What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-02 · 182 added, 98 removed, 279 unchanged (50% of the section changed)

18 unchanged sentences

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 companies.

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 electric vehicle ("EV") market.

We are actively developing a number of promising aerogel products and technologies for the electric vehicle ("EV") market.

We have developed and are commercializing our proprietary line of PyroThin ® aerogel thermal barriers for use in battery packs in EVs.

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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, Audi, a luxury brand of the Volkswagen Group, and ACC, a battery cell joint venture between Stellantis N.V, Saft-TotalEnergies and Mercedes-Benz.

We have also entered into production contracts with Toyota, Scania, Audi, a luxury brand of the Volkswagen Group, ACC, a battery cell joint venture between Stellantis N.V, Saft-TotalEnergies and Mercedes-Benz, and a large EU battery manufacturer to supply a next generation vehicle platform of a major EU luxury sports car brand.

Energy Industrial

We also design, develop and manufacture innovative, high-performance aerogel insulation used primarily in the energy industrial and sustainable insulation materials markets.

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 companies.

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.

Manufacturing Operations

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This loan application is in connection with the construction of our planned second manufacturing plant in Bulloch County, Georgia.

The DOE's continued evaluation of the application is not an assurance that the terms and conditions of a term sheet will be consistent with terms proposed by the applicant.

In June 2024, after a public notice period, the Department of Energy released a Final Environmental Assessment and issued a “Finding of No significant Impact.” The DOE’s finding and the DOE's continued evaluation of the application is not an assurance that the terms and conditions of a term sheet will be consistent with terms proposed by the applicant.

The foregoing matters are wholly dependent on the results of DOE review and evaluation, and DOE's determination whether to proceed.

While the DOE's invitation to the formal due diligence stage is not an assurance that the DOE will issue a loan, we remain deeply engaged with the Loan Programs Office and its advisors and continue to believe that we are a strong candidate to partner with the DOE Loan Programs Office in this program.

While the DOE's invitation to the formal due diligence stage and subsequent finding is not an assurance that the DOE will issue a loan, we remain deeply engaged with the Loan Programs Office and its advisors and continue to believe that we are a strong candidate to partner with the DOE Loan Programs Office in this program.

Financial Summary

Our revenue for the three months ended March 31, 2024 was $94.5 million, which represented an increase of $48.9 million, or 107%, from $45.6 million for the three months ended March 31, 2023.

Net loss for the three months ended March 31, 2024 was $1.8 million and net loss per share was $0.02.

Net loss for the three months ended March 31, 2023 was $16.8 million and net loss per share was $0.24.

Our revenue for the six months ended June 30, 2024 was $117.8 million, which represented an increase of $69.6 million, or 145%, from $48.2 million for the six months ended June 30, 2023.

Net income for the six months ended June 30, 2024 was $16.8 million and net income per share was $0.22.

Net loss for the six months ended June 30, 2023 was $32.2 million and net loss per share was $0.47.

Key Metrics and Non-GAAP Financial Measures

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GAAP financial statements included elsewhere in this Quarterly Report on Form 10-Q, and not to rely on any single financial measure to evaluate our business.

The following table presents a reconciliation of net loss, the most directly comparable U.S.

The following table presents a reconciliation of net income (loss), the most directly comparable U.S.

GAAP measure, to Adjusted EBITDA for the periods presented:

Three Months Ended

Six Months Ended

(In thousands)

Net income (loss)

Depreciation and amortization

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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.

As a result, we expect to experience a decrease in both net loss and negative Adjusted EBITDA during 2024, compared to 2023.

Components of Our Results of Operations

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Manufacturing expense also includes stock-based compensation of manufacturing employees and shipping costs.

We expect that manufacturing expense will increase in absolute dollars and decrease as a percentage of revenue during 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.

We expect that manufacturing expense will increase in absolute dollars and decrease as a percentage of revenue during 2024 due to increased staffing costs 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 on our material costs, manufacturing expense, and cost of product revenue from engaging one or more external manufacturing facilities in China to supply our aerogel products for the energy industrial market beginning in 2024.

We expect that our energy industrial product material costs will increase in absolute dollars and as a percentage of revenue, and manufacturing expense and cost of revenue will decrease as a percentage of revenue due to projected volume growth, which will be manufactured through the external manufacturing facility.

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.

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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.

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.

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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.

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.

