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VI

Velo3D, Inc. (VLD)·Q3 2023 Earnings Summary

Executive Summary

  • Q3 2023 revenue was $23.8M (revised from $24.1M), up 24.6% YoY, with gross margin 6.3% and GAAP diluted EPS of $(0.09); revenue and EPS missed Street consensus of $27.0M and $(0.08), respectively.
  • Management announced a strategic realignment to pivot from top-line growth to free-cash-flow optimization, cost reductions, and operational efficiency, targeting a ~40% reduction in overall cost structure by Q1 2024 and FCF breakeven by Q2 2024.
  • FY2023 guidance cut: revenue to $91–$103M (from $105–$115M) and gross margin to 9%–12% (from 14%–18%); Q4 2023 revenue outlook $15–$27M and GM 5%–17%.
  • Post-release, the company disclosed a $0.2M revenue deferral, noted expected covenant non-compliance on senior secured convertible notes, reclassified debt as current, and indicated substantial doubt about going concern absent a waiver/amendment. This is a key stock-reaction risk catalyst.

What Went Well and What Went Wrong

  • What Went Well

    • Year-over-year revenue growth of 26% in Q3, driven by higher ASPs and favorable Sapphire XC mix. “We posted year over year revenue growth of 26%.”
    • Sequential free cash flow improvement of ~30% and strong quarter-end liquidity of $72M cash and investments.
    • Non-GAAP operating expenses declined ~10% sequentially to $20.0M; management expects ~40% quarterly opex decline by Q1 2024 via realignment.

  • What Went Wrong

    • Sequential gross margin compression to 7.2% before revision (6.3% after revision) due to lower system volume, increased inventory costs, and product-mix-driven ASP pressure; Q3 bookings came in below plan.
    • FY2023 guidance reduced (revenue and GM), with Q4 set as a transition period amid realignment and delayed bookings.
    • Subsequent disclosure of covenant default risk and going-concern doubt if noteholders do not waive or amend terms; net loss remained high at $(17.1)M.

Financial Results

MetricQ3 2022Q1 2023Q2 2023Q3 2023 (revised)
Revenue ($USD Millions)$19.115 $26.814 $25.134 $23.800
Gross Margin (%)(0.6%) 10.9% 11.9% 6.3%
GAAP Diluted EPS ($)$(0.41) $(0.19) $(0.12) $(0.09)
Non-GAAP Net Loss per Diluted Share ($)$(0.12) $(0.09) $(0.10) $(0.10)
Q3 2023 vs Street ConsensusConsensusActual (revised)Surprise
Revenue ($USD Millions)$27.01 $23.80 Miss ($3.21M)
GAAP Diluted EPS ($)$(0.08) $(0.09) Miss $(0.01)
Revenue Breakdown ($USD Millions)Q3 2022Q1 2023Q2 2023Q3 2023
3D Printer$16.537 $24.575 $23.190 $21.678
Recurring Payment$1.183 $0.575 $0.035 $0.531
Support Services$1.395 $1.664 $1.909 $1.849
Total Revenue$19.115 $26.814 $25.134 $24.058
Note: The 11/15/23 8-K revision reduced Q3 revenue by ~$0.2M; segment detail reflects 11/6/23 exhibit totals.
KPIs and Operating MetricsQ3 2022Q1 2023Q2 2023Q3 2023
Operating Expenses ($M)$27.832 $27.048 $28.686 $26.709
Non-GAAP Operating Expenses ($M)$22.497 $20.812 $22.151 $20.002
Adjusted EBITDA ($M)$(19.787) $(15.976) $(17.527) $(16.338)
Cash & Investments ($M)$113 $64 $47 $72
Bookings ($M)—$20 — (record demand; 90% new customers) $11

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)FY 2023$105–$115 $91–$103 Lowered
Gross Margin (%)FY 202314%–18% (Q4 GM 21%–25%) 9%–12% Lowered
Revenue ($M)Q4 2023—$15–$27 New (transition quarter)
Gross Margin (%)Q4 202321%–25% (prior outlook embedded in FY guide) 5%–17% (excl. non-recurring) Lowered
Free Cash FlowFY 2024—Breakeven by Q2 2024 New target
Cost StructureQ1 2024—~40% reduction (opex + facilities) New target

