What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 171 added, 129 removed, 332 unchanged (47% of the section changed)

53 unchanged sentences

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.

In the meantime, and until we ramp up construction, we believe that productivity improvements in our existing Rhode Island facility combined with our supplemental supply of our energy industrial products from an external manufacturing facility in China will permit us to achieve our target revenue capacity in 2024 and prior to the completion and start-up of the second plant.

At present, we have engaged one third-party external manufacturing facility in China to produce certain of our Energy Industrial products.

Pursuant to our supply contract with this contract manufacturer, they are obligated to deliver products to us as we issue purchase orders on an as-needed basis through the term of the agreement.

The contract automatically renews year-to-year unless either party notifies the other of its intention not to renew the contract.

While we have agreed to purchase our requirement for certain Energy Industrial products from the contract manufacturer, we have no obligation to purchase any minimum quantity under the contract and we may terminate the contract at any time and for any or no reason.

Additionally, we have entered into a contract with Prodensa Servicios de Consultora (Prodensa) to establish OPE Manufacturer Mexico S de RL de CV, a maquiladora located in Mexico, (OPE) which manufactures thermal barrier PyroThin products and operates an automated fabrication facility for PyroThin.

Pursuant to such contract, we pay Prodensa a management fee and have an option to purchase OPE from Prodensa after a period of 18 months.

Recent Developments

We announced that the U.S.

Department of Energy ("DOE") Loan Programs Office invited us into the formal due diligence and term sheet negotiation stage of the process, which is one in several steps remaining in the due diligence process prior to the DOE making a decision on whether to issue a Conditional Commitment for a loan.

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

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 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.

Underwritten Offering

In October 2024, we entered into an underwriting agreement (the Underwriting Agreement) with Goldman Sachs & Co.

LLC and Morgan Stanley & Co.

LLC (collectively, the Underwriters), pursuant to which we issued and sold an aggregate of 4,887,500 shares of our common stock, which included 637,500 shares pursuant to the Underwriters’ option to purchase additional shares of our common stock, to the Underwriters in a registered underwritten offering (the “Offering”).

The price to the public in the Offering was $20.00 per share.

The net proceeds to us from the Offering were approximately $93.2 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Department of Energy Loan Programs Office

On October 16, 2024, we announced that the U.S.

Department of Energy (DOE) Loan Programs Office provided us a conditional commitment for a proposed loan of up to $670.6 million (the Loan) under the Advanced Technology Vehicles Manufacturing (ATVM) loan program within DOE’s Loan Programs Office (LPO) for financing the construction of our planned second aerogel manufacturing facility (the Statesboro Plant) in Statesboro, Georgia.

Aspen Aerogels Georgia, LLC, a subsidiary of Aspen Aerogels, Inc, is the intended borrower of the Loan.

The Loan would be structured as project financing, providing for repayment commencing upon project commissioning.

The interest rate will be the applicable U.S.

Treasury Rate at the time of each cash draw.

While this conditional commitment indicates the DOE’s intent to finance the project, the DOE and the Company must satisfy certain technical, legal, environmental, and financial conditions before the DOE enters into definitive financing documents and funds the loan.

We had previously estimated the cost of the Statesboro Plant to be approximately $710.0 million.

Adjusting the estimated cost to account for the right-timing of construction, inflation, and a revised scope that reflects recent process improvements, we have revised our aggregate cost estimate to a range of approximately $800.0 million to $960.0 million.

The prospective DOE loan is intended to fully fund our remaining spend on the construction of the plant, following and assuming the expected closing of the Loan.

The receipt by us of the conditional commitment from the DOE in respect of the Loan is not an assurance that definitive financing documents will be negotiated and entered into, that the terms and conditions of the Loan will be consistent with the terms contemplated in the conditional commitment, or that all technical, legal, environmental and financial conditions will be achieved and satisfied.

The outcome of the process with the DOE relating to the Loan and the Company's ability to draw and utilize such funds towards the construction of the Statesboro Plant is dependent on whether the DOE determines to proceed with the definitive financing documents and under what conditions.

There can be no assurance as to the outcome of these decisions and the terms and conditions of the financing documents that may be offered, if any.

See the section titled “Risk Factors—Risks Related to Our Business and Strategy—We are dependent upon our ability to close on and fully draw down on our proposed loan facility from the United States Department of Energy, which may restrict our ability to conduct our business.”

