Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the unaudited financial information and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2025, filed with the U.S. Securities and Exchange Commission (SEC) on March 13, 2026, as amended on March 23, 2026, which we refer to as the Annual Report.

Certain matters discussed in this Quarterly Report on Form 10-Q may be deemed to be forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In this Quarterly Report on Form 10-Q, words such as "may," "will," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) are intended to identify forward-looking statements.

Our actual results and the timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.

The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, including Part I, Item 1 "Financial Statements," which includes our financial statements and related notes, and under the sections titled "Risk Factors" in Item 1A of the Annual Report, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2026, and this Quarterly Report on Form 10-Q.

We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

Investors and others should note that we routinely use the Investors section of our website to announce material information to investors and the marketplace. While not all of the information that we post on the Investors section of our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that we share on the Investors section of our website, https://www.aerogel.com. The information contained on, or that can be accessed through, our website is not a part of, or incorporated by reference in, this Quarterly Report on Form 10-Q or our other filings with the SEC. We have included our website address in this Quarterly Report on Form 10-Q solely as an inactive textual reference.

Products

Our core businesses are organized into two reportable segments: Thermal Barrier and Energy Industrial. The following describes our key product offerings and new product innovations by reportable segment.

Thermal Barrier

We have developed a number of promising aerogel products and technologies for the electric vehicle (EV) market, including our proprietary line of PyroThin aerogel thermal barriers for use in battery packs in EVs. Our PyroThin product is an ultra-thin, lightweight and flexible thermal barrier designed with other functional layers to impede the propagation of thermal runaway across multiple lithium-ion battery system architectures. Our thermal barrier technology is designed to offer a unique combination of thermal management, mechanical performance and fire protection properties. These properties enable EV manufacturers to achieve critical battery performance and safety goals by impeding the propagation of thermal runaway in lithium-ion battery systems at the battery cell, module, and pack levels across multiple lithium-ion battery system architectures. Our ultra-thin, lightweight, and flexible thermal barriers are designed to allow battery manufacturers to achieve critical safety goals without sacrificing energy density.

We have entered into multi-year production contracts with a number of automotive EV original equipment manufacturer (OEM) customers to supply fabricated, multi-part thermal barriers for use in the battery systems of their EV models. These customers include General Motors LLC (GM), Toyota, Scania, Automotive Cells Company, which is a battery cell joint venture between Stellantis N.V., Saft-TotalEnergies and Mercedes-Benz (collectively, ACC), Volvo, and Volvo Truck. We are currently supplying thermal barrier production parts to GM, Toyota, and ACC, and thermal barrier prototype parts to a number of global manufacturers of EVs, grid storage and home battery systems. During 2025, 2024 and 2023, we sold $168.9 million, $306.8 million and $110.1 million, respectively, of our PyroThin thermal barriers, primarily to GM.

Our patented aerogel products and manufacturing technologies are significant assets. Silica aerogels are complex structures in which 97% of the volume consists of air trapped between intertwined clusters of amorphous silica solids. We believe these extremely low-density solids provide superior thermal and acoustic insulating properties. Although silica aerogels are usually fragile materials, we have developed innovative and proprietary manufacturing processes that enable us to produce industrially robust aerogel insulation cost-effectively and at commercial scale.

Our aerogel thermal barrier products are designed to enable our customers to enhance the safety and performance of their lithium-ion battery systems. These barriers are designed to impede the propagation of thermal runaway in lithium-ion battery systems at the battery cell, module, and pack levels across multiple lithium-ion battery system architectures. Our ultra-thin, lightweight and flexible thermal barriers are designed to allow battery manufacturers to achieve critical safety goals without sacrificing energy density. We believe our array of aerogel insulation product attributes provides strong competitive advantages over traditional insulation.

Energy Industrial

We design, develop and manufacture innovative, high-performance aerogel insulation used primarily in the energy industrial market. We believe our 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. Our insulation products help end-users to improve resource efficiency, reduce energy consumption, and reduce the carbon footprint of their operations. These products enable compact system design, reduce installation time and costs, promote freight and logistics cost savings, reduce system weight, minimize required storage space and enhance job site safety. Our insulation products reduce the incidence of corrosion under insulation, which is a significant maintenance cost and safety issue in energy industrial facilities. Many of our insulation products also offer strong fire protection, which is a critical performance requirement in the markets we service. We believe our array of product attributes provides strong competitive advantages over traditional insulation.

Our end-user customers select our products where thermal performance is critical and to save money, improve resource efficiency, enhance sustainability, preserve operating assets and protect workers. Our insulation is used by oil producers and the owners and operators of refineries, petrochemical plants, liquefied natural gas (LNG) facilities, power generating assets, and other energy industrial sites. Our Pyrogel® and Cryogel® aerogel insulation product lines have undergone rigorous technical validation by industry leading end-users and achieved significant market adoption.

We also derive revenue from a number of other end markets. Customers in these markets have used our products for applications such as military aircraft, trains, and buses. We believe we will have additional opportunities to address high-value applications in the global insulation market, as well as in adjacent market opportunities such as energy storage applications, including battery energy storage systems, electrification applications, and other potential adjacent applications subject to their commercial potential, the differentiation of our products, and the ability to leverage our existing manufacturing platform.

Our technologically advanced insulation products are targeted at the multi-billion dollar global market for energy industrial insulation materials. Our products replace traditional insulation in existing facilities during regular maintenance, upgrades, and capacity expansions. In addition, our aerogel products are also specified for use in new-build energy industrial facilities.

