Press release·08/15/2024 02:45:18

Overview

Velo3D is a company that seeks to fulfill the promise of additive manufacturing (AM), also known as 3D printing, to deliver breakthroughs in performance, cost, and lead time in the production of high-value metal parts. The company produces a fully integrated hardware and software solution based on its proprietary laser powder bed fusion (L-PBF) technology, which greatly reduces and often eliminates the need for support structures.

Velo3D’s Sapphire Family of Printers give customers in industries like space, aviation, defense, automotive, energy, and industrial markets the freedom to design and produce metal parts with complex internal features and geometries that had previously been considered impossible for AM. The company believes its technology is years ahead of competitors.

Recent Trends and Strategic Realignment

During the second half of 2023, Velo3D experienced delayed shipments and customer order delays, resulting in an overall decrease in system sales and backlog in the fourth quarter of 2023 and lower annual revenue growth than expected. As a result, the company decided to realign its operations to pivot from emphasizing revenue growth to optimizing its free cash flow, maximizing customer success, reducing expenditures, and improving operational efficiency.

Velo3D has been undertaking expense reduction and cash savings initiatives as part of a company-wide restructuring and strategic realignment plan. This has included an October 2023 reduction in force, as well as efforts to streamline facilities, manage working capital, reduce capital expenditures, and reduce overall selling, general and administrative expenses. The company has also implemented new go-to-market and service strategies to rebuild its bookings and backlog pipeline.

Financial Condition and Liquidity

As of June 30, 2024, Velo3D had approximately $3.2 million in cash and short-term investments and $8.3 million in accounts receivable. This amount is insufficient to satisfy the company’s short-term obligations, including $14.0 million in accounts payable and $24.6 million in Secured Notes as of June 30, 2024.

Velo3D’s financial condition has caused customers to delay 3D printer orders until the company’s financial condition improves, resulting in delays in 3D printer sales and difficulty building the bookings and backlog pipeline. The company’s inability to satisfy its accounts payable obligations has also prevented it from securing favorable credit terms and volume discounts with suppliers, negatively impacting its product margins.

The company will need to engage in additional financings to fund its operations and satisfy its debt obligations in the near-term, as well as to respond to business challenges and opportunities. Velo3D does not have sufficient liquidity to meet its operating needs and satisfy its debt obligations for at least the next 12 months, and there continues to be substantial doubt about its ability to continue as a going concern.

Key Financial and Operational Metrics

Velo3D regularly evaluates several metrics to measure its performance, identify trends, and establish performance goals. Key metrics include:

Metric	Q2 2024	Q2 2023	H1 2024	H1 2023
Revenue ($ in millions)	$10	$25	$20	$52
Bookings ($ in millions)	$5	$16	$22	$36
Backlog ($ in millions)	$17	$15	$17	$15

Bookings are defined as confirmed orders for 3D printer systems in contracted dollars, while backlog represents the unfulfilled 3D printer systems to be delivered to customers in contracted dollars as of period end.

Velo3D’s operating results continue to depend on sales to a small group of customers, with the top three customers accounting for 66.4% and 53.7% of revenue in Q2 2024 and H1 2024, respectively.

Components of Results of Operations

Velo3D’s revenue is primarily derived from its AM hardware and software solutions, including the Sapphire Family of Printers and Assure quality validation software. The company sells its products through two transaction models: 3D Printer sales and Recurring Payment (leased 3D Printer) transactions. Support services are included with most transactions.

Cost of revenue includes the cost of 3D Printers, Recurring Payment, and Support Services. Gross profit and gross margin vary due to the mix of products sold, new product introductions, and efforts to optimize operational costs.

Operating expenses include research and development, selling and marketing, and general and administrative expenses. Interest expense primarily consists of interest incurred on the company’s outstanding debt. Velo3D also records gains and losses related to the fair value of warrants and contingent earnout liabilities.

Results of Operations Comparison

Comparing the three months ended June 30, 2024 and 2023:

• Total revenue decreased 58.8% to $10.3 million, primarily due to fewer 3D Printer sales.
• Gross profit (loss) was $(2.9) million, with a gross margin of (28.0)%, compared to $2.5 million and 10.1% in Q2 2023. The decrease was due to the impact of fixed costs on lower volume, product mix changes, and higher material, labor, and overhead costs.
• Operating expenses decreased 37.6% to $17.6 million, driven by reductions in research and development, selling and marketing, and general and administrative expenses.
• Interest expense increased to $5.5 million due to the issuance of the Secured Notes.
• Velo3D recorded a $25.3 million gain on the fair value of warrants.

Comparing the six months ended June 30, 2024 and 2023:

• Total revenue decreased 61.2% to $20.1 million, primarily due to fewer 3D Printer sales.
• Gross profit (loss) was $(5.7) million, with a gross margin of (28.4)%, compared to $5.1 million and 9.8% in H1 2023. The decrease was due to the same factors as the quarterly comparison.
• Operating expenses decreased 34.1% to $36.3 million, driven by reductions in research and development, selling and marketing, and general and administrative expenses.
• Interest expense increased to $9.4 million due to the issuance of the Secured Notes.
• Velo3D recorded a $22.7 million gain on the fair value of warrants and a $1.4 million gain on the fair value of contingent earnout liabilities.

Liquidity and Capital Resources

Velo3D has raised net proceeds of $529.1 million to date, including from the issuance of convertible notes, common stock offerings, and the PIPE Financing. However, the company has incurred significant net losses and had only $3.2 million in cash and short-term investments as of June 30, 2024, which is insufficient to satisfy its short-term obligations.

The company’s debt arrangements include $27.9 million in aggregate principal amount of Secured Notes outstanding as of June 30, 2024. The Secured Notes require partial redemptions of $10.5 million on a quarterly basis, which Velo3D has deferred through a third note amendment.

Velo3D will need to engage in additional financings, such as equity or debt offerings, to fund its operations and satisfy its debt obligations in the near-term. The company’s ability to secure additional financing on commercially reasonable terms or in an amount sufficient to fund its operations for at least 12 months may be challenging given its recent financial results and the related conditions that raise substantial doubt about its ability to continue as a going concern.

Outlook and Risks

Velo3D expects revenue to be higher in the second half of 2024 compared to the first half, based on its bookings to date. However, the company’s financial condition has caused customer order delays and made it difficult to secure favorable terms from suppliers, negatively impacting its product margins.

The company continues to face risks associated with customer concentration, as a small group of customers account for a significant portion of its revenue. Velo3D also faces risks related to macroeconomic conditions, such as recessions, interest rates, inflation, and supply chain challenges, as well as climate change-related risks.

To address these challenges, Velo3D is focused on implementing its Strategic Realignment to optimize cash flow, reduce costs, and improve operational efficiency. The company is also taking a strategic approach to its marketing and sales efforts to enhance the customer experience and expand its customer base.

Overall, Velo3D’s financial performance has been significantly impacted by the recent trends and its need to secure additional financing to continue operations. The company’s ability to execute its strategic initiatives and return to profitability will be critical to its long-term success.