Once a niche industrial insulation provider, Aspen Aerogels has transformed into a major player in the electric vehicle sector.
Despite strong quarterly results and significant progress on new factory plans, the stock fell significantly following its Q3 earnings release.
Shares are down about 30% since October, largely due to slowing growth, capacity constraints, and uncertainty surrounding financing the new factory and the political environment.
Since its IPO in 2014, Aspen has struggled with its core industrial insulation business failing to produce consistent profits.
However, with the shift to EV thermal barrier solutions, the company is set to see significant growth, particularly as energy prices rise in 2021.
Aspen’s revenue is projected to increase 48% to $180 million in 2022 and 32% to $239 million in 2023, while operating losses are narrowing. Aspen reported impressive revenue growth of 107% and 145% in Q1 and Q2 2024, respectively, and operating profits increased significantly.
Aspen is building a new factory in Georgia that will triple its sales capacity to $1.8 billion.
The company has spent $300 million on the factory to date, securing $225 million in convertible debt financing from Apollo and a $670 million conditional loan from the U.S. Department of Energy (DOE). However, rising construction costs and political uncertainty surrounding the DOE loan pose risks to the company’s future.
In Q3 2024, Aspen generated $117.3 million in sales, up 93% year-over-year, driven primarily by revenues related to electric vehicles, while industrial energy sales declined due to limited capacity.
Excluding a $27 million debt extinguishment charge, operating profit was $17 million. However, Q4 sales are expected to be around $120 million, with adjusted EBITDA of $23 million, slightly lower than previous quarters.
Full-year sales are expected to be $450 million, with adjusted EBITDA of $90 million.
Aspen’s market cap as of Q3 is around $1.1 billion, with net debt of $50 million, and is likely to turn into a small net cash position following the October stock offering.
The company’s current core business, which generates approximately $90 million in EBITDA for 2024, appears undervalued relative to growth expectations.
Despite expansion efforts, the company faces challenges financing its new $800-$960 million plant as inflationary pressures weigh on cost estimates.
The market’s negative reaction to Aspen’s stock price decline may be due to concerns about the political climate and uncertainty about the DOE loan. If the loan is cancelled or postponed, this could create significant financial difficulties and potentially lead to a stock issuance.
Despite this, the company is on track to significantly increase sales capacity by 2025, and EBITDA margins are expected to improve once the new plant is operational.
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