We have grown our business by forming technical and commercial relationships with industry leaders that have allowed us to optimize our products to meet the particular demands of target market sectors. We have benefited from our technical and commercial relationships with ExxonMobil in the oil refinery and petrochemical sectors, and with TechnipFMC in the offshore oil sector. We will continue our strategy of working with innovative companies to target and penetrate additional opportunities in the energy industrial and sustainable insulation materials markets. We believe that our long-term record of success positions us for future growth and the opportunity to gain market share in the energy industrial and sustainable insulation markets.

We market and sell our products primarily through a sales force based in North America, Europe and Asia. The efforts of our sales force are supported by a small number of sales consultants with extensive knowledge of a particular market or region. Our sales force is responsible for establishing and maintaining customer and partner relationships, delivering highly technical information and ensuring high-quality customer service.

Our salespeople work directly with end-user customers and engineering firms to promote the qualification, specification and acceptance of our aerogel and thermal barrier products. We also rely on an existing and well-established channel of qualified insulation distributors and contractors in more than 50 countries around the world to help provide rapid delivery of our aerogel products and strong end-user support.

Manufacturing Operations

We manufacture our products using our proprietary technology at our facility in East Providence, Rhode Island, which we have operated since 2008, as well as by utilizing our external manufacturing facility in China. We manage the capacity of our East Providence facility on an ongoing basis in order to meet expected demand for our aerogel products. We also utilize a flexible supply strategy, including, but not limited to, use of our external manufacturing facility in China, which currently supports our Energy Industrial segment. We are working closely with our external manufacturing facility as we seek to expand its capabilities to support our Energy Industrial and Thermal Barrier segments and to enhance short- and long-term supply flexibility. Pursuant to our supply contract with this contract manufacturer, they are obligated to deliver products to us as we issue purchase orders on an as-needed basis through the term of the contract. The contract automatically renews year-to-year unless either party notifies the other of its intention not to renew the contract. While we have agreed to purchase our requirement for certain Energy Industrial products from the contract manufacturer, we have no obligation to purchase any minimum quantity under the contract, and we may terminate the contract at any time and for any or no reason. Additionally, we previously entered into a contract with Prodensa Servicios de Consultora (Prodensa) to establish OPE Manufacturer Mexico S de RL de CV, a maquiladora located in Mexico (OPE), which assembles thermal barrier PyroThin products and operates an automated fabrication facility for PyroThin. We subsequently purchased OPE for a nominal value in accordance with the terms of the agreement.

On April 8, 2026, an explosion occurred at our manufacturing facility in East Providence, Rhode Island. The incident related to a high temperature oven and resulted in damage to a portion of the facility's production space and the temporary cessation of operations (the April 2026 Incident). On May 14, 2026, we initiated a staged restart of the facility and we are proceeding with a phased ramp-up of production. To date, we believe we have mitigated any significant commercial impact of the disruption by working through existing inventory, leveraging the capacity of our external manufacturing facility, and resuming limited production at our East Providence facility. However, our ability to continue to mitigate the impacts of the disruption assumes that the staged restart of our East Providence manufacturing facility proceeds as we currently expect, and that we are able to continue to meet customer demand for our products through a combination of restored production in East Providence, production at our external manufacturing facility, and other efforts to mitigate the impact of the disruptions. If we are unable to resume normal operations at our manufacturing facility in East Providence in a timely manner or manufacture the full array of our products, it may impact our ability to meet customer demand, which could have a material adverse impact on our business, results of operations and financial condition. Even if we are successful in our mitigation efforts, if we experience increased customer demand, we may be unable to produce sufficient product to meet such increased customer demand, which could have a material adverse impact on our business, results of operations and financial condition.

Financial Summary

Our revenue for the six months ended June 30, 2026 was $87.7 million, which represented a decrease of $69.0 million, or 44%, from $156.7 million of revenue for the six months ended June 30, 2025. Net loss for the six months ended June 30, 2026 was $47.0 million and net loss per share was $0.57. Net loss for the six months ended June 30, 2025 was $310.3 million and net loss per share was $3.78. Revenue for the six months ended June 30, 2026 includes $8.4 million of revenue from a settlement agreement with a customer for $37.6 million for a claim for certain losses incurred arising from lower forecasted long-term demand by the customer which is being deferred and recognized as revenue over a period of approximately two years from the settlement date.

Key Metrics and Non-GAAP Financial Measures

We regularly review a number of metrics, including the following non-GAAP key metric, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.

Adjusted EBITDA

We use Adjusted EBITDA, a non-GAAP financial measure, as a means to assess our operating performance. We define Adjusted EBITDA as net income (loss) before interest expense, taxes, depreciation, amortization, stock-based compensation expense and other items, from time to time, which we do not believe are indicative of our core operating performance. These excluded items include costs related to the East Providence Incidents, including expedited freight, professional fees, and the incremental cost of temporarily sourcing certain Energy Industrial products from our external manufacturing facility until the East Providence facility returns to full production capacity. Adjusted EBITDA is a supplemental measure of our performance that is not presented in accordance with U.S. GAAP. Adjusted EBITDA should not be considered as an alternative to net income (loss) or any other measure of financial performance calculated and presented in accordance with U.S. GAAP. In addition, our definition and presentation of Adjusted EBITDA may not be comparable to similarly titled measures presented by other companies.

We use Adjusted EBITDA:

We also believe that the presentation of Adjusted EBITDA provides useful information to investors with respect to our results of operations and in assessing the performance and value of our business. Various measures of EBITDA are widely used by investors to measure a company's operating performance without regard to items that can vary substantially from company to company depending upon financing and accounting methods, book values of assets, capital structures and the methods by which assets were acquired.

Although measures similar to Adjusted EBITDA are frequently used by investors and securities analysts in their evaluation of companies, we understand that Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for net income (loss), income (loss) from operations, net cash provided by (used in) operating activities or an analysis of our results of operations as reported under U.S. GAAP. Some of these limitations are:

Because of these limitations, our Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to reinvest in the growth of our business or as a measure of cash available for us to meet our obligations.

