitures The Company records the impact of forfeitures of service-based awards under the provisions of ASU 2016-09 at the time an award is forfeited. Assumptions Utilized The following information relates to the fair value of the option awards estimated by use of the Black-Scholes option-pricing model: Year Ended December 31, 2023 2022 2021 Weighted average assumptions: Expected term (in years) 6.12 5.97 5.96 Expected volatility 70.04 % 61.85 % 59.80 % Risk free rate 4.08 % 2.13 % 0.86 % Expected dividend yield 0.00 % 0.00 % 0.00 % Weighted average fair value: Grant-date fair value of options granted $ 4.91 $ 14.20 $ 14.28 Grant-date fair value of options vested $ 9.63 $ 5.06 $ 2.91 Aggregate intrinsic value of options exercised $ 1,652,567 $ 1,306,245 $ 12,675,489 108 Outstanding Options The following table summarizes information about stock options outstanding: Number of Shares Weighted Average Grant Date Fair Value Per Share Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value ($ in thousands, except share and per share data) Options outstanding at December 31, 2022 3,904,080 $ 7.12 $ 11.37 5.26 $ 16,486,864 Granted 2,021,250 $ 4.91 $ 7.46 Forfeited ( 300,788 ) $ 10.18 $ 17.25 Expired ( 66,846 ) $ 98.27 $ 82.78 Exercised ( 323,502 ) $ 2.59 $ 5.13 $ 1,652,567 Options outstanding at December 31, 2023 5,234,194 $ 5.21 $ 8.99 6.13 $ 41,225,602 Exercisable at December 31, 2023 3,002,950 $ 4.58 $ 8.52 6.13 $ 24,797,684 Expected to vest at December 31, 2023 2,231,244 $ 6.07 $ 9.62 2.09 $ 16,427,918 As of December 31, 2023, total unrecognized compensation cost related to non-vested service-based options granted under the Company’s equity incentive plans was $ 9.7 million. The unrecognized compensation cost for the service-based options is expected to be recognized over a weighted average period of 2.09 years. Restricted Stock Awards and Restricted Stock Units The Company values restricted stock awards and RSUs based on the closing price of our shares on the date of grant. RSUs have time-based vesting conditions and typically vest over three or four years . Restricted stock awards issued to nonemployee directors generally vest in full one year from the date of grant. During the year ended December 31, 2021, the Company also awarded 461,616 shares of restricted common stock to its chief executive officer with vesting subject to the achievement of certain volume weighted average common stock price targets, over a three -to- five year period. The Company valued the shares using a Monte-Carlo simulation model to estimate the grant date fair value utilizing an expected volatility of 59.3 % and a risk free rate of 0.89 %. On June 2, 2022, the Company issued 53,590 shares of restricted common stock, pursuant to a performance-based restricted stock agreement, to each of certain employees, with vesting in tranches, subject to achievement of certain time and performance vesting conditions, as defined, over a three -to- five year period. The Company used a Monte-Carlo simulation model to estimate the grant date fair value utilizing an expected volatility of 63.4 % and a risk free rate of 2.92 % . The following table provides detail of grants, vesting, and forfeitures of RSUs during 2023: Restricted Stock Units Weighted Average Grant Date Fair Value Balance at December 31, 2022 257,075 $ 22.19 Granted 523,783 8.72 Vested ( 117,941 ) 18.97 Forfeited ( 88,670 ) 16.93 Balance at December 31, 2023 574,247 $ 11.38 Restricted stock awards granted during 2023 are considered issued and outstanding common stock and are excluded from the table above. As of December 31, 2023, there were 881,674 shares of restricted stock outstanding of which 44,928 were granted to nonemployee directors, 461,616 shares of restricted stock outstanding granted to the Company’s chief executive officer and 375,130 shares of restricted stock outstanding granted to other employees. 109 The total intrinsic value of restricted stock and RSUs that vested in 2023 and 2022 was $ 1.3 million and $ 7.4 million, respectively. As of December 31, 2023, 1,377,796 of the total shares of restricted stock and RSUs outstanding will vest upon the fulfillment of service conditions. As of December 31, 2023, total unrecognized compensation cost related to restricted stock awards issued to nonemployee directors of $ 0.1 million, and RSUs of $ 4.4 million is expected to be recognized over a weighted average period of 0.42 years and 1.90 years respectively. As of December 31, 2023, total unrecognized compensation cost related to restricted stock awards issued to the Company’s chief executive officer and certain other employees of $ 4.1 million is expected to be recognized over a weighted average period of 1.08 years. (16) CARES Act Payroll Tax Deferral The Company elected to defer approximately $ 0.9 million of its employer payroll tax obligation for the period from March 27, 2020 to December 31, 2020 pursuant to the provisions of the CARES Act. The Company was required to remit 50 percent of the deferred tax balance on or before December 31, 2021 and is required to remit the remaining 50 percent on or before December 31, 2022 . As of December 31, 2022, the Company had remitted its repayment