MidCap Loan Facility

On August 19, 2024, we and Aspen Aerogels Rhode Island, LLC, a Rhode Island limited liability company (Aspen RI and, together with the Company, each, a Borrower and collectively, the “Borrowers”) entered into a Credit, Security and Guaranty Agreement (the Credit Agreement and the facilities provided thereunder, collectively, the MidCap Loan Facility), by and among the Borrowers, MidCap Funding IV Trust, as agent (the Agent), MidCap Financial Trust, as term loan servicer, the financial institutions or other entities from time to time party thereto as lenders (the Lenders), and the other parties party thereto as additional guarantors and/or borrowers from time to time.

The proceeds of the MidCap Loan Facility were used in connection with the transaction contemplated by the Note Repurchase Agreement (as defined below), the payment of related fees and expenses and for working capital of the Company and its subsidiaries.

Loans borrowed under the MidCap Loan Facility mature on August 19, 2029.

The MidCap Loan Facility is comprised of (i) a term loan facility in an aggregate principal amount of $125.0 million (the Term Loan Facility) and (ii) an asset-based revolving credit facility in an aggregate principal amount not to exceed the lesser of (A) a $100.0 million commitment amount and (B) the value of the borrowing base (defined as the sum of (x) 85% of certain eligible accounts of the Borrowers and (y) the lesser of 85% of the NOLV or 85% of the cost of certain eligible inventory of the Borrowers) (the Revolving Facility).

Loans borrowed under the Term Loan Facility will bear an interest rate equal to Term SOFR (as defined in the Credit Agreement) for a one-month interest period plus 4.50% per year, subject to a Term SOFR floor of 4.50% and a Term SOFR cap of 7.50%.

Loans borrowed under the Revolving Facility will bear an interest rate equal to Term SOFR plus 4.60% per year, subject to a Term SOFR floor of 2.50%.

The Term Loan Facility is subject to amortization of principal, payable quarterly on the last day of each quarter, commencing September 30, 2024, in an amount as set forth in the Credit Agreement with the remaining aggregate principal amount payable on the maturity date.

The Revolving Facility has a required minimum balance set at 30% of the average borrowing

base during the immediate preceding month.

The Borrowers are required to pay the Lenders under the Revolving Facility an unused line fee of 0.30% of the average unused availability under the Revolving Facility, subject to the aforementioned minimum balance.

Repurchase of Convertible Note

On August 19, 2024, we entered into a note purchase and sale agreement (the Note Repurchase Agreement) with Wood River Capital, LLC (Wood River), an entity affiliated with Koch Disruptive Technologies, LLC, pursuant to which we repurchased from Wood River $123.9 million in aggregate capitalized principal amount (inclusive of PIK interest paid through June 30, 2024) of Convertible Senior PIK Toggle Notes due 2027, dated February 18, 2022, as amended by Amendment No.

1 to Convertible Senior PIK Toggle Notes due 2027, dated November 28, 2022 (the Convertible Note), such aggregate amount being the entire outstanding amount of the Convertible Note, for a total purchase price of $150.1 million in cash, which amount equals to the Redemption Price (as defined in the Convertible Note).

Pursuant to the Note Repurchase Agreement, all rights and obligations, covenants and agreements under the Convertible Note and the underlying note purchase agreement were satisfied and discharged.

Financial Summary

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.

Our revenue for the nine months ended September 30, 2024 was $329.6 million, which represented an increase of $175.1 million, or 113%, from $154.5 million for the nine months ended September 30, 2023.

Net income for the nine months ended September 30, 2024 was $2.0 million and net loss per share was $0.03.

Net loss for the nine months ended September 30, 2023 was $45.3 million and net loss per share was $0.65.

Key Metrics and Non-GAAP Financial Measures

3 unchanged sentences

We define Adjusted EBITDA as net income (loss) before interest expense, taxes, depreciation, amortization, stock-based compensation expense and other items, from time to time, which we do not believe are indicative of our core operating performance.

Adjusted EBITDA is a supplemental measure of our performance that is not presented in accordance with U.S.

Adjusted EBITDA is a supplemental measure of our performance that is not presented in accordance with accounting principles generally accepted in the United States of America (U.S.