To properly and prudently evaluate our business, we encourage you to review the U.S. GAAP financial statements included elsewhere in this Quarterly Report on Form 10-Q, and not to rely on any single financial measure to evaluate our business.

The following table presents a reconciliation of net loss, the most directly comparable U.S. GAAP measure, to Adjusted EBITDA for the periods presented:

Our financial performance, including such measures as net income (loss), earnings per share and Adjusted EBITDA, are affected by a number of factors, including volume and mix of aerogel products sold, average selling prices, our material costs and manufacturing expenses, and the amount and timing of capital and operating expenses. Accordingly, we expect that our net loss, earnings per share and Adjusted EBITDA will vary from period to period.

During 2025, we experienced a significant decline in volume for our thermal barrier products, primarily driven by lower North American EV production levels. As a result, total thermal barrier revenue decreased by 47% compared to the prior year. Our expectation for 2026 thermal barrier revenue is based, in part, on our OEM customers' production forecasts. The automotive industry in which our OEM customers operate is cyclical and is sensitive to changes in consumer demand, regulatory environments, and broader economic conditions. EV adoption rates in certain markets have been lower than previously anticipated, influenced in part by changes in regulatory frameworks and incentive programs as well as evolving consumer demand. OEMs have adjusted production plans and investment timelines accordingly. These actions have resulted in revised capacity plans and re-timed EV-related investments, particularly in North America. In addition, changes in trade policy and other macroeconomic factors have impacted both our customers and our operating environment, and we expect these conditions to continue to influence demand. OEM customers continue to pursue cost reduction and product redesign initiatives, which may result in engineering changes to the components we supply. Our supply agreements generally include pricing step-down provisions over the production life of a program, consistent with industry practice. We expect thermal barrier revenues for full year 2026 to decline compared to 2025, primarily due to lower anticipated production volumes.

In addition, we have experienced operational disruptions at our manufacturing facility in East Providence, Rhode Island in 2026, which have adversely impacted our manufacturing capacity and are expected to increase near-term costs. In January 2026, there was a fire at our manufacturing facility in East Providence, Rhode Island (the January 2026 Incident). The January 2026 Incident damaged one of our emissions control units and rendered it inoperable. Subsequently, on April 8, 2026, an explosion occurred at our manufacturing facility in East Providence, Rhode Island (the April 2026 Incident, and together with the January 2026 Incident, the "East Providence Incidents"). The incident related to a high temperature oven and resulted in damage to a portion of the facility's production space and the temporary cessation of operations. On May 14, 2026, we initiated a staged restart of the facility and we are proceeding with a phased ramp-up of production. To date, we believe we have mitigated any significant commercial impact of the disruption by working through existing inventory, leveraging the capacity of our external manufacturing facility, and resuming limited

production at our East Providence facility. However, our ability to continue to mitigate the impacts of the disruption assumes that the staged restart of our East Providence manufacturing facility proceeds as we currently expect, and that we are able to continue to meet customer demand for our products through a combination of restored production in East Providence, production at our external manufacturing facility and other efforts to mitigate the impact of the disruptions. If we are unable to resume normal operations at our manufacturing facility in East Providence in a timely manner or manufacture the full array of our products, it may impact our ability to meet customer demand, which could have a material adverse impact on our business, results of operations and financial condition. Even if we are successful in our mitigation efforts, if we experience increased customer demand, we may be unable to produce sufficient product to meet such increased customer demand, which could have a material adverse impact on our business, results of operations and financial condition.

These efforts to mitigate the disruption from the East Providence Incidents and expand the external manufacturing facility's capabilities, including expedited freight and expedited repair costs related to our East Providence manufacturing facility, are expected to result in increased costs of revenue and increased general and administrative expenses during 2026.

We expect energy industrial revenue to increase in 2026, driven by anticipated volume growth in our core petrochemical and refinery markets, project-based demand, and continued penetration into adjacent applications.

We expect Adjusted EBITDA to decline in 2026 primarily due to lower thermal barrier revenue, as well as the increased costs of revenue. However, we expect net loss to improve relative to 2025, as the impairment recorded for the previously planned second plant in Statesboro, Georgia (the Statesboro Plant) is not expected to recur. We also expect capital expenditures to decrease in 2026.

Components of Our Results of Operations

Revenue

We recognize revenue from the sale of our energy industrial aerogel products and thermal barriers. Revenue is recognized upon the satisfaction of contractual performance obligations.

We record deferred revenue for sales when (i) we have delivered products, but other revenue recognition criteria have not been satisfied, or (ii) payments have been received in advance of the completion of required performance obligations.

For the reasons discussed above, we expect that our thermal barrier revenues will decline in 2026 as compared to the prior year, while energy industrial revenues are expected to increase.

Cost of Revenue

Cost of product revenue consists primarily of materials and manufacturing expense. Cost of product revenue is recorded when the related product revenue is recognized.

Material is a significant component of cost of product revenue and includes fibrous batting, silica materials and additives. Material costs as a percentage of product revenue vary from product to product due to differences in average selling prices, material requirements, product thicknesses, and manufacturing yields. In addition, we provide warranties for our products and record the estimated cost within cost of revenue in the period that the related revenue is recorded or when we become aware that a potential warranty claim is probable and can be reasonably estimated. As a result of these factors, material costs as a percentage of product revenue will vary from period to period due to changes in the volume and mix of aerogel products sold, the costs of our raw materials or the estimated cost of warranties. In addition, global supply chain disturbances, increased reliance on foreign materials procurement, industrial gas supply constraints, increases in the cost of our raw materials, engineering changes, higher prototype sales and other factors may significantly impact our material costs and have a material impact on our operations. During 2026, we expect to incur increased costs of revenue primarily due to the supply disruptions and mitigation efforts resulting from the operational disruptions from the East Providence Incidents.

