ASPEN AEROGELS INC, 10-Q filed on 5/3/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 01, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
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   24,246,807
v3.19.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 3,369 $ 3,327
Accounts receivable, net of allowances of $2,880 and $2,877 22,287 25,565
Inventories 9,268 7,318
Prepaid expenses and other current assets 916 1,041
Total current assets 35,840 37,251
Property, plant and equipment, net 59,648 61,699
Operating lease right-of-use assets 4,562  
Other long-term assets 71 73
Total assets 100,121 99,023
Current liabilities:    
Accounts payable 8,571 12,392
Accrued expenses 4,230 3,864
Revolving line of credit 3,325 4,181
Deferred revenue 3,579 2,629
Operating lease liabilities 976  
Total current liabilities 20,681 23,066
Deferred rent   1,218
Prepayment liability 9,838 4,485
Operating lease liabilities long-term 4,926  
Total liabilities 35,445 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 March 31, 2019 and December 31, 2018
Common stock, $0.00001 par value; 125,000,000 shares authorized, 24,246,807 and 23,973,517 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively 0 0
Additional paid-in capital 542,263 541,839
Accumulated deficit (477,587) (471,585)
Total stockholders’ equity 64,676 70,254
Total liabilities and stockholders’ equity $ 100,121 $ 99,023
v3.19.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Allowance for doubtful accounts $ 2,880 $ 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 24,246,807 23,973,517
Common stock, shares outstanding 24,246,807 23,973,517
v3.19.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Revenue:    
Total revenue $ 27,912 $ 23,074
Cost of revenue:    
Gross profit 3,718 2,810
Operating expenses:    
Research and development 1,928 1,605
Sales and marketing 3,511 3,499
General and administrative 4,240 4,456
Total operating expenses 9,679 9,560
Loss from operations (5,961) (6,750)
Interest expense, net (41) (92)
Total interest expense, net (41) (92)
Net loss $ (6,002) $ (6,842)
Net loss per share:    
Basic and diluted $ (0.25) $ (0.29)
Weighted-average common shares outstanding:    
Basic and diluted 23,930,613 23,567,019
Product [Member]    
Revenue:    
Total revenue $ 26,785 $ 22,521
Cost of revenue:    
Cost of revenue 23,478 20,023
Research Services [Member]    
Revenue:    
Total revenue 1,127 553
Cost of revenue:    
Cost of revenue $ 716 $ 241
v3.19.1
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, 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, 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    
v3.19.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities:    
Net loss $ (6,002) $ (6,842)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 2,532 3,171
Stock-compensation expense 878 1,136
Operating lease right-of-use assets 217  
Lease incentives   (30)
Changes in operating assets and liabilities:    
Accounts receivable 3,278 6,630
Inventories (1,950) (1,059)
Prepaid expenses and other assets 127 204
Accounts payable (3,709) (3,340)
Accrued expenses 517 (1,923)
Deferred revenue 1,403 (335)
Operating lease liabilities (246)  
Other liabilities (56) (10)
Net cash used in operating activities (3,011) (2,398)
Cash flows from investing activities:    
Capital expenditures (637) (677)
Net cash used in investing activities (637) (677)
Cash flows from financing activities:    
Proceeds from borrowings under line of credit 36,914  
Repayment of borrowings under line of credit (37,770)  
Prepayment proceeds under customer supply agreement, net 5,000 2,500
Payments made for employee restricted stock tax withholdings (454) (504)
Net cash provided by financing activities 3,690 1,996
Net increase (decrease) in cash 42 (1,079)
Cash and cash equivalents at beginning of period 3,327 10,694
Cash and cash equivalents at end of period 3,369 9,615
Supplemental disclosures of cash flow information:    
Interest paid 96 99
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 153  
Changes in accrued capital expenditures $ (112) $ (281)
v3.19.1
Description of Business and Basis of Presentation
3 Months Ended
Mar. 31, 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 three months ended March 31, 2019, the Company incurred a net loss of $6.0 million, used $3.0 million of cash in operations and had a cash and cash equivalents balance of $3.4 million and outstanding borrowing under its revolving line of credit of $3.3 million (see note 7). After giving effect to outstanding borrowings and letters of credit, the additional amount available to the Company at March 31, 2019 under the revolving line of credit was $7.1 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.

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 March 31, 2019 and the results of its operations and stockholders’ equity for the three months ended March 31, 2019 and 2018 and the cash flows for the three month periods then ended. The Company has evaluated events through the date of this filing.

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

v3.19.1
Significant Accounting Policies
3 Months Ended
Mar. 31, 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.

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 three months ended March 31, 2019, the Company granted 644,617 restricted common stock units (RSUs) with a grant date fair value of $2.3 million and 632,183 non-qualified stock options (NSOs) to purchase shares of common stock with a grant date fair value of $1.1 million to employees under the 2014 Employee, Director and Consultant Equity Incentive Plan (the 2014 Equity Plan). The RSUs and NSOs granted to employees will vest over a three year period.

