Velo3D(VLD) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements and accompanying notes for the period ended September 30, 2024 Condensed Consolidated Balance Sheets (unaudited) The balance sheet reflects a significant decline in liquidity, total assets, and stockholders' equity Key Balance Sheet Items | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | Percentage Change | | :--------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | :------------------ | | Assets | | | | | | Cash and cash equivalents | $1,637 | $24,494 | $(22,857) | -93.3% | | Short-term investments | — | $6,621 | $(6,621) | -100.0% | | Total current assets | $79,792 | $113,024 | $(33,232) | -29.4% | | Total assets | $110,787 | $153,799 | $(43,012) | -28.0% | | Liabilities | | | | | | Debt – current portion | $29,602 | $21,191 | $8,411 | 39.7% | | Total current liabilities | $63,402 | $48,671 | $14,731 | 30.3% | | Total liabilities | $76,100 | $85,459 | $(9,359) | -10.9% | | Stockholders' Equity | | | | | | Total stockholders' equity | $34,687 | $68,340 | $(33,653) | -49.2% | - The company's cash and cash equivalents significantly decreased by 93.3% from $24.5 million at December 31, 2023, to $1.6 million at September 30, 2024, indicating a substantial reduction in liquidity[17] - Total assets declined by 28.0%, from $153.8 million to $110.8 million, while total liabilities saw a modest decrease of 10.9%, from $85.5 million to $76.1 million[17] - Stockholders' equity decreased by 49.2%, from $68.3 million to $34.7 million, primarily due to an accumulated deficit of $(408.4) million as of September 30, 2024[17] Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) The income statement shows a sharp revenue decline but a significant gross profit increase, offset by higher interest expenses Three-Month Operational Results | Metric | Three Months Ended Sep 30, 2024 (In thousands) | Three Months Ended Sep 30, 2023 (In thousands) | Change (In thousands) | % Change | | :--------------------------------------- | :------------------------------------- | :------------------------------------- | :-------------------- | :------- | | Total Revenue | $8,247 | $23,167 | $(14,920) | -64.4% | | Total cost of revenue | $4,176 | $23,004 | $(18,828) | -81.8% | | Gross profit (loss) | $4,071 | $163 | $3,908 | 2397.5% | | Total operating expenses | $22,816 | $26,025 | $(3,209) | -12.3% | | Loss from operations | $(18,745) | $(25,862) | $7,117 | -27.5% | | Interest expense | $(10,949) | $(3,018) | $(7,931) | 262.8% | | Net income (loss) | $(22,858) | $(19,464) | $(3,394) | 17.4% | | Basic EPS | $(2.47) | $(3.37) | $0.90 | -26.7% | | Diluted EPS | $(2.47) | $(3.37) | $0.90 | -26.7% | Nine-Month Operational Results | Metric | Nine Months Ended Sep 30, 2024 (In thousands) | Nine Months Ended Sep 30, 2023 (In thousands) | Change (In thousands) | % Change | | :--------------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | :------- | | Total Revenue | $28,377 | $74,988 | $(46,611) | -62.2% | | Total cost of revenue | $30,018 | $69,757 | $(39,739) | -57.0% | | Gross profit (loss) | $(1,641) | $5,231 | $(6,872) | -131.4% | | Total operating expenses | $59,074 | $81,049 | $(21,975) | -27.1% | | Loss from operations | $(60,715) | $(75,818) | $15,103 | -19.9% | | Interest expense | $(20,309) | $(3,582) | $(16,727) | 467.0% | | Net income (loss) | $(51,344) | $(78,990) | $27,646 | -35.0% | | Basic EPS | $(6.09) | $(13.96) | $7.87 | -56.4% | | Diluted EPS | $(6.09) | $(13.96) | $7.87 | -56.4% | - For the three months ended September 30, 2024, total revenue decreased by 64.4% to $8.2 million, primarily due to a significant drop in 3D Printer sales, partially offset by new licensing revenue[19][217][218][220] - Gross profit saw a substantial increase of 2397.5% to $4.1 million for the three months, mainly driven by the lower cost associated with license revenue[19][232] - Net loss for the three months increased by 17.4% to $(22.9) million, largely influenced by a 262.8% increase in interest expense[19][240] Condensed Consolidated Statements of Cash Flows (unaudited) Cash flows show reduced use in operations and lower proceeds from investing and financing activities Nine-Month Cash Flow Summary | Cash Flow Activity | Nine Months Ended Sep 30, 2024 (In thousands) | Nine Months Ended Sep 30, 2023 (In thousands) | Change (In thousands) | | :--------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Net cash used in operating activities | $(30,465) | $(81,109) | $50,644 | | Net cash provided by investing activities | $6,644 | $31,055 | $(24,411) | | Net cash provided by financing activities | $958 | $76,213 | $(75,255) | | Net change in cash and cash equivalents | $(22,857) | $26,148 | $(49,005) | - Net cash used in operating activities significantly decreased by $50.6 million, from $(81.1) million in 2023 to $(30.5) million in 2024, primarily due to a lower net loss and changes in operating assets and liabilities[21][298][300] - Net cash provided by investing activities decreased by $24.4 million, from $31.1 million in 2023 to $6.6 million in 2024, mainly due to lower proceeds from maturities of available-for-sale investments[21][302][303] - Net cash provided by financing activities saw a substantial decrease of $75.3 million, from $76.2 million in 2023 to $1.0 million in 2024, reflecting reduced proceeds from convertible notes and ATM offerings[21][305][306] Condensed Consolidated Statements of Stockholders' Equity (unaudited) Stockholders' equity declined significantly due to an increased accumulated deficit from net losses Changes in Stockholders' Equity | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Common Stock (Shares) | 9,647,652 | 7,502,478 | 2,145,174 | | Common Stock (Amount) | $2 | $2 | $0 | | Additional Paid-In Capital | $443,066 | $425,471 | $17,595 | | Accumulated Deficit | $(408,381) | $(357,037) | $(51,344) | | Total Stockholders' Equity | $34,687 | $68,340 | $(33,653) | - Total stockholders' equity decreased by $33.7 million, from $68.3 million at December 31, 2023, to $34.7 million at September 30, 2024[24] - The accumulated deficit increased by $51.3 million, reflecting the net loss incurred during the nine months ended September 30, 2024[24] - Additional paid-in capital increased by $17.6 million, primarily due to stock-based compensation and capital raises[24] Notes to Condensed Consolidated Interim Financial Statements (unaudited) These notes detail the company's business, accounting policies, financial events, and going concern uncertainty Note 1. Description of Business and Basis of Presentation The company produces metal 3D printers and faces substantial doubt about its ability to continue as a going concern - Velo3D, Inc. produces metal additive 3D Printers for high-value metal parts in industries like space, jet engines, and fuel delivery systems, also offering support services[27] - The company completed a 1-for-35 reverse stock split effective June 13, 2024, retroactively adjusting all share numbers and per share amounts[32][33] - Velo3D's common stock and warrants were delisted from the NYSE on September 10, 2024, and commenced trading on the OTCQX Best Market on September 11, 2024[36] - Management believes there is substantial doubt about the company's ability to continue as a going concern due to incurred losses, negative cash flows, and insufficient liquidity to meet obligations for the next 12 months[37][38] - On December 24, 2024, the company completed a debt-for-equity exchange, issuing 185,151,333 shares of common stock to Arrayed Acquisition Corp. in exchange for the cancellation of $22.4 million in Secured Notes principal and $0.4 million in accrued interest. Arrayed now owns 95% of the company's common stock[44][161] - On January 7, 2025, Velo3D issued a Senior Secured Convertible Promissory Note for $5.0 million, due April 7, 2025, with a repayment amount of $5.75 million, convertible into common stock at $1.56 per share upon default[45][163] Note 2. Summary of Significant Accounting Policies This note outlines key accounting policies, including revenue recognition for licenses and product warranty accruals - The FASB issued ASU 2023-09, 'Income Taxes (Topic 740): Improvement to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024, which the company is currently evaluating for impact[49] - Licensing revenue from perpetual licenses is recognized upfront upon delivery, while post-contract support (PCS) revenue is recognized ratably over the contract term or as support is used[51] - Revenue from time-based subscription licenses is allocated between the term license (recognized upfront) and PCS (recognized ratably over the term)[52][53] - Product warranties for 3D printers, typically one year, are accrued at the time of sale based on historical data and future assumptions[54][55] Note 3. Basic and Diluted Net Loss per Share This note provides the calculation of net loss per share, excluding antidilutive common stock equivalents Net Loss Per Share Calculation | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) (In thousands) | $(22,858) | $(19,464) | $(51,344) | $(78,990) | | Basic weighted average shares outstanding | 9,240,453 | 5,771,465 | 8,431,298 | 5,656,713 | | Diluted weighted average shares outstanding | 9,240,453 | 5,771,465 | 8,431,298 | 5,656,713 | | Basic Net income (loss) per share | $(2.47) | $(3.37) | $(6.09) | $(13.96) | | Diluted Net income (loss) per share | $(2.47) | $(3.37) | $(6.09) | $(13.96) | - Potentially dilutive common stock equivalents, totaling 6,210,347 for the three and nine months ended September 30, 2024, were excluded from diluted net loss per share computation due to their antidilutive effect[56] Note 4. Fair Value Measurements This note details the fair value hierarchy for financial assets and liabilities, with key liabilities valued using Level 3 inputs Fair Value of Financial Instruments | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------- | :--------------------------------- | | Assets | | | | Money market funds (Level 1) | $1,347 | $3,422 | | Corporate bonds (Level 2) | — | $6,621 | | Total financial assets | $1,347 | $10,043 | | Liabilities | | | | Common stock warrant liabilities (Level 3) | $2,350 | $11,785 | | Contingent earnout liabilities (Level 3) | $11 | $1,456 | | Total financial liabilities | $2,361 | $13,291 | - The company's financial liabilities measured at fair value, primarily common stock warrant liabilities and contingent earnout liabilities, are classified as Level 3 due to significant unobservable inputs[58][62] - The fair value of Private Placement Warrant liabilities, contingent earnout liabilities, and 2024 Private Warrants are determined using the Monte Carlo simulation model[63] - The fair value of 2022 Private Warrant, RDO Warrants, Placement Agent Warrants, BEPO Warrants, BEPO Agent Warrants, July 2024 Private Warrants, and August Inducement Warrants are estimated using the Black-Scholes option pricing model[64] Note 5. Investments The company held no available-for-sale investments as of September 30, 2024 - As of September 30, 2024, there were no available-for-sale (AFS) investments, with investments sold during the quarter resulting in a realized loss of less than $0.1 million[65] Available-for-Sale Investments (as of Dec 31, 2023) | Item | Gross Amortized Cost (In thousands) | Gross Unrealized Loss (In thousands) | Fair Value (In thousands) | | :-------------------- | :---------------------------------- | :--------------------------------- | :------------------------ | | Corporate bonds | $6,717 | $(96) | $6,621 | | Total AFS investments | $6,717 | $(96) | $6,621 | Note 6. Balance Sheet Components This note provides a detailed breakdown of various balance sheet accounts, including receivables, inventories, and liabilities Accounts Receivable, Net | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Trade