ASPEN AEROGELS INC, 10-K filed on 3/8/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Mar. 07, 2019
Jun. 30, 2018
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Trading Symbol ASPN    
Entity Registrant Name ASPEN AEROGELS INC    
Entity Central Index Key 0001145986    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Accelerated Filer    
Entity Emerging Growth Company true    
Entity Ex Transition Period true    
Entity Small Business true    
Entity Shell Company false    
Entity Common Stock, Shares Outstanding   24,246,807  
Entity Public Float     $ 107.8
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 3,327 $ 10,694
Accounts receivable, net of allowances of $2,877 and $93 25,565 26,764
Inventories 7,318 8,915
Prepaid expenses and other current assets 1,041 1,289
Total current assets 37,251 47,662
Property, plant and equipment, net 61,699 76,067
Other long-term assets 73 86
Total assets 99,023 123,815
Current liabilities:    
Accounts payable 12,392 10,653
Accrued expenses 3,864 5,862
Revolving line of credit 4,181 3,750
Deferred revenue 2,629 1,304
Total current liabilities 23,066 21,569
Deferred rent 1,218 1,303
Prepayment liability 4,485  
Total liabilities 28,769 22,872
Commitments and contingencies (Note 10)
Stockholders' equity:    
Preferred stock, $0.00001 par value; 5,000,000 shares authorized, no shares issued or outstanding at December 31, 2018 and 2017
Common stock, $0.00001 par value; 125,000,000 shares authorized, 23,973,517 and 23,643,189 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively 0 0
Additional paid-in capital 541,839 538,088
Accumulated deficit (471,585) (437,145)
Total stockholders' equity 70,254 100,943
Total liabilities and stockholders' equity $ 99,023 $ 123,815
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 2,877 $ 93
Preferred stock, par value $ 0.00001 $ 0.00001
Preferred stock, shares authorized 5,000,000 5,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.00001 $ 0.00001
Common stock, shares authorized 125,000,000 125,000,000
Common stock, shares issued 23,973,517 23,643,189
Common stock, shares outstanding 23,973,517 23,643,189
v3.10.0.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenue:      
Total revenue $ 104,361 $ 111,631 $ 117,738
Cost of revenue:      
Gross profit 12,669 18,671 23,311
Operating expenses:      
Research and development 6,319 6,180 5,306
Sales and marketing 13,794 12,604 11,810
General and administrative 19,116 19,023 17,415
Impairment of construction in progress 7,356    
Total operating expenses 46,585 37,807 34,531
Loss from operations (33,916) (19,136) (11,220)
Other expense, net:      
Interest expense, net (524) (185) (147)
Postponed financing costs     (656)
Total other expense, net (524) (185) (803)
Net loss $ (34,440) $ (19,321) $ (12,023)
Net loss per share:      
Basic and diluted $ (1.45) $ (0.83) $ (0.52)
Weighted-average common shares outstanding:      
Basic and diluted 23,738,852 23,390,235 23,139,807
Product [Member]      
Revenue:      
Total revenue $ 102,123 $ 109,590 $ 115,490
Cost of revenue:      
Cost of revenue 90,660 92,052 93,123
Research Services [Member]      
Revenue:      
Total revenue 2,238 2,041 2,248
Cost of revenue:      
Cost of revenue $ 1,032 $ 908 $ 1,304
v3.10.0.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock 0.00001 Par Value [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Beginning balance at Dec. 31, 2015 $ 122,474   $ 527,975 $ (405,501)
Beginning balance, shares at Dec. 31, 2015   23,184,852    
Net loss (12,023)     (12,023)
Stock compensation expense 5,313   5,313  
Issuance of restricted stock, shares   75,152    
Vesting of restricted stock units (200)   (200)  
Vesting of restricted stock units, shares   109,834    
Ending balance at Dec. 31, 2016 115,564   533,088 (417,524)
Ending balance, shares at Dec. 31, 2016   23,369,838    
Net loss (19,321)     (19,321)
Adoption of new accounting standard     300 (300)
Stock compensation expense 5,091   5,091  
Issuance of restricted stock, shares   86,023    
Retirement of restricted stock, shares   (12,289)    
Vesting of restricted stock units (391)   (391)  
Vesting of restricted stock units, shares   199,617    
Ending balance at Dec. 31, 2017 100,943   538,088 (437,145)
Ending balance, shares at Dec. 31, 2017   23,643,189    
Net loss (34,440)     (34,440)
Stock compensation expense 4,302   4,302  
Issuance of restricted stock, shares   58,062    
Vesting of restricted stock units (551)   (551)  
Vesting of restricted stock units, shares   272,266    
Ending balance at Dec. 31, 2018 $ 70,254   $ 541,839 $ (471,585)
Ending balance, shares at Dec. 31, 2018   23,973,517    
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net loss $ (34,440) $ (19,321) $ (12,023)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization 10,787 10,753 9,853
Impairment of construction in progress 7,356    
Provision for bad debt 2,922 455  
Postponed financing costs     656
Stock compensation expense 4,302 5,091 5,313
Lease incentives (121) (111)  
Other   (1)  
Changes in operating assets and liabilities:      
Accounts receivable (1,723) (9,159) 3,089
Inventories 1,597 3,953 (6,336)
Prepaid expenses and other assets 261 411 (19)
Accounts payable 1,557 1,269 105
Accrued expenses (2,056) 1,821 (2,178)
Deferred revenue 810 261 362
Other liabilities 94 (28) 600
Net cash used in operating activities (8,654) (4,606) (578)
Cash flows from investing activities:      
Capital expenditures (3,593) (6,118) (13,216)
Net cash used in investing activities (3,593) (6,118) (13,216)
Cash flows from financing activities:      
Proceeds from borrowings under line of credit 56,716 27,250  
Repayment of borrowings under line of credit (56,285) (23,500)  
Prepayment proceeds under customer supply agreement, net 5,000    
Postponed financing costs     (656)
Repayment of obligations under capital lease   (27) (68)
Payments made for employee restricted stock minimum tax withholdings (551) (391) (200)
Net cash provided by (used in) financing activities 4,880 3,332 (924)
Net decrease in cash (7,367) (7,392) (14,718)
Cash and cash equivalents at beginning of period 10,694 18,086 32,804
Cash and cash equivalents at end of period 3,327 10,694 18,086
Supplemental disclosures of cash flow information:      
Interest paid 338 220 196
Income taxes paid 0 0 0
Supplemental disclosures of non-cash activities:      
Changes in accrued capital expenditures 182 $ (3,681) $ 2,116
Capitalized interest $ 44    
v3.10.0.1
Description of Business
12 Months Ended
Dec. 31, 2018
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Description of Business

(1) Description of Business

Nature of Business

Aspen Aerogels, Inc. (the Company) is an aerogel technology company that designs, develops and manufactures innovative, high-performance aerogel insulation used primarily in the energy infrastructure and building materials markets. The Company also conducts research and development related to aerogel technology supported by funding from several agencies of the U.S. government and other institutions in the form of research and development contracts.

