ASPEN AEROGELS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (SEC) on March 7, 2024, which we refer to as the Annual Report. Certain matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as “may,” “will,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q and under “Risk Factors” in Item 1A of the Annual Report. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. You should read the following discussion and analysis of financial condition and results of operations together with Part I Item 1 “Financial Statements,” which includes our financial statements and related notes, elsewhere in this Quarterly Report on Form 10-Q. Investors and others should note that we routinely use the Investors section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investors section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that we share on the Investors section of our website, https://www.aerogel.com . Products Our core businesses are organized into two reportable segments: Energy Industrial and Thermal Barrier. The following describes our key product offerings and new product innovations by reportable segment. Thermal Barrier 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. Our PyroThin product is an ultra-thin, lightweight and flexible thermal barrier designed with other functional layers to impede the propagation of thermal runaway across multiple lithium-ion battery system architectures. Our thermal barrier technology is designed to offer a unique combination of thermal management, mechanical performance and fire protection properties. These properties enable EV manufacturers to achieve critical battery performance and safety goals. In addition, we are seeking to leverage our patented carbon aerogel technology to develop industry-leading battery materials for use in lithium-ion battery cells. These battery materials have the potential to increase the energy density of the battery cells, thus enabling an increase in the driving range of EVs. The commercial potential for our PyroThin thermal barriers and our carbon aerogel battery materials in the EV market is significant. Accordingly, we are hiring additional personnel, incurring additional operating expenses, incurring significant capital expenditures to expand aerogel manufacturing capacity, establishing an automated thermal barrier fabrication operation, enhancing research and development resources and expanding our battery material research facilities, among other items. 20 We have entered into production contracts with certain major OEMs, including General Motors LLC (GM), to supply fabricated, multi-part thermal barriers for use in the battery system of its next-generation EVs. Pursuant to the contracts with GM, we are obligated to supply the barriers at fixed annual prices and at volumes to be specified by the customer up to a daily maximum quantity through the term of the agreements, which expire at various times from 2026 through 2034. While GM has agreed to purchase its requirement for the barriers from us at locations to be designated from time to time, it has no obligation to purchase any minimum quantity of barriers under the contracts. In addition, GM may terminate the contracts any time and for any or no reason. All other terms of the contracts are generally consistent with GM’s standard purchase terms, including quality and warranty provisions customary in the automotive industry. We have also entered into production contracts with Toyota, Scania, 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. 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. Manufacturing Operations We manufacture our products using our proprietary technology at our facility in East Providence, Rhode Island. We have operated the East Providence facility since 2008 and have increased our capacity in phases. To meet expected growth in demand for our aerogel products in the EV market, we have been in the process of expanding our aerogel blanket capacity by constructing a second manufacturing plant in Bulloch County, Georgia. However, in order to manage the development of the second plant so that its increased capacity comes online in a manner that aligns with our current expectations as to demand from our EV customers, we are extending the timeframe for construction and commissioning of the second plant until such time as its capacity is supported by increased demand. In the meantime, and until we ramp up construction, we 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. 21 Recent Developments 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. U.S. 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 22 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 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 We regularly review a number of metrics, including the following key metric, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Adjusted EBITDA We use Adjusted EBITDA, a non-GAAP financial measure, as a means to assess our operating performance. We define Adjusted EBITDA as net income (loss) before interest expense, taxes, depreciation, amortization, stock-based compensation expense and other items, from time to time, which we do not believe are indicative of our core operating performance. Adjusted EBITDA is a supplemental measure of our performance that is not presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. In addition, our definition and presentation of Adjusted EBITDA may not be comparable to similarly titled measures presented by other companies. We use Adjusted EBITDA: • as a measure of operating performance because it does not include the impact of items that we do not consider indicative of our core operating performance; • for planning