receivables | $13,049 | $10,203 | $2,846 | | Less: Allowances for credit losses | $(2,836) | $(620) | $(2,216) | | Total Accounts receivable, net | $10,213 | $9,583 | $630 | Inventories, Net | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :----------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Raw materials | $64,767 | $75,581 | $(10,814) | | Work-in-progress | $12,756 | $9,922 | $2,834 | | Finished goods | $10,267 | $2,406 | $7,861 | | Less: Inventory reserve | $(25,814) | $(27,093) | $1,279 | | Total Inventories, net | $61,976 | $60,816 | $1,160 | Prepaid Expenses and Other Current Assets | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Prepaid insurance and other | $1,774 | $2,738 | $(964) | | Vendor prepayments | $160 | $1,262 | $(1,102) | | Total Prepaid expenses and other current assets | $1,934 | $4,000 | $(2,066) | Property, Plant and Equipment, Net | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Total property, plant and equipment | $25,233 | $25,236 | $(3) | | Less accumulated depreciation and amortization | $(12,081) | $(8,910) | $(3,171) | | Property, plant and equipment, net | $13,152 | $16,326 | $(3,174) | Other Assets | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Right of use assets | $8,041 | $10,672 | $(2,631) | | Non-current contract assets | $2,957 | $5,117 | $(2,160) | | Non-current prepaid expenses and other assets | $3,062 | $1,993 | $1,069 | | Total Other assets | $14,060 | $17,782 | $(3,722) | Accrued Expenses and Other Current Liabilities | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :--------------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Accrued expenses | $1,769 | $1,948 | $(179) | | Accrued salaries and benefits | $1,668 | $2,277 | $(609) | | Lease liability – current portion | $1,888 | $2,266 | $(378) | | Total Accrued expenses and other current liabilities | $5,325 | $6,491 | $(1,166) | Other Noncurrent Liabilities | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | Change (In thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | :-------------------- | | Lease liabilities – noncurrent portion | $8,887 | $10,176 | $(1,289) | | Other noncurrent liabilities | $1,450 | $1,380 | $70 | | Total other noncurrent liabilities | $10,337 | $11,556 | $(1,219) | Note 7. Equipment on Lease, Net This note details the cost basis and future payments for equipment leased to customers - The cost basis of equipment leased to customers decreased from $7.4 million at December 31, 2023, to $4.6 million at September 30, 2024[77] - Depreciation expense for equipment on lease was $0.1 million for both the three months ended September 30, 2024 and 2023, and $0.6 million and $0.7 million for the nine months ended September 30, 2024 and 2023, respectively[78] Future Minimum Lease Payments | Period | Equipment on Lease Payments (In thousands) | | :------------------------- | :--------------------------------------- | | Remainder of 2024 | $500 | | 2025 | $1,167 | | Total lease payments to be received | $1,667 | Note 8. Leases This note outlines the company's operating lease liabilities for its office and manufacturing facilities - The company leases office and manufacturing facilities under non-cancellable operating leases expiring between 2024 and 2032[81] Lease Assets and Liabilities | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------- | :--------------------------------- | | Right-of-use assets (Net book value) | $8,041 | $10,672 | | Operating lease liabilities (Current) | $1,749 | $2,153 | | Operating lease liabilities (Noncurrent) | $8,737 | $9,973 | | Total operating lease liabilities | $10,486 | $12,126 | | Total lease liabilities | $10,775 | $12,442 | Future Operating Lease Payments | Year | Operating Lease Payments (In thousands) | | :---------------- | :-------------------------------------- | | Remainder of 2024 | $661 | | 2025 | $2,390 | | 2026 | $2,430 | | 2027 | $2,400 | | 2028 | $2,490 | | Thereafter | $8,779 | | Total operating lease payments | $19,150 | | Less imputed interest | $(8,664) | | Total operating lease liabilities | $10,486 | Note 9. Debt This note details the company's Secured Notes, including interest, maturity, and repayment terms Debt Composition | Item | September 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------- | :-------------------------------- | :--------------------------------- | | Secured notes | $30,055 | $33,516 | | Deferred financing costs | $(453) | $(384) | | Total Debt | $29,602 | $33,132 | | Debt – current portion | $29,602 | $21,191 | | Long-term debt – less current portion | — | $11,941 | - The company's debt consists of Secured Notes with High Trail Investments ON LLC and an affiliated institutional investor, bearing 6.00% interest per annum and maturing on August 1, 2026[86][90] - Repayment of principal on Secured Notes requires paying 120% of the principal amount (Repayment Price) plus accrued interest[90] - On July 1, 2024, a Third Note Amendment deferred a $10.5 million partial redemption payment over ten equal monthly payments starting August 1, 2024[88] Future Minimum Debt Payments | Year | Minimum Aggregate Payments (In thousands) | | :--- | :---------------------------------------- | | 2024 | $15,550 | | 2025 | $16,700 | | Total | $32,250 | Note 10. Equity Instruments This note describes the company's common stock, warrants, and recent equity offerings - As of September 30, 2024, Velo3D had 9,647,652 shares of common stock outstanding, with 500,000,000 shares authorized[97] - On April 10, 2024, the company completed a BEPO Offering, selling 979,592 shares of common stock and warrants for $12.25 per share, generating approximately $12 million in gross proceeds[99][100] - In connection with the Second Note Amendment, the company issued 627,117 2024 Private Warrants exercisable at $15.946 per share[107] - On July 1, 2024, the company issued 1,650,000 July 2024 Private Warrants exercisable