The Company maintains its corporate offices in Northborough, Massachusetts. The Company has three wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC, Aspen Aerogels Germany, GmbH and Aspen Aerogels Georgia, LLC.

On June 18, 2014, the Company completed the initial public offering (IPO) of its common stock.

Liquidity

During the year ended 2018, the Company incurred a net loss of $34.4 million, used $8.7 million of cash in operations and had a cash and cash equivalents balance of $3.3 million and $4.2 million of outstanding borrowings under its revolving line of credit (see note 7). After giving effect to the outstanding borrowings and letters of credit, the additional amount available to the Company at December 31, 2018 under the revolving line of credit was $10.3 million. The existing revolving line of credit matures on April 28, 2020.

The Company is making investments to increase capacity at its existing manufacturing facility in East Providence, Rhode Island and to develop new technologies and business opportunities. The Company expects its existing cash balance and the amount anticipated to be available under the existing revolving line of credit will be sufficient to fund a portion of these investments. The Company plans to manage other capital expenditures and working capital balances to maintain the cash resources required to support current operating requirements and to complete the capacity expansion plan.

The Company will need to supplement its cash balance and amounts available under its revolving line of credit with anticipated cash flows from operations, debt financings, customer prepayments, technology licensing agreements or equity financings to provide the capital required to complete the expansion of the existing manufacturing facility and to fund its strategic business initiatives.

v3.10.0.1
Summary of Basis of Presentation and Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of Basis of Presentation and Significant Accounting Policies

(2) Summary of Basis of Presentation and Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP), include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Reclassification

The statement of cash flows for the year ended December 31, 2017 reflects a $0.5 million reclassification of the Company’s provision for bad debts to an adjustment to reconcile net loss to net cash used in operating activities from a component of changes in accounts receivable. The change has no impact on the results of operations.

Use of Estimates

The preparation of the consolidated financial statements requires the Company to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates and assumptions include allowances for doubtful accounts, sales returns and allowances, product warranty costs, inventory valuation, the carrying amount of property and equipment, stock-based compensation and deferred income taxes. The Company evaluates its estimates and assumptions on an on-going basis using historical experience and other factors, including the current economic environment, which are believed to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances warrant. Illiquid credit markets, volatile equity markets and declines in business investment can increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods.

Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid instruments, which consist of money market accounts. All cash and cash equivalents are maintained with major financial institutions in North America. Deposits with these financial institutions may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk.

Concentration of Credit Risk

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of accounts receivable. The Company’s customers are primarily insulation distributors, insulation contractors, insulation fabricators and select end-users located throughout the world. The Company performs ongoing credit evaluations of its customers’ financial condition and generally requires no collateral to secure accounts receivable. The Company maintains an allowance for doubtful accounts based on its assessment of the collectability of accounts receivable. The Company reviews the allowance for doubtful accounts quarterly. During the year ended December 31, 2018, the Company recorded a charge for uncollectible accounts receivable of $2.9 million related to four customers of which one customer accounted for $2.8 million of the charge. Allowance for doubtful accounts was $2.8 and zero at December 31, 2018 and 2017, respectively. The Company does not have any off-balance-sheet credit exposure related to its customers.

For the year ended December 31, 2018, one customer represented 20% of total revenue. For the year ended December 31, 2017, two customers represented 15% and 12% of total revenue, respectively. For the year ended December 31, 2016, two customers represented 25% and 15% of total revenue, respectively.

At December 31, 2018, the Company had one customer that accounted for 18% of accounts receivable. At December 31, 2017, the Company had three customers that accounted for 19%, 14% and 11% of accounts receivable, respectively.

Inventories

Inventory consists of finished products and raw materials. Inventories are carried at lower of cost, determined using the first-in, first-out (FIFO) method, and net realizable value. Cost includes materials, labor and manufacturing overhead. Manufacturing overhead is allocated to the costs of conversion based on normal capacity of the Company’s production facility. Abnormal freight, handling costs and material waste is expensed in the period it occurs.

The Company periodically reviews its inventories and makes provisions as necessary for estimated excess, obsolete or damaged goods to ensure values approximate the lower of cost and net realizable value. The amount of any such provision is equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand, selling prices and market conditions.

Property, Plant and Equipment, Net

Property, plant and equipment are stated at cost. Expenditures for maintenance and repairs are charged to expense as incurred, whereas major betterments are capitalized as additions to property, plant and equipment.

Interest expense capitalization commences at the time a capital project begins construction and concludes when the project is completed. The Company has capitalized interest costs as part of the historical costs of constructing its manufacturing facilities or significant capital projects. The Company capitalized less than $0.1 million in interest costs related to the capacity expansion project of the existing East Providence, Rhode Island manufacturing facility during the year ended December 31, 2018. The Company did not capitalize interest on projects during the years ended December 31, 2017 or December 31 2016.

Depreciation on plant and equipment is calculated on the straight-line method over the estimated useful lives of the assets. Assets related to leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset.

Assets utilized in the Company’s operations that are taken out of service with no future use are charged to cost of revenue or operating expenses, depending on the department in which the asset was utilized. Impairments of construction in progress are charged to operating expenses upon the determination of no future use.

Other Assets

Other assets primarily include long-term deposits.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recognition and measurement of a potential impairment is performed on assets grouped with other assets and liabilities at the lowest level where identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted net cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.

The Company had previously completed the design and engineering for a second manufacturing facility to be located in Statesboro, Georgia supported by a package of incentives, including free land, from state and local governmental authorities. During 2016, the Company elected to delay construction of the facility due to its assessment of future demand. In December 2018, the local governmental authorities notified the Company that they will exercise their right to terminate the incentive package in February 2019 and to make the identified site available to other parties. In addition, the Company determined that due to its cumulative manufacturing process advancements since 2016 and expected additional improvements in the near future, it will not use the existing design and engineering to construct a second facility in any location. Accordingly, the Company determined that the design and engineering costs are not recoverable and recorded an impairment charge of $7.4 million on construction in progress assets during 2018.

Deferred Rent

For leases that contain fixed increases in the minimum annual lease payment during the original term of the lease, the Company recognizes rental expense on a straight-line basis over the lease term, and records the difference between rent expense and the amount currently payable as deferred rent. Lease incentives for allowances for qualified leasehold improvements received from landlords are amortized on a straight-line basis over the lease term. The short-term portion of deferred rent is included within accrued expenses on the consolidated balance sheet.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606). See note 3 for further details.

