Velo3D(US:VLD)2024-05-15 20:13Part I. Financial Information Item 1. Financial Statements (unaudited) This section presents Velo3D's unaudited condensed consolidated financial statements for Q1 2024, including balance sheets, income, cash flow, and equity statements, noting management's substantial doubt about the company's going concern ability - The company has incurred significant losses and negative cash flows since inception, leading to an accumulated deficit of $385.4 million as of March 31, 2024, with management concluding there is substantial doubt about the company's ability to continue as a going concern3839 - On December 28, 2023, the company received a NYSE non-compliance notice for its average closing stock price being below $1.00 for over 30 consecutive trading days, with a deadline of June 28, 2024, to regain compliance3536 - Subsequent to the quarter end, in April 2024, the company amended its secured notes, making cash repayments of $11.0 million, and raised approximately $12 million in gross proceeds through an offering of common stock and warrants to fund working capital and repay debt4041149 Condensed Consolidated Balance Sheets Total assets decreased to $136.1 million from $153.8 million by March 31, 2024, due to reduced cash, with liabilities rising and equity declining Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $7,754 | $24,494 | | Inventories | $62,799 | $60,816 | | Total current assets | $98,345 | $113,024 | | Total assets | $136,148 | $153,799 | | Liabilities & Equity | | | | Debt – current portion | $34,300 | $21,191 | | Total liabilities | $90,698 | $85,459 | | Total stockholders' equity | $45,450 | $68,340 | | Total liabilities and stockholders' equity | $136,148 | $153,799 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q1 2024, revenue significantly declined to $9.8 million from $26.7 million year-over-year, resulting in a gross loss of $2.8 million and a net loss of $28.3 million, an improvement from the prior year's $36.3 million net loss Q1 2024 vs. Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Revenue | $9,786 | $26,687 | | Gross profit (loss) | $(2,815) | $2,532 | | Loss from operations | $(21,450) | $(24,250) | | Net loss | $(28,314) | $(36,325) | | Net loss per share (Basic & Diluted) | $(0.11) | $(0.19) | Condensed Consolidated Statements of Cash Flows In Q1 2024, net cash used in operating activities improved to $20.5 million, while investing activities provided $3.5 million, and financing activities provided a minimal $0.3 million, resulting in a net cash decrease of $16.7 million Q1 2024 vs. Q1 2023 Cash Flows (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(20,523) | $(30,834) | | Net cash provided by investing activities | $3,493 | $20,962 | | Net cash provided by financing activities | $285 | $15,034 | | Net change in cash and cash equivalents | $(16,740) | $5,156 | Notes to Condensed Consolidated Financial Statements (unaudited) These notes provide critical context, including the basis of presentation, substantial doubt about going concern, details on debt agreements, valuation of warrants and earnout liabilities, and significant post-quarter financing events - The company is undertaking a strategic business review to explore alternatives, including a potential merger, business combination, or sale, to maximize stockholder value45 - As of March 31, 2024, the company had $36.8 million in secured notes outstanding, bearing 6.00% interest, requiring quarterly redemptions at 120% of the principal amount, with the first $8.75 million principal redemption due on April 1, 2024899192 - In April 2024, the company entered into a Second Note Amendment to its Secured Notes, agreeing to make cash payments totaling $11.0 million to redeem principal and interest, and issued new warrants to purchase up to 21.9 million shares149150 - On April 10, 2024, the company raised approximately $12 million in gross proceeds through a securities purchase agreement, selling 34.3 million shares of common stock and warrants to purchase an additional 34.3 million shares151152 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 63.3% year-over-year revenue decrease in Q1 2024 due to fewer system sales and order delays, highlighting a strategic shift towards optimizing free cash flow and reducing expenses, while reiterating substantial doubt about the company's ability to continue as a going concern - The company has pivoted its strategy from emphasizing revenue growth to optimizing free cash flow, maximizing customer success, and reducing expenditures through a 'Strategic Realignment' plan167 Key Operational Metrics | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue ($ in millions) | $10 | $27 | | Bookings ($ in millions) | $17 | $20 | | Backlog ($ in millions) | $22 | $24 | Results of Operations Summary (in thousands) | Line Item | Q1 2024 | Q1 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $9,786 | $26,687 | $(16,901) | (63.3)% | | Gross profit (loss) | $(2,815) | $2,532 | $(5,347) | (211.2)% | | Loss from operations | $(21,450) | $(24,250) | $2,800 | (11.5)% | | Net loss | $(28,314) | $(36,325) | $8,011 | (22.1)% | - Gross margin was negative (28.8)% for Q1 2024, compared to 9.5% in Q1 2023, attributed to product mix, launch customer pricing for Sapphire XC, and higher production costs220221 - Operating expenses decreased by 30.4% year-over-year, driven by significant reductions in Research & Development (-51.6%) and Selling & Marketing (-22.1%) as part of the Strategic Realignment203223225 - The company lacks sufficient liquidity to meet operating needs and debt obligations for at least the next 12 months, necessitating additional financings, without which it may be required to sell assets, liquidate, or file for bankruptcy171240249 Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Velo3D is not required to provide the information for this item - The company is a smaller reporting company as defined in Rule 12b-2 under the Exchange Act and is not required to provide the information required by this Item275 Controls and Procedures Management concluded that the company's disclosure controls and procedures were not effective as of March 31, 2024, due to un-remediated material weaknesses in internal control over financial reporting, with remediation efforts ongoing - The CEO and CFO concluded that as of March 31, 2024, the company's disclosure controls and procedures were not effective277 - Material weaknesses in internal control over financial reporting, first identified in the 2023 10-K, have not been remediated as of March 31, 2024278 - Specific material weaknesses include an ineffective control environment due to insufficient personnel with appropriate accounting knowledge, lack of segregation of duties, and ineffective controls over accounting for debt/equity instruments, inventory, contract assets/liabilities, financial statement presentation, and IT general controls279282283 - Remediation measures are underway, including hiring additional personnel, engaging third-party assistance, and designing and implementing new controls, though their full effectiveness is not yet confirmed282284285 Part II. Other Information Legal Proceedings As of the filing date, Velo3D is not a party to any material legal proceedings - The company is currently not a party to any material legal proceedings289 Risk Factors This section highlights critical risks, primarily the substantial doubt about the company's ability to continue as a going concern, which could impede capital raising, product sales, and employee retention, alongside the urgent need for additional capital and restrictive debt covenants - There is substantial doubt about the company's ability to continue as a going concern, which could make it difficult to raise necessary financing and may lead to business curtailment or bankruptcy291292 - The company requires additional capital to fund near-term operations, and failure to obtain adequate financing could result in the company being unable to continue operations, potentially leading to liquidation or bankruptcy293295 - The Secured Notes contain restrictive covenants that limit the company's ability to incur debt, make investments, and transfer assets, where a breach could result in an event of default and acceleration of the debt296297 - Servicing the Notes requires significant cash, with quarterly redemptions of $8.75 million in principal (for a repayment price of $10.5 million) starting April 1, 2024, which the company may not generate sufficient cash flow to meet300302 Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2024, Velo3D did not sell any shares through its At-The-Market (ATM) Sales Agreement and reported no unregistered sales of equity securities or issuer purchases of its equity securities - During the three months ended March 31, 2024, the company sold no shares pursuant to its ATM sales agreement303 - There were no unregistered sales of securities or issuer purchases of equity securities in the quarter304305 Defaults Upon Senior Securities This item is not applicable for the reporting period - Not applicable306 Mine Safety Disclosures This item is not applicable for the reporting period - Not applicable307 Other Information On May 10, 2024, the company revised CEO Bradley Kreger's Change in Control Agreement, extending severance and health benefits, and entered into a new Change in Control Agreement with CFO Hull Xu, providing for severance, bonus, and equity acceleration upon qualifying termination - On May 10, 2024, the company revised its Change in Control Agreement with CEO Bradley Kreger to extend the severance payment and continued health benefits from nine to twelve months309 - On May 10, 2024, the company entered into a Change in Control Agreement with CFO Hull Xu, providing for severance, bonus payments, equity acceleration, and continued medical benefits for up to nine months upon a qualifying termination310 Exhibits This section lists the exhibits filed with the Form 10-Q, including revised and new Change in Control Agreements for the CEO and CFO, officer certifications, and Inline XBRL data files - Exhibits filed include revised and new Change in Control Agreements for the CEO and CFO, respectively, as well as required officer certifications312