Velo3D - Earnings Call - Q1 2025

Transcript

Operator (participant)

Greetings, and welcome to the Velo3D First Quarter twenty twenty five Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to introduce James Carbonara.

Thank you, James. You may begin.

James Carbonara (Partner)

Thank you. I'd like to welcome everyone to Velo3D's first quarter twenty twenty five earnings call. During today's call, management will make forward looking statements that are subject to various risks and uncertainties that are described in the Safe Harbor slide of today's presentation, today's press release, as well as the company's twenty twenty four ten ks and additional SEC filings. Please see those documents for additional information regarding those factors that may affect these forward looking statements. Also, management will reference certain non GAAP metrics during today's call.

Please refer to the appendix of our presentation as well as today's earnings press release for the appropriate GAAP to non GAAP reconciliations. The company has posted a set of PowerPoint slides providing additional details on its strategic initiatives and financial performance on the Events and Presentation page of the company's Investor Relations website. As a reminder, a replay of this call will be available later today on the Investor Relations page of the company's website. With that, I'd like to turn the call over to Arun Jelvi, CEO of Velo3D. Arun?

Arun Jeldi (CEO & Director)

Thank you, James. Good afternoon and thank you for joining Velo3D's first quarter twenty twenty five earnings conference call. We are pleased to share that momentum is building across our business as we implement a series of focused strategic initiatives aimed at driving sustainable long term growth and positioning Velo3D for a return to profitability. Today, we'll walk you through the progress we have made towards transitioning to a high growth, high margin industrial technology platform. The first quarter is highlighted by a successful launch of Rapid Production Services, RPS offering, the signing of several key customer agreements and the achievement of a positive gross margin.

The launch of RPS represents a major milestone in our strategy to drive recurring revenue and deliver scalable iMX low volume production capabilities to industries where quality and repeatability are critical. Early customer response has been strong, particularly in defense and aerospace, where RPS addresses urgent needs for domestic flexible manufacturing. In addition to this launch, we secured several new long term customer agreements, including multi year contracts that strengthen our backlog and underscore confidence in our technology and service model. These wins further diversify our customer base and enhance revenue visibility moving forward. Importantly, we also delivered a positive gross margin in Q1, a key indicator that our cost optimization efforts and pricing strategies are gaining traction.

This milestone reflects our focus on financial discipline and sets a solid foundation as we work towards EBITDA profitability by 2026. There are multiple key investor highlights that make Velo a compelling investment. First, we are transforming into a highly attractive business model with multiple diversified revenue streams driven by our Rapid Production Solutions or RPS. This is built for improving profitability. We are shifting from a volume driven model to a value driven strategy, emphasizing the sale of advanced systems with significantly higher ASPs, enabling better margins and long term customer relationships.

Through this strategy, we are focused on maximizing profitability. We have diversified diversity of revenue streams. In addition to system sales, our revenue mix now includes rapid production solutions, a recurring service oriented offering enabling scalable parts production. And we also are stepping into services and software licensing, a predictable margin, assertive revenues and finally operational efficiency. The combination with our AIR Adhesive is accelerating our transformation by expanding our market reach and deepening our technological capabilities.

With minimum overlap in products and customers, the integration brings complementary strengths without disrupting our existing business. Array Adaptive's leadership in magnesium and aluminum three d printing enhances our material expertise, enabling us to address lightweight, high strength applications across aerospace, defense, motorsports and electric vehicles. This expands our total addressable market significantly. Together, our combined offering broadens the range of industries and applications we can serve, reinforcing our role as technology enabler across multiple sectors. Near the end of first quarter, in March, we officially launched our RPS, which we believe is future of manufacturing.

RPS addresses the critical industry demand to scale iMix low volume production. It is defined, designed to meet the growing demand for scalable high quality production parts. RPS has unmatched speed, repeatability and scalability. Our customers can leverage our production cells for surge capacity to scale rapidly and build U. S.-based resilient supply chain for production parts with our significant capital investment.

Market acceptance of RPS has been overwhelmingly positive. Since the official launch of RPS, backlog for this offering has tripled compared to the prior quarter. More than 75% of first quarter bookings were from new customers. Importantly, approximately 50% of RPS demand is from the defense sector, reinforcing our strategic position in high value, long cycle markets. Since the official launch of RPS, we have made significant commercial progress signing multiple new agreements with customers for this new offering.