Warranty

The Company provides warranties for its products and records the estimated cost within cost of sales in the period that the related revenue is recorded. The Company’s standard warranty period extends to one year from the date of shipment. This standard warranty provides that the Company’s products will be free from defects in material and workmanship, and will, under normal use, conform to the specifications for the product.

The Company’s products may be utilized in systems that involve new technical demands and new configurations. Accordingly, the Company regularly reviews and assesses whether warranty reserves should be recorded in the period the related revenue is recorded. For an initial shipment of product for use in a system with new technical demands or new configurations and where the Company is unsure of meeting the customer’s specifications, the Company will defer the recognition of product revenue and related costs until written customer acceptance is obtained.

The Company performs periodic testing of its aerogel blankets to ensure compliance with published performance specifications. From time to time, tests may indicate a product could potentially perform outside of these specifications. At that time, additional testing is initiated or the Company may conduct a root cause investigation. During the year ended December 31, 2018, test results indicated that tested samples performed outside the published performance specifications for a specific attribute of a product. The Company has determined that it is probable it has incurred a liability, however, a liability or range of liability is not estimable as of December 31, 2018. The Company will continue to assess the impact of the testing results on its customer base and, depending on the assessment, could be subject to warranty charges in future periods.

The Company did not record any warranty expense during the year ended December 31, 2018. During the years ended December 31, 2017 and 2016, the Company recorded warranty expense of $0.9 million and $0.5 million, respectively. These specific warranty charges were related to product claims for two separate product application issues. These claims were outside of the Company’s typical experience. As of December 31, 2018, the Company had satisfied all outstanding warranty claims.

Shipping and Handling Costs

Shipping and handling costs are classified as a component of cost of revenue. Customer payments of shipping and handling costs are recorded as product revenue.

Stock-based Compensation

The Company grants share-based awards to its employees and non-employee directors. All share-based awards granted, including grants of stock options, restricted stock and restricted stock units (RSUs), are recognized in the statement of operations based on their fair value as of the date of grant. Expense is recognized on a straight-line basis over the requisite service period for all awards with service conditions. For performance-based awards, the grant date fair value is recognized as expense when the condition is probable of being achieved, and then on a graded basis over the requisite service period. The Company uses the Black-Scholes option-pricing model to determine the fair value of service-based option awards. The Black-Scholes model requires the use of a number of complex and subjective assumptions including fair value of the underlying security, the expected volatility of the underlying security, a risk-free interest rate and the expected term of the option.

The fair value of restricted stock and RSUs is determined using the closing price of the Company’s common stock on the date of grant. All shares of restricted stock are not transferable until vested. Restricted stock is typically issued to non-employee directors and typically vests over a one-year period from the date of issuance. RSUs are issued to employees and typically vest over a three to four year period from the date of issuance. The fair value of restricted stock and RSUs upon which vesting is solely service-based is expensed ratably over the vesting period. If the service condition for shares of restricted stock is not met for any reason, the shares of unvested restricted stock will be forfeited and returned to the Company.

For stock options that contain a market condition, the Company uses the Monte-Carlo simulation option-pricing model to determine the fair value of the awards. In addition to the input assumptions used in the Black-Scholes model, the Monte-Carlo simulation option-pricing model factors the probability that the specific market condition may or may not be satisfied into the valuation. Stock-based compensation expense for awards with a market condition is recognized on a straight-line basis over the requisite service period for each such award.

Pursuant to the evergreen provisions of the 2014 Employee, Director and Consultant Equity Incentive Plan, the number of shares of common stock authorized for issuance under the plan automatically increased by 472,863 shares to 7,009,460 shares effective January 1, 2018.

Research and Development

Costs incurred in the research and development of the Company’s products include compensation and related costs, services provided by third-party contractors, materials and supplies and are classified as research and development expenses as incurred. Research and development costs directly associated with research services revenue are classified as research services in cost of revenue.

Earnings per Share

The Company calculates net loss per common share based on the weighted-average number of common shares outstanding during each period. Potential common stock equivalents are determined using the treasury stock method. The weighted-average number of common shares included in the computation of diluted net income (loss) gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, RSUs and warrants. Common equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. The Company accounts for uncertain tax positions using a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Differences between tax positions taken in a tax return and amounts recognized in the financial statements are recorded as adjustments to income taxes payable or receivable, or adjustments to deferred taxes, or both. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company recognizes penalties and interest related to uncertain tax positions, if any, as a component of income tax expense.

Segments

Operating segments are identified as components of an enterprise about which separate, discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the Chief Executive Officer. The Company’s chief operating decision maker reviews consolidated operating results to make decisions about allocating resources and assessing performance for the entire Company. The Company views its operations and manages its business as one operating segment.

Information about the Company’s total revenues, based on shipment destination or services location, is presented in the following table:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

41,733

 

 

$

51,439

 

 

$

35,726

 

International

 

 

62,628

 

 

 

60,192

 

 

 

82,012

 

Total revenue

 

$

104,361

 

 

$

111,631

 

 

$

117,738

 

 

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies. Recently issued standards typically do not require adoption until a future effective date. Prior to their effective date, the Company evaluates the pronouncements to determine the potential effects of adoption to its consolidated financial statements.

Standards Implemented After December 31, 2017

In August 2015, the FASB issued a deferral of ASU 2014-09, Revenue from Contracts with Customers. The standard replaced the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP with a principle based approach for determining revenue recognition. As a result of the deferral, public entities were required to apply the revised revenue recognition standard for the annual reporting period beginning on or after December 15, 2017, including interim periods within that annual reporting period. The Company adopted this standard using the modified retrospective method on January 1, 2018. The Company completed its analysis of the new revenue standard and determined that it would not materially impact the allocation and timing of recognition of previously reported revenues from the sale of products or performance of research and development services. In addition, the Company determined that there were no incremental contract costs or contract fulfillment costs to be recognized in connection with the adoption. Based on the Company’s analysis, no adjustment to retained earnings was required as of the January 1, 2018 adoption date. Accordingly, the Company’s application of the standard did not have a material impact on the Company’s consolidated balance sheet at January 1, 2018 and did not have a material impact to its statement of operations for the years ended December 31, 2018, 2017 and 2016.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). This amendment addresses eight classification issues related to the statement of cash flows. The amendments in ASU 2016-15 are effective for public business entities for annual and interim periods in fiscal years beginning after December 15, 2017. The Company adopted the provisions of the amendment on January 1, 2018. The adoption of the standard has not resulted in any material impact to the Company’s consolidated financial statements or other disclosures.