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Provision for Income Taxes

We have incurred net losses since inception and have not recorded benefit provisions for U.S.

We have incurred annual net losses since inception and have not recorded benefit provisions for U.S.

federal income taxes or state income taxes since the tax benefits of our net losses have been offset by valuation allowances due to the uncertainty associated with the utilization of net operating loss carryforwards.

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Results of Operations

Three months ended March 31, 2024 compared to the three months ended March 31, 2023

Three months ended June 30, 2024 compared to the three months ended June 30, 2023

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

Three Months Ended March 31,

Three Months Ended June 30,

($ in thousands)

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Total revenue

Total revenue increased $48.9 million, or 107%, to $94.5 million for the three months ended March 31, 2024 from $45.6 million in the comparable period in 2023.

Total revenue increased $69.6 million, or 145%, to $117.8 million for the three months ended June 30, 2024 from $48.2 million in the comparable period in 2023.

The increase in total revenue was the result of an increase in thermal barrier revenue and energy industrial revenue.

Energy industrial revenue increased by $1.4 million, or 4%, to $36.9 million for the three months ended June 30, 2024 from $35.5 million in the comparable period in 2023.

This increase was driven by an increase in revenue to the global petrochemical and refinery markets of Latin America, Europe, and North America, offset in part by a decrease in project-based demand in the subsea market and a less favorable mix of product shipments in the global petrochemical and refinery markets in Asia.

Energy industrial revenue for the three months ended June 30, 2024 included $6.0 million to a North American distributor, in comparison to $8.6 million for the comparable period of 2023.

The average selling price per square foot of our energy industrial products increased by 13% for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

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 $4.1 million for the three months ended June 30, 2024 from the comparable period in 2023.

In volume terms, energy industrial product shipments decreased by 8% as measured by square feet of our energy industrial products shipped for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The decrease in volume had the effect of decreasing product revenue by $2.8 million for the three months ended June 30, 2024 from the comparable period in 2023.

Thermal barrier revenue was $80.8 million for the three months ended June 30, 2024 as compared to $12.6 million for the three months ended June 30, 2023.

During the three months ended June 30, 2024 and 2023, thermal barrier revenue included $76.9 million and $9.8 million, respectively, to a major U.S.

automotive OEM.

Cost of Revenue

Three Months Ended June 30,

($ in thousands)

Cost of revenue:

Energy industrial

Thermal barrier

Total cost of revenue

Total cost of revenue increased $26.4 million, or 67%, to $66.2 million for the three months ended June 30, 2024 from $39.8 in the comparable period in 2023.

The increase in total cost of revenue was the result of an increase in thermal barrier cost of revenue, offset by a decrease in energy industrial cost of revenue.

Energy industrial cost of revenue decreased $4.5 million, or 17%, to $21.5 million for the three months ended June 30, 2024 from $26.0 million in the comparable period in 2023, primarily due to a decrease in the volume of products shipped.

The $4.5 million decrease was the result of an $8.4 million decrease in manufacturing and other operating costs due to lower volume of products manufactured at our plant, offset in part by a $3.9 million increase in material costs due to the manufacturing of products through the external manufacturing facility.

Thermal barrier cost of revenue increased $30.9 million to $44.7 million for the three months ended June 30, 2024 as compared to $13.8 million for the three months ended June 30, 2023.

The $30.9 million increase was the result of a $27.4 million increase in material costs and a $3.5 million increase in manufacturing costs, primarily driven by an increase in volume.

Thermal barrier cost of revenue includes a credit of $4.2 million for a partial reimbursement of costs related to the impact from an engineering change notified by a customer to a part that we manufacture for that customer to enable incremental productivity and support a set of broader system-level changes that could drive higher demand for its products.

During the three months ended March 31, 2024, we had recognized a $6.8 million charge, net of contractual recoverable of $1.9 million, in cost of revenues for inventory obsolescence and impairment of equipment incurred by us and our vendors.

We had submitted a preliminary claim to the customer for reimbursement of the losses incurred by us and our vendors.

The customer’s ordinary course process is to audit the claim to determine the proposed reimbursable amount.

We expect the matter to be concluded in the third quarter of 2024.

Three Months Ended June 30,

($ in thousands)

Gross profit:

Energy industrial

Thermal barrier

Total gross profit

Gross profit increased by $43.2 million, or 514%, to $51.6 million for the three months ended June 30, 2024 from $8.4 million in the comparable period in 2023.

