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, 2024, filed with the U.S. Securities and Exchange Commission (SEC) on February 27, 2025, 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, including Part I Item 1 “Financial Statements,” which includes our financial statements and related notes, and under the sections titled “Risk Factors” in Item 1A of the Annual Report and this Quarterly Report on Form 10-Q. 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. 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: Thermal Barrier and Energy Industrial. 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 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 by impeding the propagation of thermal runaway in lithium-ion battery systems at the battery cell, module and pack levels across multiple lithium-ion battery system architectures. Our ultra-thin, lightweight and flexible thermal barriers are designed to allow battery manufacturers to achieve critical safety goals without sacrificing energy density. 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. Our carbon aerogel initiative seeks to increase the performance of lithium-ion battery cells to enable EV manufacturers to reduce charging time and the cost of EVs. The commercial potential for our PyroThin thermal barriers and our carbon aerogel battery materials in the EV market is significant. We have entered into multi-year production contracts with a number of automotive EV OEM customers to supply fabricated, multi-part thermal barriers for use in the battery systems of their EV models. These customers include General Motors LLC (GM), 20 Toyota, Scania, Automotive Cells Company, which is a battery cell joint venture between Stellantis N.V, Saft-TotalEnergies and Mercedes-Benz, Audi, a luxury brand of the Volkswagen Group, Volvo Truck, and a large EU battery manufacturer to supply a next generation vehicle platform of a major EU luxury sports car brand. We are currently supplying thermal barrier production parts to both General Motors and Toyota, and thermal barrier prototype parts to a number of global manufacturers of EVs, grid storage and home battery systems. During fiscal years 2024, 2023 and 2022, we sold $306.8 million, $110.1 million and $55.6 million, respectively, of our PyroThin thermal barriers. Energy Industrial We also design, develop and manufacture innovative, high-performance aerogel insulation used primarily in the energy industrial market. 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 insulation products help end-users to improve resource efficiency, reduce energy consumption, and reduce the carbon footprint of their operations. These products enable compact system design, reduce installation time and costs, promote freight and logistics cost savings, reduce system weight, minimize required storage space and enhance job site safety. Our insulation products reduce the incidence of corrosion under insulation, which is a significant maintenance cost and safety issue in energy industrial facilities. Our end-user customers select our products where thermal performance is critical and to save money, improve resource efficiency, enhance sustainability, preserve operating assets and protect workers. Our insulation is used by oil producers and the owners and operators of refineries, petrochemical plants, liquefied natural gas (LNG) facilities, power generating assets and other energy industrial sites. 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. During 2024, we converted our East Providence facility to support the growth of the thermal barrier program. To meet expected demand for our aerogel products, we plan to make additional productivity improvements in our existing East Providence facility and utilize a flexible supply strategy, including but not limited to use of our external manufacturing capabilities in China, which currently support our Energy Industrial segment and are capable of delivering increased aerogel production capacity. We expect that the productivity improvements in our existing East Providence facility as well as the supply from our external manufacturing facility will permit us to achieve our target revenue capacity in 2025. 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 contract. 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 to establish OPE Manufacturer Mexico S de RL de CV, which assembles 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. As of March 31, 2025, we have notified Prodensa of our intent to purchase OPE. We expect to meet our long-term Thermal Barrier program demand by maximizing capacity at our East Providence facility and utilizing a flexible supply strategy, including, but not limited to, using our external manufacturing capabilities, which currently support our Energy Industrial segment and are capable of delivering increased aerogel production capacity. Accordingly, we have ceased construction at the previously planned Statesboro Plant. We will be demobilizing the plant and are in the process of assessing options 21 to derive value from the assets, including potentially relocating certain equipment to improve and expand our existing manufacturing facility in East Providence. Financial Summary Our revenue for the three months ended March 31, 2025 was $78.7 million, which represented a decrease of $15.8 million, or 17%, from $94.5 million for the three months ended March 31, 2024. Net loss for the three months ended March 31, 2025 was $301.2 million and net loss per share was $3.67. Net loss for the three months ended March 31, 2024 was $1.8 million and net loss per share was $0.02. 