purposes, including the preparation of our annual operating budget; • to allocate resources to enhance the financial performance of our business; and • as a performance measure used under our bonus plan. We also believe that the presentation of Adjusted EBITDA provides useful information to investors with respect to our results of operations and in assessing the performance and value of our business. Various measures of EBITDA are widely used by investors to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods, book values of assets, capital structures and the methods by which assets were acquired. Although measures similar to Adjusted EBITDA are frequently used by investors and securities analysts in their evaluation of companies, we understand that Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by (used in) operating activities or an analysis of our results of operations as reported under U.S. GAAP. Some of these limitations are: • Adjusted EBITDA does not reflect our historical cash expenditures or future requirements for capital expenditures or other contractual commitments; 23 • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect stock-based compensation expense; • Adjusted EBITDA does not reflect our income tax expense or cash requirements to pay our income taxes; • Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments on our debt; • although depreciation, amortization and impairment charges are non-cash charges, the assets being depreciated, amortized or impaired will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for these replacements; and • other companies in our industry may calculate EBITDA or Adjusted EBITDA differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, our Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to reinvest in the growth of our business or as a measure of cash available for us to meet our obligations. To properly and prudently evaluate our business, we encourage you to review the U.S. GAAP financial statements included elsewhere in this Quarterly Report on Form 10-Q, and not to rely on any single financial measure to evaluate our business. The following table presents a reconciliation of net income (loss), the most directly comparable U.S. GAAP measure, to Adjusted EBITDA for the periods presented: Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 2024 2023 (In thousands) Net income (loss) $ (12,970 ) $ (13,073 ) $ 2,013 $ (45,292 ) Depreciation and amortization 5,321 4,550 17,093 10,757 Stock-based compensation (1) 2,630 2,789 10,307 7,766 Other expense (income) 2,616 (1,561 ) 8,433 (5,294 ) Loss on extinguishment of debt 27,487 - 27,487 - Income tax expense 267 - 1,889 - Adjusted EBITDA $ 25,351 $ (7,295 ) $ 67,222 $ (32,063 ) (1) Represents non-cash stock-based compensation related to vesting and modifications of stock option grants, vesting of restricted stock units and vesting of restricted common stock. Our financial performance, including such measures as net income (loss), earnings per share and Adjusted EBITDA, are affected by a number of factors including volume and mix of aerogel products sold, average selling prices, our material costs and manufacturing expenses, the costs associated with capacity expansions and start-up of additional production capacity, and the amount and timing of operating expenses. Accordingly, we expect that our net income (loss), earnings per share and Adjusted EBITDA will vary from period to period. We expect to maintain strong revenue growth during 2024 driven by accelerating demand in the EV market and continued market share gains in the sustainable insulation materials market. Our expectation to maintain strong revenue growth is based, in part, on our OEM customers’ production volume forecasts and targets as well as our expectation to successfully scale our manufacturing capabilities and address any potential supply chain issues to meet this expected demand. As a result, we expect to experience a decrease in both net loss and negative Adjusted EBITDA during 2024, compared to 2023. Components of Our Results of Operations Revenue We recognize revenue from the sale of our energy industrial aerogel products and thermal barriers. Revenue is recognized upon the satisfaction of contractual performance obligations. We record deferred revenue for sales when (i) we have delivered products, but other revenue recognition criteria have not been satisfied, or (ii) payments have been received in advance of the completion of required performance obligations. 24 We project revenue growth during 2024 due to accelerating demand in the EV market and continued market share gains in the sustainable insulation materials market. Cost of Revenue Cost of product revenue consists primarily of materials and manufacturing expense. Cost of product revenue is recorded when the related product revenue is recognized. Material is a significant component of cost of product revenue and includes fibrous batting, silica materials and additives. Material costs as a percentage of product revenue vary from product to product due to differences in average selling prices, material requirements, product thicknesses, and manufacturing yields. In addition, we provide warranties for our products and record the estimated cost within cost of revenue in the period that the related revenue is recorded or when we become aware that a potential warranty claim is probable and can be reasonably estimated. As a result of these factors, material costs as a percentage of product revenue will vary from period to period due to changes in the mix of aerogel products sold, the costs of our raw materials or the estimated cost of warranties. In addition, global supply chain disturbances, increased reliance on foreign materials procurement, industrial gas supply constraints, increases in the cost of our raw materials, engineering changes, higher prototype sales and other factors may significantly impact our material costs and have a material impact on our operations. We expect that material costs will increase in absolute dollars during 2024 due to projected growth in product shipments and contracts but remain stable as a percentage of revenue due to improved manufacturing, and fabrication yields and a favorable mix of products sold. Manufacturing expense is also a significant component of cost of revenue. Manufacturing expense includes labor, utilities, maintenance expense, and depreciation on manufacturing assets. Manufacturing expense also includes stock-based compensation of manufacturing employees and shipping costs. 