at $3.00 per share[108] - On August 12, 2024, a warrant inducement reduced the exercise price of 742,857 Existing Warrants from $19.78 to $2.28 per share and issued 1,485,714 August Inducement Warrants at $2.28 per share[109] Reserved Common Stock | Item | September 30, 2024 (share data) | December 31, 2023 (share data) | | :--------------------------------------- | :------------------------------ | :----------------------------- | | Common stock warrants | 5,504,118 | 1,455,574 | | Shares available for future grant under 2021 Equity Incentive Plan | 595,704 | 844,496 | | Reserved for At-the-Market offering | 80,742 | 80,742 | | Reserved for employee stock purchase plan | 284,367 | 210,606 | | Total shares of common stock reserved | 6,464,931 | 2,591,418 | Outstanding Warrants | Warrant Type | Issue Date | Expiration Date | Number of Warrants | Exercise Price per warrant | | :--------------------------------------- | :--------- | :-------------- | :----------------- | :------------------------- | | Private Placement Warrants | 12/02/2020 | 09/29/2026 | 127,143 | $402.50 | | Public Warrants | 12/02/2020 | 09/29/2026 | 246,429 | $402.50 | | 2022 Private Warrant | 07/25/2022 | 07/24/2034 | 2,000 | $89.60 | | RDO Warrants | 12/29/2023 | 12/29/2028 | 285,714 | $19.78 | | Placement Agent Warrants | 12/29/2023 | 12/29/2028 | 51,429 | $21.75 | | 2024 Private Warrants | 4/1/2024 | 5/16/2025 | 627,117 | $15.95 | | BEPO Warrants | 4/12/2024 | 4/12/2029 | 979,592 | $12.25 | | BEPO Agent Warrants | 4/12/2024 | 4/12/2029 | 48,980 | $13.48 | | July 2024 Private Warrants | 7/01/2024 | 7/01/2029 | 1,650,000 | $3.00 | | August Inducement Warrants | 8/13/2024 | 08/12/2029 | 1,485,714 | $2.28 | | Total | | | 5,504,118 | | Note 11. Equity Incentive Plans and Stock-Based Compensation This note details the company's equity incentive plans and associated stock-based compensation expenses - As of September 30, 2024, the company had 595,704 shares reserved for issuance under its 2021 Equity Incentive Plan (2021 EIP) and 284,367 shares under its 2021 Employee Stock Purchase Plan (2021 ESPP)[139] Stock Option Activity | Metric | September 30, 2024 | September 30, 2023 | | :--------------------------------------- | :------------------- | :------------------- | | Options Outstanding | 275,000 | 433,000 | | Weighted Average Exercise Price | $25.91 | $19.60 | | Weighted Average Remaining Contractual Term (years) | 5.3 | 6.7 | RSU Activity | Metric | September 30, 2024 | September 30, 2023 | | :--------------------------------------- | :------------------- | :------------------- | | RSUs Balance | 431,000 | 350,000 | | Weighted Average Grant Date Fair Value | $49.53 | $121.80 | | Aggregate Intrinsic Value | $310,000 | $26,411,000 | Stock-Based Compensation Expense | Expense Type | Three Months Ended Sep 30, 2024 (In thousands) | Three Months Ended Sep 30, 2023 (In thousands) | Nine Months Ended Sep 30, 2024 (In thousands) | Nine Months Ended Sep 30, 2023 (In thousands) | | :--------------------------------------- | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Restricted stock units | $2,445 | $4,917 | $9,375 | $13,720 | | Stock options | $16 | $88 | $115 | $956 | | Earnout shares–employees | $1,246 | $1,711 | $3,551 | $4,810 | | Total Stock-based compensation expense | $3,707 | $6,716 | $13,041 | $19,486 | Note 12. Income Taxes No income tax provision was recorded due to projected losses and a full valuation allowance on deferred tax assets - No provision for federal and state income taxes was recorded for any periods presented due to projected losses, and a full valuation allowance was maintained on deferred tax assets as of September 30, 2024 and 2023[148] Note 13. Commitments and Contingencies The company has significant purchase commitments but is not aware of any material litigation - The company is not aware of any material litigation, claims, or assessments that would adversely affect its financial position as of September 30, 2024[149] - Non-cancellable purchase commitments for parts and assemblies totaled $18.7 million, due upon receipt and expected to be delivered throughout the remainder of 2024[150] Note 14. Employee Defined-Contribution Plans This note details the company's contributions to its 401(k) employee retirement plan - The company contributed $0.2 million and $0.3 million to its 401(k) Plan for the three months ended September 30, 2024 and 2023, respectively, and $0.8 million and $1.0 million for the nine months ended September 30, 2024 and 2023, respectively[151] Note 15. Revenue This note provides a breakdown of revenue by customer concentration and geographic region Revenue by Customer Concentration | Customer | Three Months Ended Sep 30, 2024 (Revenue %) | Three Months Ended Sep 30, 2023 (Revenue %) | Nine Months Ended Sep 30, 2024 (Revenue %) | Nine Months Ended Sep 30, 2023 (Revenue %) | | :--------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Customer 1 | 50.7% | <10% | 21.0% | <10% | | Customer 2 | 27.5% | <10% | 14.4% | <10% | | Customer 3 | <10% | —% | 16.4% | —% | | Customer 4 | <10% | <10% | 14.4% | <10% | | Customer 5 | <10% | 22.8% | <10% | <10% | | Customer 6 | <10% | 14.2% | <10% | <10% | | Customer 7 | —% | 14.1% | <10% | <10% | | Customer 8 | —% | 13.3% | —% | <10% | | Customer 9 | —% | 12.4% | —% | <10% | | Customer 10 | <10% | —% | <10% | —% | Revenue by Geographic Region | Geographic Region | Three Months Ended Sep 30, 2024 (In thousands) | Three Months Ended Sep 30, 2023 (In thousands) | Nine Months Ended Sep 30, 2024 (In thousands) | Nine Months Ended Sep 30, 2023 (In thousands) | | :------------------ | :------------------------------------- | :------------------------------------- | :------------------------------------ | :------------------------------------ | | Americas | $8,031 | $22,766 | $27,507 | $65,852 | | Europe | $205 | $329 | $706 | $8,927 | | Other | $11 | $72 | $164 | $209 | | Total | $8,247 | $23,167 | $28,377 | $74,988 | - Revenue recognized from contract liabilities was $0.5 million and $2.1 million for the three and nine months ended September 30, 2024, respectively[154] - There was no revenue related to variable consideration for the three and nine months ended September 30, 2024, compared to $3.9 million for the same periods in 2023[155] Note 16. Revision of Previously Issued Condensed Consolidated Interim Financial Statements This note details the revision of prior period financial statements to correct immaterial errors - The company revised previously issued condensed consolidated interim financial statements for the period ended September 30, 2023, to correct immaterial errors related to revenue, other assets, contract assets, and classification of stock-based compensation[156][157] Revisions for Three Months Ended Sep 30, 2023 | Metric | As Previously Reported (3M Sep 2023) | Adjustment (3M Sep 2023) | As Revised (3M Sep 2023) | | :--------------------------------------- | :----------------------------------- | :----------------------- | :----------------------- | | Total Revenue | $23,808 | $(641) | $23,167 | | Total cost of revenue | $22,320 | $684 | $23,004 | | Gross profit | $1,488 | $(1,325) | $163 | | Total operating expenses | $26,709 | $(684) | $26,025 | | Loss from operations | $(25,221) | $(641) | $(25,862) | | Interest expense | $(1,107) | $(1,911) | $(3,018) | | Net loss | $(17,396) | $(2,068) | $(19,464) | Revisions for Nine Months Ended Sep 30, 2023 | Metric | As Previously Reported (9M Sep 2023) | Adjustment (9M Sep 2023) | As Revised (9M Sep 2023) | | :--------------------------------------- | :----------------------------------- | :----------------------- | :----------------------- | | Total Revenue | $75,756 | $(768) | $74,988 | | Total cost of revenue | $68,363 | $1,394 | $69,757 | | Gross profit | $7,393 | $(2,162) | $5,231 | | Total operating expenses | $82,443 | $(1,394) | $81,049 | | Loss from operations | $(75,050) | $(768) | $(75,818) | | Interest expense | $(1,671) | $(1,911) | $(3,582) | | Net loss | $(76,795) | $(2,195) | $(78,990) | Note 17. Subsequent Events This note describes significant events after the reporting period, including a workforce reduction and debt-for-equity exchange - On October 9, 2024, the company initiated a reduction in force, affecting 46 employees (approximately 32% of its workforce), with estimated costs of $1.3 million to $1.5 million[159] - On December 9, 2024, Arrayed Acquisition Corp. purchased the Senior Secured Notes from the original holders, and a forbearance agreement was entered into[160] - On December 24, 2024, a debt-for-equity exchange occurred where the company issued 185,151,333 shares of common stock to Arrayed in exchange for the cancellation of $22.4 million in Secured Notes principal and $0.4 million in accrued interest. Arrayed became the owner of 95% of the company's common stock[161] - On January 7, 2025, the company issued a $5.0 million Senior Secured Convertible Promissory Note to Thieneman Properties, LLC, payable by April 7, 2025, for $5.75 million, convertible at $1.56 per share upon default[163] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, strategic shifts, and liquidity challenges Overview The company produces integrated 3D printing solutions and is realigning its strategy to focus on cash flow optimization - Velo3D produces fully integrated hardware and software solutions based on proprietary laser powder bed fusion (L-PBF) technology for high-value metal parts, enabling complex designs without support structures[167][169] - The company employs a 'land and expand' strategy, where customers initially validate the technology with a single machine and then purchase additional systems as the technology is integrated into their product roadmaps[170] - In October 2023, Velo3D initiated a strategic realignment to pivot from emphasizing revenue growth to optimizing free cash flow, maximizing customer success, reducing expenditures, and improving operational efficiency[172] Recent Trends and Strategic Realignment The company faces challenges from order delays and financial instability, prompting significant cost-reduction measures - Delayed shipments and customer order delays in the second half of 2023 led to decreased system sales and backlog, resulting in lower-than-expected annual revenue growth[171] - The strategic realignment includes expense reduction and cash savings initiatives such as workforce reductions (October 2023 and August 2024), streamlining facilities, managing working capital, and reducing capital expenditures and SG&A[172][173][176] - As of September 30, 2024, the company had approximately $1.6 million in cash and short-term investments and $10.2 million in accounts receivable, which is insufficient to meet short-term obligations of $17.7 million in accounts payable and $29.6 million in Secured Notes[174] - Financial instability has caused customers to delay orders and made it difficult to secure credit terms and volume discounts with suppliers, negatively impacting product margins[175] Recent Debt and Equity Transactions The company has engaged in significant debt restructuring and equity financing to manage its liquidity crisis - In November 2023, the company repaid $12.5 million of Secured Convertible Notes with a $15.0 million cash payment and exchanged the remaining notes for $57.5 million in Secured Notes and 285,715 shares of common stock[177] - In December 2023, the company sold approximately 255,472 shares for $5.0 million via an 'at-the-market' offering and issued 1,028,572 shares and warrants for $18.0 million in a registered direct offering[177] - On April 1, 2024, the company made cash payments totaling $10.5 million to redeem $8.8 million of Secured Notes principal and issued warrants to purchase 627,117 shares of common stock[177] - On April 10, 2024, the company sold 979,592 shares of common