ASPEN AEROGELS INC, 10-Q filed on 11/1/2019
Quarterly Report
v3.19.3
Document and Entity Information - shares
9 Months Ended
Sep. 30, 2019
Oct. 30, 2019
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Sep. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Trading Symbol ASPN  
Entity Registrant Name ASPEN AEROGELS INC  
Entity Central Index Key 0001145986  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Common Stock, Shares Outstanding   24,300,264
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity File Number 001-36481  
Entity Tax Identification Number 04-3559972  
Entity Address, Address Line One 30 Forbes Road  
Entity Address, Address Line Two Building B  
Entity Address, State or Province MA  
Entity Address, City or Town Northborough  
Entity Address, Postal Zip Code 01532  
City Area Code 508  
Local Phone Number 691-1111  
Entity Interactive Data Current Yes  
Title of 12(b) Security Common Stock  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Document Quarterly Report true  
Document Transition Report false  
v3.19.3
Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 1,195 $ 3,327
Accounts receivable, net of allowances of $122 and $2,877 24,362 25,565
Inventories 13,459 7,318
Prepaid expenses and other current assets 1,512 1,041
Total current assets 40,528 37,251
Property, plant and equipment, net 55,163 61,699
Operating lease right-of-use assets 4,277  
Other long-term assets 86 73
Total assets 100,054 99,023
Current liabilities:    
Accounts payable 9,097 12,392
Accrued expenses 4,539 3,864
Revolving line of credit 4,863 4,181
Deferred revenue 6,149 2,629
Operating lease liabilities 1,051  
Total current liabilities 25,699 23,066
Deferred rent   1,218
Prepayment liability 9,820 4,485
Deferred revenue long-term 915  
Operating lease liabilities long-term 4,554  
Total liabilities 40,988 28,769
Commitments and contingencies (Note 7)
Stockholders’ equity:    
Preferred stock, $0.00001 par value; 5,000,000 shares authorized, no shares issued and outstanding at September 30, 2019 and December 31, 2018
Common stock, $0.00001 par value; 125,000,000 shares authorized, 24,300,264 and 23,973,517 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively 0 0
Additional paid-in capital 544,260 541,839
Accumulated deficit (485,194) (471,585)
Total stockholders’ equity 59,066 70,254
Total liabilities and stockholders’ equity $ 100,054 $ 99,023
v3.19.3
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Allowance for accounts receivables $ 122 $ 2,877
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 24,300,264 23,973,517
Common stock, shares outstanding 24,300,264 23,973,517
v3.19.3
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenue:        
Total revenue $ 35,425 $ 23,937 $ 92,870 $ 68,682
Cost of revenue:        
Gross profit 7,742 1,529 14,974 7,083
Operating expenses:        
Research and development 2,046 1,384 5,842 4,627
Sales and marketing 3,992 3,061 11,012 10,281
General and administrative 3,857 3,453 11,449 12,149
Total operating expenses 9,895 7,898 28,303 27,057
Loss from operations (2,153) (6,369) (13,329) (19,974)
Interest expense, net (136) (163) (280) (358)
Total interest expense, net (136) (163) (280) (358)
Net loss $ (2,289) $ (6,532) $ (13,609) $ (20,332)
Net loss per share:        
Basic and diluted $ (0.09) $ (0.27) $ (0.57) $ (0.86)
Weighted-average common shares outstanding:        
Basic and diluted 24,171,811 23,808,703 24,074,565 23,707,245
Product [Member]        
Revenue:        
Total revenue $ 35,046 $ 23,342 $ 90,739 $ 66,978
Cost of revenue:        
Cost of revenue 27,510 22,154 76,703 60,853
Research Services [Member]        
Revenue:        
Total revenue 379 595 2,131 1,704
Cost of revenue:        
Cost of revenue $ 173 $ 254 $ 1,193 $ 746
v3.19.3
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, 2017 $ 100,943   $ 538,088 $ (437,145)
Beginning balance, shares at Dec. 31, 2017   23,643,189    
Net loss (6,842)     (6,842)
Stock compensation expense 1,136   1,136  
Vesting of restricted stock units (504)   (504)  
Vesting of restricted stock units, shares   239,064    