We have also made significant commercial progress with key agreements, which I'd like to point out today. We signed a five year fifteen million dollars master service agreement with Momentus to deliver production parts through our RPS offering. We entered into a five year exclusive supply agreement with Amiro, advancing reshoring efforts and accelerating adoption of additive manufacturing in critical sectors. And most recently, we signed an agreement with Ohio Ordinance Works to provide RPS in support of its three d printed military weapons development initiative. These wins reflect growing momentum for RPS as a strategic growth engine and position us well for long term recurring revenue expansion with high margin potential.

Important for the investment community, not only is RPS a high demand commercial offering, it is also a powerful recurring revenue engine. Projects are typically long term generating consistent cash flow and attractive margins. As a part of vertically integrated strategy, we are expanding partnerships and bringing more of the value chain in house. This not only reduces our cost of goods, but also improves gross margins. Gross margin for the first quarter was 7.5% compared to 48.8% in the first quarter of twenty twenty four.

The company expects gross margin to improve throughout 2025 as a result of operational efficiencies and an anticipated ramp up of its Rapid Production Solutions business. Our goal is for RPS to contribute 40% of total revenue by 2026, With additional upside from volume growth and value added services, importantly, this does not signal a departure from system sales. Instead, we are enhancing Velo's value proposition by becoming a full service RPS solution provider. With our business model, we see a clear path to profitability by first half of twenty twenty six. We are laser focused on achieving EBITDA profitability in first half of that year.

Key drivers include improved average selling prices ASPs, higher gross margins from system sales, scalable revenue, recurring revenue from RPS and services, and operational leverage as revenue grows with limited cost expansion. Our more agile integrated organizational structure will support this transition. We are not chasing growth at any cost. We are building sustainable profitable momentum. In addition to the pursuit of growth, we are strengthening our business fundamentals by improving operational efficiency through more diligent management of costs and supply chain optimization positioning us for consistent cash flow generation and sets a clear path to long term profitability.

Gross margin for the first quarter was 75% compared to the previous year 28.8% for the first quarter of twenty twenty four. Taking a look at the commercial market, there are several favorable industry tailwinds that make Velo3D a compelling investment opportunity. We are uniquely positioned at the intersection of major industry and geopolitical shifts. As the momentum for reshoring grows, driven by U. S.

Policy initiatives and global supply chain realignments, onshore manufacturing is rapidly accelerating, particularly in strategic sectors like aerospace and defense. As the only U. S.-based provider of large format high end laser powder bed fusion systems, our capabilities directly support federal priorities around reshoring, national security and technological sovereignty. As reassuring accelerates, we have a strong first mover advantage with an established presence and proven technology, which we believe gives us a head start in winning long term contracts. Importantly, we are not just benefiting from reassuring momentum.

We are helping define what secure, sovereign, next generation manufacturing looks like. In short, Velo3D isn't just riding the wave. We are shaping the future of resilient, secure U. S. Industrial leadership.

To capture a meaningful share of the growing market opportunities fueled by favorable industry tailwinds, we're executing a highly targeted go to market strategy. This approach is designed to align our capabilities with sectors experiencing significant demand for innovation, performance and advanced materials. The Department of Defense and Prime Contractors, where lightweight, high strength components are critical for mission success and domestic manufacturing capabilities are increasingly prioritized. The space and aerospace industries, which are undergoing rapid transformation with the need of scalable production of complex parts that meet stringent performance and regulatory requirements. The semiconductor sector where precision, reliability and material innovation are essential to meet the demands of next generation chip manufacturing and equipment.

By concentrating our efforts on these high potential verticals, we are positioning ourselves not only win near term business, but to become a long term strategic partner in sectors undergoing significant technological evolution. We are on a robust growth trajectory supported by a strong pipeline and deep engagement across defense primes, aerospace OEMs, semiconductor manufacturers and energy leaders. There is a high visibility into future revenue with long cycle procurement and high switching costs. Our installed base leads to recurring revenue opportunities and high consumer retention. Our near term growth is underpinned by real demand with revenue growth of more than 30% in 2025.

We had a firm backlog of $18,000,000 as of the end of the first quarter. That is committed orders, service contracts, and RPS projects that we expect to deliver over the next few months. I also want to highlight our improved financial position, which now supports scalable long term growth. We have taken significant steps to solidify our balance sheet including reducing our debt and eliminating nearly all senior debt and warrant liabilities, effectively removing financial overhang, substantially lowering interest expense. Furthermore, we secured $15,000,000 in bridge financing, providing the runway needed to execute on near term growth and integration plans with confidence.