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.

22 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

(In thousands)

3 unchanged sentences

Other expense (income)

Loss on extinguishment of debt

Income tax expense

55 unchanged sentences

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 due 2027, which we sold and issued to Wood River Capital, LLC, an entity affiliated with Koch Disruptive Technologies, LLC.

Interest Income (Expense)

5 unchanged sentences

Results of Operations

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

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

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

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands)

2 unchanged sentences

Total revenue

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.

Total revenue increased $56.5 million, or 93%, to $117.3 million for the three months ended September 30, 2024 from $60.8 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 in energy industrial revenue.

Energy industrial revenue decreased by $1.2 million, or 4%, to $26.7 million for the three months ended September 30, 2024 from $27.9 million in the comparable period in 2023.

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

Energy industrial revenue for the three months ended September 30, 2024 included $5.6 million to a North American distributor, in comparison to $8.0 million for the comparable period of 2023.

The average selling price per square foot of our energy industrial products increased by 6% for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

The increase in average selling price reflected the impact of price increases enacted in 2024 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.

This increase in average selling price had the effect of increasing product revenue by $1.4 million for the three months ended September 30, 2024 from the comparable period in 2023.

In volume terms, energy industrial product shipments decreased by 9% as measured by square feet of our energy industrial products shipped for the three months ended September 30, 2024, compared to the three months ended September 30, 2023.

The decrease in volume had the effect of increasing product revenue by $2.5 million for the three months ended September 30, 2024 from the comparable period in 2023.

Thermal barrier revenue was $90.5 million for the three months ended September 30, 2024 as compared to $32.8 million for the three months ended September 30, 2023.

During the three months ended September 30, 2024 and 2023, thermal barrier revenue included $86.4 million and $29.5 million, respectively, to a major U.S.

automotive OEM.

Cost of Revenue

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands)

3 unchanged sentences

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.

Total cost of revenue increased $21.3 million, or 45%, to $68.2 million for the three months ended September 30, 2024 from $46.9 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.

Energy industrial cost of revenue decreased $6.0 million, or 27%, to $16.0 million for the three months ended September 30, 2024 from $22.0 million in the comparable period in 2023, primarily due to a decrease in the volume of products shipped.

The $6.0 million decrease was the result of a $5.0 million decrease in manufacturing and other operating costs due to lower volume of Energy industrial products manufactured at our plant as we move manufacturing to the external manufacturing facility, and a $1.0 million decrease in material costs.

Thermal barrier cost of revenue increased $27.3 million to $52.2 million for the three months ended September 30, 2024 as compared to $24.9 million for the three months ended September 30, 2023.

The $27.3 million increase was the result of a $21.4 million increase in material costs and a $5.9 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,

Thermal barrier cost of revenue includes a credit of $2.2 million for reimbursement of costs related to the impact from an engineering change notified by a customer to a part that we manufacture for that customer.

Three Months Ended September 30,

($ in thousands)

3 unchanged sentences

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.

Gross profit increased by $35.2 million, or 255%, to $49.0 million for the three months ended September 30, 2024 from $13.8 million in the comparable period in 2023.

The increase in gross profit was the result of the $56.5 million increase in total revenue, offset by the $21.3 million increase in total cost of revenue.

Research and Development Expenses

Three Months Ended June 30,

Three Months Ended September 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.

Research and development expenses increased by $0.4 million, or 9%, to $4.6 million for the three months ended September 30, 2024 from $4.2 million in the comparable period in 2023.

The $0.4 million increase reflects increases in compensation and related costs of $0.2 million, operating supplies and testing of $0.1 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 three months ended September 30, 2024 from 7% in the comparable period in 2023.

Sales and Marketing Expenses

Three Months Ended June 30,

Three Months Ended September 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.

Sales and marketing expenses increased by $0.9 million, or 11%, to $9.3 million for the three months ended September 30, 2024 from $8.4 million in the comparable period in 2023.

The $0.9 million increase was principally the result of increases in compensation and related costs of $0.4 million, professional fees of $0.3 million, and utilities expenses of $0.2 million.

Sales and marketing expenses as a percentage of total revenue decreased to 8% of total revenue for the three months ended September 30, 2024 from 14% in the comparable period in 2023.

