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Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

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Equity Bottom-Up

<h3>KEY POINTS</h3>
<ul>
<li>On February 17, 2022, Aspen Aerogels announced its&nbsp;4Q21 and full-year 2021 results. Management reiterated its target to double revenue from 2021 to 2023 upgraded the target from double to triple revenue from 2023 to 2025 (approx. $750 million in 2025).</li>
<li>Revenue grew 36.7% Y/Y and 3.6% Q/Q driven by the rapid adoption of PyroThin thermal barriers in the EV market, growth in the energy infrastructure, and the European sustainable building materials market.</li>
<li>Full-year revenue saw a growth of 21.3%, from $100.3 million in 2020 to $121.6 million in 2021. Aspen carried a backlog of between $6 million and $8 million of fourth-quarter orders into the first quarter of 2022 due to COVID-related staffing and raw material constraints, which the company expects will improve in 2022.</li>
<li>Gross margin depressed 2210 bps Y/Y and 1540 bps Q/Q from 16.8% in 4Q20 to -5.3%, owing to an increase in material cost and manufacturing expenses to prepare for the growth in 2022 beyond.</li>
<li>Compared to 4Q20, net loss widened by $8.5 million, and adjusted EBITDA fell by $4.4 million as the company increased opex investments in personnel, infrastructure, and related activities to support its PyroThin thermal barrier and battery materials businesses.</li>
<li>The company ended the quarter with $76.6 million of cash on hand, which decreased by $18.97 million, compared to 3Q21, as&nbsp;the company finalized an investment&nbsp;in its&nbsp;second plant (Plant 2), a 500,000 sq. ft facility to support thermal barrier expansion plans. This facility will be located near Statesboro, Georgia and operational late in the second half of 2023.</li>
<li>For 2022, the company expects revenue between $145-155 million, consisting of a threefold increase in revenue from its PyroThin product at $20 million for the year. Additionally, the company projects its FY22 net loss at $66.7-70.7 million, adjusted EBITDA loss at $42-$46 million, EPS loss at $1.95-2.07 per share, and capex at $250-275 million for the Plant 2 project.</li>
</ul>
<h2>EARNINGS SNAPSHOT</h2>
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<h2>COMPANY OVERVIEW</h2>
<p>Aspen Aerogels, Inc. (ASPN) designs, develops, manufactures, and sells aerogel products for applications in four major markets: EV Thermal Barrier, EV Battery Material, Sustainable Building Material, and Energy Infrastructure. The company is currently experiencing a strategic pivot into new, high-growth markets, specifically the electric vehicle (EV) industry. Although the primary use of the company's aerogel product has historically been in the energy infrastructure market, the recent launch of the company's PyroThin™ product line and the development of battery materials leveraging carbon aerogel technology is shifting the direction of the business to generate a higher organic growth opportunity for the company. In addition, the company's traditional sustainable building materials and energy infrastructure markets offer robust growth opportunities with a large TAM. However, EV applications and opportunities should become increasingly dominant in the coming years based on the company's expectations.</p>
<h2>The Technology</h2>
<p>The company states that its patented aerogel insulation is up to five times more effective than traditional insulation materials. The product enables easy installation, making it one of the most efficient industrial insulation available on the market. Aspen's products are priced at a premium to traditional insulation materials. While Aspen's competitors offer many traditional insulation products that are priced below Aspen's products on a per-unit basis, the company believes that its products have superior performance attributes, cost less on a fully installed basis, and offer significant lifecycle costs savings.</p>
<p>The company's PyroThin™ thermal barriers are ultra-thin, lightweight, and flexible materials designed to impede thermal runaway propagation in lithium-ion batteries. The company believes its PyroThin™ products offer a unique performance attribute combination that allows EV manufacturers to achieve critical safety goals without sacrificing drive range. The company's carbon aerogel battery materials can be used as a drop-in replacement for graphite in the anode of lithium-ion batteries to increase the driving range of electric vehicles.</p>
<h2>End Markets &amp; Applications</h2>
<p>Aspen's products are currently primarily used in large-scale energy infrastructure facilities, but the company is positioned to move aggressively into the battery materials market.</p>
<p>Electric Vehicles:&nbsp;The company has two material technology platforms targeting the EV market. The first is a passive fire protection material branded PyroThin™. The EV industry has struggled to invent and deploy a proper safety solution for EV battery fires. During the third quarter of 2020, a major US automotive OEM, yet to be disclosed, awarded Aspen a contract for PyroThin™ with initial commercial shipments expected to begin in 2021. The second is a carbon aerogel battery material enabling the addition of silicon to the anodes of lithium-ion batteries. The company targets materials to enable a 20% to 40% improvement in lithium-ion battery performance with initial market adoption in 2023.</p>
<p>Sustainable Building Materials:&nbsp;Buildings are a key target for energy efficiency improvements. According to Aspen, buildings are responsible for 30% to 40% of the energy consumption in most countries. Aspen states that its Spaceloft® building materials substantially reduce that energy by providing superior insulation across various applications. Aspen's Spaceloft® products also provide a thin form factor and options for enhanced fire safety. Aspen's product line in this sector is well developed and has an installed base of approximately $50 million.</p>
<p>Energy Infrastructure:&nbsp;The company's aerogel technology products are used extensively in various refining, petrochemical, LNG, and power applications. Aspen's product lines serving these markets are Pyrogel®, Cryogel®, and Spaceloft® Subsea. The company has an installed base of over $1 billion, showing these are well-proven technologies. Aspen offers a premium product providing a variety of advantages, including ease of installation, durability, water resistance, and efficient thermal properties. According to Aspen, the global energy infrastructure market is estimated to be a $3 billion market.</p>
<h2>DISCLOSURES</h2>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Shawn Severson, who is the writer of this report, covers the BioEconomy, ClimateTech &amp; Sustainable Investing and Emerging Growth &amp; Special Situations sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