obligation. (17) Net Loss Per Share The computation of basic and diluted net loss per share consists of the following: Year ended December 31, 2023 2022 2021 (In thousands, except share and per share data) Numerator: Net loss $ ( 45,811 ) $ ( 82,738 ) $ ( 37,094 ) Denominator: Weighted average shares outstanding, basic and diluted 69,439,034 39,363,114 30,433,154 Net loss per share, basic and diluted $ ( 0.66 ) $ ( 2.10 ) $ ( 1.22 ) Potentially dilutive common shares that were excluded from the computation of diluted net loss per share because they were anti-dilutive consist of the following: Year ended December 31, 2023 2022 2021 Common stock options 5,234,194 3,904,080 3,567,207 Restricted common stock units 574,247 257,075 350,195 Restricted common stock awards 881,674 23,886 14,934 Convertible note, if converted 3,951,833 3,601,533 — Total 10,641,948 7,786,574 3,932,336 In the table above, the potential dilutive shares from common stock options, restricted common stock units, restricted common stock awards, and the convertible note were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented. The Company excludes the shares issued in connection with restricted stock awards from the calculation of basic weighted average common shares outstanding until the restrictions lapse. For each of the years ended December 31, 2023, 2022 and 2021 , there was no dilutive impact of the common stock options, RSUs, and restricted stock awards. (18) Income Taxes The Company incurred net operating losses and recorded a full valuation allowance against net deferred assets for all periods presented. Accordingly, the Company has not recorded a provision for federal or state income taxes. 110 The reconciliation between the U.S. statutory income tax rate and the Company’s effective rate consists of the following: Year Ended December 31, 2023 2022 2021 U.S. federal income tax statutory rate 21 % 21 % 21 % Permanent differences — 1 % 10 % State tax, net of federal benefit 7 % 5 % 5 % Changes in valuation allowance for deferred tax assets ( 17 )% ( 27 )% ( 35 )% Stock-based compensation ( 7 )% — % — % Expiring net operating losses — % — % ( 1 )% Other 2 % — % — % State rate change ( 6 )% — % — % Effective tax rate — — — The tax effects of temporary differences between financial statement and tax accounting that gave rise to significant portions of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022 are presented below: December 31, 2023 2022 (In thousands) Deferred tax assets: Net operating loss carryforwards $ 82,563 $ 81,943 Stock-based compensation 3,076 6,677 Operating lease liabilities 5,997 4,065 Capitalized research and development 6,320 3,916 Tax credit carryforwards 4,261 448 Reserves and accruals 6,180 3,160 Interest expense limitation 929 1,257 Total gross deferred tax assets 109,326 101,466 Deferred tax liabilities: Depreciation ( 1,125 ) ( 1,879 ) Operating lease right-of-use assets ( 4,340 ) ( 3,081 ) Total deferred tax liabilities ( 5,465 ) ( 4,960 ) Total deferred tax assets and liabilities 103,861 96,506 Valuation allowance ( 103,861 ) ( 96,506 ) Net deferred tax asset $ — $ — The net change in the valuation allowance for the year ended December 31, 2023 , was an increase of $ 7.4 million. The Company has recorded a full valuation allowance against its deferred tax assets due to the uncertainty associated with the utilization of the net operating loss carryforwards and other future deductible items. In assessing the realizability of deferred tax assets, the Company considers all available evidence, historical and prospective, with greater weight given to historical evidence, in determining whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of the Company’s deferred tax assets generally is dependent upon generation of future taxable income. At December 31, 2023 , the Company had $ 358.9 million of net operating losses available to offset future federal income, if any, of which $ 194.6 million expire on various dates through December 31, 2037 . Net operating losses of $ 164.3 million generated from 2018 through 2023 have an unlimited carryforward . At December 31, 2023, the Company had $ 198.6 million of apportioned net operating losses available to offset future state taxable income, if any, and which begin to expire at various dates between 2024 and 2043 . For each of the years ended December 31, 2023, 2022 and 2021 , the Company did no t have any material unrecognized tax benefits and thus no interest and penalties related to unrecognized tax benefits were recorded. In addition, the Company does no t expect that the amount of unrecognized tax benefits will change significantly within the next twelve months. The Company files a federal income tax return in the United States and income tax returns in various state and foreign jurisdictions. All tax years are open for examination by the taxing authorities for both federal and state purposes. 