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 U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. In addition, our definition and presentation of Adjusted EBITDA may not be comparable to similarly titled measures presented by other companies. We use Adjusted EBITDA: • as a measure of operating performance because it does not include the impact of items that we do not consider indicative of our core operating performance; • for planning purposes, including the preparation of our annual operating budget; • to allocate resources to enhance the financial performance of our business; and • as a performance measure used under our bonus plan. We also believe that the presentation of Adjusted EBITDA provides useful information to investors with respect to our results of operations and in assessing the performance and value of our business. Various measures of EBITDA are widely used by investors to measure a company’s operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods, book values of assets, capital structures and the methods by which assets were acquired. Although measures similar to Adjusted EBITDA are frequently used by investors and securities analysts in their evaluation of companies, we understand that Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by (used in) operating activities or an analysis of our results of operations as reported under U.S. GAAP. Some of these limitations are: • Adjusted EBITDA does not reflect our historical cash expenditures or future requirements for capital expenditures or other contractual commitments; • Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; • Adjusted EBITDA does not reflect stock-based compensation expense; • 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 22 • 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 March 31, 2025 2024 (In thousands) Net loss $ (301,249 ) $ (1,835 ) Depreciation and amortization 5,793 5,786 Stock-based compensation (1) 2,073 4,706 Other expense 832 3,515 Income tax expense 1,076 756 Restructuring and demobilization costs 9,790 — Impairment of property, plant and equipment 286,612 — Adjusted EBITDA $ 4,927 $ 12,928 (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, and cash settled stock-based compensation settled. 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. Our expectation for thermal barrier revenue is based, in part, on our OEM customers’ production volume forecasts and targets. Our OEM customers operate in a cyclical industry that is sensitive to shifting consumer trends, political and regulatory uncertainty and economic conditions in the markets they operate. EV adoption rates in some of our customers’ markets are expected to be at a slower rate than originally expected and EV investment continues to be re-timed as demand expectations in North America and Europe are reset. However, some of our OEM customers have been gaining market share from a low base volume and expect to continue to gain market share in 2025. Furthermore, changes in government and economic policies, incentives, and tariffs may impact our customers and our production, sales, cost structure and the competitive landscape. Additionally, our OEM customers continue to innovate which could result in engineering changes to the parts we supply primarily to reduce costs for our OEMs. Cost-cutting initiatives adopted by our customers may result in increased downward pressure on pricing. Our customer supply agreements generally require step-downs in component pricing over the periods of production and OEMs have historically possessed significant leverage over their outside suppliers. Accordingly, we expect thermal barrier revenues to decline in 2025. However, we are expecting an increase in energy industrial revenues. We are projecting growth in energy industrial revenue due to expected volume growth in our core petrochemical and refinery markets, an anticipated increase in project-based demand and continued penetration of new markets. We will continue to adjust to these developments, and we believe our ongoing cost reduction, including by reducing headcount, and improved production innovation and efficiency, will continue to benefit us. As a result, we expect to experience a decline in net income and Adjusted EBITDA during 2025. We also expect to incur reduced capital expenditures during 2025. 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. 23 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. 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. 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 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, which began in 2024. 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. Operating Expenses Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Operating expenses include personnel costs, legal fees, professional fees, service fees, insurance premiums, travel expense, facilities related costs and other costs, expenses and fees. The largest component of our operating expenses is personnel costs, consisting of salaries, benefits, incentive compensation and stock-based compensation. In any particular period, the timing and extent of personnel additions or reductions, legal activities, including patent enforcement actions, marketing programs, research efforts and a range of similar activities or actions could materially affect our operating expenses, both in absolute dollars and as a percentage of revenue. 