Velo3D, Inc.

Greetings and welcome to the Velo3D Report's fourth quarter and fiscal year 2022 financial results. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bob Okunski, Vice President of Investor Relations. Thank you. You may begin.

Thank you. I'd like to welcome everyone to our fourth quarter 2022 earnings conference call. On the call today, we'll start out with comments from Benny Buller, CEO of Vela3D, who will provide a summary of the quarter as well as an update on certain key strategic priorities for 2023. Following Benny's comments, Bill McComb, our CFO, will then review our fourth quarter 2022 financial results and provide our guidance. As a reminder, a replay of this call will be available later today on the investor relations page of our website. During today's call, we 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 our 2021 10-K and third quarter 2022 10-Q filings. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, we 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. Finally, to enhance this call, we have also posted a set of PowerPoint slides, which we will reference during the call on the events and presentations page of our investor relations website. With that, I'd like to turn the call over to Benny Buller, CEO of Velo3D. Benny? Thanks, Bob.

and I'd like to welcome everyone to our fourth quarter earnings call. Before discussing our strong quarterly results, I wanted to briefly highlight why we remain excited about our long-term opportunity and why we are well-positioned to expand our industry leadership position going forward. Please turn to slide three. Overall, we continue to see a massive untapped global market opportunity for high-value 3D metal printed parts. For example, Context research is forecasting growth in excess of 30% in the laser powder bed fusion market through 2026, making it the fastest growing segment in 3D printing. This growth is being driven by the increasing acceptance of metal 3D printing technology for volume production for applications across multiple industries. Additionally, in some applications, 3D printed metal parts are now approaching the cost of legacy parts while providing much higher quality and design flexibility. Vero3D is now the fastest growing company in the metal AM industry since Q1 2021. We believe this growth is a direct result of our unique and differentiated technology that enable customers to bring parts that are not possible with legacy AM technology. This capability fundamentally changes the way the aerospace, defense, energy space, and other industrial segments design, and produce their most critical parts. We are also the only metal AM company to offer fully integrated hardware, software, and comprehensive printing platform that provides customers scalable manufacturing solutions. We remain very excited about the overall opportunity for additive manufacturing. We continue to believe our technology is rapidly changing the way high-value metal parts are manufactured across the world. I would now like to discuss the specifics of our fourth quarter. Please turn to slide four. Overall, we were very pleased with our Q4 performance. We saw continued strong demand for assistance. For the quarter, we exceeded our forecast as revenue rose 56% sequentially. On a year-over-year basis, both our fourth quarter and annual revenue rose 200%. As you can see from the chart, we have significantly outpaced our peer group since the first quarter of 2021. This outperformance reflects not only strong customer demand for our technology, but also our ability to rapidly scale our business and production operations. 2022 was also a year of increasing market momentum as we grew our customer base by more than 50% last year. We expect to add a significant number of new customers in 2023 as we expand our global footprint, penetrate new markets, and qualify new materials. Additionally, we are also seeing significant traction for our new product introductions. We further ramped volume production of our Cephar 1MZ and Cephar XC1MZ systems in Q4 with three shipments in the quarter. As we have highlighted before, the SAFIRE XC1MZ significantly expands part build volume up to 10 cubic feet with parts as tall as one meter. We believe the capacity to manufacture larger parts further extends our competitive advantage, especially in the aerospace and energy segments. Operationally, we also executed well and are starting to see the benefits of the manufacturing initiatives we put in place over the last two quarters. Overall, supply chain conditions have improved. Given our efforts, we have significantly reduced supply chain risk in relation to our annual forecast. We also continue to focus on prudently managing our inventory levels. We expect a material decline in inventory in the second half of this year, as we can now better match inventory levels to our demand expectations. Finally, production cycle times of our SAFR-XE system continue to improve due to increased volume and improved manufacturing efficiency. This improvement is important as it has a direct impact on gross margin. Additionally, we continue to have strong visibility going into 2023, given our Q4 bookings of $15 million and backlog of $43 million. We remain confident that we have a clear path to profitability given our current resources and business momentum. I'll