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Cost of product revenue

 

$

117

 

 

$

154

 

Research and development expenses

 

 

114

 

 

 

111

 

Sales and marketing expenses

 

 

129

 

 

 

232

 

General and administrative expenses

 

 

518

 

 

 

639

 

Total stock-based compensation

 

$

878

 

 

$

1,136

 

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 March 31, 2019, 4,638,401 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 March 31, 2019, 89,462 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 March 31, 2019, there were 1,033,344 shares of common stock available for future grant under the 2014 Equity Plan.

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 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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

U.S.

 

$

11,252

 

 

$

9,882

 

International

 

 

16,660

 

 

 

13,192

 

Total

 

$

27,912

 

 

$

23,074

 

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 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 March 31, 2019. 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 three months ended March 31, 2019 and 2018. As of March 31, 2019, the Company had satisfied all outstanding 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 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 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 will not update financial information or provide the disclosures required under the new standard for dates and periods before January 1, 2019. To measure its lease liabilities, the Company uses its incremental borrowing rate as of the date of adoption or the rate implicit in the lease, if available. The discount rate is applied to the remaining lease term and remaining payments at the date of adoption. The Company 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. The most significant effects of this new standard on the consolidated financial statements relate 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 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. The Company also 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.

v3.19.1
Revenue from Contracts with Customers
3 Months Ended
Mar. 31, 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 represents 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 three months ended March 31, 2019 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 approximately $0.1 million at both March 31, 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 three months ended March 31, 2019 and 2018, the Company recognized $4.7 million and $0.8 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 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:

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

U.S.

 

 

International

 

 

Total

 

 

U.S.

 

 

International

 

 

Total

 

 

 

(In thousands)

 

Geographical region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

 

 

$

6,723

 

 

$

6,723

 

 

$

 

 

$

8,228

 

 

$

8,228

 

Canada

 

 

 

 

 

1,897

 

 

 

1,897

 

 

 

 

 

 

1,675

 

 

 

1,675

 

Europe

 

 

 

 

 

7,123

 

 

 

7,123

 

 

 

 

 

 

2,455

 

 

 

2,455

 

Latin America

 

 

 

 

 

917

 

 

 

917

 

 

 

 

 

 

834

 

 

 

834

 

U.S.

 

 

11,252

 

 

 

 

 

 

11,252

 

 

 

9,882

 

 

 

 

 

 

9,882

 

Total revenue

 

$

11,252

 

 

$

16,660

 

 

$

27,912

 

 

$

9,882

 

 

$

13,192

 

 

$

23,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source of revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

10,125

 

 

$

11,965

 

 

$

22,090

 

 

$

9,324

 

 

$

12,353

 

 

$

21,677

 

Subsea projects

 

 

 

 

 

4,695

 

 

 

4,695

 

 

 

5

 

 

 

839

 

 

 

844

 

Research services

 

 

1,127

 

 

 

 

 

 

1,127

 

 

 

553

 

 

 

 

 

 

553

 

Total revenue

 

$

11,252

 

 

$

16,660

 

 

$

27,912

 

 

$

9,882

 

 

$

13,192

 

 

$

23,074

 

Contract Balances

The following table presents changes in the Company’s contract assets and contract liabilities during the three months ended March 31, 2019:

 

 

 

Balance at December 31, 2018

 

 

Additions

 

 

Deductions

 

 

Balance at

March 31,

2019

 

 

 

(In thousands)

 

Contract assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsea projects

 

$

2,742

 

 

$

8,608

 

 

$

(7,232

)

 

$

4,118

 

Research services

 

 

369

 

 

 

1,031

 

 

 

(412

)

 

 

988

 

Total contract assets

 

$

3,111

 

 

$

9,639

 

 

$

(7,644

)

 

$

5,106

 

Contract liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product revenue

 

$

1,751

 

 

$

266

 

 

$

(686

)

 

$

1,331

 

Subsea projects

 

 

781

 

 

 

4,567

 

 

 

(3,295

)

 

 

2,053

 

Research services

 

 

97

 

 

 

143

 

 

 

(45

)

 

 

195

 

Prepayment liability

 

 

4,485

 

 

 

5,353

 

 

 

 

 

 

9,838

 

Total contract liabilities

 

$

7,114

 

 

$

10,329

 

 

$

(4,026

)

 

$

13,417

 

During the three months ended March 31, 2019, the Company recognized $1.0 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. 

v3.19.1
Inventories
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Inventories

(4) Inventories

Inventories consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Raw materials

 

$

3,351

 

 

$

3,159

 

Finished goods

 

 

5,917

 

 

 

4,159

 