Manufacturing expense is also a significant component of cost of revenue. Manufacturing expense includes labor, utilities, maintenance expense, and depreciation on manufacturing assets. Manufacturing expense also includes stock-based compensation of manufacturing employees and shipping costs.

Gross Profit

Our gross profit as a percentage of revenue is affected by a number of factors, including the volume of products produced and sold, the mix of products sold, average selling prices, our material and manufacturing costs and realized capacity utilization. Accordingly, we expect our gross profit to vary significantly in absolute dollars and as a percentage of revenue from period to period. During 2026, we expect gross profit to decline in absolute dollars and as a percentage of revenue due to expected decreases in total revenue and production volumes and the inclusion of certain related costs associated with the East Providence Incidents in cost of revenue.

Operating Expenses

Operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Operating expenses include personnel costs, legal fees, professional fees, service fees, insurance premiums, travel expense, facilities related costs and other costs, expenses and fees. The largest component of our operating expenses is personnel costs, consisting of salaries, benefits, incentive compensation and stock-based compensation. In any particular period, the timing and extent of personnel additions or reductions, legal activities, including patent enforcement actions, marketing programs, research efforts and a range of similar activities or actions could materially affect our operating expenses, both in absolute dollars and as a percentage of revenue.

Research and Development Expenses

Research and development expenses consist primarily of expenses for personnel engaged in the development of next generation aerogel compositions, form factors and manufacturing technologies. These expenses also include testing services, prototype expenses, consulting services, trial formulations for new products, equipment depreciation, facilities costs and related overhead. We expense research and development costs as incurred. We expect to continue to devote substantial resources to the development of new aerogel technologies.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of personnel costs, incentive compensation, marketing programs, travel and related costs, consulting expenses and facilities related costs.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, legal expenses, consulting and professional services, audit fees, compliance with securities, corporate governance and related laws and regulations, investor relations and insurance premiums, including director and officer insurance. During 2026, while we expect to continue our ongoing cost reduction measures, we expect our general and administrative expenses to increase due to the impact of supply disruptions and mitigation efforts resulting from the operational disruptions from the East Providence Incidents.

Restructuring and Demobilization Costs

Restructuring and demobilization costs consists of severance and other personnel costs, and costs associated with the demobilization of our previously planned Statesboro Plant.

Impairment of property, plant and equipment

During the fiscal year ended December 31, 2025, impairment of property, plant and equipment consists of impairment incurred on our previously planned Statesboro Plant and impairment of other property, plant and equipment in connection with a restructuring action.

Loss on property damage

Reflects the write-off of the net book value of property, plant and equipment damaged in the April 2026 Incident during the three months ended June 30, 2026.

Interest Expense, net

Interest expense, net consists of interest expense and amortization related to our other financing arrangements including our Amended MidCap Loan Facility (as defined below), a failed sale and leaseback arrangement accounted as a financing transaction, and interest earned on the cash balances invested in deposit accounts, money market accounts, and high-quality debt securities issued by the U.S. government.

Provision for Income Taxes

We have incurred net losses since inception with the exception of the year ended December 31, 2024, and have not recorded benefit provisions for U.S. federal income taxes since the tax benefits of our net losses have been offset by valuation allowances due to the uncertainty associated with the utilization of net operating loss carryforwards. We record tax expenses in connection with provisions for state income taxes and our Mexican maquiladora operations.

Results of Operations

Three months ended June 30, 2026 compared to the three months ended June 30, 2025

The following tables set forth a comparison of the components of our results of operations for the periods presented:

Revenue

Total revenue decreased $28.2 million, or 36%, to $49.8 million for the three months ended June 30, 2026 from $78.0 million in the comparable period in 2025. The decrease in total revenue was the result of decreases in thermal barrier revenue and energy industrial revenue.

Energy industrial revenue decreased by $2.4 million, or 11%, to $20.4 million for the three months ended June 30, 2026 from $22.8 million in the comparable period in 2025. This decrease was driven by a decrease in revenue from the global petrochemical and refinery markets of Asia, Europe, and Latin America, offset in part by an increase in revenue from the global petrochemical and refinery market of North America.

Energy industrial revenue for the three months ended June 30, 2026 included $5.5 million and $4.6 million from two North American distributors, in comparison to $2.6 million and $1.7 million for the comparable period of 2025.

The average selling price per square foot of our energy industrial products decreased by 6% for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease in average selling price reflected a change in the mix of products sold. This decrease in average selling price had the effect of decreasing product revenue by $1.3 million for the three months ended June 30, 2026 from the comparable period in 2025.

In volume terms, energy industrial product shipments decreased by 5% as measured by square feet of our energy industrial products shipped for the three months ended June 30, 2026, compared to the three months ended June 30, 2025. The decrease in volume had the effect of decreasing product revenue by $1.1 million for the three months ended June 30, 2026 from the comparable period in 2025.

Thermal barrier revenue decreased by $25.8 million, or 47%, to $29.4 million for the three months ended June 30, 2026 from $55.2 million in the comparable period in 2025. During the three months ended June 30, 2026 and 2025, thermal barrier revenue included $23.7 million and $53.8 million, respectively, from a major U.S. automotive OEM. The decrease in thermal barrier revenue

was driven by a reduction in the volume of parts ordered by our OEM customer and a lower contractual component price during the period compared to the same period in the prior year. Thermal barrier revenue for the three months ended June 30, 2026 includes $4.9 million of revenue from a settlement agreement with a customer for $37.6 million for a claim for certain losses incurred arising from lower forecasted long-term demand by the customer which is being deferred and recognized as revenue over a period of approximately two years from the settlement date.

