Velo3D(VLD) - 2024 Q4 - Annual Report

Explanatory Note – Certain Defined Terms This section defines key terms and acronyms used throughout the Annual Report to ensure clarity and consistent understanding - This section defines key terms and acronyms used throughout the Annual Report, such as '2022 Private Warrant,' 'ATM Offering,' 'Board,' 'Closing,' 'Exchange Act,' 'GAAP,' 'IPO,' 'Secured Notes,' and 'Velo3D,' to ensure clarity and consistent understanding[7][8][9][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27][28][29][30][31][32][33][34][35][36][37][38] Market and Industry Data Market and industry information relies on third-party sources and company assumptions, subject to inherent limitations and potential changes - Information regarding the market and industry is based on third-party sources and company assumptions, which are subject to numerous limitations, risks, and potential changes[40][41] - Cited Market and Industry Reports include analyses on Investment Casting, Global Metal Forging, Metal Machining, Braze Alloys, and Additive Manufacturing/3D printing[42] Special Note Regarding Forward-Looking Statements The report contains forward-looking statements based on current expectations, which involve risks and uncertainties that may cause actual results to differ materially - The report contains forward-looking statements based on current expectations and beliefs, which involve risks and uncertainties that may cause actual results or performance to differ materially[44][45] - Examples of forward-looking statements include those related to market opportunity, growth strategy, R&D advancements, financing ability, regulatory developments, and expected financial performance[46] Summary of Risk Factors The company faces significant risks including operating losses, going concern doubts, customer concentration, intense competition, operational challenges, and intellectual property issues - The company has a history of operating losses and there is substantial doubt about its ability to continue as a going concern, requiring additional capital that may not be available on acceptable terms[50][52] - Key business risks include reliance on a limited number of customers, significant delays in product commercialization, intense competition in the additive manufacturing industry, and challenges in managing rapid growth[51][52][55] - Operational risks encompass potential defects in additive manufacturing systems, dependence on independent contractors and third-party suppliers, and vulnerability of the primary facility to disruptions[53][55] - Intellectual property risks involve the failure to protect IP rights and potential third-party lawsuits alleging infringement[56][59] PART I This part covers the company's business operations, risk factors, unresolved staff comments, cybersecurity, properties, legal proceedings, and mine safety disclosures Item 1. Business Velo3D is an additive manufacturing company providing integrated hardware and software solutions based on proprietary laser powder bed fusion technology for complex metal parts - Velo3D produces fully integrated hardware and software solutions using proprietary Laser Powder Bed Fusion (L-PBF) technology, which significantly reduces or eliminates the need for support structures in metal 3D printing[62][68] - The Sapphire family of systems (Sapphire, Sapphire 1MZ, Sapphire XC, Sapphire XC 1MZ) enables the production of complex metal parts for high-value applications in space, aviation, defense, automotive, energy, and industrial markets[64][85][89][90][91] - The company's growth strategy is a 'land and expand' approach, focusing on uncontested market segments by validating technology with initial sales and then integrating solutions into customer processes for repeat purchases[67][74][75][76] - Key components of the integrated solution include Flow print preparation software, Sapphire metal AM printers, Assure quality assurance software, and the Intelligent Fusion manufacturing process[71][88][94][96] - As of December 31, 2024, Velo3D owned 63 issued patents (43 U.S., 20 foreign) and 51 publicly pending patent applications, with issued patents expiring between 2035 and 2047[83][114] - Space Exploration Technologies Corp. ('SpaceX') was the largest customer, accounting for 23.0% of revenue in 2024, a significant increase from 4.0% in 2023[98] Research and Development Expenses | Year Ended December 31, | R&D Expenses (in millions) | | :---------------------- | :------------------------- | | 2024 | $17.1 | | 2023 | $42.0 | - The company had 105 full-time employees as of December 31, 2024, a reduction from 237 in 2023, with a focus on talent acquisition, development, and retention[115][117] Item 1A. Risk Factors This section details significant risks that could adversely affect the company's business, financial condition, and operating results, including going concern issues and customer reliance - The company has a history of operating losses ($82.3 million in 2024 and $133.3 million in 2023) and anticipates incurring operating losses and negative cash flow in the near-term, raising substantial doubt about its ability to continue as a going concern[130][132] - Sales to the top three customers accounted for 47.0% of revenue in 2024 (up from 24.5% in 2023), indicating a high reliance on a limited customer base, with SpaceX being the largest customer[136][137] - The company expects to require additional financing (equity or debt) to fund operations and satisfy obligations, but obtaining capital on acceptable terms may be difficult due to its financial condition and going concern issues[140][141] - The additive manufacturing industry is characterized by rapid technological change and intense competition, requiring continuous product development and innovation to remain competitive[169][171] - Material weaknesses in internal control over financial reporting have been identified, including an ineffective control environment, insufficient segregation of duties, and inadequate controls over debt, equity, inventory, and contract accounting[187][189][190] - As of December 24, 2024, an entity controlled by the Chief Executive Officer, Arun Jeldi, owns approximately 95% of the outstanding common stock, granting him significant influence over company matters[263] - The company's common stock is currently quoted on the OTC Pink, which may limit liquidity and price compared to national securities exchanges[284] Item 1B. Unresolved Staff Comments This item states that there are no unresolved staff comments from the SEC - Not applicable[299] Item 1C. Cybersecurity Velo3D's Board oversees a comprehensive cybersecurity risk management program, including technical safeguards, incident response, and employee training, with no material incidents in 2024 - The Board, supported by the Audit Committee, oversees cybersecurity risk management, receiving quarterly reports and prompt updates on material incidents[301][309] - The cybersecurity program includes technical safeguards (firewalls, intrusion prevention, access controls), incident response and recovery plans, and a dedicated Security Incident Response Team (SIRT)[303][304] - Mandatory annual training is provided to personnel regarding cybersecurity threats and evolving information security policies[307] - The company is not aware of any material risks from cybersecurity threats in 2024 that have materially affected or are reasonably likely to materially affect its business strategy, operations, or financial condition[312] Item 2. Properties Velo3D's global corporate headquarters and primary manufacturing facility are in Fremont, California, with R&D leases in Campbell, CA, terminated in late 2024 - The global corporate headquarters and primary manufacturing facility (80,000+ sq ft) are located in Fremont, California[314][315] - Leases for two Research and Development facilities in Campbell, CA (17,200 sq ft and 5,000 sq ft) were terminated in the second half of 2024[315] Item 3. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[316] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[317] PART II This part covers market information for common equity, management's discussion and analysis of financial condition, financial statements, and controls and procedures Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Velo3D's common stock is quoted on the OTC Pink, with over 195 holders of record as of March 27, 2025, and the company has never paid cash dividends - The company's common stock is currently quoted on the OTC Pink under the symbol 'VLDX', having previously traded on OTCQX and NYSE[319] - As of March 27, 2025, there were over 195 holders of record of the company's common stock[320] - The company has never declared or paid cash dividends on its common stock and intends to retain all available funds and future earnings for business operations[321] Item 6. [Reserved] This item is reserved and contains no information - Reserved[326] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Velo3D's financial condition and results of operations, highlighting revenue trends, costs, and liquidity challenges, including going concern doubts Recent Developments Recent developments include a strategic business review, a debt-for-equity exchange, issuance of Senior Secured Convertible Promissory Notes, a warrant exchange, and a 1-for-35 reverse stock split - A strategic business review concluded on December 24, 2024, with Arrayed Notes Acquisition Corp. purchasing Senior Secured Notes and subsequently exchanging debt for equity, resulting in Arrayed owning approximately 95% of the company's issued and outstanding common stock[335][336] - The company issued a $5.0 million Senior Secured Convertible Promissory Note in January 2025 (due April 7, 2025) and a $10.0 million note in February 2025 (due six months from funding)[337][338] - A