Avoid IPO Of Aspen Aerogels: CEO Knows How To Get Paid And Lose Money

| About: Aspen Aerogels, (ASPN)

Summary

Massachusetts-based ASPN, a designer and manufacturer of aerogel insulation for energy infrastructure facilities, plans to raise $100.0 million in its upcoming IPO.

While ASPN has expanded its revenues fairly successfully since 2008, the firm is still a long way from profitability and will continue accumulate a deficit for some time.

We recommend investors wait on this IPO. CEO may be excessively compensated.

Aspen Aerogels Inc. (NYSE:ASPN), a designer and manufacturer of aerogel insulation for energy infrastructure facilities, plans to raise $100.0 million in its upcoming IPO.

The Northborough, Massachusetts-based firm will offer 6.7 million shares at an expected price range of $14-$16 per share. If the IPO can find the midpoint of that range at $15 per share, ASPN will command a market value of $331 million.

ASPN filed on April 28, 2014.

Lead Underwriters: Barclays Capital Inc.; Citigroup Global Markets Inc.; J.P. Morgan Securities LLC

Underwriters: Canaccord Genuity Inc.; Robert W. Baird & Co. Incorporated

Overview of Aerogel Business

ASPN is an energy technology firm engaged in the design, development, and manufacture of high-performance aerogel insulation for energy infrastructure facilities.

Aerogels are very low-density solids, with a composition that is some 97% air by volume, offering excellent insulation properties. The firm's aerogel products offer superior insulation to traditional insulation products in the form of thin, durable blankets, and reduce installation and transportation costs while allowing for compact design and reduced system weight. ASPN's products also offer safety benefits over traditional materials, including better resistance to corrosion and fire protection.

ASPN introduced its Pyrogel and Cryogel product lines in 2008, and has since attracted users, including Exxon Mobil (NYSE:XOM), Pemex Gas, Formosa Petrochemical, and NextEra Energy (NYSE:NEE), among other energy firms.

The firm is in the process of expanding its production capacities at its East Providence, Rhode Island manufacturing facility in an effort to meet increasing demand for its products, and plans to build a second manufacturing facility in Europe or Asia; ASPN anticipates the first production line at this new facility will be operational by 2017.

Valuation

ASPN offers the following figures in its S-1 balance sheet for the three months ended March 31, 2014:

Revenue: $22,363,000.00

Net Loss: ($19,049,000.00)

Total Assets: $88,169,000.00

Total Liabilities: $168,843,000.00

Stockholders' Equity: ($80,674,000.00)

Easy-to-Install, Relatively Expensive Products

ASPN's products are much more expensive than the traditional insulation materials offered by competitors, meaning that some customers may be unable or unwilling to pay for ASPN's products. ASPN also notes in its S-1 filing that a significant element of the value of its product is the relative swiftness and minimal labor expenses required for installation; in areas where labor expenses are low, this will be a less attractive value proposition, potentially limiting ASPN's ability to expand.

Competitors offering traditional insulation materials include Johns Manville, Knauf Gips, Saint-Gobain, Rockwool, and Owens Corning (NYSE:OC), many of which are larger and better capitalized than ASPN. Other competitors, such as Cabot Corporation (NYSE:CBT), manufacture high-performance aerogels that compete directly with ASPN's products.

It should be noted that ASPN has incurred a large deficit in the course of commercializing its products and building its business. As of March 31, 2014, the firm's accumulated deficit stood at $351.8 million. ASPN expects to continue to experience operating losses

CEO: Harvard Grad But Excessively Paid

President and CEO Donald R. Young has served in his current positions and as a member of the board of directors since 2001. His compensation for 2013 was $4,136,290. We find this amount excessive given the huge losses he is incurring for the shareholders.

Mr. Young previously served as CEO of HighWired and in various senior operating roles for Cabot Corporation. He received a BA from Harvard College and an MBA from Harvard Business School.

Conclusion

We are negative on this IPO and would not be surprised to see the deal price below the proposed range.

While there does appear to be rising demand for ASPN's products, the firm is still a long way from profitability and will continue accumulate a deficit for some time.

The high expense associated with ASPN's products may also limit the firm's growth potential, especially as more competitors enter the aerogel market and begin to market alternative products.

The firm has been able to expand its revenues fairly successfully since introducing its major product lines, with a 37% CAGR in revenue since 2008, potentially making it an attractive buy for some investors.

We are also uncomfortable when a CEO is being paid millions and millions and the company is losing huge amounts of money.

We suggest investors wait on this IPO.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.