Ending balance at Mar. 31, 2018 94,733   538,720 (443,987)
Ending balance, shares at Mar. 31, 2018   23,882,253    
Beginning balance at Dec. 31, 2017 100,943   538,088 (437,145)
Beginning balance, shares at Dec. 31, 2017   23,643,189    
Net loss (20,332)      
Ending balance at Sep. 30, 2018 83,493   540,970 (457,477)
Ending balance, shares at Sep. 30, 2018   23,961,361    
Beginning balance at Mar. 31, 2018 94,733   538,720 (443,987)
Beginning balance, shares at Mar. 31, 2018   23,882,253    
Net loss (6,958)     (6,958)
Stock compensation expense 1,150   1,150  
Issuance of restricted stock, shares   58,062    
Ending balance at Jun. 30, 2018 88,925   539,870 (450,945)
Ending balance, shares at Jun. 30, 2018   23,940,315    
Net loss (6,532)     (6,532)
Stock compensation expense 1,128   1,128  
Vesting of restricted stock units 28   28  
Vesting of restricted stock units, shares   21,046    
Ending balance at Sep. 30, 2018 83,493   540,970 (457,477)
Ending balance, shares at Sep. 30, 2018   23,961,361    
Beginning balance at Dec. 31, 2018 70,254   541,839 (471,585)
Beginning balance, shares at Dec. 31, 2018   23,973,517    
Net loss (6,002)     (6,002)
Stock compensation expense 878   878  
Vesting of restricted stock units (454)   (454)  
Vesting of restricted stock units, shares   273,290    
Ending balance at Mar. 31, 2019 64,676   542,263 (477,587)
Ending balance, shares at Mar. 31, 2019   24,246,807    
Beginning balance at Dec. 31, 2018 70,254   541,839 (471,585)
Beginning balance, shares at Dec. 31, 2018   23,973,517    
Net loss (13,609)      
Ending balance at Sep. 30, 2019 59,066   544,260 (485,194)
Ending balance, shares at Sep. 30, 2019   24,300,264    
Beginning balance at Mar. 31, 2019 64,676   542,263 (477,587)
Beginning balance, shares at Mar. 31, 2019   24,246,807    
Net loss (5,318)     (5,318)
Stock compensation expense 996   996  
Issuance of restricted stock, shares   50,328    
Vesting of restricted stock units (10)   (10)  
Vesting of restricted stock units, shares   3,129    
Ending balance at Jun. 30, 2019 60,344   543,249 (482,905)
Ending balance, shares at Jun. 30, 2019   24,300,264    
Net loss (2,289)     (2,289)
Stock compensation expense 1,011   1,011  
Ending balance at Sep. 30, 2019 $ 59,066   $ 544,260 $ (485,194)
Ending balance, shares at Sep. 30, 2019   24,300,264    
v3.19.3
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash flows from operating activities:    
Net loss $ (13,609) $ (20,332)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 7,651 8,259
Stock-compensation expense 2,885 3,414
Operating lease right-of-use assets 702  
Lease incentives   (91)
Changes in operating assets and liabilities:    
Accounts receivable 1,203 5,303
Inventories (6,141) (994)
Prepaid expenses and other assets (484) (111)
Accounts payable (2,865) (3,310)
Accrued expenses 826 (2,305)
Deferred revenue 4,870 1,460
Operating lease liabilities (743)  
Other liabilities (56) (33)
Net cash used in operating activities (5,761) (8,740)
Cash flows from investing activities:    
Capital expenditures (1,589) (2,651)
Net cash used in investing activities (1,589) (2,651)
Cash flows from financing activities:    
Proceeds from borrowings under line of credit, net 682 1,406
Prepayment proceeds under customer supply agreement 5,000 5,000
Payments made for employee restricted stock tax withholdings (464) (532)
Net cash provided by financing activities 5,218 5,874
Net decrease in cash (2,132) (5,517)
Cash and cash equivalents at beginning of period 3,327 10,694
Cash and cash equivalents at end of period 1,195 5,177
Supplemental disclosures of cash flow information:    
Interest paid 333 237
Supplemental disclosures of non-cash activities:    
Initial recognition of operating lease liabilities related to right-of-use assets 5,995  
Right-of-use assets obtained in exchange for new operating lease liabilities 353  
Changes in accrued capital expenditures $ (430) $ 541
v3.19.3
Description of Business and Basis of Presentation
9 Months Ended
Sep. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Description of Business and Basis of Presentation

