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(1) Description of Business and Basis of Presentation
Nature of Business
Aspen Aerogels, Inc. (the Company) is an energy technology company that designs, develops and manufactures innovative, high-performance aerogel insulation. 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 two wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC and Aspen Aerogels Germany, GmbH.
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, 2015 (the Annual Report), filed with the Securities and Exchange Commission on March 4, 2016.
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 June 30, 2016 and the results of its operations for the three and six months ended June 30, 2016 and 2015 and the cash flows for the six month periods then ended. The Company has evaluated events through the date of this filing.
The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or any other period.
There have been no changes to the Company’s significant accounting policies described in the Annual Report that have had a material impact on the Company’s consolidated financial statements and notes thereto.
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.
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(2) Significant Accounting Policies
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 dictate. Illiquid credit markets, volatile equity markets and declines in business investment 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.
Deferred Revenue
The Company records deferred revenue for product sales when (i) the Company has delivered products but other revenue recognition criteria have not been satisfied, (ii) payments have been received in advance of products being delivered or (iii) amounts are billed in accordance with contractual terms in advance of products being delivered.
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 terms of the conditions, the expected volatility of the underlying security, and other relevant factors.
During the six months ended June 30, 2016, the Company granted 75,152 shares of restricted common stock and non-qualified stock options (NSOs) to purchase 103,593 shares of common stock with a fair value of $0.4 million and $0.2 million, respectively, 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 six months ended June 30, 2016, the Company granted 420,284 restricted common stock units (RSUs) and NSOs to purchase 259,469 shares of common stock to employees under the 2014 Equity Plan. The employee RSUs and NSOs will vest over a three year period. Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
(In thousands) | ||||||||||||||||
Cost of product revenue |
$ | 199 | $ | 191 | $ | 391 | $ | 406 | ||||||||
Research and development expenses |
148 | 215 | 288 | 363 | ||||||||||||
Sales and marketing expenses |
277 | 256 | 538 | 486 | ||||||||||||
General and administrative expenses |
809 | 742 | 1,586 | 1,444 | ||||||||||||
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Total stock-based compensation |
$ | 1,433 | $ | 1,404 | $ | 2,803 | $ | 2,699 | ||||||||
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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 463,697 shares to 6,069,201 shares effective January 1, 2016.
As of June 30, 2016, 2,721,549 shares of common stock were reserved for issuance upon the exercise or vesting, as appropriate, of outstanding stock-based awards granted under the 2014 Equity Plan. In addition, as of June 30, 2016, 93,065 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 June 30, 2016, there were 2,834,521 shares of common stock available for 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, RSUs and warrants. 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 June 30, |
Six Months Ended June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenue: |
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U.S. |
$ | 10,208 | $ | 11,038 | $ | 21,621 | $ | 21,722 | ||||||||
International |
17,510 | 19,058 | 38,918 | 31,874 | ||||||||||||
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Total |
$ | 27,718 | $ | 30,096 | $ | 60,539 | $ | 53,596 | ||||||||
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Warranty Costs
The Company provides warranties for its products and records the estimated cost within cost of sales in the period that the related revenue is recorded. The Company’s standard warranty period extends to one year from the date of shipment. The standard warranties provide 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. Historically, warranty claims and charges have been insignificant.
The Company’s products may be utilized in systems that may involve new technical demands and new configurations. As such, the Company will continue to regularly review and assess whether warranty reserves shall be recorded in the period the related revenue is recorded. For initial shipments of products 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.
For the six months ended June 30, 2016, the Company recorded warranty reserves totaling $0.5 million as a component of accrued expenses. These specific reserves principally relate to product warranty claims for a specific project. These claims are outside of the Company’s typical experience.
Additionally, during the three months ended June 30, 2016 a customer notified the Company of a specific product application issue. The customer continues to request and receive shipment of additional aerogel product and no claim has been made. The Company cannot be certain that it will not be subject to an additional warranty claim.