warrant exchange was completed on February 24, 2025, converting an aggregate of 4,665,793 warrants into 14,852,379 shares of common stock at an exchange ratio of three acquired shares for each warrant[339][801] - A 1-for-35 reverse stock split of the company's issued and outstanding common stock was implemented effective June 13, 2024[340] Key Financial and Operational Metrics The company evaluates revenue, bookings, and backlog, which saw declines in revenue and bookings in 2024, while backlog increased, and customer concentration remained high Key Financial and Operational Metrics (in millions) | Metric | 2024 | 2023 | Change (YoY) | | :------- | :--- | :--- | :----------- | | Revenue | $41 | $77 | -$36 (-46.8%) | | Bookings | $31 | $56 | -$25 (-44.6%) | | Backlog | $16 | $13 | +$3 (+23.1%) | - Sales to the top three customers accounted for 47.0% of revenue in 2024, compared to 24.5% in 2023, indicating continued high customer concentration[347] - The Sapphire XC 1MZ system, first shipped at the end of 2022, has capacity to make parts 400% larger and reduce production costs per part by approximately 65% to 80% compared to the original Sapphire system[344] Components of Results of Operations This section outlines revenue streams from 3D Printer sales, recurring payments, and support services, along with cost components, operating expenses, and other financial items - Revenue is primarily derived from 3D Printer sales, recurring payments (operating leases), support services, and other revenue, such as licensing agreements[352][354][358][360][361] - 3D Printer sales include both structured fixed purchase prices and a phased-out sale and utilization fee model, which represented 0% of revenue in 2024 and 3% in 2023[355][452] - Cost of revenue includes manufacturing costs for 3D Printers, depreciation of leased equipment, and costs for spare parts, installation, and field service for support services[362][363][364] - Operating expenses are categorized into Research and Development, Selling and Marketing, and General and Administrative[366][367][368] - Other financial items include interest expense, gains/losses on fair value of warrants, contingent earnout liabilities, debt derivatives, and loss on debt extinguishment[369][370][371][372][373] Results of Operations (2024 vs. 2023) In 2024, total revenue decreased significantly, but gross loss and loss from operations improved, driven by reduced R&D expenses and increased G&A due to bad debt Consolidated Statements of Operations (Selected Items, in thousands) | Metric | 2024 | 2023 | Change ($) | Change (%) | | :-------------------------------------- | :---------- | :---------- | :---------- | :---------- | | Total Revenue | $41,003 | $77,443 | $(36,440) | (47.1)% | | 3D Printer Revenue | $25,368 | $68,938 | $(43,570) | (63.2)% | | Support Services Revenue | $9,581 | $6,829 | $2,752 | 40.3% | | Other Revenue | $5,000 | $0 | $5,000 | NS | | Total Cost of Revenue | $43,088 | $103,710 | $(60,622) | (58.5)% | | Gross Loss | $(2,085) | $(26,267) | $24,182 | (92.1)% | | Research and Development Expenses | $17,108 | $42,031 | $(24,923) | (59.3)% | | Selling and Marketing Expenses | $13,808 | $23,229 | $(9,421) | (40.6)% | | General and Administrative Expenses | $49,346 | $41,727 | $7,619 | 18.3% | | Loss from Operations | $(82,347) | $(133,254) | $50,907 | (38.2)% | | Interest Expense | $(15,968) | $(9,722) | $(6,246) | 64.2% | | Gain on Fair Value of Warrants | $32,094 | $2,338 | $29,756 | 1272.7% | | Net Loss | $(73,297) | $(135,139) | $61,842 | (45.8)% | - The decrease in 3D Printer sales was primarily due to lower systems sold, lower production volumes, and discounted pricing, partially offset by a shift to higher-priced Sapphire 1MZ, XC, and XC 1MZ systems[378] - Other revenue increased to $5.0 million in 2024, attributed to a licensing agreement with SpaceX for certain patents and technologies[381] - Research and development expenses decreased by $24.9 million, primarily due to the completion of Sapphire 1MZ, XC, and XC 1MZ system development in 2023 and a reduction in new R&D projects in 2024 as part of strategic realignment[396][397] - General and administrative expenses increased by $7.6 million, mainly due to a $13.2 million increase in bad debt expense and a $4.4 million increase in public company-related advisory, legal, accounting fees, and insurance[403] Liquidity and Capital Resources Velo3D faces substantial doubt about its ability to continue as a going concern due to low cash and an accumulated deficit, necessitating additional financing and expense reductions Cash, Cash Equivalents, and Short-Term Investments (in millions) | Metric | 2024 | 2023 | | :----------------------------------- | :---- | :---- | | Cash, cash equivalents & short-term investments | $1.2 | $31.1 | | Accumulated deficit | $430.3| $357.0| - There is substantial doubt about the company's ability to continue as a going concern