stock and accompanying warrants for $12.25 per share, generating approximately $12 million in gross proceeds[177] - On December 24, 2024, a debt-for-equity exchange with Arrayed Acquisition Corp. cancelled $22.4 million in Secured Notes principal and $0.4 million in accrued interest in exchange for 185,151,333 shares of common stock, making Arrayed a 95% owner[179] - On January 7, 2025, a $5.0 million Senior Secured Convertible Promissory Note was issued to Thieneman Properties, LLC, due April 7, 2025, with a $5.75 million repayment amount[180] Key Financial and Operational Metrics Revenue and bookings have declined, while customer concentration has significantly increased Key Metrics | Metric | Three Months Ended Sep 30, 2024 (In millions) | Three Months Ended Sep 30, 2023 (In millions) | Nine Months Ended Sep 30, 2024 (In millions) | Nine Months Ended Sep 30, 2023 (In millions) | | :--------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Revenue | $8 | $23 | $28 | $75 | | Bookings | $6 | $11 | $28 | $47 | | Backlog | $21 | $6 | $21 | $6 | - For the three months ended September 30, 2024, sales to the top three customers accounted for 82.0% of revenue, compared to 51.1% in the prior year, indicating increased customer concentration[186] - For the nine months ended September 30, 2024, sales to the top three customers accounted for 51.7% of revenue, compared to 22.1% in the prior year, with all top three customers being different from the comparable period in 2023[186] Continued Investment and Innovation The company continues to invest in customer-focused research and development despite financial challenges - The company remains customer-focused, investing in research and development to enhance its AM solutions and develop new product platforms and consumables based on customer demand[188] Macroeconomic Conditions and Other World Events Economic uncertainty and supply chain issues continue to pose risks to customer orders and gross margins - General economic and political conditions, including recessions, interest rates, inflation, and geopolitical conflicts, have introduced uncertainty in customer orders and supply chain constraints[189] - In 2022, supply chain challenges increased material and shipping costs, leading to delays and impacting gross margins; the company implemented improvements in 2023 and continues to focus on operational enhancements and strategic realignment in 2024[189] Climate Change Climate-related regulations and physical events could adversely affect business operations and costs - Material climate change-related legislation, regulations, and international accords could adversely affect the business through increased capital expenditures, indirect consequences (e.g., demand shifts, competition), and compliance costs[190] - Extreme weather and natural disasters, potentially increasing in intensity or frequency, may disrupt the company's operations or those of its suppliers and customers[190] Components of Results of Operations This section breaks down the key drivers of revenue, cost of revenue, operating expenses, and other financial items - Revenue is primarily derived from 3D Printer sales (structured fixed purchase price or sale and utilization fee model), recurring payment transactions (operating leases), and support services[191][192][193][197][199] - Cost of revenue includes manufacturing costs for 3D Printers, depreciation of leased equipment for recurring payments, and costs for spare parts, installation, and field service engineering for support services[200][201][202] - Gross profit and gross margin are influenced by product mix, average selling prices, material and shipping costs, production volumes, system reliability, and new product introductions[203] - Operating expenses are categorized into Research and Development, Selling and Marketing, and General and Administrative, primarily consisting of personnel costs, prototypes, marketing, professional fees, and allocated overhead[204][206][207] - Non-operating items include interest expense, gains/losses on fair value of warrants and contingent earnout liabilities, and other income/expense[208][209][210][211] - No provision for federal and state income taxes was recorded due to projected losses, with a full valuation allowance maintained on deferred tax assets[212] Results of Operations This section provides a detailed comparison of operational results for the three and nine months ended September 30, 2024 and 2023 Comparison of the Three Months Ended September 30, 2024 and 2023 Quarterly results show a sharp revenue decline offset by new licensing income, leading to higher gross profit but a larger net loss Three-Month Operational Comparison | Metric | Sep 30, 2024 (In thousands) | Sep 30, 2023 (In thousands) | Change (In thousands) | % Change | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | 3D Printer Revenue | $1,049 | $20,787 | $(19,738) | -95.0% | | Recurring Payment Revenue | $192 | $531 | $(339) | -63.8% | | Licensing Revenue | $5,000 | — | $5,000 | 100.0% | | Support Services Revenue | $2,006 | $1,849 | $157 | 8.5% | | Total Revenue | $8,247 | $23,167 | $(14,920) | -64.4% | | Cost of 3D Printer | $2,224 | $20,772 | $(18,548) | -89.3% | | Cost of Recurring Payment | $195 | $111 | $84 | 75.7% | | Cost of Support Services | $1,757 | $2,121 | $(364) | -17.2% | | Total Cost of Revenue | $4,176 | $23,004 | $(18,828) | -81.8% | | Gross Profit (Loss) | $4,071 | $163 | $3,908 | 2397.5% | | Research and Development | $4,438 | $9,490 | $(5,052) | -53.2% | | Selling and Marketing | $3,099 | $5,772 | $(2,673) | -46.3% | | General and Administrative | $15,279 | $10,763 | $4,516 | 42.0% | | Loss from Operations | $(18,745) | $(25,862) | $7,117 | -27.5% | | Interest Expense | $(10,949) | $(3,018) | $(7,931) | 262.8% | | Gain on Fair Value of Warrants | $9,221 | $1,587 | $7,634 | 481.0% | | Net Income (Loss) | $(22,858) | $(19,464) | $(3,394) | 