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. 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. 24 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 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. Restructuring and demobilization costs Restructuring and demobilization costs consists of severance and other personnel costs, facility closures and other costs associated with the demobilization of our previously planned Statesboro Plant. Impairment of property, plant and equipment In 2025, impairment of property, plant and equipment consists of impairment incurred on our previously planned Statesboro Plant. During the fiscal year ended December 31, 2024, the 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. Interest Expense, Convertible Note - Related Party Interest expense, convertible note - related party is net of the capitalized interest related to the 2022 Convertible Note which we sold and issued to Wood River. The Company repurchased the 2022 Convertible Note on August 19, 2024. 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 net losses since inception with the exception of the year ended December 31, 2024, and have not recorded benefit provisions for U.S. federal 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 provisions for state income taxes and our Mexican maquiladora operations. 25 Results of Operations Three months ended March 31, 2025 compared to the three months ended March 31, 2024 The following tables set forth a comparison of the components of our results of operations for the periods presented: Revenue Three Months Ended March 31, 2025 2024 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Revenue: Energy industrial $ 29,822 38% $ 29,082 31% $ 740 3% Thermal barrier 48,901 62% 65,419 69% (16,518 ) (25)% Total revenue $ 78,723 100% $ 94,501 100% $ (15,778 ) (17)% Total revenue decreased $15.8 million, or 17%, to $78.7 million for the three months ended March 31, 2025 from $94.5 million in the comparable period in 2024. The decrease in total revenue was the result of a decrease in thermal barrier revenue, offset by an increase in energy industrial revenue. Energy industrial revenue increased by $0.7 million, or 3%, to $29.8 million for the three months ended March 31, 2025 from $29.1 million in the comparable period in 2024. This increase was driven by an increase in the global petrochemical and refinery markets of North America, Asia, Europe, and Latin America, offset in part by a decrease in project-based demand in the subsea market. Energy industrial revenue for the three months ended March 31, 2025 included $10.7 million to a North American distributor, in comparison to $7.5 million for the comparable period of 2024. The average selling price per square foot of our energy industrial products increased by less than 1% for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in average selling price reflected the impact of price increases enacted in 2025 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 $0.1 million for the three months ended March 31, 2025 from the comparable period in 2024. In volume terms, energy industrial product shipments increased by 2% as measured by square feet of our energy industrial products shipped for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The increase in volume had the effect of increasing product revenue by $0.6 million for the three months ended March 31, 2025 from the comparable period in 2024. Thermal barrier revenue decreased by $16.5 million, or 25%, to $48.9 million for the three months ended March 31, 2025 from $65.4 million in the comparable period in 2024. During the three months ended March 31, 2025 and 2024, thermal barrier revenue included $47.4 million and $60.6 million, respectively, to a major U.S. automotive OEM. The decrease in thermal barrier revenue was driven by reduction in the volume of parts ordered by our OEM customer and lower contractual component price during the quarter compared to the same period in the prior year. 26 Cost of Revenue Three Months Ended March 31, 2025 2024 Change Percentage of Related Percentage of Related Amount Revenue Amount Revenue Amount Percentage ($ in thousands) Cost of revenue: Energy industrial $ 18,132 61% $ 17,520 60% $ 612 3% Thermal barrier 37,779 77% 41,838 64% (4,059 ) (10)% Total cost of revenue $ 55,911 71% $ 59,358 63% $ (3,447 ) (6)% Total cost of revenue decreased $3.5 million, or 6%, to $55.9 million for the three months ended March 31, 2025 from $59.4 in the comparable period in 2024. The decrease in total cost of revenue was the result of a decrease in thermal barrier cost of revenue, offset by an increase in energy industrial cost of revenue. Energy industrial cost of revenue increased $0.6 million, or 3%, to $18.1 million for the three months ended March 31, 2025 from $17.5 million in the comparable period in 2024, primarily due to an increase in the volume of products shipped. The $0.6 million increase was the result of a $5.3 million increase in material costs offset by a $4.7 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. Thermal barrier cost of revenue decreased $4.1 million, or 10%, to $37.7 