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. Gross Profit Our gross profit as a percentage of revenue is affected by a number of factors, including the volume of products produced and sold, the mix of products sold, average selling prices, our material and manufacturing costs, realized capacity utilization and the costs associated with expansions and start-up of production capacity. Accordingly, we expect our gross profit to vary significantly in absolute dollars and as a percentage of revenue from period to period. During 2024, we expect gross profit to increase in both absolute dollars and as a percentage of total revenue due to the combination of a projected increase in total revenue combined with projected reduction in material costs and manufacturing expense as a percentage of total revenue. In the longer term, we expect gross profit to improve in absolute dollars and as a percentage of revenue due to expected increases in total revenue, production volumes and manufacturing productivity. In addition, we expect the gross profit improvement derived from the increases in revenue, volume and productivity will be supported by the continued implementation of lower cost product formulations and realization of material purchasing efficiencies. Operating Expenses Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Operating expenses include personnel costs, legal fees, professional fees, service fees, insurance premiums, travel expense, facilities related costs and other costs, expenses and fees. The largest component of our operating expenses is personnel costs, consisting of 25 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. Research and Development Expenses Research and development expenses consist primarily of expenses for personnel engaged in the development of next generation aerogel compositions, form factors and manufacturing technologies. These expenses also include testing services, prototype expenses, consulting services, trial formulations for new products, equipment depreciation, facilities costs and related overhead. We expense research and development costs as incurred. We expect to continue to devote substantial resources to the development of new aerogel technologies, including our carbon aerogel battery materials. We believe that these investments are necessary to maintain and improve our competitive position. We also expect to continue to invest in research and engineering personnel and the infrastructure required in support of their efforts. We expect our research and development expenses will increase in absolute dollars and decrease as a percentage of revenue in 2024 and the longer term. Sales and Marketing Expenses Sales and marketing expenses consist primarily of personnel costs, incentive compensation, marketing programs, costs of new product and process introductions, travel and related costs, consulting expenses and facilities related costs. We expect our sales and marketing expenses will increase in absolute dollars but decrease as a percentage of revenue in 2024 and in the longer term. General and Administrative Expenses General and administrative expenses consist primarily of personnel costs, legal expenses, consulting and professional services, audit fees, compliance with securities, corporate governance and related laws and regulations, investor relations and insurance premiums, including director and officer insurance. We expect our general and administrative expenses to increase as we add general and administrative personnel to support the anticipated growth of our business. We also expect that the patent enforcement actions, described in more detail under “Legal Proceedings” in Part I, Item 3 of our Annual Report and “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q, if protracted, could result in significant legal expense over the medium to long-term. We expect that our general and administrative expenses will increase in absolute dollars and decrease as a percentage of revenue. Interest Expense, Convertible Note - Related Party Interest expense, convertible note - related party is net of the capitalized interest related to the $100.0 million in aggregate principal amount of our Convertible Senior PIK Toggle Notes due 2027, which we sold and issued to Wood River. Interest Income (Expense) Interest expense consists of interest expense and amortization or write-off of deferred financing costs related to our other financing arrangements including a failed sale and leaseback arrangement accounted as a financing transaction and interest earned on the cash balances invested in deposit accounts, money market accounts, and high-quality debt securities issued by the U.S. government. Provision for Income Taxes We have incurred annual net losses since inception and have not recorded benefit provisions for U.S. federal income taxes or state income taxes since the tax benefits of our net losses have been offset by valuation allowances due to the uncertainty associated with the utilization of net operating loss carryforwards. We record tax expenses in connection with our Mexican maquiladora operations. 