Recently Issued Accounting Standards
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The amendment is to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in ASU 2016-09 are effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of ASU 2016-09 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (FASB ASU 2016-02). FASB ASU 2016-02 changes the accounting for leases and includes a requirement to record all leases on the consolidated balance sheets as assets and liabilities. This update is effective for fiscal years beginning after December 15, 2018. Early application is permitted. The Company has not yet selected a transition method and is evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In August 2015, the FASB issued a deferral of ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. As a result of the deferral, public entities are required to apply the revenue recognition standard for the annual reporting period beginning on or after December 15, 2017, including interim periods within that annual reporting period. Early application is not permitted. The Company has not yet selected a transition method and is evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), which, for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. Public entities are required to apply the standards for fiscal years beginning after December 15, 2016, including interim periods within those fiscal periods. Early adoption is permitted as of the beginning of an interim or annual period. The Company has not yet selected a transition method and is evaluating the effect that the updated standard will have on its consolidated financial statements and disclosures.
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(3) Inventories
Inventories consist of the following:
June 30, 2016 |
December 31, 2015 |
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(In thousands) | ||||||||
Raw materials |
$ | 4,022 | $ | 4,432 | ||||
Finished goods |
7,766 | 2,100 | ||||||
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Total |
$ | 11,788 | $ | 6,532 | ||||
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(4) Property, Plant and Equipment, Net
Property, plant and equipment consist of the following:
June 30, 2016 |
December 31, 2015 |
Useful life |
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(In thousands) | ||||||||||||
Construction in progress |
$ | 11,675 | $ | 5,138 | — | |||||||
Buildings |
23,885 | 23,884 | 30 years | |||||||||
Machinery and equipment |
105,347 | 104,658 | 3-10 years | |||||||||
Computer equipment and software |
7,221 | 6,888 | 3 years | |||||||||
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Total |
148,128 | 140,568 | ||||||||||
Accumulated depreciation |
(66,982 | ) | (62,246 | ) | ||||||||
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Property, plant and equipment, net |
$ | 81,146 | $ | 78,322 | ||||||||
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Depreciation expense was $4.8 million and $4.7 million for the six months ended June 30, 2016 and 2015, respectively.
Construction in progress totaled $11.7 million and $5.1 million at June 30, 2016 and December 31, 2015, respectively, which included engineering designs and other pre-construction costs for the planned manufacturing facility in Statesboro, Georgia of $5.8 million and $2.3 million at June 30, 2016 and December 31, 2015, respectively.
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(5) Accrued Expenses
Accrued expenses consist of the following:
June 30, 2016 |
December 31, 2015 |
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(In thousands) | ||||||||
Employee compensation |
$ | 2,594 | $ | 4,184 | ||||
Other accrued expenses |
1,520 | 1,384 | ||||||
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Total |
$ | 4,114 | $ | 5,568 | ||||
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(6) Commitments and Contingencies
Customer Supply Agreement
On June 21, 2016, the Company entered into a supply agreement and a side agreement (together, the supply agreement) and a joint development agreement with BASF SE (BASF). Pursuant to the supply agreement, the Company will sell exclusively to BASF the Company’s Spaceloft® A2 product at annual volumes to be specified by BASF, subject to certain volume limits. The supply agreement will terminate on December 31, 2027, if not renewed prior to such date. Upon expiration of the supply agreement, the Company will be subject to a post-termination supply commitment for an additional two years. The joint development agreement is designed to facilitate the collaboration between the parties on the development and commercialization of new products.
In addition, BASF will make a non-interest bearing prepayment to the Company in the aggregate amount of $22 million during the construction of the planned manufacturing facility in Statesboro, Georgia (Plant Two), subject to the Company’s prior satisfaction of certain preconditions. BASF shall pay the prepayment to the Company in eight equal consecutive quarterly installments commencing on the later of (i) October 1, 2016 or (ii) the first day of the calendar quarter following the date on which the Plant Two progress preconditions are met. Once commenced, BASF’s obligation to make such quarterly payments shall be subject to postponement in the event of delays of three months or more in the projected date of completion of Plant Two by a commensurate number of months. Quarterly prepayments of $2,750,000 are expected to begin October 1, 2016. BASF will also provide technical support targeting manufacturing productivity, product cost and profit margins.