111 The Tax Cuts and Jobs Act (“TCJA”) requires taxpayers to capitalize and amortize research and development (“R&D”) expenditures under section 174 for tax years beginning after December 31, 2021. This rule became effective for the Company during 2022. Capitalized R&D costs were $ 31.6 million as of December 31, 2023 . The Company will amortize these costs for tax purposes over 5 years for R&D performed in the U.S. and over 15 years for R&D performed outside the U.S. In 2023 , all R&D was performed in the U.S. (19) Segment Information Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s chief operating decision maker reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company reports two segments: Energy Industrial and Thermal Barrier. We evaluate segment performance based on the segment profit (loss) before corporate expenses. Summarized below are the Revenue and Segment Operating Profit for each reporting segment: Year Ended Year Ended Revenue Segment Operating Profit (Loss) December 31 December 31 2023 2022 2021 2023 2022 2021 (In thousands) Energy industrial $ 128,639 $ 124,807 $ 114,958 $ 34,162 $ 18,844 $ 14,486 Thermal barrier 110,079 55,557 6,664 22,759 ( 13,868 ) ( 4,549 ) Total $ 238,718 $ 180,364 $ 121,622 $ 56,921 $ 4,976 $ 9,937 Corporate expenses 106,124 84,221 50,536 Operating loss ( 49,203 ) ( 79,245 ) ( 40,599 ) Other expense, net 3,392 ( 3,493 ) 3,505 Net loss $ ( 45,811 ) $ ( 82,738 ) $ ( 37,094 ) Year Ended Depreciation Expense December 31, 2023 2022 2021 (In thousands) Energy industrial $ 10,720 $ 8,476 $ 9,440 Thermal barrier 4,598 746 — Consolidated depreciation expense $ 15,318 $ 9,222 $ 9,440 Total Assets December 31, 2023 2022 (In thousands) Energy industrial $ 93,168 $ 94,415 Thermal barrier 118,565 39,320 Total assets of reportable segments 211,733 133,735 Construction in progress 314,678 209,050 All other corporate assets 176,637 300,631 $ 703,048 $ 643,416 112 Information about the Company’s total revenues, based on shipment destination or services location, is presented in the following table: Year Ended December 31, 2023 2022 2021 ($ in thousands) Revenue: U.S. $ 151,037 $ 113,968 $ 66,837 International 87,681 66,396 54,785 Total $ 238,718 $ 180,364 $ 121,622 (20) Subsequent Events In January 2024, the Company was notified by a customer of an engineering change to one of the parts the Company manufactures for that customer to enable incremental productivity and support a set of broader system level changes that could drive higher demand for its parts. The Company has submitted a preliminary claim to the customer for reimbursement for estimated inventory and equipment losses incurred by the Company and its vendors due to potential obsolescence. The customer’s ordinary course process is to audit the claim to determine the proposed reimbursable amount. The Company expects the matter to be concluded by the second quarter of 2024, and currently estimates the potential impact to be in the range of zero to approximately $ 10.0 million. In January 2024 , we entered into a sale and leaseback arrangement, pursuant to which we sold certain equipment to an equipment leasing company for a one-time cash payment of $ 5.0 million and leased back such equipment from the leasing company. The associated monthly lease rents will be paid over the term of three years . On March 5, 2024, the Compensation and Leadership Development Committee of the Company’s Board of Directors (the "Committee") approved the cancellation of the outstanding, unearned portion of the performance-based restricted shares granted to certain employees pursuant to the Company’s 2014 Employee, Director and Consultant Equity Incentive Plan on June 29, 2021 (to the CEO) and June 2, 2022 (to certain other employees). The Committee determined that, based on current market conditions, the likelihood of achievement of any of the remaining performance hurdles applicable to the unearned restricted shares is remote, and that the unearned restricted shares therefore had ceased to have incentive value for the grantees. On March 6, 2024, the Company entered into cancellation agreements pursuant to which the applicable employees agreed to such cancellation. The cancellation of the unearned restricted shares resulted in an acceleration of the unamortized stock-based compensation charges of approximately $ 2.2 million. 113 Schedule II VALUATION AND QUALIFYING ACCOUNTS (in thousands) Description Balance at Beginning of Year Charges to Costs and Expenses (a) Recoveries of Costs and Expenses (b) Deductions to Allowances for Uncollectible Accounts (c) Charges to (Deductions from) Other Accounts (d) Balance at End of Year Year Ended December 31, 2023: Allowances for uncollectible accounts and sales returns and allowances $ 255 ( 93 ) — — 68 $ 230 Year Ended December 31, 2022: Allowances for uncollectible accounts and sales returns and allowances $ 150 115 — — ( 10 ) $ 255 Year Ended December 31, 2021: Allowances for uncollectible accounts and sales returns and allowances $ 442 ( 84 ) ( 208 ) — — $ 150 (a) Represents allowances for uncollectible accounts established through general and administrative expenses. (b) Represents recoveries of allowances for uncollectible accounts established through general and administrative expenses. (c) Represents actual write-offs of uncollectible accounts. (d) Represents net change in allowances for sales returns, recorded as contra-revenue. 114 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.