million for the three months ended March 31, 2025 from $41.8 million in the comparable period in 2024. The $4.1 million decrease was the result of a $6.0 million decrease in material costs offset by a $1.9 million increase in manufacturing costs. Gross Profit Three Months Ended March 31, 2025 2024 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Gross profit: Energy industrial $ 11,690 39% $ 11,562 40% $ 128 1% Thermal barrier 11,122 23% 23,581 36% (12,459 ) (53)% Total gross profit $ 22,812 29% $ 35,143 37% $ (12,331 ) (35)% Gross profit decreased by $12.3 million, or 35%, to $22.8 million for the three months ended March 31, 2025 from $35.1 million in the comparable period in 2024. The decrease in gross profit was the result of the $15.8 million decrease in total revenue, partially offset by the $3.5 million decrease in total cost of revenue. Research and Development Expenses Three Months Ended March 31, 2025 2024 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Research and development expenses $ 4,333 6% $ 4,489 5% $ (156 ) (3)% Research and development expenses decreased by $0.2 million, or 3%, to $4.3 million for the three months ended March 31, 2025 from $4.5 million in the comparable period in 2024. The $0.2 million decrease reflects decreases in compensation and related costs of $0.2 million. Research and development expenses as a percentage of total revenue increased to 6% of total revenue for the three months ended March 31, 2025 from 5% in the comparable period in 2024. 27 Sales and Marketing Expenses Three Months Ended March 31, 2025 2024 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Sales and marketing expenses $ 8,384 11% $ 8,303 9% $ 81 1% Sales and marketing expenses increased by less than $0.1 million, or 1%, to $8.4 million for the three months ended March 31, 2025 from $8.3 million in the comparable period in 2024. Sales and marketing expenses as a percentage of total revenue increased to 11% of total revenue for the three months ended March 31, 2025 from 9% in the comparable period in 2024. General and Administrative Expenses Three Months Ended March 31, 2025 2024 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) General and administrative expenses $ 13,034 17% $ 17,213 18% $ (4,179 ) (24)% General and administrative expenses decreased by $4.2 million, or 24%, to $13.0 million for the three months ended March 31, 2025 from $17.2 million in the comparable period in 2024. The $4.2 million decrease was the result of decreases in compensation and related costs of $4.3 million, foreign currency transaction losses of $1.1 million and depreciation and facility related expenses of $0.4 million, partially offset by an increase in insurance costs of $0.8 million, utilities expenditures of $0.7 million and other expenses of $0.1 million. Compensation and related costs for the three months ended March 31, 2024 included $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 17% for the three months ended March 31, 2025 from 18% in the comparable period in 2024. Restructuring and demobilization costs In February 2025, we announced and began implementing a restructuring plan to realign our operational focus to improve costs and align capital expenditure to anticipated long term demand. The plan included reducing our headcount and ceasing construction of our previously planned Statesboro Plant. In connection with the demobilization, we are no longer pursuing our application for a loan from the Department of Energy’s Loan Programs Office and have withdrawn from the loan application process. Restructuring and demobilization costs include severance and other personnel costs of $2.9 million, facility closures and other costs associated with demobilization of $0.8 million and write off of deferred financing costs of $6.2 million incurred in connection with pursuing financing for the construction of the plant. We did not incur restructuring and demobilization costs for the three months ended March 31, 2024. Impairment of property, plant and equipment Impairment of property, plant and equipment costs increased $283.9 million for the three months ended March 31, 2025 from the comparable period in 2024, due to impairment incurred of $286.6 million on our previously planned Statesboro Plant. Impairment of $2.7 million for the three months ended March 31, 2024 was the result of a charge for impairment of equipment under development due to obsolescence following development of new and more efficient equipment. 28 Other Income (Expense), net Three Months Ended March 31, 2025 2024 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Other income (expense): Interest expense, related party $ — 0% $ (3,038 ) (3)% $ 3,038 (100)% Interest expense, net (1,962 ) (2)% (477 ) (1)% (1,485 ) 311% Other income 1,130 1% — — 1,130 NM Total other income (expense), net $ (832 ) (1)% $ (3,515 ) (4)% $ 2,683 (76)% The $3.0 million decrease of interest expense, related party for the three months ended March 31, 2025 is the result of the repurchase of the convertible note in August 2024. The $1.5 million increase in interest expense, net for the three months ended March 31, 2025 is the result of a $4.4 million increase in interest expense from the MidCap Loan Facility and sale and leaseback transactions, offset by $1.7 million of deferred financing costs written off related to the loan agreement with GM during the three months ended March 31, 2024 which did not repeat during the comparable period and an increase in interest income of $1.2 million. The other income increase of $1.1 million for the three months ended March 31, 2025 is the result of a legal settlement payment to us. Income Tax Expense Three Months Ended March 31, 2025 2024 Change Percentage Percentage Amount of Revenue Amount of Revenue Amount Percentage ($ in thousands) Income tax expense $ 1,076 1% $ 756 1% $ 320 42% The $1.1 million of income tax expense for the three months ended March 31, 2025 is related to our maquiladora operations in Mexico, in addition to a provision for state income taxes of less than $0.1 million. We incurred $0.8 million of income tax expense related to our maquiladora operations in Mexico for the comparable period in 2024. 