The increase in gross profit was the result of the $69.6 million increase in total revenue, offset by the $26.4 million increase in total cost of revenue.

Research and Development Expenses

Three Months Ended June 30,

($ in thousands)

Research and development expenses

Research and development expenses increased by $0.6 million, or 15%, to $4.6 million for the three months ended June 30, 2024 from $4.0 million in the comparable period in 2023.

The $0.6 million increase reflects increases in compensation and related costs of $0.6 million.

Research and development expenses as a percentage of total revenue decreased to 4% of total revenue for the three months ended June 30, 2024 from 8% in the comparable period in 2023.

Sales and Marketing Expenses

Three Months Ended June 30,

($ in thousands)

Sales and marketing expenses

Sales and marketing expenses increased by $1.4 million, or 17%, to $9.5 million for the three months ended June 30, 2024 from $8.1 million in the comparable period in 2023.

The $1.4 million increase was principally the result of increases in compensation and related costs of $1.3 million, and depreciation and facility related expenses of $0.4 million, offset in part by a decrease in professional fees of $0.3 million.

Sales and marketing expenses as a percentage of total revenue decreased to 8% of total revenue for the three months ended June 30, 2024 from 17% in the comparable period in 2023.

General and Administrative Expenses

Three Months Ended June 30,

($ in thousands)

General and administrative expenses

General and administrative expenses increased by $4.1 million, or 31%, to $17.5 million for the three months ended June 30, 2024 from $13.4 million in the comparable period in 2023.

The $4.1 million increase was the result of increases in compensation and related costs combined with additional staffing costs of $1.3 million, insurance costs of $1.0 million, foreign currency transaction losses of $0.8 million, utilities expenditures of $0.5 million, recruiting and training of $0.3 million, and other expenses of $0.2 million.

General and administrative expenses as a percentage of total revenue decreased to 15% for the three months ended June 30, 2024 from 28% in the comparable period in 2023.

Other Income (Expense), net

Three Months Ended June 30,

($ in thousands)

Interest income (expense):

Interest (expense), related party

Interest income (expense), net

Total interest income (expense), net

Other income (expense), net decreased by $3.9 million to $2.3 million of other expense for the three months ended June 30, 2024 from $1.6 million of other income in the comparable period in 2023.

The $3.9 million decrease was the result of a $2.6 million net impact of capitalized interest relating to our Convertible Note in the comparable period in 2023, a $0.7 million decrease of interest income, and a $0.6 million increase of interest expense.

Income Tax Expense

Three Months Ended June 30,

($ in thousands)

Income tax expense

The $0.9 million of income tax expense for the three months ended June 30, 2024 is related to our maquiladora operations in Mexico.

We did not incur income tax expense for the comparable period in 2023.

Results of Operations

Six months ended June 30, 2024 compared to the six months ended June 30, 2023

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

Six Months Ended June 30,

Percentage of

($ in thousands)

Energy industrial

Thermal barrier

Total revenue

Total revenue increased $118.5 million, or 126%, to $212.2 million for the six months ended June 30, 2024 from $93.7 million in the comparable period in 2023.

The increase in total revenue was the result of an increase in thermal barrier revenue, offset by a decrease energy industrial revenue.

Energy industrial revenue decreased by $4.8 million, or 14%, to $29.1 million for the three months ended March 31, 2024 from $33.9 million in the comparable period in 2023.

This decrease was driven by a decrease in the volume of shipments in the global petrochemical and refinery markets of Asia, North America, and Latin America, offset in part by an increase in project-based demand in the subsea market and a more favorable mix of product shipments in the global petrochemical and refinery markets in Europe.

Energy industrial revenue for the three months ended March 31, 2024 included $7.5 million to a North American distributor, in comparison to $10.9 million for the comparable period of 2023.

The average selling price per square foot of our energy industrial products increased by 16% for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Energy industrial revenue decreased by $3.4 million, or 5%, to $66.0 million for the six months ended June 30, 2024 from $69.4 million in the comparable period in 2023.

This decrease was driven by a decrease in revenue to the global petrochemical and refinery markets of Asia and North America, offset in part by by an increase in project-based demand in the subsea market and a more favorable mix of product shipments in the global petrochemical and refinery markets in Latin America and Europe.

Energy industrial revenue for the six months ended June 30, 2024 included $13.5 million to a North American distributor, in comparison to $19.5 million for the comparable period of 2023.