General and Administrative Expenses

Three Months Ended June 30,

Three Months Ended September 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.

General and administrative expenses increased by $1.9 million, or 12%, to $17.7 million for the three months ended September 30, 2024 from $15.8 million in the comparable period in 2023.

The $1.9 million increase was the result of increases in insurance costs of $0.8 million, utilities expenditures of $0.7 million, foreign currency transaction losses of $0.6 million, and professional fees of $0.3 million, offset in part by a decrease in compensation and related costs 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 September 30, 2024 from 26% in the comparable period in 2023.

Other Income (Expense), net

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands)

Interest income (expense):

Other 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.

Loss on extinguishment of debt

Income from Employee Retention Credits

Total other income (expense), net

Other income (expense), net decreased by $31.7 million to $30.1 million of other expense for the three months ended September 30, 2024 from $1.6 million of other income (expense), net in the comparable period in 2023.

The $31.7 million decrease was the result of a $27.5 million loss on extinguishment of debt, a $0.9 million net impact of capitalized interest relating to our Convertible Note in the comparable period in 2023, a $2.2 million income from Employee Retention Credits in the comparable period in 2023 not repeated in 2024, and a $1.1 million increase of interest expense.

Income Tax Expense

Three Months Ended June 30,

Three Months Ended September 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.

The $0.3 million of income tax expense for the three months ended September 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

Nine months ended September 30, 2024 compared to the nine months ended September 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,

Nine Months Ended September 30,

Percentage of

4 unchanged sentences

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.

Total revenue increased $175.1 million, or 113%, to $329.6 million for the nine months ended September 30, 2024 from $154.5 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 $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.

Energy industrial revenue decreased by $4.5 million, or 5%, to $92.8 million for the nine months ended September 30, 2024 from $97.3 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 project-based demand in the subsea market, offset in part by an a more favorable mix of product shipments in the global petrochemical and refinery markets in North America, Latin America and Europe.

Energy industrial revenue for the nine months ended September 30, 2024 included $19.1 million to a North American distributor, in comparison to $27.6 million for the comparable period of 2023.

The average selling price per square foot of our energy industrial products increased by 12% for nine months ended September 30, 2024, compared to the nine months ended September 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 $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.

This increase in average selling price had the effect of increasing product revenue by $9.9 million for the nine months ended September 30, 2024 from the comparable period in 2023.

In volume terms, energy industrial product shipments decreased by 15% as measured by square feet of our energy industrial products shipped for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

The decrease in volume had the effect of decreasing product revenue by $14.5 million for the nine months ended September 30, 2024 from the comparable period in 2023.

Thermal barrier revenue was $236.8 million for the nine months ended September 30, 2024 as compared to $57.2 million for the nine months ended September 30, 2023.

During the nine months ended September 30, 2024 and 2023, thermal barrier revenue included $223.8 million and $49.0 million, respectively, to a major U.S.

automotive OEM.

Cost of Revenue

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

3 unchanged sentences

Total cost of revenue

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.

Total cost of revenue increased $66.6 million, or 52%, to $193.8 million for the nine months ended September 30, 2024 from $127.2 million 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 $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 $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.

Energy industrial cost of revenue decreased $18.1 million, or 25%, to $55.0 million for the nine months ended September 30, 2024 from $73.1 million in the comparable period in 2023, primarily due to a decrease in the volume of products shipped and shift in manufacturing to the external manufacturing facility.

The $18.1 million decrease was the result of a $2.0 million decrease in material costs and a $16.1 million decrease in manufacturing and other operating costs from the comparable period in 2023.

Thermal barrier cost of revenue increased $84.7 million to $138.8 million for the nine months ended September 30, 2024 as compared to $54.1 million in the comparable period in 2023.

The $84.7 million increase was the result of a $63.2 million increase in material costs and a $21.5 million increase in manufacturing costs, primarily driven by an increase in volume.

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.

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,

Nine Months Ended September 30,

($ in thousands)

3 unchanged sentences

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.

Gross profit increased by $108.5 million, or 397%, to $135.8 million for the nine months ended September 30, 2024 from $27.3 million of gross profit in the comparable period in 2023.

The increase in gross profit was the result of the $175.1 million increase in total revenue, offset by the $66.6 million increase in total cost of revenue.