After October 1, 2018, the Company will, at BASF’s instruction, credit up to 25.3% of any amounts invoiced by the Company for Spaceloft® A2 product sold to BASF against the prepayment balance. However, BASF has no obligation to purchase products under the supply agreement. If any of the prepayment remains uncredited against amounts invoiced by the Company as of September 30, 2023, BASF may request that the Company repay the uncredited amount to BASF in four equal quarterly installments beginning on December 31, 2023. The repayment obligation will be secured by a security interest in real estate, plant and equipment at the Company’s Rhode Island and Georgia manufacturing facilities.
Asset Retirement Obligation
As of December 31, 2015, the Company had asset retirement obligations (ARO) arising from requirements to perform certain asset retirement activities upon the termination of its Northborough, Massachusetts facility lease and upon disposal of certain machinery and equipment.
During the six months ended June 30, 2016, the Company incurred approximately $0.2 million in expenditures in support of completing the restoration of 31,577 square feet of space formerly utilized for manufacturing operations in the Northborough, Massachusetts facility. This manufacturing space was vacated and returned to the landlord on July 1, 2016.
On June 29, 2016, the Company executed an agreement to remain at the Northborough, Massachusetts facility through December 31, 2026. As part of the new agreement, the Company’s obligation to restore the remaining space in the Northborough facility was eliminated. The settlement of the remaining reserve balance of approximately $0.2 million was reclassified to other liabilities and will be amortized as a reduction to rent expense over the term of the new lease agreement.
Six months ended |
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June 30, 2016 | ||||
(In thousands) | ||||
Balance at beginning of period |
$ | 397 | ||
Expenditures |
(156 | ) | ||
Settlement of asset retirement obligation |
(241 | ) | ||
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Balance at end of period |
$ | — | ||
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Revolving Line of Credit
The Company maintains a revolving credit facility with Silicon Valley Bank which expires on August 31, 2016. The Company may borrow up to $20 million under the facility subject to compliance with certain covenants and borrowing base limitations. 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 1.75% 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. The revolving credit facility is secured by a first priority security interest in all assets of the Company, including those at the East Providence facility, except for certain exclusions.
At both June 30, 2016 and December 31, 2015, the Company had no amounts drawn on the revolving credit facility. The Company had outstanding letters of credit backed by the revolving credit facility of $2.6 million and $2.7 million at June 30, 2016 and December 31, 2015, respectively, which reduce the funds otherwise available to the Company under the facility. Based on the available borrowing base, the effective amount available to the Company under the revolving credit facility at June 30, 2016 was $12.3 million after consideration of the $2.6 million of outstanding letters of credit. Under the revolving credit facility, the Company is required to comply with financial covenants relating to, among other items, minimum Adjusted EBITDA, maximum unfinanced capital expenditures and other non-financial covenants. At June 30, 2016, the Company was in compliance with all such financial covenants.
Letters of Credit
Pursuant to the terms of its existing Northborough, Massachusetts facility lease, the Company has been required to provide the landlord with letters of credit securing certain obligations. In addition, the Company has been required to provide certain customers with letters of credit securing obligations under commercial contracts. The Company had letters of credit outstanding for $2.6 million and $2.7 million at June 30, 2016 and December 31, 2015, respectively. These letters of credit are secured by the Company’s revolving credit facility.
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.
Operating Leases
On June 29, 2016, the Company entered into a new lease agreement with Cabot II- MA1M03, LLC (Cabot Properties) to lease approximately 51,650 square feet of office space located in Northborough, MA, the location of the Company’s current headquarters. The new lease supersedes the existing lease between the Company and Cabot Properties. The lease term will commence on January 1, 2017 and cease on December 31, 2026. The annual base rent associated with the lease will be approximately $408,000 during the first year, and increase by approximately 3% annually for the term of the lease. The lease also provides for the payment by the Company of its pro rata share of real estate taxes and certain other expenses. Upon expiration of the lease term, the Company will have the right to extend the lease for an additional term of three years.
The new lease contains provisions for Cabot Properties to provide the Company with an allowance of up to $1.2 million to be utilized for the construction of improvements of the leased premises. The Company will account for these improvements in accordance with its capitalization policy. As reimbursements for certain improvements become due from Cabot Properties, the Company will account for the reimbursements as a lease obligation incentive. In addition, the new lease eliminated the Company’s obligation under the existing lease to restore a portion of the office space. This obligation was previously classified as an asset retirement obligation and the settlement of the remaining reserve balance of approximately $0.2 million was reclassified to other liabilities. These amounts will be recorded as a component of deferred rent in determining the minimum lease payments for the property.
