Velo3D, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Velo3D makes and sells or leases metal additive-manufacturing printers and provides related support services.
Financial performance and liquidity
Unless indicated otherwise, amounts are in millions of dollars.
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Revenue | $26.8 | $12.2; up 119.5% |
| Gross profit / margin | $2.9 / 10.9% | $0.0 / 0.1% |
| Operating expenses | $27.0 | $28.2 |
| Operating loss | $24.1 | $28.2 |
| Net loss | $36.2; $0.19 per share | $65.3; $0.36 per share |
| Cash used in operating activities | $30.8 | $30.1 |
| Cash and cash equivalents | $37.1 at March 31 | $32.0 at December 31, 2022 |
| Short-term investments | $26.9 at March 31 | $48.2 at December 31, 2022 |
| Total debt | $12.5 at March 31 | $8.2 at December 31, 2022 |
Revenue growth came mainly from increased printer volume and a shift toward higher-priced Sapphire XC and XC 1MZ systems. Printer revenue was $24.6 million; recurring-payment revenue declined 37.8% to $0.6 million, while support-services revenue rose 50% to $1.7 million. Cost of revenue grew more slowly than sales, and management attributed improved gross margin to higher selling prices, lower material cost per system, and manufacturing efficiencies.
Cash plus short-term investments totaled $64.0 million at quarter-end, versus $80.2 million at year-end. Current assets were $164.9 million and current liabilities $37.7 million. Investing activities provided $21.0 million, primarily from $21.5 million of investment maturities; financing activities provided $15.0 million, including $10.5 million net ATM proceeds and a $5.0 million revolver draw. The company reported an accumulated deficit of $256.0 million.
Changes, outlook, and risks
- Bookings increased to $20 million from $12 million year over year, but printer backlog fell to $24 million from $34 million.
- Top three customers accounted for 44.9% of Q1 revenue, down from 86.2% a year earlier. Management says sales will continue to depend on a limited customer group.
- Management expects gross margins to increase during the remainder of 2023, citing higher average selling prices, lower material costs, improved manufacturing efficiency, and higher production. It expects operating cash use to decrease as working capital stabilizes and cost-reduction efforts take effect, and capital expenditures to decline. No numerical revenue or earnings guidance is provided.
- Management believed cash on hand and cash expected from operations would cover working capital and capital expenditures for at least 12 months from the May 10, 2023 financial-statement issuance date. It also cautioned that additional financing may be needed if operating results or other conditions fall short of expectations.
- Non-cancellable purchase orders for parts and assemblies totaled $54.0 million, primarily for delivery in the second half of 2023. The filing says orders are generally cancellable before shipment, but these commitments are not.
- Following SVB’s March 2023 failure and subsequent transfer of its banking business, the company amended its loan arrangements in April and May. The deposit requirement with the lender was reduced from 90% to 50%; the May modification also updated certain 2023 financial covenants and required an inventory appraisal. After a further $5.0 million April revolver draw, $17.0 million remained undrawn.
- Reported losses included non-cash fair-value charges of $2.6 million for warrants and $9.7 million for contingent earnout liabilities. These charges depend on valuation inputs and increased versus quarter-end balances, though they were smaller than the corresponding charges in Q1 2022.
- Disclosure controls were assessed as ineffective because material weaknesses in financial reporting controls remained unremediated, including weaknesses involving staffing and segregation of duties, inventory, contract assets and liabilities, and IT controls. Management described remediation efforts but had not concluded they were effective.
- Other notable items: the Campbell McGlincy manufacturing lease was terminated on March 31, and $0.6 million of fully depreciated leasehold improvements was written off. The filing reports no material legal proceedings and no off-balance-sheet arrangements.
Investor verification priorities
- Track whether printer growth converts into bookings, backlog, deliveries, and cash collections; verify the causes and implications of backlog decline.
- Assess whether gross-margin improvement persists as production scales and the product mix shifts, including support costs for newer systems.
- Monitor operating cash burn, the $54.0 million purchase commitments, financing needs, ATM issuance and dilution, and revolver availability and covenants.
- Review customer concentration and the sensitivity of reported results to fair-value estimates for warrants and earnout liabilities.
- Check progress in remediating material weaknesses and the results of subsequent control testing.