Cost of Revenue

Total cost of revenue decreased $6.1 million, or 12%, to $46.6 million for the three months ended June 30, 2026 from $52.7 million in the comparable period in 2025. The decrease in total cost of revenue was the result of a decrease in thermal barrier cost of revenue offset by an increase in energy industrial cost of revenue.

Energy industrial cost of revenue increased $2.0 million, or 14%, to $16.5 million for the three months ended June 30, 2026 from $14.5 million in the comparable period in 2025. The $2.0 million increase resulted from an increase of $8.1 million in manufacturing costs, unabsorbed overheads, and other operating costs, partially offset by a decrease of $6.1 million in material costs.

Thermal barrier cost of revenue decreased $8.1 million, or 21%, to $30.1 million for the three months ended June 30, 2026 from $38.2 million in the comparable period in 2025. The $8.1 million decrease was the result of a decrease of $15.4 million in manufacturing costs and a decrease of $5.0 million in material costs partially offset by an increase of $7.0 million in costs due to the plant shut-down, and $5.3 million in costs related to the East Providence Incidents. Material costs decreased primarily due to lower volume. Manufacturing costs decreased due to lower volumes, benefits from the headcount reduction and other cost cutting efforts.

Gross Profit

Total gross profit decreased by $22.0 million, or 87%, to $3.3 million in gross profit for the three months ended June 30, 2026 from $25.3 million in the comparable period in 2025. The decrease in gross profit was the result of the $28.2 million decrease in total revenue and the inclusion of certain related costs associated with the East Providence Incidents in cost of revenue.

Research and Development Expenses

Research and development expenses decreased by $0.6 million, or 16%, to $3.2 million for the three months ended June 30, 2026 from $3.8 million in the comparable period in 2025. The $0.6 million decrease reflects a decrease in operating material and supplies of $0.3 million, decreases in compensation and related costs of $0.2 million, driven by a headcount reduction, and a decrease in other expenditures of $0.1 million.

Research and development expenses as a percentage of total revenue increased to 6% of total revenue for the three months ended June 30, 2026 from 5% in the comparable period in 2025.

Sales and Marketing Expenses

Sales and marketing expenses increased by less than $0.1 million, or 0%, to $7.0 million for the three months ended June 30, 2026 from $6.9 million in the comparable period in 2025. The less than $0.1 million increase primarily reflects increases in compensation and related costs.

Sales and marketing expenses as a percentage of total revenue increased to 14% of total revenue for the three months ended June 30, 2026 from 9% in the comparable period in 2025.

General and Administrative Expenses

General and administrative expenses decreased by $0.8 million, or 6%, to $13.0 million for the three months ended June 30, 2026 from $13.8 million in the comparable period in 2025. The $0.8 million decrease was primarily the result of a decrease in insurance fees of $0.8 million.

General and administrative expenses as a percentage of total revenue increased to 26% for the three months ended June 30, 2026 from 18% in the comparable period in 2025.

Restructuring and Demobilization Costs

During the three months ended March 31, 2026, we began implementing a restructuring plan to consolidate the operations of the automated fabrication facility in Mexico to improve costs. The plan included reducing our headcount in Mexico and consolidating facilities. In connection with the restructuring, we incurred $0.4 million of severance costs for headcount reduction. During the three months ended June 30, 2026 we did not incur restructuring and demobilization costs.

In February 2025, we announced and began implementing a restructuring plan to realign our operational focus to improve costs and align capital expenditure to anticipated long-term demand. The plan included reducing our headcount and ceasing construction of our previously planned Statesboro Plant. Restructuring and demobilization costs include severance and other personnel costs of $3.1 million and facility closures and other costs associated with demobilization of $1.8 million for the three months ended June 30, 2025.

Impairment of property, plant and equipment

Impairment of property, plant and equipment costs for the three months ended June 30, 2025 of less than $1.0 million was due to impairment incurred on research and development equipment.

Loss on property damage

On April 8, 2026, an explosion occurred at our manufacturing facility in East Providence, Rhode Island. The incident related to a high temperature oven and resulted in damage to a portion of the facility's production space and the temporary cessation of operations. On May 14, 2026, we initiated a staged restart of the facility.

During the three months ended June 30, 2026, we incurred an $8.9 million loss on property damage associated with the April 2026 Incident.

Other Income (Expense), net

The $0.3 million decrease in interest expense, net for the three months ended June 30, 2026 is primarily due to the result of a decrease in interest income of $0.4 million.

During the three months ended June 30, 2026, we recorded a receivable for estimated insurance recoveries of $8.9 million within other income related to property damage resulting from the April 2026 Incident. The receivable reflects management's estimate of probable insurance recoveries associated with the net book value of damaged property, plant and equipment.

Income Tax Expense

The $0.6 million of income tax expense for the three months ended June 30, 2026 is primarily related to an expense of $0.6 million related to our Mexican maquiladora operations. The $0.8 million of income tax expense for the three months ended June 30, 2025 is related to our Mexican maquiladora operations, in addition to a provision for state income taxes of $0.4 million.

Results of Operations

Six months ended June 30, 2026 compared to the six months ended June 30, 2025

The following tables set forth a comparison of the components of our results of operations for the periods presented:

Revenue

Total revenue decreased $69.0 million, or 44%, to $87.7 million for the six months ended June 30, 2026 from $156.7 million in the comparable period in 2025. The decrease in total revenue was the result of decreases in energy industrial revenue and thermal barrier revenue.