26 Results of Operations Three months ended September 30, 2024 compared to the three months ended September 30, 2023 The following tables set forth a comparison of the components of our results of operations for the periods presented: Revenue Three Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Revenue: Energy industrial $ 26,776 23% $ 27,912 46% $ (1,136 ) (4)% Thermal barrier 90,564 77% 32,843 54% 57,721 176% Total revenue $ 117,340 100% $ 60,755 100% $ 56,585 93% 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 $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 $29.5 million, respectively, to a major U.S. automotive OEM. 27 Cost of Revenue Three Months Ended September 30, 2024 2023 Change Percentage of Related Percentage of Related Amount Revenue Amount Revenue Amount Percentage ($ in thousands) Cost of revenue: Energy industrial $ 16,043 60% $ 22,087 79% $ (6,044 ) (27)% Thermal barrier 52,254 58% 24,858 76% 27,396 110% Total cost of revenue $ 68,297 58% $ 46,945 77% $ 21,352 45% 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 $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 $2.2 million for reimbursement of costs related to the impact from an engineering change notified by a customer to a part that we manufacture for that customer. Gross Profit Three Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Gross profit: Energy industrial $ 10,733 40% $ 5,825 21% $ 4,908 84% Thermal barrier 38,310 42% 7,985 24% 30,325 (380)% Total gross profit $ 49,043 42% $ 13,810 23% $ 35,233 255% 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 $21.3 million increase in total cost of revenue. Research and Development Expenses Three Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Research and development expenses $ 4,591 4% $ 4,218 7% $ 373 9% 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 $0.1 million. Research and development expenses as a percentage of total revenue decreased to 4% of total revenue for the three months ended September 30, 2024 from 7% in the comparable period in 2023. 28 Sales and Marketing Expenses Three Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Sales and marketing expenses $ 9,306 8% $ 8,386 14% $ 920 11% 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 $0.2 million. Sales and marketing expenses as a percentage of total revenue decreased to 8% of total revenue for the three months ended September 30, 2024 from 14% in the comparable period in 2023. General and Administrative Expenses Three Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) General and administrative expenses $ 17,746 15% $ 15,840 26% $ 1,906 12% 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 $0.2 million. General and administrative expenses as a percentage of total revenue decreased to 15% for the three months ended September 30, 2024 from 26% in the comparable period in 2023. Other Income (Expense), net Three Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Other income (expense): Interest (expense), related party $ (1,469 ) (1)% $ (1,938 ) (3)% $ 469 (24)% Interest income (expense), net (1,147 ) (1)% 1,313 2% (2,460 ) (187)% Loss on extinguishment of debt (27,487 ) (23)% — — (27,487 ) NM Income from Employee Retention Credits — — 2,186 4% (2,186 ) (100)% Total other income (expense), net $ (30,103 ) (26)% $ 1,561 3% $ (31,664 ) (2028)% 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 $1.1 million increase of interest expense. 29 Income Tax Expense Three Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Income tax expense $ 267 0% $ — 0% $ 267 NM The $0.3 million of income tax expense for the three months ended September 30, 2024 is related to our maquiladora operations in Mexico. We did not incur income tax expense for the comparable period in 2023. Results of Operations Nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 The following tables set forth a comparison of the components of our results of operations for the periods presented: Revenue Nine Months Ended September 30, 2024 2023 Change Percentage of Percentage of Amount Revenue Amount Revenue Amount Percentage ($ in thousands) Revenue: Energy industrial $ 92,781 28% $ 97,311 63% $ (4,530 ) (5)% Thermal barrier 236,830 72% 57,188 37% 179,642 314% Total revenue $ 329,611 100% $ 154,499 100% $ 175,112 113% 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 $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 $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 $49.0 million, respectively, to a major U.S. automotive OEM. 30 Cost of Revenue Nine Months Ended September 30, 2024 2023 Change Percentage of Related Percentage of Related Amount Revenue Amount Revenue Amount Percentage ($ in thousands) Cost of revenue: Energy industrial $ 55,031 59% $ 73,065 75% $ (18,034 ) (25)% Thermal barrier 138,816 59% 54,131 95% 84,685 156% Total cost of revenue $ 193,847 59% $ 127,196 82% $ 66,651 52% 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 $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 $21.5 million increase in manufacturing costs, primarily driven by an increase in volume. Gross Profit Nine Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Gross profit: Energy industrial $ 37,750 41% $ 24,246 25% $ 13,504 56% Thermal barrier 98,014 41% 3,057 5% 94,957 (3106)% Total gross profit (loss) $ 135,764 41% $ 27,303 18% $ 108,461 397% 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 $66.6 million increase in total cost of revenue. Research and Development Expenses Nine Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Research and development expenses $ 13,645 4% $ 12,281 8% $ 1,364 11% 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 $0.2 million. Research and development expenses as a percentage of total revenue decreased to 4% of total revenue for the nine months ended September 30, 2024 from 8% in the comparable period in 2023. 