17.4% | - Total revenue decreased by 64.4% to $8.2 million, primarily due to a 95.0% decrease in 3D Printer sales, partially offset by $5.0 million in new licensing revenue from SpaceX[218][220] - Gross profit increased significantly by 2397.5% to $4.1 million, driven by the lower cost associated with license revenue[232] - Research and development expenses decreased by 53.2% to $4.4 million, mainly due to reductions in purchased materials, headcount, and stock-based compensation[234] - General and administrative expenses increased by 42.0% to $15.3 million, primarily due to a $6.7 million increase in bad debt expense[238] - Interest expense surged by 262.8% to $10.9 million due to the issuance of Secured Notes[240] Comparison of the Nine Months Ended September 30, 2024 and 2023 Nine-month results show a significant revenue drop leading to a gross loss, despite reduced operating expenses and a lower net loss Nine-Month Operational Comparison | Metric | Sep 30, 2024 (In thousands) | Sep 30, 2023 (In thousands) | Change (In thousands) | % Change | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | :------- | | 3D Printer Revenue | $17,388 | $68,425 | $(51,037) | -74.6% | | Recurring Payment Revenue | $954 | $1,141 | $(187) | -16.4% | | Licensing Revenue | $5,000 | — | $5,000 | 100.0% | | Support Services Revenue | $5,035 | $5,422 | $(387) | -7.1% | | Total Revenue | $28,377 | $74,988 | $(46,611) | -62.2% | | Cost of 3D Printer | $22,362 | $62,992 | $(40,630) | -64.5% | | Cost of Recurring Payment | $742 | $893 | $(151) | -16.9% | | Cost of Support Services | $6,914 | $5,872 | $1,042 | 17.7% | | Total Cost of Revenue | $30,018 | $69,757 | $(39,739) | -57.0% | | Gross Profit (Loss) | $(1,641) | $5,231 | $(6,872) | -131.4% | | Research and Development | $14,026 | $32,145 | $(18,119) | -56.4% | | Selling and Marketing | $12,181 | $18,054 | $(5,873) | -32.5% | | General and Administrative | $32,867 | $30,850 | $2,017 | 6.5% | | Loss from Operations | $(60,715) | $(75,818) | $15,103 | -19.9% | | Interest Expense | $(20,309) | $(3,582) | $(16,727) | 467.0% | | Gain on Fair Value of Warrants | $31,911 | $(138) | $32,049 | -23223.9% | | Net Income (Loss) | $(51,344) | $(78,990) | $27,646 | -35.0% | - Total revenue decreased by 62.2% to $28.4 million, primarily due to a 74.6% decrease in 3D Printer sales, partially offset by $5.0 million in new licensing revenue[249][250][252] - Gross profit shifted from a gain of $5.2 million to a loss of $(1.6) million, a 131.4% decrease, mainly due to the outsized impact of fixed costs on lower 3D printer sales volume and higher production costs[263] - Research and development expenses decreased by 56.4% to $14.0 million, driven by reductions in purchased materials, headcount, and stock-based compensation[265] - Interest expense increased by 467.0% to $20.3 million due to the issuance of Secured Notes[272] - The change in fair value of warrants resulted in a significant gain of $31.9 million, compared to a loss of $0.1 million in the prior year, driven by changes in the company's stock price[274] Liquidity and Capital Resources The company faces a severe liquidity crisis with insufficient cash to meet short-term obligations, raising substantial doubt about its ability to continue as a going concern - As of September 30, 2024, the company had $1.6 million in cash and short-term investments and $10.2 million in accounts receivable, which is insufficient to cover short-term obligations of $17.7 million in accounts payable and $29.6 million in Secured Notes[279] - There is substantial doubt about the company's ability to continue as a going concern for the next twelve months, necessitating additional funding to sustain operations and satisfy obligations[282] - The company will need to engage in additional equity or debt financings to fund operations, provide working capital, and repay Secured Notes, but securing such financing may be difficult due to its financial condition[287][288] - Purchase commitments for parts and assemblies totaled $18.7 million, expected to be delivered throughout the remainder of 2024[283] Debt Facilities The company's outstanding Secured Notes carry a 6% interest rate and require significant redemption payments - As of September 30, 2024, the company had approximately $29.6 million in Secured Notes outstanding, bearing 6.00% interest per annum and maturing on August 1, 2026[290] - Repayment terms require paying 120% of the principal amount (Repayment Price) plus accrued interest, with quarterly redemption payments of $10.5 million for an $8.75 million principal amount[290][291] - The Third Note Amendment on July 1, 2024, deferred a $10.5 million partial redemption payment over ten equal monthly payments starting August 1, 2024[292] - On April 1, 2024, the company made cash payments totaling $10.5 million to redeem $8.8 million of Secured Notes principal and issued warrants to purchase 21,949,079 shares of common stock[292] Cash Flow Summary Cash used in operations decreased, while cash from investing and financing activities fell sharply Nine-Month Cash Flow Summary | Cash Flow Activity | Nine Months Ended Sep 30, 2024 (In thousands) | Nine Months Ended Sep 30, 2023 (In thousands) | Change (In thousands) | | :--------------------------------- | :------------------------------------ | :------------------------------------ | :-------------------- | | Net cash used in operating activities | $(30,465) | $(81,109) | $50,644 | | Net cash provided by investing activities | $6,644 | $31,055 | $(24,411) | | Net cash provided by financing activities | $958 | $76,213 | $(75,255) | - Net cash used in operating activities decreased by $50.6 million to $(30.5) million, driven by a lower net loss and an increase in net operating assets[298][299] - Net cash provided by investing activities decreased by $24.4 million to $6.6 million, primarily due to lower proceeds from maturities of available-for-sale