Velo3D, Inc. (VLD) Q4 2023 Earnings Call Transcript

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Overview

The earnings call reveals significant operational challenges, including poor Q4 bookings, negative gross margins, and high cash burn. Despite some improvement in bookings and cost reductions, the company's reliance on defense and space sectors poses risks. The Q&A highlighted management's reluctance to provide strategic updates, adding uncertainty. Overall, the negative aspects outweigh positives, suggesting a stock price decline.

Key Financial Performance

Revenue $2 million, down from previous year; impacted by reduced system sales and sales disruption due to realignment initiatives.

Gross Margin Significant negative gross margin due to reduced system volume and a $27 million inventory charge.

Operating Expenses (OpEx) $16 million, down more than 15% sequentially; driven by decreases in G&A and R&D expenses.

Net Loss (GAAP) $58.2 million, including a non-cash gain of approximately $28 million related to changes in fair value of liabilities.

Net Loss (Non-GAAP) $61.1 million; adjusted EBITDA loss of $51.5 million.

Cash Position $31 million in cash and investments at quarter end; cash use for the quarter was $41 million.

Free Cash Flow Improved by 35% year-over-year; expected to achieve breakeven in the second half of 2024.

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Operating Highlights

New Product Launch: We are in the early phases of refining our next-generation Sapphire model, which will be competitive on cost and retain key technology advantages.

Software Package Launch: We are exploring the monetization of our recently launched Flow Developer software package, which provides users with flexibility and control over print parameters.

Market Expansion: We added NASA and Avio as customers in the Space sector, and we are seeing traction in the Aerospace market in both the U.S. and Europe.

Defense Market Growth: We added three new Defense customers in 2023, bringing our total to nine, and we are in discussions with DoD leadership.

Cost Reduction: We reduced our cost structure by more than 15% in Q4 and expect an additional decline of over 15% in Q1 2024.

Operational Efficiency: We have improved production processes and workflows, leading to better manufacturing efficiency.

Strategic Shift: We shifted from an engineering-led sales approach to a value-based selling approach to expand our market footprint.

Customer Focus: We are focusing on resolving customer reliability concerns to drive repeat sales and improve customer satisfaction.

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Risk or Challenges

Bookings Challenges: The company faced significant challenges in bookings due to ineffective sales methodologies as they expanded beyond early adopters, leading to disappointing Q4 results.

Cost Structure: Velo3D initiated a realignment to reduce costs by over 15% in Q4 and expects further reductions of 15% in Q1 2024, indicating ongoing financial strain.

Customer Reliability Issues: Field system issues and customer concerns arose from rapid expansion and new product introductions, impacting customer satisfaction and repeat sales.

Inventory Charge: The company incurred a $27 million inventory charge, negatively affecting gross margins and reflecting challenges in managing inventory levels.

Operational Execution: The shift from an engineering-led sales approach to a value-based selling strategy is critical for future success, highlighting the need for effective execution.

Cash Flow: The company expects cash use of $13 million to $17 million in Q1 2024, indicating ongoing cash flow challenges despite efforts to achieve breakeven.

Regulatory and Market Risks: The company is exposed to risks associated with defense spending and government contracts, which can be influenced by regulatory changes and market dynamics.

Economic Factors: The company operates in a competitive landscape with pressures from economic factors that could impact demand in key verticals like Space, Defense, and Aerospace.

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Guidance & Outlook

Strategic Review Process: The comprehensive strategic review process is ongoing, with discussions aimed at maximizing stockholder value.

Cost Reduction Initiatives: Implemented aggressive cost reduction program, reducing cost structure by over 15% in Q4 2023, with an expectation of an additional 15% decline in Q1 2024.

Customer-Driven Model: Shifted to a customer-driven model, improving manufacturing efficiency and customer reliability.

New Go-To-Market Strategy: Transitioned from an engineering-led sales approach to a value-based selling approach.

Operational Execution Improvements: Reduced installation time of Sapphire printers by 40% and improved customer experience with reduced issue resolution times by 40%.

Future Revenue Streams: Exploring monetization of Flow Developer software, refining next-generation Sapphire model, and leveraging consumables for recurring revenue.

2024 Revenue Guidance: Expected revenue in the range of $80 million to $95 million.

Gross Margin Guidance: Expected gross margin in the range of 20% to 30%, with approximately 30% in Q4 2024.

Operating Expenses Guidance: Non-GAAP operating expenses expected in the range of $40 million to $50 million.

Cash Flow Expectations: Expect to achieve free cash flow breakeven in the second half of 2024.

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Shareholder Return Plan

Shareholder Return Plan: The company is currently undergoing a strategic review process aimed at maximizing stockholder value, although no specific details were disclosed during the call.

Cost Reduction Initiatives: Velo3D has implemented aggressive cost reduction measures, reducing its cost structure by more than 15% in Q4 2023 and expecting an additional decline of over 30% in Q1 2024.

Cash Flow Improvement: The company anticipates achieving free cash flow breakeven in the second half of 2024, reflecting a focus on improving operational efficiency and reducing expenses.

Equity Transaction: Velo3D raised $18 million in an equity transaction during Q4 2023.

Future Revenue Guidance: For fiscal year 2024, Velo3D expects revenue in the range of $80 million to $95 million, indicating a focus on growth and recovery.

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Key Q&A

Q:What does the improvement in gross margins for Q4 2024 imply in terms of revenues?

A:Roughly between $25 million to $30 million a quarter to fully realize the gross margin targets.

Q:Can you provide insight into the $15 million of bookings and whether they were from large customers in the commercial space or other existing customers?

A:Bookings were largely from existing Space customers expanding their fleets, with over a third from the Defense sector.

Q:Have you had any issues with machines being returned by customers, and is there a used machine market for your equipment?

A:Machines have come back off-lease, and there is a resale market where they are sold at a healthy margin.

Q:Review of Unclear Management Responses

A:Management did not provide specific revenue figures or detailed breakdowns of the bookings by customer type, which could have clarified the sources of strength in bookings.

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Earnings Word Cloud

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