Velo3D, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited results primarily reflect Legacy Velo3D, the metal additive-manufacturing printer and software business. The September 29 SPAC merger was accounted for as a reverse recapitalization.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $8.7m | $2.3m | $17.0m | $12.2m |
| Gross profit | $1.5m | $0.5m | $3.3m | $4.0m |
| Gross margin | 16.9% | 21.5% | 19.2% | 32.6% |
| Operating expenses | $16.5m | $7.5m | $41.9m | $21.4m |
| Net loss | $66.6m | $7.1m | $92.7m | $17.6m |
| Net cash used in operations | — | $31.3m | $19.9m |
- Q3 revenue rose 283%; nine-month revenue rose 39%. Q3 printer revenue was $7.3m, recurring-payment revenue $0.6m, and support-services revenue $0.8m.
- Margins contracted as manufacturing overhead, expedited materials, product development, system upgrades, and customer-support costs increased. Nine-month gross profit fell despite higher revenue.
- Operating expenses increased substantially, led by Sapphire XC development, hiring and public-company/merger-related costs.
- The nine-month net loss includes a $50.6m noncash loss from modification of a $5.0m convertible note before it converted in connection with the merger. Fair-value changes also included a $3.6m warrant loss and a $2.0m earnout-liability gain.
- At September 30, cash and cash equivalents were $296.8m; restricted cash was $2.5m. Total assets were $347.8m. Current liabilities were $70.7m.
- Debt was $28.1m, including $13.7m current and $14.3m long-term. The company repaid its $20.7m term-loan balance, interest and fees on October 29, 2021; the revolving line and equipment loans remained separate obligations.
- Cash from financing was $323.5m for the nine months, including merger and PIPE proceeds. The merger and PIPE generated $278.3m in net cash proceeds; the PIPE raised $155.0m gross.
Material changes and business developments
- The merger closed September 29. Following redemptions of $182.2m by public shareholders, 183.2m common shares were outstanding at September 30.
- Nine-month shipments totaled 15 printers: seven sold and eight leased. Management reported 14 firm Sapphire XC orders and 21 additional reservations with deposits at September 30.
- The company reported $12.6m of Sapphire XC customer deposits, included in contract liabilities. Reservations are not assured to convert into orders.
- Top three customers represented more than 86.2% of Q3 revenue and 48.0% of nine-month revenue. The company also relies on four key suppliers.
Outlook, risks and unusual items
- Management expected Sapphire XC commercial shipments to begin at the end of 2021, subject to final testing, manufacturing ramp-up and facility readiness. It projected the system could make parts 400% larger and lower production cost per part by approximately 65%–80% versus the existing Sapphire system.
- Management planned an additional $4m–$7m of factory equipment and leasehold investment. The new 80,000-plus-square-foot facility lease began November 1, 2021, with $10.9m of base-rent obligations over its term. Non-cancellable Sapphire XC purchase commitments were $26.8m, primarily due in Q4 2021 and Q1 2022.
- Management expected R&D, selling and marketing, and public-company administrative costs to rise; it also expected operating cash use and capital spending to increase as production scales. It stated cash on hand, merger/PIPE proceeds and expected operating cash generation should fund working capital and capital expenditures for at least 12 months from the November 16, 2021 issuance date.
- Key risks include continuing losses and cash burn, customer concentration, supply constraints, COVID-related timing uncertainty, Sapphire XC launch and reservation-conversion risk, margin variability, and the need for possible future capital.
- Disclosure controls were deemed ineffective because of unremediated material weaknesses in staffing and segregation of duties, accounting for debt/equity and inventory accruals, and IT general controls. Management described remediation efforts, but had not concluded the weaknesses were remediated. The filing says the financial statements were fairly stated in all material respects; prior SPAC financial statements were restated for warrant-related accounting.
- The company reported no material litigation and no material off-balance-sheet arrangements. Its common-stock warrants and earnout are liability-classified and remeasured at fair value, which can cause noncash earnings volatility. Up to 21.8m earnout shares may be issued if specified stock-price milestones are met.
Important facts for investors to verify
- Whether Sapphire XC testing, facility ramp-up and shipments met the stated schedule, and how many reservations converted into firm orders.
- Whether customer concentration, especially the timing and scale of major customer orders, changed after Q3.
- Gross-margin progress as printer production expands and service, reliability and factory costs evolve.
- Cash burn, capital expenditures, debt repayments and availability of undrawn facilities against management’s stated liquidity runway.
- Progress in remediating material weaknesses and the future income-statement effects of warrant and earnout fair-value remeasurement.