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(8) Income Taxes
The Company incurred net operating losses and recorded a full valuation allowance against net deferred tax assets for all periods presented. Accordingly, the Company has not recorded a provision for federal or state income taxes.
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Nature of Business
Aspen Aerogels, Inc. (the Company) is an energy technology company that designs, develops and manufactures innovative, high-performance aerogel insulation. 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 two wholly owned subsidiaries: Aspen Aerogels Rhode Island, LLC and Aspen Aerogels Germany, GmbH.
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, 2015 (the Annual Report), filed with the Securities and Exchange Commission on March 4, 2016.
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 June 30, 2016 and the results of its operations for the three and six months ended June 30, 2016 and 2015 and the cash flows for the six month periods then ended. The Company has evaluated events through the date of this filing.
The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or any other period.
There have been no changes to the Company’s significant accounting policies described in the Annual Report that have had a material impact on the Company’s consolidated financial statements and notes thereto.
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 dictate. Illiquid credit markets, volatile equity markets and declines in business investment 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.
Deferred Revenue
The Company records deferred revenue for product sales when (i) the Company has delivered products but other revenue recognition criteria have not been satisfied, (ii) payments have been received in advance of products being delivered or (iii) amounts are billed in accordance with contractual terms in advance of products being delivered.
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 terms of the conditions, the expected volatility of the underlying security, and other relevant factors.
During the six months ended June 30, 2016, the Company granted 75,152 shares of restricted common stock and non-qualified stock options (NSOs) to purchase 103,593 shares of common stock with a fair value of $0.4 million and $0.2 million, respectively, 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 six months ended June 30, 2016, the Company granted 420,284 restricted common stock units (RSUs) and NSOs to purchase 259,469 shares of common stock to employees under the 2014 Equity Plan. The employee RSUs and NSOs will vest over a three year period. Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
(In thousands) | ||||||||||||||||
Cost of product revenue |
$ | 199 | $ | 191 | $ | 391 | $ | 406 | ||||||||
Research and development expenses |
148 | 215 | 288 | 363 | ||||||||||||
Sales and marketing expenses |
277 | 256 | 538 | 486 | ||||||||||||
General and administrative expenses |
809 | 742 | 1,586 | 1,444 | ||||||||||||
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Total stock-based compensation |
$ | 1,433 | $ | 1,404 | $ | 2,803 | $ | 2,699 | ||||||||
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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 463,697 shares to 6,069,201 shares effective January 1, 2016.
As of June 30, 2016, 2,721,549 shares of common stock were reserved for issuance upon the exercise or vesting, as appropriate, of outstanding stock-based awards granted under the 2014 Equity Plan. In addition, as of June 30, 2016, 93,065 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 June 30, 2016, there were 2,834,521 shares of common stock available for 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, RSUs and warrants. 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 June 30, |
Six Months Ended June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenue: |
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U.S. |
$ | 10,208 | $ | 11,038 | $ | 21,621 | $ | 21,722 | ||||||||
International |
17,510 | 19,058 | 38,918 | 31,874 | ||||||||||||
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Total |
$ | 27,718 | $ | 30,096 | $ | 60,539 | $ | 53,596 | ||||||||
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Warranty Costs
The Company provides warranties for its products and records the estimated cost within cost of sales in the period that the related revenue is recorded. The Company’s standard warranty period extends to one year from the date of shipment. The standard warranties provide 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. Historically, warranty claims and charges have been insignificant.
The Company’s products may be utilized in systems that may involve new technical demands and new configurations. As such, the Company will continue to regularly review and assess whether warranty reserves shall be recorded in the period the related revenue is recorded. For initial shipments of products 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.
For the six months ended June 30, 2016, the Company recorded warranty reserves totaling $0.5 million as a component of accrued expenses. These specific reserves principally relate to product warranty claims for a specific project. These claims are outside of the Company’s typical experience.
Additionally, during the three months ended June 30, 2016 a customer notified the Company of a specific product application issue. The customer continues to request and receive shipment of additional aerogel product and no claim has been made. The Company cannot be certain that it will not be subject to an additional warranty claim.