investment securities[302][303] - Net cash provided by financing activities decreased by $75.3 million to $1.0 million, reflecting reduced proceeds from capital raises and debt facilities compared to the prior year[305][306] Off-Balance Sheet Arrangements The company had no off-balance sheet arrangements during the reporting periods - As of September 30, 2024, and December 31, 2023, the company did not have any off-balance sheet arrangements[308] Recent Accounting Pronouncements Information on recent accounting pronouncements is available in Note 2 of the financial statements - For a description of recent accounting pronouncements, including adoption dates and estimated effects, refer to Note 2, Summary of Significant Accounting Policies[310] Implications of Being an Emerging Growth Company The company utilizes the extended transition period for new accounting standards as an emerging growth company - The company is an 'emerging growth company' (EGC) and has elected to use the extended transition period for complying with new or revised financial accounting standards[311] - This EGC status allows for delayed compliance with certain accounting standards, potentially making financial results difficult to compare with non-EGCs or EGCs that opted out of the extended transition period[312] Implications of Being a Smaller Reporting Company The company's status as a smaller reporting company allows for reduced disclosure obligations - The company is a 'smaller reporting company' (SRC) and can take advantage of reduced disclosure obligations, including providing only two years of audited consolidated financial statements[314] Critical Accounting Policies and Significant Estimates Details on critical accounting policies are provided in Note 2 and the annual report - For critical accounting policies and significant estimates, refer to Note 2, Summary of Significant Accounting Policies, in this report and Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2023[316] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exempt from market risk disclosures as a smaller reporting company - The company is a smaller reporting company and is therefore not required to provide quantitative and qualitative disclosures about market risk[318] Item 4. Controls and Procedures Management concludes disclosure controls were ineffective due to material weaknesses in internal financial reporting controls - As of September 30, 2024, the company's disclosure controls and procedures were deemed not effective due to material weaknesses in internal control over financial reporting[320] - Identified material weaknesses include an ineffective control environment (insufficient personnel with accounting knowledge, inadequate segregation of duties), and ineffective controls over accounting for debt/equity instruments, inventory, and contract assets/liabilities[321][322] - These material weaknesses led to adjustments and revisions in previously issued financial statements and could result in material misstatements[323] - Remediation efforts include hiring additional accounting and IT personnel, providing training, engaging third-party assistance for control design, and formalizing roles and review responsibilities[325] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings that would significantly impact its business - The company is not currently a party to any material legal proceedings that arise in the ordinary course of business[330] Item 1A. Risk Factors This section updates risk factors, emphasizing going concern doubts and the critical need for additional capital - There is substantial doubt about the company's ability to continue as a going concern, which negatively impacts its ability to raise financing, sell products, and retain employees[332][333][334] - The company requires significant additional funding to execute its business plan and continue operations, which may not be available on acceptable terms, if at all, leading to potential liquidation or bankruptcy[338][339] - The Secured Notes contain restrictive covenants that limit the company's operations and require maintaining minimum cash levels, with a breach potentially leading to acceleration of indebtedness[340][341] - Servicing the Secured Notes requires significant cash, and the company's current operations do not generate sufficient cash flow to meet these obligations, necessitating additional financing or restructuring[345][347] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no sales under its ATM agreement and no unregistered sales of equity securities during the quarter - During the three months ended September 30, 2024, the company sold no shares pursuant to its At-the-Market (ATM) Sales Agreement[348] - There were no unregistered sales of equity securities or issuer purchases of equity securities reported[349][350] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is not applicable[351] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is not applicable[352] Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - No director or Section 16 officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended September 30, 2024[353] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including bylaws, warrant forms, and other agreements - The exhibits include various agreements and certifications, such as the Second Amended and Restated Bylaws, Form of New Warrant (July 1, 2024 and August 12, 2024), Letter Agreement (July 1, 2024), Warrant Inducement Agreement, Licensing and Support Services Agreement with SpaceX, Forbearance Agreement, Exchange Agreement, Senior Secured Convertible Promissory Note, Secured Guaranty, and Offer Letter for Arun Jeldi[355] Signatures The report is officially signed by the Chief Financial Officer of Velo3D, Inc - The report was signed by Hull Xu, Chief Financial Officer, Principal Financial Officer, and Authorized Officer of Velo3D, Inc. on January 14, 2025[359][361]