On February 17, 2022, Aspen Aerogels announced its&nbsp;4Q21 and full-year 2021 results. Management reiterated its target to double revenue from 2021 to 2023 upgraded the target from double to triple revenue from 2023 to 2025 (approx. $750 million in 2025).
Revenue grew 36.7% Y/Y and 3.6% Q/Q driven by the rapid adoption of PyroThin thermal barriers in the EV market, growth in the energy infrastructure, and the European sustainable building materials market.
Full-year revenue saw a growth of 21.3%, from $100.3 million in 2020 to $121.6 million in 2021. Aspen carried a backlog of between $6 million and $8 million of fourth-quarter orders into the first quarter of 2022 due to COVID-related staffing and raw material constraints, which the company expects will improve in 2022.
Gross margin depressed 2210 bps Y/Y and 1540 bps Q/Q from 16.8% in 4Q20 to -5.3%, owing to an increase in material cost and manufacturing expenses to prepare for the growth in 2022 beyond.
Compared to 4Q20, net loss widened by $8.5 million, and adjusted EBITDA fell by $4.4 million as the company increased opex investments in personnel, infrastructure, and related activities to support its PyroThin thermal barrier and battery materials businesses.
The company ended the quarter with $76.6 million of cash on hand, which decreased by $18.97 million, compared to 3Q21, as&nbsp;the company finalized an investment&nbsp;in its&nbsp;second plant (Plant 2), a 500,000 sq. ft facility to support thermal barrier expansion plans. This facility will be located near Statesboro, Georgia and operational late in the second half of 2023.
For 2022, the company expects revenue between $145-155 million, consisting of a threefold increase in revenue from its PyroThin product at $20 million for the year. Additionally, the company projects its FY22 net loss at $66.7-70.7 million, adjusted EBITDA loss at $42-$46 million, EPS loss at $1.95-2.07 per share, and capex at $250-275 million for the Plant 2 project.

EARNINGS SNAPSHOT

COMPANY OVERVIEW
Aspen Aerogels, Inc. (ASPN) designs, develops, manufactures, and sells aerogel products for applications in four major markets: EV Thermal Barrier, EV Battery Material, Sustainable Building Material, and Energy Infrastructure. The company is currently experiencing a strategic pivot into new, high-growth markets, specifically the electric vehicle (EV) industry. Although the primary use of the company's aerogel product has historically been in the energy infrastructure market, the recent launch of the company's PyroThin™ product line and the development of battery materials leveraging carbon aerogel technology is shifting the direction of the business to generate a higher organic growth opportunity for the company. In addition, the company's traditional sustainable building materials and energy infrastructure markets offer robust growth opportunities with a large TAM. However, EV applications and opportunities should become increasingly dominant in the coming years based on the company's expectations.
The Technology
The company states that its patented aerogel insulation is up to five times more effective than traditional insulation materials. The product enables easy installation, making it one of the most efficient industrial insulation available on the market. Aspen's products are priced at a premium to traditional insulation materials. While Aspen's competitors offer many traditional insulation products that are priced below Aspen's products on a per-unit basis, the company believes that its products have superior performance attributes, cost less on a fully installed basis, and offer significant lifecycle costs savings.
The company's PyroThin™ thermal barriers are ultra-thin, lightweight, and flexible materials designed to impede thermal runaway propagation in lithium-ion batteries. The company believes its PyroThin™ products offer a unique performance attribute combination that allows EV manufacturers to achieve critical safety goals without sacrificing drive range. The company's carbon aerogel battery materials can be used as a drop-in replacement for graphite in the anode of lithium-ion batteries to increase the driving range of electric vehicles.
End Markets &amp; Applications
Aspen's products are currently primarily used in large-scale energy infrastructure facilities, but the company is positioned to move aggressively into the battery materials market.
Electric Vehicles:&nbsp;The company has two material technology platforms targeting the EV market. The first is a passive fire protection material branded PyroThin™. The EV industry has struggled to invent and deploy a proper safety solution for EV battery fires. During the third quarter of 2020, a major US automotive OEM, yet to be disclosed, awarded Aspen a contract for PyroThin™ with initial commercial shipments expected to begin in 2021. The second is a carbon aerogel battery material enabling the addition of silicon to the anodes of lithium-ion batteries. The company targets materials to enable a 20% to 40% improvement in lithium-ion battery performance with initial market adoption in 2023.
Sustainable Building Materials:&nbsp;Buildings are a key target for energy efficiency improvements. According to Aspen, buildings are responsible for 30% to 40% of the energy consumption in most countries. Aspen states that its Spaceloft® building materials substantially reduce that energy by providing superior insulation across various applications. Aspen's Spaceloft® products also provide a thin form factor and options for enhanced fire safety. Aspen's product line in this sector is well developed and has an installed base of approximately $50 million.
Energy Infrastructure:&nbsp;The company's aerogel technology products are used extensively in various refining, petrochemical, LNG, and power applications. Aspen's product lines serving these markets are Pyrogel®, Cryogel®, and Spaceloft® Subsea. The company has an installed base of over $1 billion, showing these are well-proven technologies. Aspen offers a premium product providing a variety of advantages, including ease of installation, durability, water resistance, and efficient thermal properties. According to Aspen, the global energy infrastructure market is estimated to be a $3 billion market.
DISCLOSURES
Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Shawn Severson, who is the writer of this report, covers the BioEconomy, ClimateTech &amp; Sustainable Investing and Emerging Growth &amp; Special Situations sectors for WTR. Mr. Severson and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

4Q21 Results: +36.7% Revenue Growth; Expansion Via Plant 2; Management Lays Down FY22 Outlook