Research and Development Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

Research and development expenses

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.

Research and development expenses increased by $1.3 million, or 11%, to $13.6 million for the nine months ended September 30, 2024 from $12.3 million in the comparable period in 2023.

The $1.3 million increase reflects increases in compensation and related costs of $0.8 million, depreciation and facility related expenses of $0.3 million, and other expenses of $0.2 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.

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

Sales and Marketing Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

Sales and marketing expenses

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.

Sales and marketing expenses increased by $2.9 million, or 12%, to $27.1 million for the nine months ended September 30, 2024 from $24.2 million in the comparable period in 2023.

The $2.9 million increase was principally the result of increases in compensation and related costs of $1.7 million, depreciation and facility related expenses of $0.9 million, and utilities expenses of $0.3 million.

Sales and marketing expenses as a percentage of total revenue decreased to 8% of total revenue for the nine months ended September 30, 2024 from 16% in the comparable period in 2023.

General and Administrative Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

General and administrative expenses

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.

General and administrative expenses increased by $11.1 million, or 27%, to $52.5 million for the nine months ended September 30, 2024 from $41.4 million in the comparable period in 2023.

The $11.1 million increase was the result of additional staffing costs combined with increases in compensation and related costs of $4.5 million, foreign currency transaction losses of $2.0 million, insurance costs of $2.0 million, utilities expenditures of $1.7 million, and legal costs of $0.9 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 16% for the six months ended June 30, 2024 from 27% in the comparable period in 2023.

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

Impairment of Equipment Under Development

1 unchanged sentence

Other Income (Expense), net

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands)

2 unchanged sentences

Interest income (expense), net

Loss on extinguishment of debt

Income from Employee Retention Credits

Total interest income (expense), net

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.

Other income (expense), net decreased by $41.2 million to $35.9 million of other expense for the nine months ended September 30, 2024 from $5.3 million of other income (expense), net in the comparable period in 2023.

The $41.2 million decrease was the result of a $27.5 million loss on extinguishment of debt, $6.1 million net impact of capitalized interest relating to our Convertible Note in the comparable period in 2023, $1.8 million of deferred financing costs related to the GM Loan Agreement for which the draw down date has expired, a $2.2 million income from Employee Retention Credits in the comparable period in 2023 not repeated in 2024, a $1.9 million decrease of interest income, and a $1.7 million increase of interest expense.

Income Tax Expense

Six Months Ended June 30,

Nine Months Ended September 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.

The $1.9 million of income tax expense for the nine months ended September 30, 2024 is related to our maquiladora operations in Mexico.

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

11 unchanged sentences

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.

During 2024, we have and 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 and incurring additional operating expenses, among other items.

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.

In January and September 2024, we entered into sale and leaseback arrangements, pursuant to which we sold certain equipment to an equipment leasing company for two separate one-time cash payments of $5.0 million and $10.0 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 plan to supplement our cash balance and available credit with equity financings, debt financings, equipment leasing, sale and 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 financing could potentially result in an ownership change under Section 382 of the Internal Revenue Code.

In October 2024, we entered into an underwriting agreement (the Underwriting Agreement) with Goldman Sachs & Co.

LLC and Morgan Stanley & Co.

The price to the public in the Offering was $20.00 per share.

The net proceeds to us from the Offering were approximately $93.2 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

On August 19, 2024, we entered into a Credit, Security and Guaranty Agreement with MidCap Financial for a term loan facility in an aggregate principal amount of $125.0 million and an asset-based revolving credit facility in an aggregate principal amount not to exceed the lesser of $100.0 million or the borrowing base.

At closing we drew $125.0 million from the Term Loan Facility and $43.0 million from the revolving loan facility.

The proceeds of the borrowings, net of fees and costs, were used for repurchasing of the Convertible Notes for $150.0 million and for general corporate purposes.

We believe that our September 30, 2024 cash and cash equivalents balance of $113.5 million, together with the funds available under the MidCap Loan Facility, will be sufficient to support current operating requirements, current research and development activities and the initial capital expenditures required to support the evolving commercial opportunities in the EV market and other strategic business opportunities.

We plan to supplement our cash balance and available credit with equity financings, debt financings, equipment leasing, 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 believe that consummation of equity financing could potentially result in an ownership change under Section 382 of the U.S.