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2023)Current Period (Q3 2023)Trend
Strategic realignment and cost reductionFocus on margin expansion, opex reduction; reiterated FY guide; manufacturing efficiency improving. Pivot from growth to FCF optimization; target ~40% cost reduction by Q1’24; bookings below plan; guidance cut. Deteriorating near-term; aggressive restructuring to stabilize
Manufacturing efficiency & materials costsSapphire XC cycle times improving; lower BOM and efficiency driving GM. GM down on lower volume, higher inventory costs, and mix; expects GM improvement contingent on ASP expansion, material reduction, and manufacturing efficiency. Mixed: near-term pressure, targeted improvement
Bookings/backlog and demandQ1 bookings $20M; Q2 bookings delays led to guide cut; pipeline expanding. Q3 bookings $11M; rebuilding backlog via new GTM and service strategies; expect bookings growth in Q4 for FY2024 deliveries. Softness in Q3; tentative recovery expected
Liquidity and financingStrong liquidity ($64M in Q1, $47M in Q2); raised senior secured convertible notes. $72M cash & investments; later disclosed covenant default risk, current classification of debt, and going-concern doubt absent waiver. Elevated risk post-Q3
Product mix and ASPsFavorable Sapphire XC mix supporting ASPs; GM set to expand through Q4’23. Sequential ASP pressure due to mix shift; delayed shipments impacted revenue. Near-term headwind
Partnerships/technologyFocus on mission-critical metal AM; software stack (Flow, Assure, Intelligent Fusion). Maintained technology narrative; noted PhysicsX investment redemption while maintaining partnership. Steady strategic positioning

Management Commentary

  • “We made the strategic decision to realign our operations to pivot from emphasizing top line growth to optimizing free cash flow, maximizing customer success, reducing expenditures, and improving our operational efficiency… [and] lower our overall cost structure by approximately 40% by the first quarter of 2024.”
  • “We expect to resume bookings growth in the fourth quarter for fiscal year 2024 deliveries. However, given the delays in certain fourth quarter orders… we now see our fiscal year 2023 revenue to be in the range of $91 million to $103 million.”
  • “Gross margin… [will] rise in the fourth quarter, though the level of increase is dependent on the expansion of its average selling price, execution on its material reduction initiatives and improvements in its manufacturing efficiency.”

Q&A Highlights

  • Bookings softness and delayed shipments: Management cited bookings delays with new and existing customers and a single delayed quarter-end shipment impacting sequential revenue.
  • Realignment execution: Clarified the targeted ~40% cost reduction and transitional Q4 impacting margins; reaffirmed FCF breakeven by Q2 2024.
  • Liquidity and capital: Discussed cash usage expectations ($15–$18M in Q4, including one-time severance/facility costs) and redemption of a $3M PhysicsX seed investment, maintaining partnership.
  • Guidance clarifications: Detailed Q4 revenue range ($15–$27M) and GM (5%–17%) and FY2023 revenue cut ($91–$103M).

Estimates Context

  • S&P Global consensus data was unavailable for VLD at the time of this analysis; we anchor comparisons using reputable public sources. Consensus for Q3 2023: revenue $27.01M and EPS $(0.08); actuals were $23.8M and $(0.09), a miss on both.

Key Takeaways for Investors

  • Near-term negative surprise: revenue and EPS missed consensus and FY2023 guidance was cut; expect Q4 to be a transition quarter with lower margins.
  • Structural pivot: Realignment targets ~40% cost reduction by Q1 2024 and FCF breakeven by Q2 2024; success hinges on bookings recovery, ASP expansion, and manufacturing/materials efficiency.
  • Elevated risk: Subsequent 8-K signals covenant default risk and going-concern doubt absent a waiver/amendment; equity risk premium likely increases until financing clarity improves.
  • Demand signal mixed: Strong YoY growth and installed base support services, but Q3 bookings ($11M) below plan; watch Q4 bookings momentum and FY2024 delivery pipeline.
  • Margin drivers: Mix normalization (Sapphire XC), material cost reductions, and manufacturing efficiency are critical to reversing GM compression seen in Q3.
  • Liquidity: $72M cash and investments at Q3 end provide runway, but debt classification and covenant issues introduce refinancing/waiver execution risk.
  • Positioning: Technology moat in mission-critical metal AM remains intact (Flow, Assure, Intelligent Fusion), supporting medium-term thesis if realignment executes and bookings rebuild.