Energy industrial revenue decreased by $10.6 million, or 20%, to $42.0 million for the six months ended June 30, 2026 from $52.6 million in the comparable period in 2025. This decrease was driven by a decrease in revenue from the global petrochemical and refinery markets of Asia, Latin America, North America, Europe, and project-based demand in the subsea market.

Energy industrial revenue for the six months ended June 30, 2026 included $10.2 million and $8.2 million from two North American distributors, in comparison to $12.3 million and $5.3 million for the comparable period of 2025.

The average selling price per square foot of our energy industrial products decreased by 5% for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The decrease in average selling price reflected a change in the mix of products sold. This decrease in average selling price had the effect of decreasing product revenue by $2.3 million for the six months ended June 30, 2026 from the comparable period in 2025.

In volume terms, energy industrial product shipments decreased by 16% as measured by square feet of our energy industrial products shipped for the six months ended June 30, 2026, compared to the six months ended June 30, 2025. The decrease in volume had the effect of decreasing product revenue by $8.3 million for the six months ended June 30, 2026 from the comparable period in 2025.

Thermal barrier revenue decreased by $58.4 million, or 56%, to $45.7 million for the six months ended June 30, 2026 from $104.1 million in the comparable period in 2025. During the six months ended June 30, 2026 and 2025, thermal barrier revenue included $34.9 million and $101.2 million from a major U.S. automotive OEM, respectively. The decrease in thermal barrier revenue was driven by a reduction in the volume of parts ordered by our OEM customer and a lower contractual component price during the period compared to the same period in the prior year. Thermal barrier revenue for the six months ended June 30, 2026 includes $8.4 million of revenue from a settlement agreement with a customer for $37.6 million for a claim for certain losses incurred arising from lower forecasted long-term demand by the customer which is being deferred and recognized as revenue over a period of approximately two years.

Cost of Revenue

Total cost of revenue decreased $28.4 million, or 26%, to $80.2 million for the six months ended June 30, 2026 from $108.6 million in the comparable period in 2025. The decrease in total cost of revenue was the result of a decrease in thermal barrier cost of revenue, offset by an increase in energy industrial cost of revenue.

Energy industrial cost of revenue increased $2.2 million, or 7%, to $34.8 million for the six months ended June 30, 2026 from $32.6 million in the comparable period in 2025. The $2.2 million increase resulted from an increase of $8.5 million in manufacturing costs, unabsorbed overheads and other operating costs, and an increase of $5.9 million in other related shut-down costs, partially offset by a decrease of $12.2 million in material costs due to lower volume.

Thermal barrier cost of revenue decreased $30.6 million, or 40%, to $45.4 million for the six months ended June 30, 2026 from $76.0 million in the comparable period in 2025. The $30.6 million decrease was the result of a decrease of $25.8 million due to manufacturing costs and a decrease of $20.8 million in material costs, offset by an increase of $10.7 million in costs due to the plant shut-down, and $5.3 million related to the East Providence Incidents. Material costs decreased primarily due to lower volume and operational efficiencies generating lower scrap. Manufacturing costs decreased due to lower volumes in comparison to the same period 2025, benefits from the headcount reduction, and other cost cutting efforts.

Gross Profit

Total gross profit decreased by $40.6 million, or 84%, to $7.5 million in gross profit for the six months ended June 30, 2026 from $48.1 million in the comparable period in 2025. The decrease in gross profit was the result of the $69.0 million decrease in total revenue and the inclusion of certain related costs associated with the East Providence Incidents in cost of revenue.

Research and Development Expenses

Research and development expenses decreased by $2.2 million, or 27%, to $5.9 million for the six months ended June 30, 2026 from $8.1 million in the comparable period in 2025. The $2.2 million decrease reflects decreases in compensation and related costs of $1.2 million, driven by a headcount reduction, a decrease in utility expenses of $0.5 million, a decrease in operating material and supplies of $0.3 million and a decrease in facility maintenance costs of $0.2 million.

Research and development expenses as a percentage of total revenue increased to 7% of total revenue for the six months ended June 30, 2026 from 5% in the comparable period in 2025.

Sales and Marketing Expenses

Sales and marketing expenses decreased by $1.7 million, or 11%, to $13.6 million for the six months ended June 30, 2026 from $15.3 million in the comparable period in 2025. The $1.7 million decrease reflects decreases in compensation and related costs of $1.3 million, decreases in marketing expenses of $0.3 million, and decreases in facility related expenses of $0.2 million, offset by an increase in other expenses of $0.1 million.

Sales and marketing expenses as a percentage of total revenue increased to 16% of total revenue for the six months ended June 30, 2026 from 10% in the comparable period in 2025.

General and Administrative Expenses

General and administrative expenses increased by $1.4 million, or 5%, to $28.3 million for the six months ended June 30, 2026 from $26.9 million in the comparable period in 2025. The $1.4 million increase was the result of a $1.9 million increase in property taxes, primarily offset by a decrease of $0.4 million due to a foreign exchange gain.

General and administrative expenses as a percentage of total revenue increased to 32% for the six months ended June 30, 2026 from 17% in the comparable period in 2025.

Restructuring and Demobilization Costs

During the three months ended March 31, 2026, we began implementing a restructuring plan to consolidate the operations of the automated fabrication facility in Mexico to improve costs. The plan included reducing our headcount in Mexico and consolidating facilities. In connection with the restructuring, we incurred $0.4 million of severance costs for headcount reduction. During the three months ended June 30, 2026, we did not incur restructuring and demobilization costs.

In February 2025, we announced and began implementing a restructuring plan to realign our operational focus to improve costs and align capital expenditure to anticipated long-term demand. The plan included reducing our headcount and ceasing construction of our previously planned Statesboro Plant. In connection with the demobilization, we are no longer pursuing our application for a loan from the Department of Energy's Loan Programs Office and have withdrawn from the loan application process. Restructuring and demobilization costs include severance and other personnel costs of $6.0 million, facility closures and other costs associated with demobilization of $2.6 million and write-off of deferred financing costs of $6.2 million incurred in connection with pursuing financing for the construction of the plant.