31 Sales and Marketing Expenses Nine Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Sales and marketing expenses $ 27,130 8% $ 24,226 16% $ 2,904 12% 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 $0.3 million. Sales and marketing expenses as a percentage of total revenue decreased to 8% of total revenue for the nine months ended September 30, 2024 from 16% in the comparable period in 2023. General and Administrative Expenses Nine Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) General and administrative expenses $ 52,465 16% $ 41,382 27% $ 11,083 27% 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 nine months ended September 30, 2024 from 27% in the comparable period in 2023. Impairment of Equipment Under Development The $2.7 million impairment of equipment under development was the result of a charge for impairment of assets due to obsolescence following development of new and more efficient equipment. Other Income (Expense), net Nine Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Interest income (expense): Interest (expense), related party $ (7,550 ) (2)% $ (2,424 ) (2)% $ (5,126 ) 211% Interest income (expense), net (883 ) (0)% 5,532 4% (6,415 ) (116)% Loss on extinguishment of debt (27,487 ) (8)% — — (27,487 ) NM Income from Employee Retention Credits — — 2,186 1% (2,186 ) (100)% Total interest income (expense), net $ (35,920 ) (11)% $ 5,294 3% $ (41,214 ) (779)% 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 $1.7 million increase of interest expense. 32 Income Tax Expense Nine Months Ended September 30, 2024 2023 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Income tax expense $ 1,889 1% $ — 0% $ 1,889 NM 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. Liquidity and Capital Resources Overview We have experienced significant losses and invested substantial resources since our inception to develop, commercialize and protect our aerogel technology and to build a manufacturing infrastructure capable of supplying aerogel products at the volumes and costs required by our customers. These investments have included research and development and other operating expenses, capital expenditures, and investment in working capital balances. Our long-term financial projections anticipate revenue growth, increasing levels of gross profit, and improved cash flows from operations. To meet expected growth in demand for our aerogel products in the EV market, we have been in the process of expanding our aerogel blanket capacity by constructing a second manufacturing plant in Bulloch County, Georgia. However, in order to manage the development of the second plant so that its increased capacity comes online in a manner that aligns with our current expectations of demand from our EV customers, we are extending the timeframe for construction and commissioning of the second plant until such time as its capacity is supported by increased demand. In the meantime, and until we ramp up construction, we expect to be able to substantially reduce our planned capital expenditures for 2024. At the same time, we believe that productivity improvements in our existing Rhode Island facility combined with the supplemental supply of our energy industrial products from one or more external manufacturing facilities in China will permit us to achieve a target revenue capacity of approximately $650 million in 2024 and prior to the completion and start-up of the second plant. Nonetheless, there can be no assurance as to when we will ramp up construction on the second plant. There can also be no assurance that our contract manufacturing strategy of meeting the demand of our energy industrial customers with supply from one or more external manufacturing facilities in China will provide us with adequate manufacturing capacity or supply for that expected demand. Furthermore, when we ramp up construction on the second plant, further cost inflation and/or supply chain disruptions, as well as potential changes in the scope of the facilities, could lead to increases to our prior estimated costs for completion of the second plant. We are also increasing our investment in the research and development of next-generation aerogel products and technologies. During 2024, we 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. 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. 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. 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. 33 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. Our inability to use a substantial portion of our net operating loss carryforwards would result in a higher effective tax rate and adversely affect our financial condition and results of operations. Primary Sources of Liquidity Our principal sources of liquidity are currently our cash and cash equivalents. Cash and cash equivalents consist primarily of cash, money market accounts, and sweep accounts on deposit with banks. As of 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 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 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 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 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. 