(1) Description of Business and Basis of Presentation

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.

Liquidity

During the nine months ended September 30, 2019, the Company incurred a net loss of $13.6 million and used $5.8 million of cash in operations. The Company had a cash and cash equivalents balance of $1.2 million and outstanding borrowing under its revolving line of credit of $4.9 million as of September 30, 2019 (see note 7). After giving effect to outstanding borrowings and letters of credit, the additional amount available to the Company at September 30, 2019 under the revolving line of credit was $7.6 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.

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.

Unaudited Interim Financial Information

The accompanying unaudited interim consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2018 (the Annual Report), filed with the Securities and Exchange Commission on March 8, 2019.

In the opinion of the Company’s management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments that are of a normal recurring nature and necessary for the fair statement of the Company’s financial position as of September 30, 2019 and the results of its operations and stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and the cash flows for the nine month periods then ended. The Company has evaluated events through the date of this filing.

The results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or any other period.

v3.19.3
Significant Accounting Policies
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Significant Accounting Policies

(2) Significant Accounting Policies

Principles of Consolidation

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

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 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 a customer uncollectible accounts receivable of $2.8 million. As of September 30, 2019, the Company determined that collection of the remaining unpaid accounts receivable from this customer of $2.6 million is unlikely and recorded a write-off of the accounts receivable and the corresponding allowance for doubtful accounts.

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.

Leases

On January 1, 2019, the Company adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). See note 8 for further details.

Stock-based Compensation

Stock-based compensation expense is measured at the grant date based on the fair value of the award. 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, which requires 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 restricted stock unit grants is determined using the closing trading price of the Company’s common stock on the date of grant. The fair value of awards containing market conditions is determined using a Monte Carlo simulation model based upon the nature of the conditions, the expected volatility of the underlying security, and other relevant factors.

During the nine months ended September 30, 2019, the Company granted 50,328 shares of restricted common stock with a grant date fair value of $0.3 million and non-qualified options (NSOs) to purchase 71,700 shares of common stock with a grant date fair value of $0.2 million vesting over a period of one year to its non-employee directors under the 2014 Employee, Director, and Consultant Equity Incentive Plan (the 2014 Equity Plan).

During the nine months ended September 30, 2019, the Company granted 654,582 restricted common stock units (RSUs) with a grant date fair value of $2.4 million and NSOs to purchase 632,183 shares of common stock with a grant date fair value of $1.1 million to employees under the 2014 Equity Plan. The RSUs and NSOs granted to employees will vest over a three-year period.

During the nine months ended September 30, 2019, the Company also granted NSOs to purchase 20,000 shares of common stock under the 2014 Equity Plan to an outside consultant which will vest on March 26, 2020 with a grant date fair value of less than $0.1 million.

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Cost of product revenue

 

$

125

 

 

$

158

 

 

$

365

 

 

$

474

 

Research and development expenses

 

 

130

 

 

 

124

 

 

 

374

 

 

 

355

 

Sales and marketing expenses

 

 

168

 

 

 

206

 

 

 

461

 

 

 

647

 

General and administrative expenses

 

 

588

 

 

 

640

 

 

 

1,685

 

 

 

1,938

 

Total stock-based compensation

 

$

1,011

 

 

$

1,128

 

 

$

2,885

 

 

$

3,414

 

 

Pursuant to the “evergreen” provisions of the 2014 Equity Plan, the number of shares of common stock authorized for issuance under the plan automatically increased by 479,470 shares to 7,488,930 shares effective January 1, 2019.

As of September 30, 2019, 4,703,199 shares of common stock were reserved for issuance upon the exercise or vesting of outstanding stock-based awards granted under the 2014 Equity Plan. In addition, as of September 30, 2019, 86,074 shares of common stock were reserved for issuance upon the exercise of outstanding stock 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 of such options becoming available for grant under the 2014 Equity Plan. As of September 30, 2019, the Company has either issued or reserved in connection with statutory tax withholdings a total of 1,782,795 shares under the 2014 Equity Plan. As of September 30, 2019, there were 916,862 shares of common stock available for future grant under the 2014 Equity Plan.

Net Loss 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 loss gives effect to all potentially dilutive common equivalent shares, including outstanding stock options, and RSUs. Common equivalent shares are excluded from the computation of diluted net loss per share if their effect is antidilutive.

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:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S.