Impairment of property, plant and equipment

Impairment of property, plant and equipment costs for the six months ended June 30, 2025 was due to impairment incurred of $286.6 million on our previously planned Statesboro Plant.

Loss on property damage

On April 8, 2026, an explosion occurred at our manufacturing facility in East Providence, Rhode Island. The incident related to a high temperature and oven resulted in damage to a portion of the facility's production space and the temporary cessation of operations. On May 14, 2026, we initiated a staged restart of the facility.

During the six months ended June 30, 2026, we incurred a $8.9 million loss on property damage associated with the April 2026 Incident.

Other Income (Expense), net

The $0.9 million increase in interest expense, net for the six months ended June 30, 2026 is primarily due to a decrease in interest income of $1.7 million offset by a decrease of $0.8 million in interest expense from the MidCap Loan Facility and sale and leaseback transactions.

The other income decrease of $1.1 million for the six months ended June 30, 2026 is primarily due to the result of a legal settlement payment to us in the comparable period in 2025.

During the six months ended June 30, 2026, we recorded a receivable for estimated insurance recoveries of $8.9 million within other income related to property damage resulting from the April 2026 Incident. The receivable reflects management's estimate of probable insurance recoveries associated with the net book value of damaged property, plant and equipment.

Income Tax Expense

The $0.4 million of income tax expense for the six months ended June 30, 2026 is primarily related to an expense of $0.3 million related to our Mexican maquiladora operations. The $1.9 million of income tax expense for the six months ended June 30, 2025 is related to our Mexican maquiladora operations, in addition to a provision for state income taxes of $0.4 million.

Liquidity and Capital Resources

Overview

We have experienced significant costs and invested substantial resources since our inception to develop, commercialize and protect our aerogel technology and to build a manufacturing infrastructure capable of supplying aerogel products at the volumes and costs required by our customers. These investments have included research and development and other operating expenses, capital expenditures, and investment in working capital balances.

On August 19, 2024, we entered into the Credit, Security and Guaranty Agreement (the Credit Agreement and the facilities provided thereunder, collectively, the MidCap Loan Facility) with MidCap Funding IV Trust, as agent, MidCap Financial Trust, as term loan servicer, and the financial institutions or other entities from time to time party thereto as lenders, as subsequently amended (the Amended MidCap Loan Facility). The Amended MidCap Loan Facility under the Credit Agreement is comprised of (i) the term loan facility in an aggregate principal amount of $125.0 million (the Term Loan Facility) and (ii) the Revolving Facility in an aggregate principal amount not to exceed the lesser of $100.0 million and the value of the Borrowing Base (as defined in the Credit Agreement) (the Revolving Facility). At closing of the transactions contemplated by the Credit Agreement, the Company drew $125.0 million from the Term Loan Facility and $43.0 million from the Revolving Facility. The proceeds of the borrowings at closing, net of fees and costs, were used for repurchasing the $100.0 million aggregate principal amount convertible note issued to Wood River Capital, LLC, an entity affiliated with Koch Strategic Platforms, LLC, for $150.0 million and for general corporate purposes.

In January 2024 and September 2024, we entered into sale and leaseback arrangements, pursuant to which we sold certain equipment to an equipment leasing company for one-time cash payments of $5.0 million and $10.0 million, respectively, and leased back such equipment from the leasing company. The associated monthly lease rents will be paid over the lease term of three years.

In October 2024, we entered into an underwriting agreement with Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC (the Underwriters), pursuant to which we issued and sold an aggregate of 4,887,500 shares of our common stock, which included 637,500 shares pursuant to the Underwriters' option to purchase additional shares of our common stock, to the Underwriters in an underwritten registered direct offering (the Offering). The price to the public in the Offering was $20.00 per share. The net proceeds to us from the Offering were approximately $93.2 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

We believe that our June 30, 2026 cash and cash equivalents balance of $151.7 million will be sufficient to support current operating requirements and capital expenditures required to support our existing business in the energy industrial and EV markets for at least the next twelve months from the date of this Quarterly Report on Form 10-Q.

However, we may supplement our cash balance and available credit with equity financings, debt financings, equipment leasing, sale-leaseback transactions, customer prepayments or government grant and loan programs to provide the additional capital necessary to support our long-term growth strategy.

We believe that consummation of equity financings could potentially result in an ownership change under Section 382 of the Internal Revenue Code. Such an ownership change would lead to the use of our net operating loss carryforwards being restricted. Our inability to use a substantial portion of our net operating loss carryforwards would result in a higher effective tax rate and adversely affect our financial condition and results of operations.

Primary Sources of Liquidity

Our principal sources of liquidity are currently our cash and cash equivalents, availability under the Revolving Facility of $13.2 million, and cash generated by ongoing operations. Cash and cash equivalents consist primarily of cash, money market accounts, and sweep accounts on deposit with banks. As of June 30, 2026, we had $151.7 million of unrestricted cash and cash equivalents.

Analysis of Cash Flow

Net Cash Provided by Operating Activities

During the six months ended June 30, 2026, we generated $17.9 million in net cash in operating activities, as compared to the generation of $1.7 million in net cash during the comparable period in 2025, resulting in an increase in cash provided by operations of $16.2 million. This increase in cash provided by operations was the result of an increase in net cash generated by changes in operating assets and liabilities of $43.2 million offset by a decrease in net loss adjusted for non-cash items of $26.9 million. Cash generated by operating activities during the six months ended June 30, 2026, includes $29.2 million for settlement of a claim with a thermal barrier customer which is being deferred and recognized as revenue over a period of approximately two years.

