Velo3D, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Velo3D makes metal additive-manufacturing printers and provides related recurring-payment and support services. The 2021 comparison includes Legacy Velo3D before its September 2021 merger, so periods are not fully comparable in scale or share counts.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $19.1m | $8.7m | $51.0m | $17.0m |
| Gross profit (loss) | $(0.1)m | $1.5m | $1.1m | $3.3m |
| Gross margin | (0.6)% | 16.9% | 2.2% | 19.2% |
| Operating expenses | $27.8m | $16.5m | $83.5m | $41.9m |
| Operating loss | $(28.0)m | $(15.0)m | $(82.4)m | $(38.7)m |
| Net loss | $(75.2)m | $(66.6)m | $(12.6)m | $(92.7)m |
| Operating cash flow | Not provided as a quarterly figure | $(92.2)m | $(31.3)m |
Q3 revenue rose 119% year over year, driven mainly by printer sales, including Sapphire XC systems. Nine-month revenue rose 199%. Growth did not translate into stronger gross profit: higher material, labor and overhead costs, Sapphire XC launch pricing, product mix and inventory adjustments weighed on margins. Research and development, selling and marketing, and general and administrative expenses also increased substantially.
Nine-month net loss was materially affected by noncash fair-value changes: Velo3D recorded gains of $58.1m on contingent earnout liabilities and $11.0m on warrant liabilities. These gains reduced reported net loss but did not represent operating cash generation. Q3 included a $40.9m earnout fair-value loss and a $6.6m warrant fair-value loss. Stock-based compensation was $15.1m for the nine months.
Financial position and liquidity
- At September 30, cash and cash equivalents were $40.3m and short-term investments were $72.5m, totaling $112.8m, down from $223.1m at December 31, 2021.
- Current assets were $210.1m and current liabilities $61.8m. Inventory increased to $69.3m from $22.5m at year-end 2021.
- Total debt was $6.3m. The revolving credit line had $3.0m drawn and $27.0m undrawn; a secured equipment-loan facility of up to $15.0m was also established.
- Nine-month investing cash use was $74.5m, including $12.2m for property and equipment, $4.2m for leased equipment production, and net purchases of available-for-sale investments. Financing cash use was $0.5m.
- Management stated that available cash and cash equivalents, merger and PIPE proceeds, and expected future operating cash generation were sufficient for working capital and capital expenditures for at least 12 months as of the November 14, 2022 financial-statement issuance date. The company also disclosed ongoing losses and negative operating cash flows, and said additional funding may be needed sooner if its plans or results differ from expectations.
Business trends, outlook and risks
- Bookings were $27m in Q3 and $63m for the first nine months; printer backlog was $66m at September 30. Backlog represents unfulfilled contracted printer orders, not recognized revenue.
- Customer concentration remains significant: the top three customers accounted for 66.3% of Q3 revenue and 57.4% of nine-month revenue. The filing identifies SpaceX as the company’s largest customer.
- Management expects printer, recurring-payment and support-service revenue to benefit as more systems enter service. It expects near-term gross margins to remain affected by supply constraints and higher costs, while working to improve purchasing, inventory planning and production efficiency. No specific numeric revenue or profitability guidance was provided.
- Management expects continued investment in product development, including larger-format systems, and anticipated increased operating cash use as the business scales. Supply-chain constraints, shipment and installation delays, inflation, economic uncertainty and customer order timing could affect results.
- The company had $61.4m of non-cancellable purchase commitments for parts and assemblies, primarily due in the remainder of 2022 and first half of 2023.
- Disclosure controls were not effective as of September 30, 2022. Previously identified material weaknesses in staffing and financial-reporting controls, accounting for debt and equity instruments, inventory accruals, contract balances, and IT general controls remained unremediated. The filing reports prior audit adjustments and immaterial misstatements, and describes remediation efforts.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Its risk disclosures include potential additional-capital needs, dependence on a limited customer base, product and manufacturing execution risks, competition, and possible dilution from future financing or share resales.
Important facts for investors to verify
- Whether backlog converts into timely shipments, customer acceptance and revenue, and whether Sapphire XC-related costs and inventory adjustments moderate.
- Cash consumption, available borrowing capacity and the assumptions supporting management’s at-least-12-month liquidity assessment.
- Customer concentration and the status, order timing and payment quality of major customers, including SpaceX.
- Progress in remediating material weaknesses and whether future filings report effective controls without material adjustments.
- The impact of noncash warrant and earnout remeasurements on reported earnings, and the potential dilution from warrants, equity awards, earnout shares and future capital raising.