The average selling price per square foot of our energy industrial products increased by 15% for six months ended June 30, 2024, compared to the six months ended June 30, 2023.

This increase in average selling price had the effect of increasing product revenue by $4.1 million for the three months ended March 31, 2024 from the comparable period in 2023.

In volume terms, energy industrial product shipments decreased by 26% as measured by square feet of our energy industrial products shipped for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

The decrease in volume had the effect of decreasing product revenue by $8.8 million for the three months ended March 31, 2024 from the comparable period in 2023.

Thermal barrier revenue was $65.4 million for the three months ended March 31, 2024 as compared to $11.7 million for the three months ended March 31, 2023.

During the three months ended March 31, 2024 and 2023, thermal barrier revenue included $60.6 million and $9.7 million, respectively, to a major U.S.

This increase in average selling price had the effect of increasing product revenue by $8.5 million for the six months ended June 30, 2024 from the comparable period in 2023.

In volume terms, energy industrial product shipments decreased by 17% as measured by square feet of our energy industrial products shipped for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The decrease in volume had the effect of decreasing product revenue by $11.8 million for the six months ended June 30, 2024 from the comparable period in 2023.

Thermal barrier revenue was $146.2 million for the six months ended June 30, 2024 as compared to $24.3 million for the six months ended June 30, 2023.

During the six months ended June 30, 2024 and 2023, thermal barrier revenue included $137.5 million and $24.3 million, respectively, to a major U.S.

automotive OEM.

Cost of Revenue

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands)

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Total cost of revenue

Total cost of revenue increased $18.8 million, or 47%, to $59.3 million for the three months ended March 31, 2024 from $40.5 in the comparable period in 2023.

Total cost of revenue increased $45.3 million, or 56%, to $125.6 million for the six months ended June 30, 2024 from $80.3 in the comparable period in 2023.

The increase in total cost of revenue was the result of an increase in thermal barrier cost of revenue, offset by a decrease in energy industrial cost of revenue.

Energy industrial cost of revenue decreased $7.5 million, or 30%, to $17.5 million for the three months ended March 31, 2024 from $25.0 million in the comparable period in 2023.

Energy industrial cost of revenue decreased $12.0 million, or 24%, to $39.0 million for the six months ended June 30, 2024 from $51.0 million in the comparable period in 2023, primarily due to a decrease in the volume of products shipped.

The $12.0 million decrease was the result of a $0.9 million decrease in material costs due to change in the product mix and a $11.1 million decrease in manufacturing and other operating costs from the comparable period in 2023.

Thermal barrier cost of revenue increased $26.3 million to $41.8 million for the three months ended March 31, 2024 as compared to $15.5 million for the three months ended March 31, 2023.

Thermal barrier cost of revenue increased $57.3 million to $86.6 million for the six months ended June 30, 2024 as compared to $29.3 million in the comparable period in 2023.

The $57.3 million increase was the result of a $41.7 million increase in material costs and a $15.6 million increase in manufacturing costs, primarily driven by an increase in volume.

Thermal barrier cost of revenue included $6.8 million for estimated costs related to impact from an engineering change notified by a customer to a part that we manufacture for that customer to enable incremental productivity and support a set of broader system level changes that could drive higher demand for its products.

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.

Thermal barrier cost of revenue includes a charge of $6.8 million, net of contractual recoverable of $1.9 million, recognized during the three months ended March 31, 2024, for estimated costs related to impact from an engineering change notified by a customer to a part that we manufacture for that customer to enable incremental productivity and support a set of broader system level changes that could drive higher demand for its products.

We have submitted a preliminary claim to the customer for reimbursement for estimated inventory and equipment losses incurred by us and our 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.

Three Months Ended March 31,

During the three months ended June 30, 2024, the customer approved reimbursement of portions of the claim totaling $4.2 for equipment losses incurred by us and our vendors which is recognized as an offset to the charge we recognized in the three months ended, March 31, 2024.

We expect the matter to be concluded in the third quarter of 2024.

Six Months Ended June 30,

($ in thousands)

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Thermal barrier

Total gross profit

Gross profit increased by $30.1 million, or 591%, to $35.1 million for the three months ended March 31, 2024 from $5.0 million of gross profit in the comparable period in 2023.

Total gross profit (loss)

Gross profit increased by $73.2 million, or 543%, to $86.7 million for the six months ended June 30, 2024 from $13.5 million of gross profit in the comparable period in 2023.