Standards to be Implemented After December 31, 2018

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). FASB ASU 2016-02 modifies the accounting for leases and requires that all leases be recorded on the consolidated balance sheets as assets and liabilities. This standard is effective for fiscal years beginning after December 15, 2018. The Company will adopt this standard using the modified retrospective transition approach with the effective date as the date of initial application. As a result, the Company will not update financial information and will not provide the disclosures required under the new standard for dates and periods before January 1, 2019. To measure its lease liabilities, the Company will use its incremental borrowing rate as of the date of adoption or the rate implicit in the lease, if available. The discount rate will be applied to the remaining lease term and remaining payments at the date of adoption. The Company will elect the package of practical expedients under the new standard, which permits the Company to not reassess prior conclusions about lease identification, lease classification, and initial direct costs. The Company completed its analysis of the new standard and determined that it will have a material effect on the consolidated financial statements. The most significant effects relate to the recognition of new right-of-use, or ROU, assets and lease liabilities on the consolidated balance sheets and the provision of significant new disclosures about leasing activities. Based on the Company’s analysis, the Company will recognize operating lease liabilities of approximately $6.0 million with corresponding ROU assets of approximately $4.6 million. Additionally, the Company will derecognize existing deferred rent liabilities of $1.4 million. The Company will elect the short-term lease recognition exemption for all leases that qualify. For leases that qualify for this exemption, the Company will not recognize ROU assets or lease liabilities. The Company will also elect the practical expedient to not separate lease and non-lease components for all of our equipment leases.

v3.10.0.1
Revenue from Contracts with Customers
12 Months Ended
Dec. 31, 2018
Revenue From Contract With Customer [Abstract]  
Revenue from Contracts with Customers

(3) Revenue from Contracts with Customers

On January 1, 2018, the Company Adopted Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for all contracts not completed as of the date of adoption. The adoption of ASC 606 did not have a material impact on the allocation and timing of the recognition of previously reported revenues from the sale of products, subsea projects or performance of research services. In addition, the Company determined that there are no incremental contract costs or contract fulfillment costs associated with the adoption. The reported results for 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605. The adoption of ASC 606 represents a change in accounting principle that more closely aligns revenue recognition with the delivery of the Company's product or research services and will provide financial statement readers with enhanced disclosures.

Revenue Recognition

Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange from those goods or services. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: (i) identification of the contract with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price to the separate performance obligations in the contract; and (v) recognition of the revenue associated with performance obligations as they are satisfied. The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, the Company estimates the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in paragraph ASC 606-10-32-18, the Company does not assess whether a significant financing component exists if the period between when the Company performs its obligations under the contract and when the customer pays is one year or less. The Company did not have any contracts outstanding at January 1, 2018 and did not enter into any contracts during the year ended December 31, 2018 that contained a significant financing component.

The Company records deferred revenue for product sales when the Company has delivered products but other performance obligations have not been satisfied or control has not been transferred to the customer.

Shipping and Handling Costs

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in the cost of product revenue. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these products or research services.

Product Revenue

The Company generally enters into contracts containing one type of performance obligation. The Company recognizes product revenue when the performance obligation is satisfied, which is generally upon delivery according to contractual shipping terms within customer purchase orders.

The Company also enters into rebate agreements with certain customers. These agreements may be considered an additional performance obligation of the Company or variable consideration within a contract. Rebates are recorded as a reduction of revenue in the period the related product revenue is recognized. A corresponding liability is recorded as a component of deferred revenue on the consolidated balance sheets. These arrangements are primarily based on the customer attaining contractually specified sales volumes.

The Company estimates the amount of its product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using historical rates of return, current quarter credit sales, and specific items of exposure on a contract by contract basis. Sales return reserves were less than $0.1 million at both December 31, 2018 and December 31, 2017.

Subsea Projects

The Company manufactures and sells subsea products that are designed for pipe-in-pipe applications in offshore oil production and are typically customized to meet customer specifications. Subsea products typically have no alternative use and contain an enforceable right to payment. Customer invoicing terms for subsea products are typically based on certain milestones within the production and delivery schedule. Under the provisions of ASC 606, the Company recognizes revenue at a point in time when transfer of control of the products is passed to the customer, or over time utilizing the input/cost-to-cost method. The timing of revenue recognition is assessed on a contract by contract basis. During the year ended December 31, 2018, the Company recognized $8.1 million in connection with subsea projects.

Research Services

The Company performs research services under contracts with various government agencies and other institutions. These contracts generally have one type of performance obligation associated with the provision of research services including functional licenses to any resulting intellectual property. The Company records revenue using the percentage-of-completion method in two ways: (1) for firm-fixed-price contracts, the Company accrues that portion of the total contract price that is allocable on the basis of the Company’s estimates of costs incurred to date to total contract costs; and (2) for cost-plus-fixed-fee contracts, the Company records revenue that is equal to total payroll cost incurred times a stated factor plus reimbursable expenses, to a stated upper limit. The primary cost under the Company’s research service contacts is the labor effort expended in completing the research, and the only deliverable, other than the labor hours expended, is the reporting of research results to the customer. Because the input measure of labor hours expended is also reflective of the output measure, it is a reliable means to measure the extent of progress toward completion. Revisions in cost estimates and fees during the course of the contract are reflected in the accounting period in which the facts that require the revisions become known. Contract costs and rates used to allocate overhead to contracts are subject to audit by the respective contracting government agency. Adjustments to revenue as a result of audit are recorded within the period they become known. To date, adjustments to revenue as a result of contracting agency audits have been insignificant.

Disaggregation of Revenue

In the following table, revenue is disaggregated by primary geographical region and source of revenue:

 

 

Year Ended

 

 

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

U.S.

 

 

International

 

 

Total

 

 

 

(In thousands)

 

 

 

 

 

Geographical region

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

 

 

$

34,597

 

 

$

34,597

 

Canada

 

 

 

 

 

4,749

 

 

 

4,749

 

Europe

 

 

 

 

 

19,905

 

 

 

19,905

 

Latin America

 

 

 

 

 

3,377

 

 

 

3,377

 

U.S.