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 demand for our aerogel products, we plan to make additional productivity improvements in our existing East Providence facility and utilize a flexible supply strategy, including but not limited to use of our external manufacturing capabilities in China, which currently support our Energy Industrial segment and are capable of delivering increased aerogel production capacity. We expect that the productivity improvements in our existing East Providence facility as well as the supply from our external manufacturing facility will permit us to achieve our target revenue capacity in 2025 and in the long-term. Accordingly, we have ceased construction at our previously planned Statesboro Plant. We will be demobilizing the plant and are in the process of assessing options to derive value from the assets, including potentially relocating certain equipment to improve and expand our existing manufacturing facility in East Providence. On August 19, 2024, we entered into the Credit Agreement with the Agent and the Lenders. The MidCap Loan Facility under the Credit Agreement is comprised of (i) the Term Loan Facility in an aggregate principal amount of $125.0 million and (ii) the Revolving Facility in an aggregate principal amount not to exceed the lesser of $100.0 million and the value of the Borrowing Base. At closing of the Credit Agreement, the Company drew $125.0 million from the Term Loan Facility and $43.0 million from the Revolving Facility. The proceeds of the borrowings at closing, net of fees and costs, were used for repurchasing the 2022 Convertible 29 Notes for $150.0 million and for general corporate purposes. On May 6, 2025, the Credit Agreement was amended adding Aspen Georgia as a Borrower and amending the MidCap Loan Facility. See Part II – Other Information – Item 5 – Other Information for further details. In January 2024 and September 2024, we entered into sale and leaseback arrangements, pursuant to which we sold certain equipment to an equipment leasing company for one-time cash payments of $5.0 million and $10.0 million, respectively, and leased back such equipment from the leasing company. The associated monthly lease rents will be paid over the lease term of three years. We believe that our March 31, 2025 cash and cash equivalents balance of $192.0 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 capital expenditures required to support the evolving commercial opportunities in the EV market and other strategic business opportunities. However, we may supplement our cash balance and available credit with equity financings, debt financings, equipment leasing, sale-leaseback transactions, customer prepayments or government grant and loan programs to provide the additional capital necessary to purchase the capital equipment, construct the new facilities and complete the aerogel capacity expansions required to support our evolving commercial opportunities and strategic business initiatives. We believe that consummation of equity financings could potentially result in an ownership change under Section 382 of the Internal Revenue Code. Such an ownership change would lead to the use of our net operating loss carryforwards being restricted. Our inability to use a substantial portion of our net operating loss carryforwards would result in a higher effective tax rate and adversely affect our financial condition and results of operations. Primary Sources of Liquidity Our principal sources of liquidity are currently our cash and cash equivalents, availability under the Revolving Facility, and cash generated by ongoing operations. Cash and cash equivalents consist primarily of cash, money market accounts, and sweep accounts on deposit with banks. As of March 31, 2025, we had $192.0 million of unrestricted cash and cash equivalents. Analysis of Cash Flow Three Months Ended March 31, 2025 2024 (In thousands) Net cash provided by (used in): Operating activities $ 5,632 $ (17,749 ) Investing activities (12,998 ) (25,863 ) Financing activities (21,477 ) 5,259 Net decrease in cash (28,843 ) (38,353 ) Cash, cash equivalents and restricted cash at beginning of period 221,276 139,971 Cash, cash equivalents and restricted cash at end of period $ 192,433 $ 101,618 Net Cash Provided by (Used in) Operating Activities During the three months ended March 31, 2025, we generated $5.6 million in net cash in operating activities, as compared to the use of $17.7 million in net cash during the comparable period in 2024, an increase in cash provided by operations of $23.3 million. This increase in cash provided by operations was the result of an increase in net cash generated by changes in operating assets and liabilities of $48.9 million, offset by a decrease in net loss adjusted for non-cash items of $25.6 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, our automated fabrication facility in Mexico and construction costs for the previously planned Statesboro Plant. Net cash used in investing activities for the three months ended March 31, 2025 and 2024 was $13.0 million and $25.9 million, respectively. 