Velo3D, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Velo3D makes metal additive-manufacturing printers and provides related support services. Financial statements are unaudited; amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $25.1m | $19.6m | $51.9m | $31.9m |
| Gross profit / margin | $3.0m / 11.9% | $1.2m / 6.3% | $5.9m / 11.4% | $1.2m / 3.9% |
| Operating loss | $25.7m | $26.2m | $49.8m | $54.4m |
| Net income (loss) | $(23.2)m | $128.0m | $(59.4)m | $62.6m |
| Cash used in operating activities | — | $58.8m | $68.8m |
- Q2 revenue increased 27.9% year over year; first-half revenue rose 63.0%. Printer sales drove growth, supported by higher shipment volume and a mix shift toward higher-priced Sapphire XC and XC 1MZ systems. Recurring-payment revenue declined, while support-services revenue increased.
- Margins improved year over year, which management attributed to higher average selling prices, lower per-system material costs and manufacturing efficiencies. Operating expenses were $28.7m in Q2, up 4.4%; first-half expenses were $55.7m, approximately flat.
- Net income comparisons are significantly affected by noncash fair-value changes in warrants and contingent earnout liabilities. Q2 2022 included gains of $23.7m and $130.2m, respectively; Q2 2023 gains were $0.8m and $1.8m. For H1 2023, the corresponding fair-value changes were losses of $1.7m and $7.8m.
- At June 30, cash and cash equivalents were $28.9m and short-term investments were $18.5m, totaling $47.3m. Cash and investments were $80.2m at December 31, 2022. H1 operating cash use was $58.8m; investing activities provided $25.6m, mainly from investment maturities, and financing activities provided $30.1m.
- June 30 debt was $22.4m, including a $17.0m revolver and $5.5m of equipment loans. Total liabilities were $96.2m; stockholders’ equity was $110.6m. Inventory was $78.0m and contract assets were $15.3m.
Changes, outlook and notable items
- Printer-sales growth and improved gross margin were accompanied by lower recurring-payment revenue. Backlog for firm printer orders declined to $15m from $55m a year earlier; bookings were $16m in Q2 versus $18m, and $36m for H1 in both years.
- Management expected gross margins to continue improving during the remainder of 2023 through pricing, material-cost reductions, manufacturing efficiency and higher production volume. It also expected operating cash use and capital expenditures to decline in the second half, and cited cost-reduction initiatives. No specific full-year revenue or earnings guidance is provided in the supplied filing text.
- Management stated that cash on hand and expected operating cash generation would fund working capital and capital expenditures for at least 12 months from the August 15, 2023 issuance date of the financial statements. The company also noted it may need additional financing; its ability to fund operations depends on performance and market conditions.
- After quarter-end, Velo3D issued $70m principal amount of senior secured convertible notes for approximately $66m net proceeds and used about $22m to repay its prior loan facility. The notes bear 6% interest, mature August 2026, and have an initial conversion price of approximately $2.10 per share, subject to adjustment. Repayment generally carries a 115% principal repayment price. Investors may purchase up to an additional $35m principal amount.
- The notes include a $30m minimum unrestricted-cash covenant, minimum quarterly-revenue requirements through Q2 2026, and restrictive covenants. They also require the company to establish by December 31, 2023 an ATM program with at least $75m of available, accessible and unused gross-proceeds capacity. Conversion may dilute existing holders.
- Non-cancellable supplier purchase commitments were $39.5m, primarily due for delivery in H2 2023 and early 2024. Sales remain concentrated: the top three customers represented 47.0% of Q2 revenue, versus 65.1% a year earlier. The company reported no material pending legal proceedings.
- Disclosure controls and procedures were ineffective as of June 30, 2023 because previously identified material weaknesses in internal control over financial reporting remained unremediated. Weaknesses involved staffing and segregation of duties, inventory, contract balances and IT general controls; management described remediation work as ongoing.
Key facts for investors to verify
- Whether backlog and bookings convert into deliveries and revenue, and whether the lower backlog reflects reduced demand, timing or other factors.
- Cash burn, cash availability and compliance with the notes’ minimum-cash and quarterly-revenue covenants, including the required ATM capacity.
- The dilution and repayment implications of the convertible notes, any additional note issuance, and future equity or ATM sales.
- Whether margin improvement and expected cost reductions continue as production scales, particularly given the $39.5m supplier commitments.
- Customer concentration, printer-system reliability and the economics of recurring-payment and support-service offerings.
- Progress and independent validation of remediation of the material weaknesses in financial reporting controls.