The increase in gross profit was the result of the $118.5 million increase in total revenue, offset by the $45.3 million increase in total cost of revenue.

Research and Development Expenses

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands)

Research and development expenses

Research and development expenses increased by $0.4 million, or 10%, to $4.5 million for the three months ended March 31, 2024 from $4.1 million in the comparable period in 2023.

The $0.4 million increase reflects increases in operating expenditures of $0.2 million and depreciation and facility related expenses of $0.2 million.

Research and development expenses as a percentage of total revenue decreased to 5% of total revenue for the three months ended March 31, 2024 from 9% in the comparable period in 2023.

Research and development expenses increased by $1.0 million, or 12%, to $9.1 million for the six months ended June 30, 2024 from $8.1 million in the comparable period in 2023.

The $1.0 million increase reflects increases in compensation and related costs of $0.6 million, depreciation and facility related expenses of $0.3 million, and other expenses of $0.1 million.

Research and development expenses as a percentage of total revenue decreased to 4% of total revenue for the six months ended June 30, 2024 from 9% in the comparable period in 2023.

Sales and Marketing Expenses

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands)

Sales and marketing expenses

Sales and marketing expenses increased by $0.6 million, or 8%, to $8.3 million for the three months ended March 31, 2024 from $7.7 million in the comparable period in 2023.

The $0.6 million increase was principally the result of increases in depreciation and facility related expenses of $0.5 million, and other general sales and marketing expenses of $0.1 million.

Sales and marketing expenses as a percentage of total revenue decreased to 9% of total revenue for the three months ended March 31, 2024 from 17% in the comparable period in 2023.

Sales and marketing expenses increased by $2.0 million, or 13%, to $17.8 million for the six months ended June 30, 2024 from $15.8 million in the comparable period in 2023.

The $2.0 million increase was principally the result of increases in compensation and related costs of $1.4 million, depreciation and facility related expenses of $0.8 million, and other expenses of $0.1 million, offset in part by a decrease in professional fees of $0.3 million.

Sales and marketing expenses as a percentage of total revenue decreased to 8% of total revenue for the six months ended June 30, 2024 from 17% in the comparable period in 2023.

General and Administrative Expenses

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands)

General and administrative expenses

General and administrative expenses increased by $5.0 million, or 41%, to $17.2 million for the three months ended March 31, 2024 from $12.2 million in the comparable period in 2023.

The $5.0 million increase was the result of additional staffing combined with increases in compensation and related costs of $3.5 million, operating expenditures of $0.6 million, utilities expenditures of $0.5 million, professional services expenses of $0.2 million, and depreciation and facility related expenses of $0.2 million.

General and administrative expenses increased by $9.2 million, or 36%, to $34.7 million for the six months ended June 30, 2024 from $25.5 million in the comparable period in 2023.

The $9.2 million increase was the result of additional staffing costs combined with increases in compensation and related costs of $4.8 million, foreign currency transaction losses of $1.4 million, insurance costs of $1.2 million, utilities expenditures of $1.0 million, legal costs of $0.5 million, and recruiting and training of $0.3 million.

Compensation and related costs include $2.0 million of charge from the cancellation of the unearned performance-based restricted shares.

General and administrative expenses as a percentage of total revenue decreased to 18% for the three months ended March 31, 2024 from 27% in the comparable period in 2023.

General and administrative expenses as a percentage of total revenue decreased to 16% for the six months ended June 30, 2024 from 27% in the comparable period in 2023.

Impairment of Equipment Under Development

1 unchanged sentence

Other Income (Expense), net

Three Months Ended March 31,

Six Months Ended June 30,

($ in thousands)

3 unchanged sentences

Total interest income (expense), net

Other income (expense), net decreased by $5.6 million to $3.5 million of other expense for the three months ended March 31, 2024 from $2.1 million of other income in the comparable period in 2023.

Other income (expense), net decreased by $9.5 million to $5.8 million of other expense for the six months ended June 30, 2024 from $3.7 million of other income in the comparable period in 2023.

The $9.5 million decrease was the result of a $5.1 million net impact of capitalized interest relating to our Convertible Note in the comparable period in 2023, $1.7 million of deferred financing costs related to the GM Loan Agreement for which the draw down date has expired, a $1.7 million decrease of interest income, and a $1.0 million increase of interest expense.