34 Contractual Obligations and Commitments There have been no material changes to our contractual obligations and commitments as reported in our Annual Report. Recent Accounting Pronouncements Information regarding new accounting pronouncements is included in note 2 to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q. Critical Accounting Policies and Estimates Our financial statements are prepared in accordance with U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in these accounting policies have the greatest potential impact on our financial statements and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See our Annual Report and note 2 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information about these critical accounting policies, as well as a description of our other significant accounting policies. Certain Factors That May Affect Future Results of Operations The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other important factors, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about: the expected future growth of the market for our aerogel products and our continued gain in market share, in particular in the electric vehicle market, the energy infrastructure insulation market, the lithium-ion battery thermal barrier markets, and other markets we target; our beliefs in the appropriateness of our assumptions, the accuracy of our estimates regarding expenses, loss contingencies, future revenues, revenue capacity, future profits, uses of cash, available credit, capital requirements, and the need for additional financing to operate our business and for capital expenditures and to fund our planned strategic business initiatives; the performance of our aerogel blankets; our expectation that we will be successful in obtaining, enforcing and defending our patents against competitors and that such patents are valid and enforceable; our 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; beliefs about the commercial potential for our technology in the electric vehicle market; beliefs about our ability to produce and deliver products to electric vehicle customers; beliefs about 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; beliefs about the performance of our thermal barrier products in the battery systems of electric vehicles; the current or future trends in the energy, energy infrastructure, chemical and refinery, LNG, sustainable building materials, electric vehicle thermal barrier, electric vehicle battery materials or other markets and the impact of these trends on our business; our investments in the electric vehicle market and Aerogel Technology Platform; our beliefs about the financial metrics that are indicative of our core performance; our expectations about the effect of manufacturing capacity on financial metrics such as Adjusted EBITDA; our expectations about future revenues, expenses, gross profit, net 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 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; our expectations about our resources and other investments in new technology and related research and development activities and associated expenses; our expectations about short and long term (a) research and development (b) general and administrative and (c) sales and marketing expenses; our expectations of revenue growth, increased gross profit, and improving cash flows over the long term; our intentions about managing capital 35 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. Words such as “may,” “will,” “anticipate,” “estimate,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management’s present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those set forth in this Quarterly Report on Form 10-Q and under the heading “Risk Factors” contained in Item 1A of our Annual Report. In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q might not occur. Stockholders and other readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to Aspen Aerogels, Inc. or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. 36 Item 3. Quantitative and Qualitati ve Disclosures About Market Risk. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure results primarily from fluctuations in interest rates, as well as from inflation. In the normal course of business, we are exposed to market risks, including changes in interest rates which affect our cash flows. We may also face additional exchange rate risk in the future as we expand our business internationally. Interest Rate Risk We are exposed to changes in interest rates in the normal course of our business. As of 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. government via cash sweep accounts primarily at major financial institutions in North America. Due to the short-term nature of these investments, we believe that our exposure to changes in the fair value of our cash as a result of changes in interest rates is not material. As of 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 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. Inflation Risk Although we expect that our operating results will be influenced by general economic conditions, we do not believe that inflation has had a material effect on our results of operations during the periods presented in this report. However, our business may be affected by inflation in the future. Foreign Currency Exchange Risk We are subject to inherent risks attributed to operating in a global economy. We do not consider the exposure to foreign currency risk from our international operations to be material. A majority of our revenue, receivables, purchases and debts are denominated in U.S. dollars. Certain transactions of the Company and its subsidiaries are denominated in currencies other than the functional currency. 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.