Net Cash Used in Investing Activities

Net cash used in investing activities is for capital expenditures for machinery and equipment principally to improve the throughput, efficiency and capacity of our East Providence facility, our automated fabrication facility in Mexico and in 2025 for construction costs for the previously planned Statesboro Plant. Net cash used in investing activities for the six months ended June 30, 2026 and 2025 was $3.2 million and $25.9 million, respectively.

Net Cash Used in Financing Activities

Net cash used in financing activities for the six months ended June 30, 2026 totaled $19.9 million and consisted of cash used of $13.0 million for the repayment of the Term Loan Facility, $7.6 million in cash used for the repayment of the Revolving Facility, $3.0 million in repayments of the finance obligation under the sale and leaseback transactions, $0.2 million for payments made for employee tax withholdings associated with the vesting of RSUs, partially offset by cash received of $3.5 million borrowing from the Revolving Facility, $0.2 million in proceeds from employee stock option exercises, and $0.2 million in cash proceeds from employee stock purchase plan purchases.

Net cash used in financing activities for the six months ended June 30, 2025 totaled $29.1 million and consisted of $13.2 million in cash used for the repayment of the Revolving Facility, $13.0 million for the repayment of the Term Loan Facility, $2.4 million in repayments of the finance obligation under the sale and leaseback transactions, $0.6 million for payments made for employee tax withholdings associated with the vesting of RSUs, $0.2 million in proceeds from employee stock option exercises, and less than $0.1 million in cash used for fees and issuance costs.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations and commitments as reported in our Annual Report.

Recent Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note (2) to our unaudited consolidated financial statements contained in Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. GAAP. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We believe that the estimates, assumptions and judgments involved in these accounting policies have the greatest potential impact on our financial statements and, therefore, we consider these to be our critical accounting policies. Accordingly, we evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See our Annual Report and Note (2) to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for information about these critical accounting policies, as well as a description of our other significant accounting policies.

Certain Factors That May Affect Future Results of Operations

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company's future prospects and make informed investment decisions. This Quarterly Report on Form 10-Q contains such "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other important factors, which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about: our expectations about the market for our aerogel products, in particular in the EV market, the energy infrastructure market, and other markets we target; our beliefs in the appropriateness of our assumptions, the accuracy of our estimates regarding expenses, loss contingencies, future revenues, revenue capacity, future profits, uses of cash, available credit, capital requirements, and the need for additional financing to operate our business and fund capital expenditures; the impact of new legislation on our financial statements; our expectations with respect to the financial and operational impacts from the East Providence Incidents, the recovery from the East Providence Incidents, and the staged restart of the East Providence manufacturing facility; the performance of our aerogel products; our expectation that we will be successful in obtaining, enforcing and defending our patents against competitors and that such patents are valid and enforceable; our expectations regarding decommissioning of and our plans for divesting the assets of the Statesboro Plant; our estimates of annual production capacity; beliefs about the commercial potential for our technology in the EV market; beliefs about our ability to produce and deliver products to EV customers; beliefs about our contracts with the major automotive manufacturers; our expectations about the size and timing of awarded business in the EV market, future revenues and profit margins, arising from our supply relationship and contract with automotive OEMs and our ability to win more business and increase revenue in the EV market; beliefs about the performance of our thermal barrier products in the battery systems of EVs; the current or future trends in the energy, energy infrastructure, chemical and refinery, LNG, sustainable building materials, EV thermal barrier, EV battery materials or other markets and the impact of these trends on our business; our investments in the EV market; our beliefs about the financial metrics that are indicative of our core performance; our expectations about future revenues, expenses, gross profit, net income (loss), net income (loss) per share and Adjusted EBITDA, sources and uses of cash, capital requirements and the sufficiency of our existing cash balance and available credit; our beliefs about the outcome, effects or estimated costs of current or potential litigation or their respective timing, including expected legal expense in connection with our patent enforcement actions; our expectations about future material costs and manufacturing expenses as a percentage of revenue; our expectation about the ability of the Chinese external manufacturing facilities that we engage to consistently supply the aerogel product that we order in a timely manner; our expectation to meet long-term aerogel demand by utilizing both our East Providence facility and our flexible supply strategy, including, but not limited to, using external manufacturing capabilities; our ability to manufacture the full array of our products at the East Providence facility and to meet expected customer demand; our ability to mitigate the potential impacts from the operational disruption on our business, operations and financial performance resulting from the East Providence Incidents; the effects of current and potential future tariffs on our business, our customers and our results of operations; our expectations of future gross profit and the effect of manufacturing expenses, manufacturing capacity and productivity on gross profit; our expectations about our resources and other investments in new technology and related research and development activities and associated expenses; our expectations about short and long-term (a) research and development (b) general and administrative and (c) sales and marketing expenses; our expectations regarding changes in revenue, gross profit, and cash flows; our intentions about managing capital expenditures and working capital balances; our expectations and beliefs regarding the flexibility and efficiency of the Amended MidCap Loan Facility; and our expectations about potential sources of future financing.

Words such as "may," "will," "anticipate," "estimate," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance used in connection with any discussion of future operating or financial performance, identify forward-looking statements. All forward-looking statements are management's present expectations of future events and are subject to a number of risks and uncertainties that could cause actual results to differ materially and adversely from those described in the forward-looking statements. These risks include, but are not limited to, those under the heading "Risk Factors" contained in Item 1A of our Annual Report and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2026.

In light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in this Quarterly Report on Form 10-Q might not occur. Stockholders and other readers are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. We are not under any obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements attributable to Aspen Aerogels, Inc. or to any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.