Income Tax Expense

Six Months Ended June 30,

($ in thousands)

Income tax expense

The $1.6 million of income tax expense for the six months ended June 30, 2024 is related to our maquiladora operations in Mexico.

We did not incur income tax expense for the comparable period in 2023.

Liquidity and Capital Resources

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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.

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.

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To meet the anticipated revenue growth and take advantage of this market opportunity, we are adding personnel and incurring additional operating expenses, among other items.

We believe that our March 31, 2024 cash and cash equivalents balance of $101.5 million will be sufficient to support current operating requirements, current research and development activities and the initial capital expenditures required to support the evolving commercial opportunities in the EV market and other strategic business opportunities.

In December 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.

In November 2022, we entered into a loan agreement (the GM Loan Agreement) with General Motors Holdings LLC (GM), an entity affiliated with General Motors LLC, which provides for a multi-draw senior secured term loan (the GM 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.

In September 2023, we amended the GM Loan Agreement to (i) 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 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 GM Loan from March 31, 2025 to September 30, 2025;

and (iii) add financial covenants measured starting from the fiscal quarter ending December 31, 2024 and at the end of each fiscal quarter thereafter.

As of March 31, 2024, we have not drawn, and no longer have the ability to draw on, the GM Loan.

We believe that our June 30, 2024 cash and cash equivalents balance of $91.4 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.

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.

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Cash and cash equivalents consist primarily of cash, money market accounts, and sweep accounts on deposit with banks.

As of March 31, 2024, we had $101.5 million of unrestricted cash and cash equivalents.

We received net proceeds of $74.4 million, after deducting offering expenses of approximately $0.6 million.

As of June 30, 2024, we had $91.4 million of unrestricted cash and cash equivalents.

Analysis of Cash Flow

Net Cash Used in Operating Activities

During the three months ended March 31, 2024, we used $17.7 million in net cash in operating activities, as compared to the use of $24.7 million in net cash during the comparable period in 2023, a decrease in the use of cash of $7.0 million.

This decrease in use of cash was the result of lower net loss adjusted for non-cash items of $30.8 million offset by net cash used by changes in operating assets and liabilities of $23.8 million.

During the three months ended March 31, 2023, we used $24.7 million in net cash in operating activities, as compared to the use of $22.8 million in net cash during the comparable period in 2022, an increase in the use of cash of $1.9 million.

This increase in use of cash was the result of cash provided by net loss adjusted for non-cash items of $3.3 million and in net cash used by changes in operating assets and liabilities of $5.2 million.

During the six months ended June 30, 2024, we used $10.9 million in net cash in operating activities, as compared to the use of $32.3 million in net cash during the comparable period in 2023, a decrease in the use of cash of $21.4 million.

This decrease in use of cash was the result of net income adjusted for non-cash items of $69.7 million offset by net cash used by changes in operating assets and liabilities of $48.3 million.

During the six months ended June 30, 2023, we used $32.3 million in net cash in operating activities, as compared to the use of $32.9 million in net cash during the comparable period in 2022, a decrease in the use of cash of $0.6 million.

This decrease in use of cash was the result of cash provided by net loss adjusted for non-cash items of $12.4 million and net cash used by changes in operating assets and liabilities of $11.8 million.

Net Cash Used in Investing Activities

Net cash used in investing activities is for capital expenditures for machinery and equipment principally to improve the throughput, efficiency and capacity of our East Providence facility and engineering designs and construction costs for the planned aerogel manufacturing facility in Bulloch County, Georgia.

Net cash used in investing activities for the three months ended March 31, 2024 and 2023 was $25.9 million and $49.4 million, respectively.

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, expansion of our automated fabrication facility in Mexico and engineering designs and construction costs for the planned aerogel manufacturing facility in Bulloch County, Georgia.

Net cash used in investing activities for the six months ended June 30, 2024 and 2023 was $50.7 million and $115.4 million, respectively.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2024 totaled $5.3 million and consisted of $5.0 million in proceeds from a sales leaseback and $1.4 million in proceeds from employee stock option exercises, offset by $1.1 million in cash used for payments made for employee tax withholdings associated with the vesting of restricted stock units

Net cash used in financing activities for the three months ended March 31, 2023 totaled $0.4 million and consisted of $0.4 million in cash used for payments made for employee tax withholdings associated with the vesting of restricted stock units, offset, in part, by less than $0.1 million in proceeds from employee stock option exercises.

