Velo3D, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The 10-K was filed April 3, 2024. Velo3D sells integrated metal additive-manufacturing printers, software and support services, primarily to manufacturers in aerospace, defense, space, energy, automotive and industrial markets.
Key financial results
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $77.4 million | $78.7 million |
| Gross profit (margin) | $(26.3) million ((33.9)%) | $0.8 million (1.1%) |
| Operating expenses | $107.0 million | $107.2 million |
| Operating loss | $(133.3) million | $(106.3) million |
| Net income (loss) | $(135.1) million | $8.0 million |
| Net cash used in operations | $(105.6) million | $(124.0) million |
| Cash, cash equivalents and short-term investments at year-end | $31.1 million | $80.2 million |
| Debt carrying value at year-end | $33.1 million | $8.2 million |
- Printer sales were $68.9 million, recurring-payment revenue $1.7 million and support-services revenue $6.8 million in 2023. Printer sales were nearly flat year over year, while recurring-payment revenue fell and support revenue rose.
- Cost of revenue rose 33% to $103.7 million, exceeding revenue. The company recorded $27.1 million in inventory reserves, citing scrapped, excess and obsolete inventory and changes associated with its strategic realignment. Product mix, launch pricing and higher production costs also weighed on margins.
- Quarterly revenue fell to $2.5 million in Q4 2023 from $28.7 million in Q4 2022; Q4 2023 printer revenue was $0.5 million. Q4 net loss was $56.1 million.
- The 2023 net loss included $19.5 million of debt-extinguishment loss and noncash fair-value gains on warrants, earnout liabilities and debt derivatives. 2022 net income was also affected by substantial noncash fair-value gains; reported net income should not be read as evidence of operating profitability.
Liquidity, debt and capital
- Management and the auditor identify substantial doubt about the company’s ability to continue as a going concern. The filing says available liquidity is insufficient to fund operating needs and obligations for at least 12 months after issuance of the financial statements; additional financing is necessary, and failure to obtain it could prevent continued operations.
- At March 31, 2024, the company reported $14.3 million in cash and investments and approximately $11.2 million in accounts receivable. These are post-year-end figures and do not eliminate the stated going-concern uncertainty.
- At December 31, 2023, approximately $36.7 million principal amount of secured notes was outstanding, although the balance-sheet carrying amount was $33.1 million. Notes bear 6% stated interest but include a 120% repayment price. Scheduled partial redemptions were $10.5 million each, plus accrued interest, beginning April 2024, unless noteholders cancel them. The filing reports $44.0 million of aggregate debt principal, interest and fees in contractual payments.
- After year-end, the company agreed to make two $5.5 million payments in April 2024 to reduce note principal and issued noteholders warrants for up to 21.9 million shares. The company says further financing is expected to be needed.
- Financing in 2023 included a $18.0 million registered direct offering of 36 million shares with warrants for another 36 million shares, ATM share sales and debt transactions. Common shares outstanding increased to 258.4 million at year-end; 261.7 million were outstanding as of March 22, 2024. Additional warrants, equity sales and potential note conversion may cause substantial dilution.
- Current assets were $118.1 million and current liabilities $48.7 million at year-end, but current assets included $60.8 million of inventory and $12.6 million of contract assets. Cash and short-term investments had fallen $49.1 million from year-end 2022.
Material changes and management outlook
- Bookings declined to $56 million from $71 million, while printer backlog fell to $13 million from $43 million. Management attributed weaker growth to delayed shipments and customer order delays in the second half of 2023.
- Management expects further revenue-growth contraction in Q1 2024 and likely thereafter, based on order delays and bookings to date. It provided no quantified full-year 2024 revenue or earnings guidance in the supplied filing text.
- In October 2023, the company shifted priorities from revenue growth to free cash flow, customer success, lower spending and operating efficiency. A reduction in force affected approximately 21% of employees; headcount was 237 at year-end versus 294 a year earlier. Facility consolidation, lower capital spending and expense reductions are also underway.
- Management expects research and development and selling and marketing costs to decrease in 2024, and expects gross margins to improve in the second half of 2024 through faster production cycles and improved manufacturing efficiency. These are expectations, not assured outcomes.
- In December 2023, the Board began a strategic review to consider alternatives including a merger, business combination or sale. The review remained ongoing at the filing date; no transaction is assured. Management also reported approximately $15 million in new order bookings since mid-December through March 26, 2024.
- SpaceX represented 4.0% of 2023 revenue, down from 28.4% in 2022. The top three customers together represented 24.5% of revenue versus 48.5% in 2022, though customer concentration and past-due receivables remain risks.
Risks, controls and unusual items
- Disclosure controls and internal control over financial reporting were deemed ineffective at December 31, 2023 due to multiple material weaknesses, including insufficient accounting staffing and segregation of duties, controls over debt and equity, inventory, contract balances, financial-statement presentation and IT access/change management. The weaknesses led to prior-period revisions and 2023 adjustments; remediation is in progress and not yet demonstrated to be effective.
- The company revised its 2022 financial statements, reducing revenue and net income by $2.1 million, and disclosed immaterial corrections to 2023 interim results. It also identified an uncorrected inventory and cost-of-revenue misstatement and recorded other year-end adjustments. Investors should consider the control weaknesses when assessing reported figures.
- NYSE notified the company in December 2023 that its average share price was below $1.00. The cure period ran through June 28, 2024; the filing gives no assurance of continued listing compliance.
- Other key risks include recurring operating losses and cash burn, restrictive secured-debt covenants and default consequences, reliance on financing, shipment and customer delays, product reliability and service demands, competition, supplier dependence, and possible dilution. The company reported no material legal proceedings.
- The financial statements received an unmodified audit opinion, but the auditor included a going-concern explanatory paragraph. The auditor was not engaged to opine on internal-control effectiveness.
Most important facts for investors to verify
- Whether Velo3D secures sufficient financing or a strategic transaction to fund operations and meet obligations, and the terms and dilution associated with any funding.
- Cash balances, cash burn, collections of past-due receivables, and compliance with secured-note cash requirements and redemption terms.
- Whether bookings and backlog recover, shipments resume, and the sharp Q4 revenue decline proves temporary or persists.
- Whether inventory reserves, production costs, printer reliability and customer-service performance improve enough to restore positive gross margins.
- Progress and independent evidence of remediation of material weaknesses, and the effects of the disclosed revisions and adjustments on future reporting.
- Outcome of the strategic review and NYSE listing status; also track the potential share issuance from warrants, equity programs and registered offerings.