 

 

41,733

 

 

 

 

 

 

41,733

 

Total revenue

 

$

41,733

 

 

$

62,628

 

 

$

104,361

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source of revenue

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

39,490

 

 

$

54,487

 

 

$

93,977

 

Subsea projects

 

 

5

 

 

 

8,141

 

 

 

8,146

 

Research services

 

 

2,238

 

 

 

 

 

 

2,238

 

Total revenue

 

$

41,733

 

 

$

62,628

 

 

$

104,361

 

Contract Balances

The following table presents changes in the Company’s contract assets and contract liabilities during the year ended December 31, 2018:

 

 

Balance at December 31, 2017

 

 

Additions

 

 

Deductions

 

 

Balance at December 31, 2018

 

 

 

(In thousands)

 

Contract assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsea projects

 

$

2,463

 

 

$

8,555

 

 

$

(8,276

)

 

$

2,742

 

Research services

 

 

425

 

 

 

2,283

 

 

 

(2,339

)

 

 

369

 

Total contract assets

 

$

2,888

 

 

$

10,838

 

 

$

(10,615

)

 

$

3,111

 

Contract liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

1,178

 

 

$

1,890

 

 

$

(1,317

)

 

$

1,751

 

Subsea projects

 

 

126

 

 

 

7,037

 

 

 

(6,382

)

 

 

781

 

Research services

 

 

-

 

 

 

180

 

 

 

(83

)

 

 

97

 

Prepayment liability

 

 

-

 

 

 

5,000

 

 

 

(515

)

 

 

4,485

 

Total contract liabilities

 

$

1,304

 

 

$

14,107

 

 

$

(8,297

)

 

$

7,114

 

During the year ended December 31, 2018, the Company recognized $1.3 million of revenue that was included in deferred revenue at the beginning of the period.

A contract asset is recorded when the Company satisfies a performance obligation by transferring a promised good or service and has earned the right to consideration from its customer. These assets may represent a conditional or unconditional right to consideration and are included within accounts receivable on the consolidated balance sheets.

          A contract liability is recorded when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services under the terms of the contract. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met. 

Transition Disclosures

There was no difference in the accounting for revenue transactions under ASC 606 or ASC 605 as of and for the year ended December 31, 2017. The following tables summarize the impacts of adopting ASC 606 on certain components of the Company’s consolidated financial statements as of and for the year ended December 31, 2018:

Consolidated Balance Sheets

 

 

As of December 31, 2018

 

 

 

As reported under ASC 606

 

 

Pro forma as if ASC 605 was in effect

 

 

 

(In thousands)

 

Inventories

 

$

7,318

 

 

$

10,572

 

Total current assets

 

 

37,251

 

 

 

40,505

 

Total assets

 

 

99,023

 

 

 

102,277

 

Deferred revenue

 

 

2,629

 

 

 

5,759

 

Total current liabilities

 

 

23,066

 

 

 

26,196

 

Total liabilities

 

 

28,769

 

 

 

31,899

 

Accumulated deficit

 

 

(471,585

)

 

 

(471,461

)

Total stockholders’ equity

 

 

70,254

 

 

 

70,378

 

Total liabilities and stockholders’ equity

 

 

99,023

 

 

 

102,277

 

          Total reported assets and liabilities were approximately $3.3 million and $3.1 million, respectively, less than the pro forma consolidated balance sheet which assumes ASC 605 guidance remained in effect as of December 31, 2018. Reported inventories and deferred revenue reflect the impact of revenue recognized over time utilizing the input/cost-to-cost method for subsea projects during the year ended December 31, 2018.

Consolidated Statements of Operations

 

 

Year Ended December 31, 2018

 

 

 

As reported under ASC 606

 

 

Pro forma as if ASC 605 was in effect

 

 

 

(In thousands)

 

Product revenue

 

$

102,123

 

 

$

98,993

 

Total revenue

 

 

104,361

 

 

 

101,231

 

Product cost of revenue

 

 

90,660

 

 

 

87,406

 

Gross profit

 

 

12,669

 

 

 

12,793

 

Loss from operations

 

 

(33,916

)

 

 

(33,792

)

Net loss

 

 

(34,440

)

 

 

(34,316

)

Total reported product revenue and product cost of revenue were approximately, $3.1 million and $3.3 million, respectively, greater than the pro forma consolidated statement of operations for the year ended December 31, 2018 under ASC 606. Reported revenue and cost of revenue reflect the impact of revenue recognized over time utilizing the input/cost-to-cost method for subsea projects during the year ended December 31, 2018. Under ASC 605 subsea projects revenue was recognized at a point in time when transfer of control of the product passed to the customer.

The impact of the adoption of ASC 606 on the consolidated statement of cash flows for the year ended December 31, 2018 was not material and had no impact on net cash used in operating activities.

v3.10.0.1
Inventories
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
Inventories

(4) Inventories

Inventories consist of the following:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Raw material

 

$

3,159

 

 

$

2,543

 

Finished goods

 

 

4,159

 

 

 

6,372

 

Total

 

$

7,318

 

 

$

8,915

 

 

v3.10.0.1
Property, Plant and Equipment, Net
12 Months Ended
Dec. 31, 2018
Property Plant And Equipment [Abstract]  
Property, Plant and Equipment, Net

(5) Property, Plant and Equipment, Net

Property, plant and equipment consist of the following:

 

 

 

December 31,

 

 

 

 

 

2018

 

 

2017

 

 

Useful life

 

 

(In thousands)

 

 

 

Construction in progress

 

$

1,568

 

 

$

7,699

 

 

Buildings

 

 

24,016

 

 

 

24,013

 

 

30 years

Machinery and equipment

 

 

120,466

 

 

 

118,786

 

 

3 — 10 years

Computer equipment and software

 

 

8,352

 

 

 

8,099

 

 

3 years

Total

 

 

154,402

 

 

 

158,597

 

 

 

Accumulated depreciation and amortization

 

 

(92,703

)

 

 

(82,530

)

 

 

Property, plant and equipment, net

 

$

61,699

 

 

$

76,067

 

 

 

Depreciation expense was $10.8 million, $10.8 million and $9.8 million for the years ended December 31, 2018, 2017 and 2016, respectively. Amortization associated with assets under capital leases was less than $0.1 million for years ended December 31, 2017 and 2016. The Company had no assets under capital leases during the year ended December 31, 2018.

Construction in progress totaled $1.6 million and $7.7 million at December 31, 2018 and 2017, respectively. The balance at December 31, 2017 included engineering designs and other pre-construction costs totaling $7.2 million for a planned manufacturing facility in Statesboro, Georgia. In addition, construction in progress included $1.2 million and less than $0.1 million at December 31, 2018 and 2017, respectively, related to projects associated with the Company’s plan to expand the capacity of the East Providence, Rhode Island facility.

