Velo3D, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Financial statements are unaudited. Velo3D makes metal additive-manufacturing printers and provides related support services.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $23.8M | $19.1M | $75.8M | $51.0M |
| Gross profit (loss) | $1.5M | $(0.1)M | $7.4M | $1.1M |
| Gross margin | 6.3% | (0.6)% | 9.8% | 2.2% |
| Operating loss | $(25.2)M | $(28.0)M | $(75.1)M | $(82.4)M |
| Net loss | $(17.4)M | $(75.2)M | $(76.8)M | $(12.6)M |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $(81.1)M | $(92.2)M |
At September 30, cash and cash equivalents were $58.1M and short-term investments were $13.5M, or $71.6M combined. Current assets were $183.8M and current liabilities were $98.9M. The company reported an accumulated deficit of $296.6M. Its debt balance, net of unamortized discounts and financing costs, was $52.2M; the Notes’ principal was $70M. The filing reports a 39.9% effective interest rate on the Notes for the period.
Changes versus comparable periods
- Q3 revenue increased 24.6%; nine-month revenue increased 48.6%, chiefly from higher 3D printer sales. Printer revenue was $21.4M for the quarter and $69.2M year to date.
- Gross margin improved year over year, attributed by management to higher average selling prices and manufacturing efficiencies. Operating expenses fell 4.0% in Q3 and 1.3% year to date; research and development declined, while general and administrative expense rose.
- Quarterly net loss narrowed substantially versus 2022, when noncash fair-value losses on contingent earnout and warrant liabilities were much larger. Year-to-date net loss widened, in part because the prior-year period included substantial noncash fair-value gains.
- Bookings were $11M for Q3 versus $27M; reported printer backlog was $6M versus $66M. Management cited delayed shipments and customer orders.
- Operating cash use improved by $11.0M year over year for the nine months, but remained significant. Financing included $65.7M net proceeds from the Notes and $18.4M net proceeds from ATM stock sales.
Outlook, debt, and principal risks
- Going concern and covenant default: The Notes require minimum quarterly revenue and at least $30M of unrestricted cash. Velo3D was not compliant with the revenue covenant for the quarter ended September 30, 2023. The holders could accelerate repayment in cash; the company says it lacks sufficient capital to repay if accelerated and that secured holders may foreclose on collateral. Management concluded substantial doubt exists about the company’s ability to continue as a going concern for the 12 months after issuance of the financial statements.
- The company was negotiating a proposed Notes amendment, which it anticipated completing in November 2023; the filing does not establish that an amendment or waiver was reached. Velo3D expects additional financing even if amended. The Notes also require a new ATM program with at least $75M of available, accessible and unused capacity by December 31, 2023.
- The $70M senior secured convertible Notes bear 6% stated interest, mature August 2026, and have a 115% repayment price under specified repayments or at maturity. The investor may elect quarterly principal repayments beginning January 2024. Conversion terms imply significant potential dilution; share issuance is subject to an NYSE stockholder-approval limitation.
- Management expects near-term revenue-growth contraction due to delayed shipments, customer order delays, bookings to date, and operational changes. It shifted priorities from growth toward free cash flow, customer success, lower spending and efficiency. Management expected gross margins to remain relatively flat for the rest of 2023 and cited potential medium-term demand for Sapphire systems, subject to resolving the Notes situation.
- In October, the company announced a reduction in force affecting 62 employees, about 21% of the workforce, with estimated costs of $1M–$2M. It also began closing facilities; management estimated $2M–$3M in facility-consolidation charges. Non-cancellable supplier purchase commitments were $30.8M, primarily due in late 2023 and the first half of 2024.
- Customer concentration remains material: the top three customers generated 51.1% of Q3 revenue. Management cited macroeconomic and supply-chain uncertainty. Disclosure controls were deemed ineffective, and previously identified material weaknesses in financial reporting controls remained unremediated at September 30, including weaknesses involving staffing and segregation of duties, inventory, contract balances and IT controls.
Most important facts for investors to verify
- Whether noteholders waived or amended the revenue-covenant default, and whether any acceleration, repayment demand or collateral enforcement followed.
- Current unrestricted cash, cash burn and financing availability, including compliance with the $30M cash covenant and the required ATM capacity.
- Subsequent bookings, printer backlog, shipment timing and customer-order trends relative to management’s near-term contraction expectations.
- Actual restructuring and facility-closure costs, cash savings, and the effect on customer support and operations.
- Potential dilution from the Notes, warrants, equity plans and future capital raises, as well as progress remediating internal-control material weaknesses.