due to insufficient liquidity to meet operating needs for the twelve-month period following the filing date[415] - The company expects to require additional financing (equity or debt) to fund operations, repay Secured Convertible Notes, provide working capital, and support product development and infrastructure[416] - A debt-for-equity exchange on December 24, 2024, cancelled $22.4 million in principal and $0.4 million in accrued interest of Secured Notes, leaving $5.0 million outstanding[422] - In January and February 2025, the company issued $15.0 million in Senior Secured Convertible Promissory Notes[423][424] Contractual Obligations as of December 31, 2024 (in thousands) | Obligation Type | Less than 1 year | 1 – 3 years | 3 – 5 years | Total | | :-------------------------- | :--------------- | :---------- | :---------- | :------- | | Operating leases | $2,390 | $7,320 | $8,779 | $18,489 | | Debt principal, interest & fees | $5,993 | $0 | $0 | $5,993 | | Purchase commitments | $3,200 | $0 | $0 | $3,200 | | Total | $11,583 | $7,320 | $8,779 | $27,682| Cash Flow Summary (in thousands) | Cash Flow Activity | 2024 | 2023 | | :-------------------------------------- | :---------- | :----------- | | Net cash used in operating activities | $(32,677) | $(105,636) | | Net cash provided by investing activities | $7,767 | $38,891 | | Net cash provided by financing activities | $1,460 | $59,261 | Critical Accounting Policies and Significant Estimates This section details critical accounting policies and significant estimates for revenue recognition, stock-based compensation, warrants, earnout liabilities, and fair value measurements, requiring substantial judgment - Revenue recognition follows a five-step model, allocating transaction price to performance obligations (3D Printers and Support Services) based on relative standalone selling price (SSP)[447][448][449] - 3D Printer revenue is recognized at the point of transfer of control to the customer at shipment, while Support Services revenue is recognized evenly over the contract period[450][458] - Common Stock Warrants are classified as derivative liabilities and are remeasured at fair value at each balance sheet date, with changes recognized in the consolidated statements of operations[477] - Contingent earnout liabilities for Earnout Shares are accounted for as liabilities and subsequently remeasured at fair value using a Monte Carlo simulation model[478] - Stock-based compensation for stock options and restricted share units (RSUs) is measured at fair value on the grant date and expensed ratably over the service period, using Black-Scholes or Monte-Carlo valuation models[462][463][464][590][591][592] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Velo3D is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it is a smaller reporting company[481] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2024 and 2023, including balance sheets, statements of operations, cash flows, and equity, with auditors highlighting going concern doubts - Independent auditors' reports (Frank, Rimerman + Co. LLP for 2024 and PricewaterhouseCoopers LLP for 2023) express an opinion on the fair presentation of the consolidated financial statements[487][495] - Both auditors' reports highlight substantial doubt about the company's ability to continue as a going concern due to incurred losses from operations and negative cash flows from operations since inception[488][496] Consolidated Balance Sheets (Selected Items, in thousands) | Metric | 2024 | 2023 | | :----------------------------------- | :---------- | :---------- | | Cash and cash equivalents | $1,212 | $24,494 | | Short-term investments | $0 | $6,621 | | Total current assets | $57,724 | $113,024 | | Total assets | $89,180 | $153,799 | | Total current liabilities | $38,000 | $48,671 | | Long-term debt – less current portion | $0 | $11,941 | | Total liabilities | $49,516 | $85,459 | | Total stockholders' equity | $39,664 | $68,340 | Consolidated Statements of Operations and Comprehensive Loss (Selected Items, in thousands) | Metric | 2024 | 2023 | | :-------------------------------------- | :---------- | :---------- | | Total Revenue | $41,003 | $77,443 | | Gross loss | $(2,085) | $(26,267) | | Loss from operations | $(82,347) | $(133,254) | | Net loss | $(73,297) | $(135,139) | | Basic Net loss per share | $(5.77) | $(23.97) | | Diluted Net loss per share | $(5.77) | $(23.97) | Consolidated Statements of Cash Flows (Selected Items, in thousands) | Cash Flow Activity | 2024 | 2023 | | :-------------------------------------- | :---------- | :----------- | | Net cash used in operating activities | $(32,677) | $(105,636) | | Net cash provided by investing activities | $7,767 | $38,891 | | Net cash provided by financing activities | $1,460 | $59,261 | - The company's accumulated deficit increased to $430.3 million in 2024 from $357.0 million in 2023[502] - The company adopted ASU 2023-07, Segment Reporting, retrospectively for the year ended December 31, 2024, requiring enhanced disclosures for its single reportable segment[611] - Material weaknesses in internal control over financial reporting were identified, including an ineffective control environment, insufficient segregation of duties, and inadequate controls over debt, equity, inventory, and contract accounting[807][810][811] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[802] Item 9A. Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2024, due to material weaknesses in internal control over financial reporting, with remediation efforts underway - Disclosure controls and procedures were deemed not effective as of December 31, 2024, due to identified material weaknesses in internal control over financial reporting[804] - Material weaknesses include an ineffective control environment, insufficient segregation of duties, and inadequate controls over accounting and disclosure for debt and equity instruments, inventory, and contract assets/liabilities[807][810][811] - Remediation measures have begun, including hiring additional accounting and IT personnel, providing training, and designing/implementing controls for segregation of duties and IT general controls[812] - As an emerging growth company, Velo3D is exempt from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act[806] Item 9B. Other Information This section states that there are no Rule 10b5-1 Plan Adoptions and Modifications to report - None[815] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[816] PART III This part covers information regarding directors, executive officers, corporate governance, executive compensation, security ownership, related transactions, and principal accountant fees Item 10. Directors, Executive Officers and Corporate Governance The company maintains a Code of Business Conduct and Ethics, with further information incorporated by reference from the 2025 Annual Meeting of Stockholders Proxy Statement - The company maintains a Code of Business Conduct and Ethics applicable to all employees, independent contractors, and board of directors, published on its Investor Relations website[818] - Further information required by this item will be included in the Proxy Statement for the 2025 Annual Meeting of Stockholders and is incorporated by reference[819] Item 11. Executive Compensation Information regarding executive compensation will be included in the company's Proxy Statement for the 2025 Annual Meeting of Stockholders and is incorporated by reference - Information required by this item will be included in the Proxy Statement to be filed with the SEC, within 120 days of the year ended December 31, 2024, and is incorporated herein by reference[820] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership will be included in the company's Proxy Statement for the 2025 Annual Meeting of Stockholders and is incorporated by reference - Information required by this item will be included in the Proxy Statement to be filed with the SEC, within 120 days of the year ended December 31, 2024, and is incorporated herein by reference[821] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence, will be included in the company's Proxy Statement for the 2025 Annual Meeting of Stockholders and is incorporated by reference - Information required by this item will be included in the Proxy Statement to be filed with the SEC, within 120 days of the year ended December 31, 2024, and is incorporated herein by reference[822] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services will be included in the company's Proxy Statement for the 2025 Annual Meeting of Stockholders and is incorporated by reference - Information required by this item will be included in the Proxy Statement to be filed with the SEC, within 120 days of the year ended December 31, 2024, and is incorporated herein by reference[823] PART IV This part includes exhibits, financial statement schedules, a Form 10-K summary, and required signatures Item 15. Exhibits and Financial Statement Schedules This section lists the company's consolidated financial statements and a detailed exhibit index of various corporate documents - The section includes the company's consolidated financial statements and an exhibit index[826][827][828][829] - The exhibit index details various corporate documents, such as business combination agreements, certificates of incorporation, warrant agreements, securities purchase agreements, and employment agreements[830][831][833] Item 16. Form 10-K Summary This item states that no Form 10-K Summary is provided - None[836] Signatures This section contains the required signatures for the Form 10-K report from key officers and directors, dated March 31, 2025 - The report is signed by the Chief Financial Officer, Chief Executive Officer, Chief Operating Officer, and other Directors, dated March 31, 2025[839][840]