Total

 

$

9,268

 

 

$

7,318

 

v3.19.1
Property, Plant and Equipment, Net
3 Months Ended
Mar. 31, 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:

 

 

 

March 31,

 

 

December 31,

 

 

Useful

 

 

 

2019

 

 

2018

 

 

life

 

 

 

(In thousands)

 

 

 

 

 

Construction in progress

 

$

1,879

 

 

$

1,568

 

 

 

 

Buildings

 

 

24,016

 

 

 

24,016

 

 

30 years

 

Machinery and equipment

 

 

120,549

 

 

 

120,466

 

 

3-10 years

 

Computer equipment and software

 

 

8,385

 

 

 

8,352

 

 

3 years

 

Total

 

 

154,829

 

 

 

154,402

 

 

 

 

 

Accumulated depreciation

 

 

(95,181

)

 

 

(92,703

)

 

 

 

 

Property, plant and equipment, net

 

$

59,648

 

 

$

61,699

 

 

 

 

 

 

Depreciation expense was $2.5 million and $3.2 million for the three months ended March 31, 2019 and 2018, respectively.

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

v3.19.1
Accrued Expenses
3 Months Ended
Mar. 31, 2019
Payables And Accruals [Abstract]  
Accrued Expenses

(6) Accrued Expenses

Accrued expenses consist of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Employee compensation

 

$

2,939

 

 

$

2,750

 

Other accrued expenses

 

 

1,291

 

 

 

1,114

 

Total

 

$

4,230

 

 

$

3,864

 

v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 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). After January 1, 2019, BASF may require that the Company credit up to 25.3% of any amounts invoiced by the Company for the 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 require that the Company repay the uncredited amount of the 2019 Prepayment to BASF in full.

As of March 31, 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 $0.2 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 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 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 March 31, 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 March 31, 2019 and December 31, 2018, the Company had $3.3 million and $4.2 million, respectively, drawn on the revolving credit facility. 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 $0.5 million and $1.6 million at March 31, 2019 and December 31, 2018, respectively, which reduce the funds otherwise available to the Company under the facility.

At March 31, 2019, the effective amount available to the Company under the revolving credit facility was $7.1 million after giving effect to the $3.3 million in outstanding borrowings and $0.5 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.

v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases

(8) Leases

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

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 will not update financial information or provide the disclosures 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 will not recognize ROU assets or lease liabilities. For lease agreements with lease and non-lease components, the Company will account for each component separately. However, in the case of equipment leases, the Company will account 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

 

 

 

 

 

 

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 March 31, 2019 are as follows:

 

Year

 

Operating

Leases

 

 

 

(In thousands)

 

2019 (excluding the three months ended March 31, 2019)

 

$

1,048

 

2020

 

 

1,344

 

2021

 

 

1,164

 

2022

 

 

1,111

 

2023

 

 

1,093

 

Thereafter

 

 

1,701

 

Total lease payments

 

 

7,461

 

Less imputed interest

 

 

(1,559

)

Total lease liabilities

 

$

5,902

 

 

The Company incurred operating lease costs of $0.3 million during the three months ended March 31, 2019. Cash payments related to operating lease liabilities were $0.4 million during the three months ended March 31, 2019. At March 31, 2019, weighted average remaining lease term for operating leases was 6.1 years. At March 31, 2019, the weighted average discount rate for operating leases was 7.9%.

As of March 31, 2019, the Company has additional operating equipment leases with total lease payments of $0.1 million that have not commenced. These operating leases will commence during fiscal year 2019 and have lease terms of two to three years.

v3.19.1
Net Loss Per Share
3 Months Ended
Mar. 31, 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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands, except

share and per share data)

 

Numerator:

 

 

 

 

 

 

 

 

Net loss

 

$

(6,002

)

 

$

(6,842

)

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding, basic and diluted

 

 

23,930,613

 

 

 

23,567,019

 

Net loss per share, basic and diluted

 

$

(0.25

)

 

$

(0.29

)

 

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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Common stock options

 

 

3,625,011

 

 

 

2,897,424

 

Restricted common stock units

 

 

1,102,852

 

 

 

961,997

 

Restricted common stock awards

 

 

136,187

 

 

 

151,859

 

Total

 

 

4,864,050

 

 

 

4,011,280

 

 

In the table above, anti-dilutive shares consist of those common stock equivalents that have (i) an exercise price above the average stock price for the period or (ii) related average unrecognized stock compensation expense sufficient to buy back the entire amount of shares. The Company excludes the shares issued in connection with restricted stock awards from the calculation of basic weighted average common shares outstanding until the restrictions lapse.

v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

(10) Income Taxes

The Company incurred net operating losses and recorded a full valuation allowance against net deferred assets for all periods presented. Accordingly, the Company has not recorded a provision for federal or state income taxes.

v3.19.1
Subsequent Events
3 Months Ended
Mar. 31, 2019
Subsequent Events [Abstract]  
Subsequent Events

(11) Subsequent Events

The Company has evaluated subsequent events through May 2, 2019, the date of issuance of the consolidated financial statements for the three months ended March 31, 2019.