The Company had previously completed the design and engineering for a second manufacturing facility to be located in Statesboro, Georgia supported by a package of incentives, including free land, from state and local governmental authorities. During 2016, the Company elected to delay construction of the facility due to its assessment of future demand. In December 2018, the local governmental authorities notified the Company that they will exercise their right to terminate the incentive package in February 2019 and to make the identified site available to other parties. In addition, the Company determined that due to its cumulative manufacturing process advancements since 2016 and expected additional improvements in the near future, it will not use the existing design and engineering to construct a second facility in any location. Accordingly, the Company determined that the design and engineering costs are not recoverable and recorded an impairment charge of $7.4 million on construction in progress assets during 2018.

v3.10.0.1
Accrued Expenses
12 Months Ended
Dec. 31, 2018
Payables And Accruals [Abstract]  
Accrued Expenses

(6) Accrued Expenses

Accrued expenses consist of the following:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Employee compensation

 

$

2,750

 

 

$

4,633

 

Other accrued expenses

 

 

1,114

 

 

 

1,229

 

Total

 

$

3,864

 

 

$

5,862

 

v3.10.0.1
Revolving Line of Credit
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
Revolving Line of Credit

(7) Revolving Line of Credit

The Company is party to an Amended and Restated Loan and Security Agreement with Silicon Valley Bank (Loan Agreement). On January 25, 2018, the Loan Agreement was amended to extend the maturity date of the facility to April 28, 2018. On April 25, 2018, the Loan Agreement was further amended to extend the maturity date of the facility to April 28, 2019. Under the Loan Agreement, the Company may borrow up to $20.0 million subject to compliance with certain covenants and borrowing base limitations. At the Company’s election, the interest rate applicable to borrowings may be based on the prime rate or LIBOR. Prime rate-based rates vary from prime rate plus 0.75% per annum to prime rate plus 2.00% per annum, while LIBOR-based rates vary from LIBOR plus 3.75% per annum to LIBOR plus 4.25% per annum. In addition, the Company is required to pay a monthly unused line fee of 0.5% per annum of the average unused portion of the facility. Obligations under the Loan Agreement are secured by a security interest in all assets of the Company, including those at the East Providence facility, except for certain exclusions.

During the year ended December 31, 2018, the Company borrowed $56.7 million and repaid $56.3 million under the line of credit. At December 31, 2018 and 2017, the Company had $4.2 million and $3.8 million drawn on the revolving credit facility. Under the Loan Agreement, the Company is required to comply with both non-financial and financial covenants, including minimum Adjusted EBITDA and minimum Adjusted Quick Ratio covenants, as defined. In May 2018, August 2018 and November 2018, the Company obtained a waiver from Silicon Valley Bank related to its compliance with the Adjusted Quick Ratio covenant. These waivers were subject to the Company’s meeting certain conditions, including, in the case of the November 2018 waiver, the Company’s issuance of $3.25 million in equity or receipt of $5.0 million in customer advanced payments on or before January 31, 2019. The Company met the conditions of the November 2018 waiver upon receipt on January 30, 2019 of a $5.0 million prepayment from BASF. In December 2018, the Company obtained and subsequently met the conditions of a waiver from Silicon Valley Bank related to its compliance with the minimum Adjusted EBITDA covenant. The Company was in compliance with all non-financial and financial covenants as of December 31, 2018 under the terms of the waivers.

The Company has been required to provide letters of credit to secure obligations under certain commercial contracts. The Company had outstanding letters of credit backed by the revolving credit facility of $1.6 million and $2.3 million at December 31, 2018 and 2017, respectively, which reduce the funds otherwise available to the Company under the facility.

At December 31, 2018, the effective amount available to the Company under the revolving credit facility was $10.3 million after giving effect to the $4.2 million in outstanding borrowings and $1.6 million of outstanding letters of credit.

v3.10.0.1
Other Expense, Net
12 Months Ended
Dec. 31, 2018
Other Expense Disclosure Nonoperating [Abstract]  
Other Expense, Net

(8) Other Expense, net

For the years ended December 31, 2018 and 2017, other expense, net of $0.5 million and $0.2 million, respectively, consisted primarily of fees and interest expense related to the Company’s revolving credit facility with Silicon Valley Bank.

For the year ended December 31, 2016, other expense, net of $0.8 million consisted of $0.7 million of postponed financing costs related to the Company’s decision to delay the construction and to terminate the financing of a second manufacturing facility during the year and $0.1 million of interest expense related to the revolving credit facility with Silicon Valley Bank.

v3.10.0.1
Deferred Rent
12 Months Ended
Dec. 31, 2018
Other Liabilities Disclosure [Abstract]  
Deferred Rent

(9) Deferred Rent

The Company leases office and warehouse space in Northborough, Massachusetts and East Providence Rhode Island.

For leases that contain fixed increases in the minimum annual lease payments during the term of the lease, the Company recognizes rental expense on a straight-line basis over the lease term, and records the difference between rent expense and the amount currently payable in deferred rent.

Deferred rent consists of the following:

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Deferred rent

 

$

1,368

 

 

$

1,511

 

Current maturities of deferred rent

 

 

(150

)

 

 

(208

)

Deferred rent, less current maturities

 

$

1,218

 

 

$

1,303

 

 

v3.10.0.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

(10) Commitments and Contingencies

Operating Leases

During 2016, the Company entered into an agreement to extend its lease of approximately 51,650 square feet of office space in Northborough, Massachusetts. The lease commenced on January 1, 2017 and will expire on December 31, 2026. The annual base rent associated with the lease was $408,000 during 2017 and will increase by approximately 3% annually for the term of the lease. The lease also requires the payment by the Company of its pro rata share of real estate taxes and certain other expenses. Prior to the expiration of the lease, the Company will have the right to extend the lease for an additional term of three years.

Under the terms of the lease extension, the landlord provided the Company with an allowance of $1.2 million to be utilized for improvements to the leased premises. These amounts are recorded as a component of deferred rent in determining the minimum lease payments for the property. At December 31, 2018 and 2017, the Company had capitalized $1.2 million in associated leasehold improvement costs.

The Company also leases facilities and equipment under operating leases expiring at various dates through 2024. Under these agreements, the Company is obligated to pay annual rent, real estate taxes, and certain operating expenses.

Future minimum lease payments under operating leases at December 31, 2018 are as follows:

 

Year

 

Operating

Leases

 

 

 

(In thousands)

 

2019

 

$

1,375

 

2020

 

 

1,304

 

2021

 

 

1,124

 

2022

 

 

1,068

 

2023

 

 

1,082

 

Thereafter

 

 

1,701

 

Total minimum lease payments

 

$

7,654

 

The Company incurred rent expense under all operating leases of approximately $1.5 million, $1.4 million and $1.5 million in the years ended December 31, 2018, 2017 and 2016, respectively.

Letters of Credit

The Company has been required to provide certain customers with letters of credit securing obligations under commercial contracts. The Company had letters of credit outstanding of $1.6 million and $2.3 million at December 31, 2018 and 2017, respectively. These letters of credit are secured by the Company’s revolving credit facility (see note 7).