discuss our strategic initiatives for this year in greater detail later on. I would now like to spend a few minutes highlighting our industry diversification, which we believe reflects continuing customer acceptance. Please turn to slide five. This slide details our market segment diversification by total customers as of the end of 2022, along with a breakout of 2022 by systems revenue. As you can see from the charts, We have significantly expanded our customer footprint from our initial reliance on the space vertical to include markets such as energy, aviation, and defense, contract manufacturing, and other industrial applications. Customers outside of the space segment now constitute 75% of our customer base. We expect our global diversification trend to continue in 2023, as we look to capitalize on increasing demand in both existing verticals and new market segments. Turning to 2022 by system sales, revenue was heavily weighted to space. This was driven by two major factors. First, it was the result of our launch customer contract where we shipped nine Zephyr XC systems to a single space customer last year. Second, space customers had moved to procure larger fleets of machines due to the entrepreneurial spirit and quicker adoption patterns than established players in other segments. We expect ourselves to space vertical to remain strong in 2023, but decline as a percentage of system revenue this year. This will be primarily driven by our efforts to further expand our footprint in both new and existing markets outside of space. I would now like to use a simple example to put into perspective as to why customers are continuing to choose additive manufacturing and Velo3D for their high-value metal parts. Please turn to slide six. This example compares the traditional manufacturing process for a common heat exchanger versus what we provide using one of our CIFAR systems. As you can see, this is a very complex part with multiple types of structures required to achieve the finished product. With traditional methods such as brazing, welding, machining, this part requires the separate fabrication of more than 100 pieces. On a VeloCephal system, we can print this part in one piece with higher quality and better performance than traditional methods. Additionally, our systems provide the customer with the ability to quickly implement design changes which is not something that can be easily done with traditional techniques. As a result, the customer was able to reduce manufacturing steps by 65%, lower overall part cost and manufacturing a higher quality part than traditional methods. Finally, we enabled the customer to significantly improve their supply chain cycle time with a design full build time of four to six weeks against 12 to 18 months and outsource partner. These advantages highlight why customers continue to choose Velo3D for their high value metal parts manufacturing. In closing, I would like to briefly discuss our key 2023 strategic priority. Please turn to slide seven. Our primary focus for this year is driving to profitability and improving cash flow. We will accomplish this through a combination of growth margin expansion and spending production initiative. First, we expect revenue growth of more than 50% this year. Given the strong demand trends for our industry-leading technology exiting 2022, we believe we have the sales momentum to achieve this goal. Additionally, this growth will be driven by our continued execution of our land and expense strategy. The success of this strategy is reflected in the fact that more than half of our customer base now own more than one Zephyr system. Second, further expansion in our gross margin as we benefit from our bill of material cost reduction initiatives and improved production efficiency. We also expect a continuous increase in overall ASTs with a further makeshift to our Zephyr XC product and the completion of our discounted pricing transactions in the first half. of the year. Third, we will reduce year-over-year adjusted operating expenses by 20% in Q4 of 2023 compared to Q4 of 2022. These initiatives include a gradual reduction in labor costs. These efforts include a selective hiring freeze, reduced attrition backfill, as well as reduction in spending for certain employee programs. Our goal is to reduce operating structure while driving stronger revenue growth. We are also implementing a number of programs to reduce discretionary expenses across the company. Finally, significantly improving cash flow. We expect sequential improvement in cash flow as we go through the year, driven by improved EBITDA. In addition, we will see an improvement in working capital as we expect to reduce year-over-year inventory by 10 to 15% in 2023, given improved supply chain planning and material delivery schedules. We expect to see the benefits of the inventory reduction efforts starting in the third quarter of this year. In closing, we are excited about our future opportunity and believe we are well positioned to capitalize on the growing demand for high value 3D printed metal parts We remain confident in our ability to reach profitability given our current liquidity and look forward to executing our long-term strategic plan as we executed well in 2022. With that, I'd like to turn the call over to Bill to discuss our financials and provide our guidance.