 

$

15,191

 

 

$

11,485

 

 

$

41,415

 

 

$

30,677

 

International

 

 

20,234

 

 

 

12,452

 

 

 

51,455

 

 

 

38,005

 

Total

 

$

35,425

 

 

$

23,937

 

 

$

92,870

 

 

$

68,682

 

Warranty

The Company provides warranties for its products and records the estimated cost within cost of revenue 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 did not record any warranty expense during the nine months ended September 30, 2019 and 2018. As of September 30, 2019, the Company had satisfied all warranty claims.

Recently Issued Accounting Standards

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (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 Since December 31, 2018

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). FASB ASU 2016-02 modified the accounting for leases and requires that all leases be recorded on the consolidated balance sheets as assets and liabilities. This standard was effective for fiscal years beginning after December 15, 2018. The Company adopted this standard on January 1, 2019 using the modified retrospective transition approach with the effective date as the date of initial application. As a result, the Company did not update financial information or provide the disclosures otherwise required under the new standard for dates and periods before January 1, 2019. To measure its lease liabilities, the Company used its incremental borrowing rate as of the date of adoption or the rate implicit in the lease, if available. The discount rate was applied to the remaining lease term and remaining payments at the date of adoption. The Company also elected the package of practical expedients under the new standard, which permitted the Company to not reassess prior conclusions about lease identification, lease classification, and initial direct costs. The most significant effects of this new standard on the consolidated financial statements related to the recognition of new right-of-use (ROU) assets and lease liabilities on the consolidated balance sheets and the provision of significant new disclosures about leasing activities. Upon adoption on January 1, 2019, the Company recognized operating lease liabilities of approximately $6.0 million with corresponding ROU assets of approximately $4.6 million. Additionally, the Company derecognized deferred rent liabilities of $1.4 million. This standard has not materially impacted the Company’s consolidated net loss or net cash used in operations. The Company also elected the short-term lease recognition exemption for all leases that qualify. For leases that qualify for this exemption, the Company does not recognize ROU assets or lease liabilities. In addition, the Company elected the practical expedient to not separate non-lease components from the associated lease components for all of its equipment leases.

Standards to be Implemented

The Company believes that the impact of recently issued accounting standards that are not yet effective will not have a material impact on its consolidated financial statements.

v3.19.3
Revenue from Contracts with Customers
9 Months Ended
Sep. 30, 2019
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 the performance of research services. In addition, the Company determined that there are no incremental contract costs or contract fulfillment costs associated with the adoption of ASC 606. The adoption of ASC 606 represented a change in accounting principle that more closely aligns revenue recognition with the delivery of the Company's product or performance of 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 for 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 December 31, 2018 and did not enter into any contracts during the nine months ended September 30, 2019 that contained a significant financing component.

The Company records deferred revenue for product sales when (i) the Company has 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.

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 approximately $0.1 million at both September 30, 2019 and December 31, 2018.

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 nine months ended September 30, 2019 and 2018, the Company recognized revenue of $14.4 million and $2.4 million, respectively, 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 contracts is the labor effort expended in completing the research. Typically, the only deliverable, other than the labor hours expended, is reporting research results to the customer or delivery of research grade aerogel products. 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 tables, revenue is disaggregated by primary geographical region and source of revenue:

 

 

 

Three Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

U.S.

 

 

International

 

 

Total

 

 

U.S.

 

 

International

 

 

Total

 

 

 

(In thousands)

 

Geographical region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

 

 

$

10,535

 

 

$

10,535

 

 

$

 

 

$

7,814

 

 

$

7,814

 

Canada

 

 

 

 

 

5,372

 

 

 

5,372

 

 

 

 

 

 

186

 

 

 

186

 

Europe

 

 

 

 

 

3,726

 

 

 

3,726

 

 

 

 

 

 

3,881

 

 

 

3,881

 

Latin America

 

 

 

 

 

601

 

 

 

601

 

 

 

 

 

 

571

 

 

 

571

 

U.S.

 

 

15,191

 

 

 

 

 

 

15,191

 

 

 

11,485

 

 

 

 

 

 

11,485

 

Total revenue

 

$

15,191

 

 

$

20,234

 

 

$

35,425

 

 

$

11,485

 

 

$

12,452

 

 

$

23,937

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

14,812

 

 

$

18,286

 

 

$

33,098

 

 

$

10,890

 

 

$

10,861

 

 

$

21,751

 

Subsea projects

 

 

 

 

 

1,948

 

 

 

1,948

 

 

 

 

 

 

1,591

 

 

 

1,591

 

Research services

 

 

379

 

 

 

 

 

 

379

 

 

 

595

 

 

 

 

 

 

595

 

Total revenue

 

$

15,191

 

 

$

20,234

 

 

$

35,425

 

 

$

11,485

 

 

$

12,452

 

 

$

23,937

 

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

 

U.S.

 

 

International

 

 

Total

 

 

U.S.

 

 

International

 

 

Total

 

 

 

(In thousands)

 

Geographical region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

 

 

$

25,044

 

 

$

25,044

 

 

$

 

 

$

23,715

 

 

$

23,715

 

Canada

 

 

 

 

 

7,278

 

 

 

7,278

 

 

 

 

 

 

2,457

 

 

 

2,457

 

Europe

 

 

 

 

 

16,713

 

 

 

16,713

 

 

 

 

 

 

9,747

 

 

 

9,747

 

Latin America

 

 

 

 

 

2,420

 

 

 

2,420

 

 

 

 

 

 

2,086

 

 

 

2,086

 

U.S.

 

 

41,415

 

 

 

 

 

 

41,415

 

 

 

30,677

 

 

 

 

 

 

30,677

 

Total revenue

 

$

41,415

 

 

$

51,455

 

 

$

92,870

 

 

$

30,677

 

 

$

38,005

 

 

$

68,682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

35,727

 

 

$

40,585

 

 

$

76,312

 

 

$

28,968

 

 

$

35,575

 

 

$

64,543

 

Subsea projects

 

 

3,557

 

 

 

10,870

 

 

 

14,427

 

 

 

5

 

 

 

2,430

 

 

 

2,435

 

Research services

 

 

2,131

 

 

 

 

 

 

2,131

 

 

 

1,704

 

 

 

 

 

 

1,704

 

Total revenue

 

$

41,415

 

 

$

51,455

 

 

$

92,870

 

 

$

30,677

 

 

$

38,005

 

 

$

68,682

 

Contract Balances

The following table presents changes in the Company’s contract assets and contract liabilities during the nine months ended September 30, 2019:

 

 

Balance at December 31, 2018

 

 

Additions

 

 

Deductions

 

 

Balance at

September 30,

2019

 

 

 

(In thousands)

 

Contract assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsea projects

 

$

2,742

 

 

$

21,997

 

 

$

(22,683

)

 

$

2,056

 

Research services

 

 

369

 

 

 

1,831

 

 

 

(1,805

)

 

 

395

 

Total contract assets

 

$

3,111

 

 

$

23,828

 

 

$

(24,488

)

 

$

2,451

 

Contract liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

1,751

 

 

$

8,628

 

 

$

(3,876

)

 

$

6,503

 

Subsea projects

 

 

781

 

 

 

7,318

 

 

 

(7,771

)

 

 

328

 

Research services

 

 

97

 

 

 

212

 

 

 

(76

)

 

 

233

 

Prepayment liability

 

 

4,485

 

 

 

5,389

 

 

 

(54

)

 

 

9,820

 

Total contract liabilities

 

$

7,114

 

 

$

21,547

 

 

$

(11,777

)

 

$

16,884

 

 

During the nine months ended September 30, 2019, the Company recognized $1.9 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. 

v3.19.3
Inventories
9 Months Ended
Sep. 30, 2019
Inventory Disclosure [Abstract]  
Inventories

(4) Inventories

Inventories consist of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Raw materials

 

$

4,196

 

 

$

3,159

 

Finished goods

 

 

9,263

 

 

 

4,159

 

Total

 

$

13,459

 

 

$

7,318

 

v3.19.3
Property, Plant and Equipment, Net
9 Months Ended
Sep. 30, 2019
Property Plant And Equipment [Abstract]  
Property, Plant and Equipment, Net

(5) Property, Plant and Equipment, Net

Property, plant and equipment consist of the following:

 

 

 

September 30,

 

 

December 31,

 

 

Useful

 

 

 

2019

 

 

2018

 

 

life

 

 

 

(In thousands)

 

 

 

 

 

Construction in progress

 

$

467

 

 

$

1,568

 

 

 

 

Buildings

 

 

24,016

 

 

 

24,016

 

 

30 years

 

Machinery and equipment

 

 

122,351

 

 

 

120,466

 

 

3-10 years

 

Computer equipment and software

 

 

8,552

 

 

 

8,352

 

 

3 years

 

Total

 

 

155,386

 

 

 

154,402

 

 

 

 

 

Accumulated depreciation

 

 

(100,223

)

 

 

(92,703

)

 

 

 

 

Property, plant and equipment, net

 

$

55,163

 

 

$

61,699

 

 

 

 

 

 

Depreciation expense was $7.7 million and $8.3 million for the nine months ended September 30, 2019 and 2018, respectively.

Construction in progress included $0.1 million and $1.2 million at September 30, 2019 and December 31, 2018, respectively, related to projects associated with the Company’s plan to expand the capacity of the East Providence, Rhode Island facility.

v3.19.3
Accrued Expenses
9 Months Ended
Sep. 30, 2019
Payables And Accruals [Abstract]  
Accrued Expenses

(6) Accrued Expenses

Accrued expenses consist of the following:

 

 

 

September 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Employee compensation

 

$

2,733

 

 

$

2,750

 

Other accrued expenses

 

 

1,806

 

 

 

1,114

 

Total

 

$

4,539

 

 

$

3,864

 

v3.19.3
Commitments and Contingencies
9 Months Ended
Sep. 30, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

(7) Commitments and Contingencies

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 certain of the Company’s products at annual volumes to be specified by BASF, subject to certain volume limits. However, BASF has no obligation to purchase products under the Supply Agreement. The Supply Agreement will terminate on December 31, 2027 with respect to the Company’s Spaceloft A2 product and December 31, 2028 with respect to a new product developed under the JDA. Upon the expiration of the Supply Agreement with respect to each product, the Company will be subject to a post-termination supply commitment for an additional two years. The JDA is designed to facilitate collaboration by 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. These prepayment obligations are 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. BASF made a prepayment in the amount of $5.0 million to the Company in 2018 (the 2018 Prepayment). Beginning January 1, 2019, BASF may require that the Company credit up to 25.3% of any amounts invoiced by the Company for Spaceloft A2 product sold to BASF against the 2018 Prepayment balance. If any of the 2018 Prepayment remains uncredited as of December 31, 2021, BASF may require that the Company repay the uncredited amount to BASF.

Pursuant to the first addendum to the Supply Agreement, on January 30, 2019, BASF made an additional prepayment in the amount of $5.0 million to the Company (the 2019 Prepayment). After January 1, 2020, the Company will credit 50.0% of any amounts that it invoices for the newly developed product sold to BASF against the outstanding balance of the 2019 Prepayment. After December 31, 2022, BASF may require that the Company credit an additional 24.7% of any amounts invoiced by the Company for Spaceloft A2 product sold to BASF against the outstanding balance of the 2019 Prepayment, if any, or may require that the Company repay the uncredited amount of the 2019 Prepayment to BASF in full.

As of September 30, 2019, the Company had received $10.0 million in prepayments from BASF and applied less than $0.1 million of credits against amounts invoiced. The prepayments are recorded on the balance sheet as a prepayment liability, net of the current portion of $0.1 million which is included within deferred revenue. The amounts and terms of additional prepayment installments, if any, are subject to negotiation between the Company and BASF.

Revolving Line of Credit

The Company is party to an Amended and Restated Loan and Security Agreement with Silicon Valley Bank (the Loan Agreement). On March 4, 2019, the Loan Agreement was amended to extend the maturity date of the revolving credit facility to April 28, 2020.

Under the revolving credit facility, the Company is permitted to borrow a maximum of $20.0 million, subject to continued covenant compliance and borrowing base requirements. At the Company’s election, the interest rate applicable to borrowings under the revolving credit facility may be based on 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 revolving line facility fee of 0.5% per annum of the average unused portion of the revolving credit facility.

Under the Loan Agreement, the Company is required to comply with both non-financial and financial covenants, including a minimum EBITDA covenant, as defined. At September 30, 2019, the Company was in compliance with all such covenants. 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. The Company intends to extend or replace the facility prior to its maturity.

At September 30, 2019 and December 31, 2018, the Company had $4.9 million and $4.2 million, respectively, drawn on the revolving credit facility. In addition, the Company has been required to provide letters of credit to secure obligations under certain commercial contracts and other obligations. The Company had outstanding letters of credit backed by the revolving credit facility of $0.7 million and $1.6 million at September 30, 2019 and December 31, 2018, respectively, which reduce the funds otherwise available to the Company under the facility.

At September 30, 2019, the amount available to the Company under the revolving credit facility was $7.6 million after giving effect to $4.9 million in outstanding borrowings and $0.7 million of outstanding letters of credit.

Litigation

The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. See Part II, Item 1 “Legal Proceedings” of this Quarterly Report on Form 10-Q 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.

v3.19.3
Leases
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases

(8) Leases

The Company leases office and warehouse space in Northborough, Massachusetts and East Providence, Rhode Island under operating leases. Under these agreements, the Company is obligated to pay annual rent, real estate taxes, and certain other operating expenses. The Company also leases equipment under operating leases. The Company’s operating leases expire at various dates through 2026.

On January 1, 2019, the Company adopted ASU 2016-02 which modifies the accounting for leases and requires that all leases be recorded on the consolidated balance sheets as assets and liabilities. The Company adopted this standard using the modified retrospective transition approach with the effective date as the date of initial application. As a result, the Company did not update financial information or provide the disclosures otherwise required under the new standard for dates and periods before January 1, 2019. The Company also elected 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. In addition, the Company elected the short-term lease recognition exemption under which the Company will not recognize ROU assets or lease liabilities for all leases that qualify. The Company also elected the practical expedient to not separate non-lease components from the associated lease components for all of its equipment leases.

The Company determines if an arrangement is a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s payment obligations under the lease. Operating lease ROU assets and liabilities are recognized based on the present value of lease payments over the lease term. To measure its lease liabilities, the Company uses its incremental borrowing rate or the rate implicit in the lease, if available. ROU assets also include any direct costs and prepaid lease payments but exclude any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

The Company elected the short-term lease recognition exemption for all leases that qualify. For leases that qualify for this exemption, the Company does not recognize ROU assets or lease liabilities. For lease agreements with lease and non-lease components, the Company accounts for each component separately. However, in the case of equipment leases, the Company accounts for lease and non-lease components as a single component.

Prior to the Company’s adoption of ASU 2016-02, the Company recorded the difference between rent expense recognized on a straight-line basis and the contractual payments as deferred rent. Deferred rent consisted of the following at December 31, 2018:

 

 

 

December 31,

 

 

 

2018

 

 

 

(In thousands)

 

Deferred rent

 

$

1,368

 

Current maturities of deferred rent

 

 

(150

)

Deferred rent, less current maturities

 

$

1,218

 

 

Upon adoption of ASU 2016-02 on January 1, 2019, the Company recognized operating lease liabilities of approximately $6.0 million with corresponding ROU assets of approximately $4.6 million. Additionally, the Company derecognized deferred rent liabilities of $1.4 million. Maturities of operating lease liabilities at September 30, 2019 are as follows:

 

Year

 

Operating

Leases

 

 

 

(In thousands)

 

2019 (excluding the nine months ended September 30, 2019)

 

$

380

 

2020

 

 

1,413

 

2021

 

 

1,221

 

2022

 

 

1,138

 

2023

 

 

1,105

 

Thereafter

 

 

1,700

 

Total lease payments

 

 

6,957

 

Less imputed interest

 

 

(1,352

)

Total lease liabilities

 

$

5,605

 

 

 

The Company incurred operating lease costs of $1.2 million during the nine months ended September 30, 2019. Cash payments related to operating lease liabilities were $1.1 million during the nine months ended September 30, 2019. At September 30, 2019, the weighted average remaining lease term for operating leases was 5.6 years. At September 30, 2019, the weighted average discount rate for operating leases was 7.9%.

v3.19.3
Net Loss Per Share
9 Months Ended
Sep. 30, 2019
Earnings Per Share [Abstract]  
Net Loss Per Share

(9) Net Loss Per Share

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

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands, except

share and per share data)

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(2,289

)

 

$

(6,532

)

 

$

(13,609

)

 

$

(20,332

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

24,171,811

 

 

 

23,808,703

 

 

 

24,074,565

 

 

 

23,707,245

 

Net loss per share, basic and diluted

 

$

(0.09

)

 

$

(0.27

)

 

$

(0.57

)

 

$

(0.86

)

 

 

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:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Common stock options

 

 

3,683,858

 

 

 

2,994,452