Customer Supply Agreement

The Company is party to a supply agreement, as amended, with BASF Polyurethanes GmbH (BASF) (the Supply Agreement) and a joint development agreement with BASF SE (the JDA). Pursuant to the Supply Agreement, the Company will sell exclusively to BASF the Company’s Spaceloft A2 product at annual volumes to be specified by BASF, subject to certain volume limits. The Supply Agreement will terminate on December 31, 2027. Upon expiration of the Supply Agreement, the Company will be subject to a post-termination supply commitment for an additional two years. The JDA is designed to facilitate the collaboration between the parties on the development and commercialization of new products.

In addition, BASF, in its sole discretion, may make prepayments to the Company in the aggregate amount of up to $22.0 million during the term of the Supply Agreement. BASF agreed to make prepayments in the amount of $5.0 million to the Company in 2018 (the 2018 Prepayment). The amounts and terms of additional prepayments, if any, are subject to negotiation between the Company and BASF.

After January 1, 2019, the Company will, at BASF’s instruction, credit up to 25.3% of any amounts invoiced by the Company for Spaceloft A2 product sold to BASF against the 2018 Prepayment balance. However, BASF has no obligation to purchase products under the Supply Agreement. If any of the 2018 Prepayment remains uncredited as of December 31, 2021, BASF may request that the Company repay the uncredited amount to BASF. The prepayment obligation is secured by a security interest in real estate, plant and equipment at the Company’s Rhode Island facility and a license to certain intellectual property.

As of December 31, 2018, the Company had recorded the 2018 Prepayment of $5.0 million as a prepayment liability, net of the current portion of $0.5 million which is included within deferred revenue on the consolidated balance sheet.

Litigation

The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. See Part I, Item 3 (“Legal Proceedings”) of this Annual Report on Form 10-K for a description of certain of the Company’s current legal proceedings. The Company is not presently a party to any litigation for which it believes a loss is probable requiring an amount to be accrued or a possible loss contingency requiring disclosure.

v3.10.0.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2018
Equity [Abstract]  
Stockholders' Equity

(11) Stockholders’ Equity

At December 31, 2018 and 2017, the Company was authorized to issue 130,000,000 shares of stock, of which 125,000,000 shares were designated as common stock and 5,000,000 shares were designated as preferred stock.

v3.10.0.1
Employee Benefit Plan
12 Months Ended
Dec. 31, 2018
Postemployment Benefits [Abstract]  
Employee Benefit Plan

(12) Employee Benefit Plan

The Company sponsors the Aspen Aerogels, Inc. 401(k) Plan. Under the terms of the plan, the Company’s employees may contribute a percentage of their pretax earnings. During each of the years ended December 31, 2018, 2017 and 2016, the Company provided matching contributions of $0.2 million.

v3.10.0.1
Employee Stock Ownership Plans
12 Months Ended
Dec. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Employee Stock Ownership Plans

(13) Employee Stock Ownership Plans

Effective June 12, 2014, the Company adopted the 2014 Employee, Director and Consultant Equity Incentive Plan (the 2014 Equity Plan). Under the 2014 Equity Plan, the Company may grant incentive stock options (ISOs), non-qualified stock options (NSOs), restricted stock, restricted stock units (RSUs) and other stock-based awards. Stock options under the plan are to be granted with an exercise price not less than the fair market value of the Company’s common stock at the date of grant. Equity awards granted to employees generally vest over a service period of three to four years. Restricted stock and stock options granted to nonemployee directors generally vest over a one year service period.

During 2018, the Company granted 58,062 shares of restricted common stock with a grant date fair value of $0.3 million and 81,102 NSOs to purchase shares of common stock with a grant date fair value of $0.4 million to its non-employee directors. The awards to non-employee directors during 2018 will vest over a period of one year. The Company also granted 497,910 RSUs with a grant date fair value of $2.3 million and 493,154 NSOs to purchase shares of common stock with a grant date fair value of $1.1 million to employees. The RSUs and NSOs granted to employees during 2018 will vest over a three year period. All awards to nonemployee directors and employees during 2018 were granted under the 2014 Equity Plan.

On December 11, 2015, the Company issued certain equity grants to its chief executive officer which included 78,125 shares of restricted stock, 84,745 NSOs to purchase shares of common stock vesting solely over three years and 370,181 NSOs to purchase shares of common stock vesting subject to certain common stock price target achievements, as defined, over a three to five year period (the CEO Options). Collectively, these equity grants had an aggregate fair value of $2.0 million at the time of grant. The restricted stock award will vest based on achievement of a Company financial performance target for fiscal year 2020.

On August 2, 2017, the Company modified the performance target for the year ending December 31, 2020 with respect to 78,125 shares of restricted stock held by its chief executive officer. In addition, the Company modified the vesting conditions of 131,578 and 122,324 NSOs held by its chief executive officer to purchase shares of common stock to extend the time period to achieve certain common stock price targets by an additional year to four and five years from the date of grant, respectively.

The Company accounted for the extension of the time periods for the achievement of the common stock price target vesting conditions of the NSOs as modifications in determining the stock-based compensation expense to be recognized over the remaining service period. The total incremental compensation expense resulting from the modification was $0.1 million. The incremental compensation expense associated with these awards will be recognized over the remaining service period of the awards.

On November 7, 2018, the Company modified the vesting conditions of the CEO Options such that in the event of a change in control, all the outstanding NSOs would vest, regardless of whether or not the common stock price target vesting conditions of the NSOs are achieved. The total incremental compensation expense resulting from the modification was approximately $0.1 million which will be recognized over the remaining term of the options.

Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Cost of product revenue

 

$

577

 

 

$

790

 

 

$

796

 

Research and development expenses

 

 

461

 

 

 

555

 

 

 

594

 

Sales and marketing expenses

 

 

815

 

 

 

1,096

 

 

 

1,066

 

General and administrative expenses

 

 

2,449

 

 

 

2,650

 

 

 

2,857

 

Total stock-based compensation

 

$

4,302

 

 

$

5,091

 

 

$

5,313

 

At December 31, 2018, 3,780,217 shares of common stock were reserved for issuance upon the exercise or vesting, as appropriate, of outstanding stock-based awards granted under the 2014 Equity Plan. In addition, at December 31, 2018, 89,465 shares of common stock were reserved issuance upon the exercise of outstanding options granted under the Company’s 2001 Equity Incentive Plan, as amended (the 2001 Equity Plan). Any cancellations or forfeitures of the options outstanding under the 2001 Equity Plan will result in the shares reserved for issuance upon exercise or such options becoming available for grant under the 2014 Equity Plan. At December 31, 2018, there were 1,815,982 shares available for future grant under the 2014 Equity Plan.

Stock Options Valuation and Amortization Method

The fair value of each stock option is estimated as of the date of grant using the Black-Scholes option pricing model. Key inputs into this formula included expected term, expected volatility, expected dividend yield and the risk-free rate. Each assumption is set forth and discussed below.