 

v3.19.1
Description of Business and Basis of Presentation (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Nature 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.

Liquidity

Liquidity

During the three months ended March 31, 2019, the Company incurred a net loss of $6.0 million, used $3.0 million of cash in operations and had a cash and cash equivalents balance of $3.4 million and outstanding borrowing under its revolving line of credit of $3.3 million (see note 7). After giving effect to outstanding borrowings and letters of credit, the additional amount available to the Company at March 31, 2019 under the revolving line of credit was $7.1 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.

Unaudited Interim Financial Information

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 March 31, 2019 and the results of its operations and stockholders’ equity for the three months ended March 31, 2019 and 2018 and the cash flows for the three month periods then ended. The Company has evaluated events through the date of this filing.

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

Principles of Consolidation

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

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 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.

Revenue Recognition

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

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

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 three months ended March 31, 2019, the Company granted 644,617 restricted common stock units (RSUs) with a grant date fair value of $2.3 million and 632,183 non-qualified stock options (NSOs) to purchase shares of common stock with a grant date fair value of $1.1 million to employees under the 2014 Employee, Director and Consultant Equity Incentive Plan (the 2014 Equity Plan). The RSUs and NSOs granted to employees will vest over a three year period.

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Cost of product revenue

 

$

117

 

 

$

154

 

Research and development expenses

 

 

114

 

 

 

111

 

Sales and marketing expenses

 

 

129

 

 

 

232

 

General and administrative expenses

 

 

518

 

 

 

639

 

Total stock-based compensation

 

$

878

 

 

$

1,136

 

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 March 31, 2019, 4,638,401 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 March 31, 2019, 89,462 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 March 31, 2019, there were 1,033,344 shares of common stock available for future grant under the 2014 Equity Plan.

Earnings per Share

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 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

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

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

U.S.

 

$

11,252

 

 

$

9,882

 

International

 

 

16,660

 

 

 

13,192

 

Total

 

$

27,912

 

 

$

23,074

 

Warranty

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 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 March 31, 2019. 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 three months ended March 31, 2019 and 2018. As of March 31, 2019, the Company had satisfied all outstanding warranty claims.

Recently Issued Accounting Standards

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 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 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 will not update financial information or provide the disclosures required under the new standard for dates and periods before January 1, 2019. To measure its lease liabilities, the Company uses its incremental borrowing rate as of the date of adoption or the rate implicit in the lease, if available. The discount rate is applied to the remaining lease term and remaining payments at the date of adoption. The Company 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. The most significant effects of this new standard on the consolidated financial statements relate 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 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. The Company also 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.

v3.19.1
Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of Stock Based Compensation Included in Cost of Revenue or Operating Expenses Stock-based compensation is included in cost of revenue or operating expenses, as applicable, and consists of the following:

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Cost of product revenue

 

$

117

 

 

$

154

 

Research and development expenses

 

 

114

 

 

 

111

 

Sales and marketing expenses

 

 

129

 

 

 

232

 

General and administrative expenses

 

 

518

 

 

 

639

 

Total stock-based compensation

 

$

878

 

 

$

1,136

 

Schedule of Revenues, Based on Shipment Destination or Research Services Location

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

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Revenue:

 

 

 

 

 

 

 

 

U.S.

 

$

11,252

 

 

$

9,882

 

International

 

 

16,660

 

 

 

13,192

 

Total

 

$

27,912

 

 

$

23,074

 

v3.19.1
Revenue from Contracts with Customers (Tables)
3 Months Ended
Mar. 31, 2019
Revenue From Contract With Customer [Abstract]  
Summary of Revenue Disaggregated by Geographical Region and Source of Revenue

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

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

 

 

U.S.

 

 

International

 

 

Total

 

 

U.S.

 

 

International

 

 

Total

 

 

 

(In thousands)

 

Geographical region

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

 

 

$

6,723

 

 

$

6,723

 

 

$

 

 

$

8,228

 

 

$

8,228

 

Canada

 

 

 

 

 

1,897

 

 

 

1,897

 

 

 

 

 

 

1,675

 

 

 

1,675

 

Europe

 

 

 

 

 

7,123

 

 

 

7,123

 

 

 

 

 

 

2,455

 

 

 

2,455

 

Latin America

 

 

 

 

 

917

 

 

 

917

 

 

 

 

 

 

834

 

 

 

834

 

U.S.

 

 

11,252

 

 

 

 

 

 

11,252

 

 

 

9,882

 

 

 

 

 

 

9,882

 

Total revenue