Net cash provided by financing activities for the six months ended June 30, 2024 totaled $13.4 million and consisted of $5.0 million in proceeds from a sales leaseback and $10.1 million in proceeds from employee stock option exercises, offset by $1.1 million in cash used for payments made for employee tax withholdings associated with the vesting of restricted stock units, $0.5 million in repayments of a sales leaseback, and less than $0.1 million in cash used for fees and issuance costs.

Net cash used in financing activities for the six months ended June 30, 2023 totaled $0.2 million and consisted of $0.4 million in cash used for payments made for employee tax withholdings associated with the vesting of restricted stock units, offset, in part, by $0.2 million in proceeds from employee stock option exercises.

Contractual Obligations and Commitments

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Our financial statements are prepared in accordance with U.S.

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.

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.

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beliefs about our ability to produce and deliver products to electric vehicle customers;

beliefs about Aspen’s contracts with the major automotive manufacturers;

beliefs about our contracts with the major automotive manufacturers;

our expectations about the size and timing of awarded business in the electric vehicle market, future revenues and profit margins, arising from our supply relationship and contract with automotive OEMs and our ability to win more business and increase revenue in the electric vehicle market;

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our expectations about the effect of manufacturing capacity on financial metrics such as Adjusted EBITDA;

our expectations about future revenues, expenses, gross profit, net loss, loss per share and Adjusted EBITDA, sources and uses of cash, capital requirements and the sufficiency of our existing cash balance and available credit;

our expectations about future revenues, expenses, gross profit, net income (loss), income (loss) per share and Adjusted EBITDA, sources and uses of cash, capital requirements and the sufficiency of our existing cash balance and available credit;

our beliefs about the outcome, effects or estimated costs of current or potential litigation or their respective timing, including expected legal expense in connection with our patent enforcement actions;

our expectations about future material costs and manufacturing expenses as a percentage of revenue, including the impact of engaging one or more contract manufacturers in China for supply of our energy industrial products;

our expectation about the ability of the Chinese contract manufacturers that we engage to consistently supply the aerogel product that we order in a timely manner;

our expectations about future material costs and manufacturing expenses as a percentage of revenue, including the impact of engaging one or more external manufacturing facilities in China for supply of our energy industrial products;

our expectation about the ability of the Chinese external manufacturing facilities that we engage to consistently supply the aerogel product that we order in a timely manner;

our expectations of future gross profit and the effect of manufacturing expenses, manufacturing capacity and productivity on gross profit;

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our expectations about short and long term (a) research and development (b) general and administrative and (c) sales and marketing expenses;

our expectations of revenue growth, increased gross profit, and improving cash flows over the long term;

our expectations of revenue growth, increased gross profit, and

improving cash flows over the long term;

our intentions about managing capital expenditures and working capital balances;

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We are exposed to changes in interest rates in the normal course of our business.

As of March 31, 2024, we had unrestricted cash and cash equivalents of $101.5 million.

As of June 30, 2024, we had unrestricted cash and cash equivalents of $91.4 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.

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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 March 31, 2024, we had a convertible note outstanding with principal balance of $118.3 million.

As of June 30, 2024, we had a convertible note outstanding with principal balance of $123.9 million.

Our convertible note bears interest at the Secured Overnight Financing Rate (SOFR) plus 5.50% per annum if interest is paid in cash, or, if interest is paid in-kind as an increase in the principal amount of the outstanding note, at the SOFR plus 6.50% per annum.

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We, at our option, are permitted to settle each semi-annual interest payment in cash, in-kind, or any combination thereof.

As of March 31, 2024, we had $0.2 million of restricted cash to support our outstanding letters of credit to secure obligations under certain commercial contracts and other obligations.

As of June 30, 2024, we had $0.4 million of restricted cash to support our outstanding letters of credit to secure obligations under certain commercial contracts and other obligations.

We terminated our revolving credit facility agreement on November 28, 2022.

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Certain transactions of the Company and its subsidiaries are denominated in currencies other than the functional currency.

Foreign currency transaction losses were $0.7 million and $0.0 million for the three months ended March 31, 2024, and 2023, respectively, and were recorded within operating expenses on the consolidated statements of operations.

Foreign currency transaction losses were $1.5 million and $0.2 million for the six months ended June 30, 2024, and 2023, respectively, and were recorded within operating expenses on the consolidated statements of operations.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis