IPO Preview: Aspen Aerogels

| About: Aspen Aerogels, (ASPN)
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An energy technology company that designs, develops and manufactures innovative, high-performance aerogel insulation used in large-scale energy infrastructure facilities.

30%-plus rate of revenue growth.

Improving operating income (loss) percent of revenue.

Based in Northborough, MA, Aspen Aerogels (NYSE:ASPN) scheduled a $100 million IPO on the NYSE with a market capitalization of $309 million, at a price range midpoint of $15 for Friday, June 13, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint Managers: Barclays, JPMorgan, Citigroup

Co-Managers: Baird, Canaccord Genuity

End of lockup (180 days): Wednesday, December 10, 2014

End of 25-day quiet period: Tuesday, July 8, 2014


ASPN is an energy technology company that designs, develops and manufactures innovative, high-performance aerogel insulation used primarily in large-scale energy infrastructure facilities.

Notice the 30%-plus rate of revenue growth and the improving operating income percent of revenue.




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Valuation Ratios

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Annualizing Q1/14

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The rating on ASPN is neutral. Top line revenue is increasing and operating losses are improving, but ASPN isn't yet profitable. ASPN is worth watching.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.


ASPN is an energy technology company that designs, develops and manufactures innovative, high-performance aerogel insulation used primarily in large-scale energy infrastructure facilities.

ASPN believes its aerogel blankets deliver the best thermal performance of any widely used insulation product available on the market today, and provide a combination of performance attributes unmatched by traditional insulation materials.

Market size

ASPN's technologically advanced products are targeted at the estimated $2.8 billion annual global market for energy infrastructure insulation materials.

As ASPN continues to expand its production capacity and enhance its technology, ASPN believes it will have opportunities to address additional high-value applications in the $37-billion global insulation market.

Two to five times the thermal performance

ASPN products provide two to five times the thermal performance of widely used traditional insulation in a thin, easy-to-use and durable blanket form.

ASPN's end-use customers select its products where thermal performance is critical, and to save money, reduce energy use, preserve operating assets and protect workers.

Use by the petrochemical industry

ASPN's aerogel insulation has undergone rigorous technical validation, and is used by many of the world's largest oil producers and the owners and operators of refineries, petrochemical plants, liquefied natural gas (or LNG) facilities and power-generating assets, such as Exxon Mobil, Formosa Petrochemical, Pemex Gas and NextEra Energy Resources.

ASPN's products replace traditional insulation in existing facilities during regular maintenance, upgrades and capacity expansions.

In addition, ASPN is increasingly being specified for use in newbuild energy infrastructure facilities.

Invested in two key products lines

ASPN introduced its two key product lines, Pyrogel and Cryogel, in 2008. ASPN has invested significant resources to commercialize its technology and to build its business, has incurred and expects to continue to incur annual operating losses, and has an accumulated deficit of $351.8 million at March 31, 2014.

As a result of this investment, ASPN's product revenue has grown from $17.2 million in 2008 to $82.1 million in 2013, representing a compound annual growth rate of 37%.

ASPN has sold more than $250 million of its products globally, representing an installed base of more than 100 million square feet of insulation. ASPN believes that this initial success positions it for future growth and continued gain in market share.

ASPN currently targets its sales efforts in the energy infrastructure market, where it believes its products have the highest-value applications.

Customer Concentration
A substantial majority of revenue is generated from a limited number of direct customers, principally distributors, contractors and OEMs.

The 10 largest customers accounted for approximately 65% of total revenue during the year ended December 31, 2013, and 64% for the three months ended March 31, 2014.

ASPN expects that most of its revenue will continue to come from a relatively small number of customers for the foreseeable future.

Manufacturing plant expansion

To meet anticipated continued growth in demand for products, ASPN is engaged in the design, engineering and procurement phase of a third production line in the East Providence facility, which ASPN expects to complete in the first half of 2015.

ASPN also plans to construct a second manufacturing facility in either Europe or Asia, and to commence operations of a first production line at this facility during 2017.

ASPN currently estimates that design, development and construction of the third production line in the East Providence facility will require additional expenditures of approximately $30 million.

ASPN expects to construct its second manufacturing facility in several phases in order to align manufacturing capacity with anticipated demand for products.

ASPN currently estimates that design, development and construction of an initial production line and plant infrastructure will require expenditures of between $80 million to $100 million.


Operating results are impacted to some degree by seasonality, with the second and fourth quarters traditionally showing an increase in revenue.

ASPN believes this increase is associated with end-use customer maintenance schedules and timing of capital projects.

Dividend Policy

No dividends are planned.

Intellectual Property

As of May 15, 2014, ASPN had 21 issued U.S. patents, 13 pending U.S. patent applications (including two U.S. patents that it co-owns with third-parties), 30 issued foreign patents and five pending foreign patent applications (including one European patent and a family of pending patent applications that ASPN co-owns with a third-party).

The U.S. patents that ASPN owns are generally effective for 20 years from the filing date of the earliest application to which each U.S. patent claims priority.


In general, ASPN competes with traditional insulation materials based on product performance, price, availability and proximity to the customer.

Customers may choose among a variety of traditional insulation materials that offer a range of characteristics, including thermal performance, durability, vapor permeability, moisture resistance, ease of installation and upfront and lifecycle costs.

Within each type of insulation material, there is also competition between the manufacturers of that material.

Most types of traditional insulation materials are produced by a number of different manufacturers, and once customers have chosen the type of insulation material that they intend to use, they will choose a manufacturer of that material based primarily on each manufacturer's price and delivery schedule.

5% stockholders

Arcapita Ventures I Limited 8.2%

GKFF Ventures I, LLC 14.5%

Reservoir Capital Partners, L.P. and affiliated funds 18.5%

NICHIAS Corporation 5.1%

Entities affiliated with Fidelity Investments 36.4%

Craig A. Huff 18.5%

Use of proceeds

ASPN expects to net $90 million from its IPO. Proceeds are allocated as follows:

$30 million of the net proceeds ASPN receives from this offering to fund the additional expenditures necessary for the design, development and construction of its third production line in East Providence;

$1 million of the net proceeds to repay any amounts outstanding under its revolving line of credit, which matures on July 27, 2014, and bears interest at the greater of the prime rate or 4% (which, on March 31, 2014, was 4% per annum, and which is also the weighted average rate), plus 1.0% per annum, and $19.0 million of the net proceeds to repay its subordinated notes due September 2014, which bear interest at a rate of 20% per annum; and

The remaining net proceeds for general corporate purposes, which will include funding a portion of the design, development and construction of its planned second production plant in Europe or Asia after completion of its third production line.

Disclaimer: This ASPN IPO report is based on a reading and analysis of ASPN's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

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. The author has no business relationship with any company whose stock is mentioned in this article.