Finally, we believe there is a clear path to profitability. We are laser focused on achieving EBITDA profitability in first half of twenty twenty six. This will be driven by higher average selling prices and improved gross margins from system sales, scalable recurring revenue from our PSN services, operating leverage as we grow revenue with limited cost expansion and a more agile integrated organizational structure. I will now turn the call over to Harold Zhu to discuss our first quarter financial performance in more detail.

Hull Xu (CFO)

Thank you, Arun. First quarter revenue was $9,300,000 down 4.8% compared to the year ago quarter. The decrease was driven by a modest decrease in the system sales as we focus on high value customers and maintaining ASP. RPS revenue has started to meaningfully contribute to total revenue and we expect RPS revenue to continue to increase as a percentage of total revenue. Gross margin for the first quarter was 7.5% compared to a negative gross margin in the year ago quarter.

The improvement is primarily due to a higher absorption of fixed costs. We expect gross margin to improve as we go through 2025 as a result of operational efficiency initiatives that we started to implement last year and continue to implement this year. As RPS revenue begins to ramp, we expect our overall margin to improve as we work through the initial set of costs associated with new parts. Non GAAP operating expenses, which excludes stock based compensation, declined year over year to $8,800,000 as compared to 14,100,000 in the first quarter of twenty twenty four. This decrease reflects a reduction in all expense categories and savings related to our cost reduction initiatives.

Sequentially, non GAAP operating expenses were also down compared to $18,700,000 in the fourth quarter of twenty twenty four. In 2025, we are making investments in certain areas to ensure the delivery of our financial plan and the high quality of services that our customers have come to expect from ReLo three d. Even with these planned investments, we expect non GAAP operating expenses as a percentage of revenue for the full year to be lower in 2025 than they were in 2024. GAAP net loss for the quarter was $25,400,000 compared to a net loss of $28,300,000 in the year ago quarter. Non GAAP net loss for the quarter was $8,900,000 compared to $20,200,000 in the year ago quarter and $22,200,000 in the fourth quarter of twenty twenty four.

Non GAAP net loss excludes stock based compensation of $4,100,000 loss on fair value of warrants of $1,000,000 and loss on warrant cancellation of 11,400,000.0 Adjusted EBITDA for the first quarter of twenty twenty five was negative $6,900,000 compared to negative $11,700,000 in the first quarter of twenty twenty four and negative $14,600,000 in the fourth quarter of twenty twenty four. As of 03/31/2025, we had a backlog of $18,000,000 This compares to $16,000,000 at the end of the year. This backlog represents committed orders that we expect to deliver over the next twelve months. In terms of our balance sheet, as at the end of the first quarter, we had a cash and cash equivalent of 3,900,000.0 up from $1,200,000 at the end of twenty twenty four. With the warrant exchange transaction completed, we significantly reduced the future liabilities and preserved cash for operations.

We are reiterating our 2025 full year guidance today. We expect revenue to be in the range of $50,000,000 to $60,000,000 gross margin to improve sequentially throughout the year, exiting 2025 at or above 30%. We expect full year 2025 non GAAP operating expenses to be between $40,000,000 and $50,000,000 and capital expenditure of $15 to $20,000,000 for the year. In conclusion, we remain focused on executing our business strategy with a clear path to profitability on an adjusted EBITDA basis in 2026. With that, operator, we can open the call to questions.

Operator (participant)

Thank you. We will now be conducting a question and answer All right. It doesn't look like there are any questions at this time. I'd like to turn the call back to Arun Jaldi for closing remarks.

Arun Jeldi (CEO & Director)

Thank you. Vuelo three d is entering a transformative growth phase driven by strong commercial traction, enhanced financial discipline, and solid operational execution. Our q one results demonstrate this momentum. The successful launch of our recurring payments, recurring RPS system is accelerating the shift to scalable recurring revenue model. Demand remains strong in our core markets, particularly aerospace and defense where we have secured multiple long term high value contracts reinforcing both our backlog and our technological leadership.

We're also pleased to report a positive gross margin in Q1, an important milestone that positions us well on the path to sustain profitability. In addition, we have removed warrant liabilities from our balance sheet further strengthening our financial position and simplifying our capital structure. With a validated business model and increasing market adoption, Velo3D is well positioned to deliver long term shareholder value. And thank you for trusting in us and we want to serve you and make sure that we value your time and your investments in our Velo three d. Have a great day.

Operator (participant)

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.