Recently Issued Accounting Standards
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The amendment is to simplify several aspects of the accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, the amendments in ASU 2016-09 are effective for interim and annual reporting periods beginning after December 15, 2016. The Company is currently assessing the impact of ASU 2016-09 on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (FASB ASU 2016-02). FASB ASU 2016-02 changes the accounting for leases and includes a requirement to record all leases on the consolidated balance sheets as assets and liabilities. This update is effective for fiscal years beginning after December 15, 2018. Early application is permitted. The Company has not yet selected a transition method and is evaluating the effect the updated standard will have on its consolidated financial statements and related disclosures.
In August 2015, the FASB issued a deferral of ASU 2014-09, Revenue from Contracts with Customers. The standard will eliminate the transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. As a result of the deferral, public entities are required to apply the revenue recognition standard for the annual reporting period beginning on or after December 15, 2017, including interim periods within that annual reporting period. Early application is not permitted. The Company has not yet selected a transition method and is evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330), which, for entities that do not measure inventory using the last-in, first-out (LIFO) or retail inventory method, changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value. The ASU also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. Public entities are required to apply the standards for fiscal years beginning after December 15, 2016, including interim periods within those fiscal periods. Early adoption is permitted as of the beginning of an interim or annual period. The Company has not yet selected a transition method and is evaluating the effect that the updated standard will have on its consolidated financial statements and disclosures.
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Stock-based compensation is included in cost of sales or operating expenses, as applicable, and consists of the following:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
(In thousands) | ||||||||||||||||
Cost of product revenue |
$ | 199 | $ | 191 | $ | 391 | $ | 406 | ||||||||
Research and development expenses |
148 | 215 | 288 | 363 | ||||||||||||
Sales and marketing expenses |
277 | 256 | 538 | 486 | ||||||||||||
General and administrative expenses |
809 | 742 | 1,586 | 1,444 | ||||||||||||
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Total stock-based compensation |
$ | 1,433 | $ | 1,404 | $ | 2,803 | $ | 2,699 | ||||||||
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Information about the Company’s total revenues, based on shipment destination or services location, is presented in the following table:
Three Months Ended June 30, |
Six Months Ended June 30, |
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2016 | 2015 | 2016 | 2015 | |||||||||||||
(In thousands) | ||||||||||||||||
Revenue: |
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U.S. |
$ | 10,208 | $ | 11,038 | $ | 21,621 | $ | 21,722 | ||||||||
International |
17,510 | 19,058 | 38,918 | 31,874 | ||||||||||||
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Total |
$ | 27,718 | $ | 30,096 | $ | 60,539 | $ | 53,596 | ||||||||
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Inventories consist of the following:
June 30, 2016 |
December 31, 2015 |
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(In thousands) | ||||||||
Raw materials |
$ | 4,022 | $ | 4,432 | ||||
Finished goods |
7,766 | 2,100 | ||||||
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Total |
$ | 11,788 | $ | 6,532 | ||||
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Property, plant and equipment consist of the following:
June 30, 2016 |
December 31, 2015 |
Useful life |
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(In thousands) | ||||||||||||
Construction in progress |
$ | 11,675 | $ | 5,138 | — | |||||||
Buildings |
23,885 | 23,884 | 30 years | |||||||||
Machinery and equipment |
105,347 | 104,658 | 3-10 years | |||||||||
Computer equipment and software |
7,221 | 6,888 | 3 years | |||||||||
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Total |
148,128 | 140,568 | ||||||||||
Accumulated depreciation |
(66,982 | ) | (62,246 | ) | ||||||||
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Property, plant and equipment, net |
$ | 81,146 | $ | 78,322 |
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Accrued expenses consist of the following:
June 30, 2016 |
December 31, 2015 |
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(In thousands) | ||||||||
Employee compensation |
$ | 2,594 | $ | 4,184 | ||||
Other accrued expenses |
1,520 | 1,384 | ||||||
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Total |
$ | 4,114 | $ | 5,568 | ||||
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Six months ended |
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June 30, 2016 | ||||
(In thousands) | ||||
Balance at beginning of period |
$ | 397 | ||
Expenditures |
(156 | ) | ||
Settlement of asset retirement obligation |
(241 | ) | ||
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Balance at end of period |
$ | — | ||
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