The Company used a Monte Carlo Simulation model to estimate the original grant date fair value of the CEO Options as well as the 2017 and 2018 modifications. The simulation model was based on the Black-Scholes option pricing model and a number of complex assumptions including (i) whether the vesting condition is satisfied within the time-vesting periods, and (ii) the date the common stock price target is met per the terms of the agreement.

For stock options with a service condition, the fair value is amortized on a straight-line basis over the requisite service period of the options, which is generally a three- to four-year vesting period from the date of grant.

Expected Term

The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. Accordingly, the Company uses the simplified method to calculate the expected term for options granted.

Expected Volatility

Due to the Company’s limited historical data, the Company’s uses an estimated volatility based on the historical volatility of comparable companies with publicly available share prices. In 2018, 2017 and 2016, the expected volatility is based on the weighted average volatility of up to 17 companies with business, financial and market attributes that the Company believes are similar to its own.

Expected Dividend

The Company uses an expected dividend yield of zero. The Company does not intend to pay cash dividends on its common stock in the foreseeable future, nor has it paid dividends on its common stock in the past.

Risk-free Interest Rate

The Company uses a risk-free interest rate based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant.

Estimated Forfeitures

Effective January 1, 2017, the Company adopted the provisions of ASU 2016-09 related to the timing of accounting for the forfeitures of share based awards using a modified retrospective transition method. Under these provisions, the Company records the impact of forfeitures of service based awards at the time an award is forfeited. Adoption of the provisions resulted in a cumulative-effect adjustment to equity as of January 1, 2017 of $0.3 million.

Prior to adopting ASU 2016-09, forfeitures were required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on voluntary termination behavior as well as analysis of actual option forfeitures. Accordingly, share-based compensation expense had been reduced by an estimated annual forfeiture rate for the year ended December 31, 2016.

Assumptions Utilized

The following information relates to the fair value of the option awards estimated by use of the Black-Scholes option pricing model:

 

 

 

Year Ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands)

 

Weighted average assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

Expected term (in years)

 

 

5.93

 

 

 

5.86

 

 

 

5.86

 

Expected volatility

 

 

47.68

%

 

 

51.95

%

 

 

53.56

%

Risk free rate

 

 

2.76

%

 

 

1.99

%

 

 

1.36

%

Expected dividend yield

 

 

0.00

%

 

 

0.00

%

 

 

0.00

%

Weighted average fair value:

 

 

 

 

 

 

 

 

 

 

 

 

Grant-date fair value of options granted

 

$

2.29

 

 

$

2.08

 

 

$

2.16

 

Grant-date fair value of options vested

 

$

3.29

 

 

$

3.98

 

 

$

7.58

 

Aggregate intrinsic value of options exercised

 

$

 

 

$

 

 

$

 

Outstanding Options

The following table summarizes information about stock options outstanding:

 

 

Number of

Shares

 

 

Weighted

Average

Grant Date

Fair Value

Per Share

 

 

Weighted

Average

Exercise

Price

Per Share

 

 

Weighted

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value

 

 

 

($ in thousands, except share and per share data)

 

Options outstanding at December 31, 2017

 

 

2,432,906

 

 

$

7.18

 

 

$

10.48

 

 

 

7.64

 

 

$

554,236

 

Granted

 

 

574,256

 

 

$

2.29

 

 

$

4.73

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(12,710

)

 

$

11.65

 

 

$

16.07

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

$

 

 

$

 

 

 

 

 

 

$

 

Options outstanding at December 31, 2018

 

 

2,994,452

 

 

$

6.22

 

 

$

9.34

 

 

 

7.11

 

 

$

 

Exercisable at December 31, 2018

 

 

1,743,482

 

 

$

8.87

 

 

$

12.40

 

 

 

6.32

 

 

$

 

Expected to vest at December 31, 2018

 

 

1,250,970

 

 

$

2.53

 

 

$

5.08

 

 

 

8.22

 

 

$

 

As of December 31, 2018, total unrecognized compensation cost related to non-vested service-based options granted under the 2014 Equity Plan was $1.7 million. The unrecognized compensation cost for the service-based options is expected to be recognized over a weighted average period of 1.75 years.

Restricted Stock Awards and Restricted Stock Units

The Company values restricted stock awards and RSUs based on the closing price of our shares on the date of grant. RSUs have time-based vesting conditions and typically vest over three or four years. Restricted stock awards issued to nonemployee directors generally vest in full one year from the date of grant.

Information related to grants of RSUs during 2018 is as follows:

 

 

Restricted

Stock

Units

 

 

Weighted

Average

Grant Date

Fair Value

 

Balance at December 31, 2017

 

 

827,391

 

 

$

4.59

 

Granted

 

 

497,910

 

 

 

4.62

 

Vested

 

 

(391,989

)

 

 

5.13

 

Forfeited

 

 

(58,085

)

 

 

4.31

 

Balance at December 31, 2018

 

 

875,227

 

 

$

4.38

 

Restricted stock awards granted during 2018 are considered issued and outstanding common stock and are excluded from the table above. As of December 31, 2018 there were 136,187 shares of restricted stock outstanding.

The total intrinsic value of restricted stock and RSUs that vested in 2018 and 2017 was $0.8 million and $1.4 million, respectively. As of December 31, 2018, 933,289 of the total shares of restricted stock and RSUs outstanding will vest upon the fulfillment of service conditions. In addition, 78,125 shares of restricted stock will vest only if a certain performance condition is achieved. As of December 31, 2018, the Company had determined that the performance-based condition was probable and $0.2 million in compensation expense was recorded to date in conjunction with the award.

As of December 31, 2018, total unrecognized compensation cost related to restricted stock awards of $0.1 million, RSUs of $2.3 million and restricted stock with performance-based conditions of $0.1 million is expected to be recognized over a weighted average period of 0.47 years, 1.80 years and 2.00 years, respectively.

v3.10.0.1
Net Loss Per Share
12 Months Ended
Dec. 31, 2018
Earnings Per Share [Abstract]  
Net Loss Per Share

(14) Net Loss Per Share

The computation of basic and diluted net loss per share consists of the following:

 

 

 

Year ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

 

 

(In thousands, except share and per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(34,440

)

 

$

(19,321

)

 

$

(12,023

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

23,738,852

 

 

 

23,390,235

 

 

 

23,139,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(1.45

)

 

$

(0.83

)

 

$

(0.52

)

Potentially dilutive common shares that were excluded from the computation of diluted net loss per share because they were anti-dilutive consist of the following:

 

 

Year ended December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Common stock options

 

 

2,994,452

 

 

 

2,432,906

 

 

 

2,063,574

 

Restricted common stock units

 

 

875,227