30 Net Cash Provided by (Used in) Financing Activities Net cash used in financing activities for the three months ended March 31, 2025 totaled $21.5 million and consisted of $13.2 million in cash used for the repayment of the revolver, $6.5 for the repayment of the Term Loan Facility, $1.2 in repayments of the finance obligation under the sale and leaseback transaction, $0.6 million for payments made for employee tax withholdings associated with the vesting of RSUs, and less than $0.1 million in cash used for fees and issuance costs. Net cash provided by financing activities for the three months ended March 31, 2024 totaled $5.3 million and consisted of $5.0 million in proceeds from a sale and leaseback transaction and $1.4 million in proceeds from employee stock option exercises, offset by $1.1 million in cash used for payments made for employee tax withholdings associated with the vesting of restricted stock units. 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. Significant Accounting Policies." 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. Significant Accounting Policies." 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: our expectations about the market for our aerogel products, 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 products; 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 decommissioning of the Statesboro Plant; 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; 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 31 connection with our patent enforcement actions; our expectations about future material costs and manufacturing expenses as a percentage of revenue; 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 expectation to meet long-term aerogel demand by maximizing capacity at our East Providence facility and utilizing a flexible supply strategy, including, but not limited to, using external manufacturing capabilities; the potential effects of tariffs on our business and results of operations; our expectations of future gross profit and the effect of manufacturing expenses, manufacturing capacity and productivity on gross profit; our expectations about our resources and other investments in new technology and related research and development activities and associated expenses; our expectations about short and long term (a) research and development (b) general and administrative and (c) sales and marketing expenses; our expectations of revenue growth, increased gross profit, and improving cash flows over the long term; our intentions about managing capital expenditures and working capital balances; our expectations and beliefs regarding the flexibility and efficiency of the MidCap 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. 32 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 March 31, 2025, we had unrestricted cash and cash equivalents of $192.0 million. These amounts were held for working capital and capital expansion purposes and were invested primarily in deposit accounts, money market accounts, and high-quality debt securities issued by the U.S. government via cash sweep accounts at major financial institutions in North America. Due to the short-term nature of these investments, we believe that our exposure to changes in the fair value of our cash as a result of changes in interest rates is not material. As of March 31, 2025, the Term Loan Facility had a principal balance of $112.0 million. Under the terms of the Credit Agreement, the Term Loan Facility bears an interest rate equal to Term SOFR 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%. Interest is paid monthly. As of March 31, 2025, the Revolving Facility had a principal balance of $29.8 million. Our Revolving Facility bears interest at the Term SOFR plus 4.60% per annum. Under the terms of the Credit Agreement, the Revolving Facility is subject to a Term SOFR floor of 2.50%. Interest is paid monthly. Therefore, fluctuations in interest rates will impact our consolidated financial statements. A rising interest rate environment will increase the amount of interest paid on these loans. A hypothetical 100 basis point increase or decrease in interest rates would not have a material effect on the results of our operations. As of March 31, 2025, 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. 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. 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. During the three months ended March 31, 2025 and 2024, our largest exposures to foreign exchange rates consisted primarily of the Mexican Peso against the U.S. dollar. Foreign currency transaction losses were $0.4 million for the three months ended March 31, 2025 and foreign currency transaction gains were $0.7 million for the three months ended March 31, 2024. The foreign currency transactions were recorded within operating expenses on the consolidated statements of operations.