Internal Revenue Code of 1986, as amended.

Such an ownership change would lead to the use of our net operating loss carryforwards being restricted.

3 unchanged sentences

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

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

As of September 30, 2024, we had $113.5 million of unrestricted cash and cash equivalents.

Analysis of Cash Flow

Net Cash Used in Operating Activities

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.

During the nine months ended September 30, 2024, we provided $9.9 million in net cash in operating activities, as compared to the use of $39.8 million in net cash during the comparable period in 2023, a decrease in the use of cash of $49.7 million.

This decrease in use of cash was the result of net income adjusted for non-cash items of $97.8 million offset by net cash used by changes in operating assets and liabilities of $48.1 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.

During the nine months ended September 30, 2023, we used $39.8 million in net cash in operating activities, as compared to the use of $70.3 million in net cash during the comparable period in 2022, a decrease in the use of cash of $30.5 million.

This decrease in use of cash was the result of lower net loss adjusted for non-cash items of $31.4 million offset by net cash used by changes in operating assets and liabilities of $0.9 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, 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 used in investing activities for the nine months ended September 30, 2024 and 2023 was $71.5 million and $147.7 million, respectively.

Net Cash Provided by Financing Activities

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.

Net cash provided by financing activities for the nine months ended September 30, 2024 totaled $35.6 million and consisted of $15.0 million in proceeds from a sales leaseback, $10.4 million in proceeds from employee stock option exercises, $119.7 in proceeds from the term loan, net of issues costs, and $42.7 in proceeds from the revolver, net of issuance costs, offset by $150.0 million in cash used for the repayment of the convertible note, $1.3 million in cash used for payments made for employee tax withholdings associated with the vesting of restricted stock units, $0.8 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 nine months ended September 30, 2023 totaled $0.1 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 and $0.1 million issuance costs from private placement of common stock, offset, in part, by $0.4 million in proceeds from employee stock option exercises.

Contractual Obligations and Commitments

18 unchanged sentences

our expectation that we will be successful in obtaining, enforcing and defending our patents against competitors and that such patents are valid and enforceable;

our expectations regarding the investment to open a second manufacturing facility in Georgia, the extended construction and commissioning timeframe for the planned second manufacturing facility, our efforts to manage the construction of the second plant to align with our expectations of demand from EV customers;

our expectations regarding the investment and revenue creation from the Statesboro Plant and creation of jobs from the construction and operation of the Statesboro Plant;

our efforts to manage the extended construction and commission timeframe of the planned Statesboro Plant to align with our expectations of demand from EV customers;

our estimates of annual production capacity;

15 unchanged sentences

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

our expectations of revenue growth, increased gross profit, and

improving cash flows over the long term;

our intentions about managing capital expenditures and working capital balances;

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

our intentions about managing capital

expenditures and working capital balances;

our expectation with respect to the receipt and funding of the Loan, including satisfaction of certain technical, legal, environmental, and financial conditions before the DOE enters into definitive financing documents and funds the Loan;

our expectation with respect to the ability of the DOE loan to fully fund the remaining CAPEX needed to complete the Statesboro Plant;

our expectations and beliefs regarding the use of proceeds from the Loan facility, the flexibility and efficiency of the facility;

and our expectations about potential sources of future financing.

14 unchanged sentences

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

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

As of September 30, 2024, we had unrestricted cash and cash equivalents of $113.5 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.

1 unchanged sentence

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 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.

As of September 30, 2024, we had a term loan outstanding with principal balance of $127.5 million.

Our term loan bears interest at the Secured Overnight Financing Rate (SOFR) plus 4.50% per annum.

Under the terms of the investment, SOFR has a floor of 4.50% and a cap of 7.50%.

Interest is paid semi-annually in arrears on June 30 and December 30.

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

As of June 30, 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.

Interest is paid quarterly.

As of September 30, 2024, we had a revolving facility outstanding with principal balance of $43.0 million.

Our revolving facility bears interest at the SOFR plus 4.60% per annum.

Under the terms of the investment, SOFR has a floor of 2.50%.

Interest is paid monthly.

The amount available to us under the revolving credit facility was $25.7 million.

As of September 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.

7 unchanged sentences

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

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.

Foreign currency transaction losses were $2.3 million and $0.3 million for the nine months ended September 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