Velo3D, Inc.

to the Fellows 3D second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question and answer session. As a reminder, today's conference call is being recorded. I will now turn the call over to Mr. Bob Okunski, Vice President of Investor Relations at Fellows 3D Corporation. Thank you, sir. You may begin.

Thank you. I'd like to welcome everyone to our second quarter 2023 earnings conference call. On the call today, we will start out with comments from Benny Buller, CEO of Velo3D, 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 second quarter 2023 financial highlights 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 2022 10-K and additional SEC 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 gap to non-gap 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 Vela3D. Benny? Thanks, Bob.

And I would like to welcome everyone to our second quarter earnings call. We remain very excited about the overall opportunity for additive manufacturing as our technology is rapidly changing the way high value metal parts are manufactured across the world. We are committed to executing on our strategic priorities and our path to profitability remains clear. I would now like to discuss the specifics of our second quarter. Please turn to slide three. Overall, we continued to post strong growth as revenue rose 28% year over year. Demand for our solutions remained high, and in fact, according to third-party data firm Smartech, we exited the first quarter as the number two supplier of metal additive manufacturing system among leading Western brands. This growth now makes us the fastest-growing company in the 3D printing market, doubling our market share in the metal additive market to approximately 20% in the last 12 months. In relation to our path to profitability, we continue to make steady progress in the second quarter as our improved operational efficiency enabled us to expand our margins. This is particularly evident in the printer margins as they rose by more than 400 basis points sequentially to 15%. While we continue to see strong demand trends, second quarter bookings came in below plan at $60 million, primarily due to delays in booking certain orders with existing customers. We remain in discussions with these customers and are confident in closing these deals over the next few quarters, giving us increased confidence and visibility in our second half forecast. While we saw some delays on the existing customer sites, we signed a record amount of new customer orders accounting for 90% of our total bookings revenue in Q2. We had particular success in the defense sector and expect to continue to add additional defense customers in the second half of the year. Our technology is particularly well-suited for this sector, and this growth is reflected by the fact that defense accounted for more than 35% of our first half system revenue. However, despite these positive demand trends, the Q2 bookings delays are expected to have an impact on our second half revenue forecast. As a result, we are reducing our fiscal year 2023 revenue guidance to be in the range of $105 million to $115 million. We believe that our second quarter revenue will be the low point for the year with sequential quarterly improvement for the balance of the year. Finally, we also announced our successful $70 million registered direct offering today. While we still firmly believe that we have the resources to reach our goal of sustained profitability, we made a strategic decision to improve our liquidity for four key reasons. It provides us the confidence and liquidity to remain focused on our long-term strategic plan rather than maximizing short and focused cash actions. Second, given our growing business and longer manufacturing lead times due to the complexity of our systems, the additional liquidity will enable us to better manage our working capital needs during the quarter. Third, this transaction provides us with a bridge to minimize the cash impact of end-of-quarter shipping timing which can significantly affect our cash and working capital levels. Also, this financing increases customer and supplier confidence that we have the liquidity we need to execute on our strategic plan. Moving on to slide four, continued customer demand for our industry-leading technology has enabled us to become the fastest growing company in the additive manufacturing market over the last two years. Not only is this shown by our annual revenue growth, but also reflected in our increasing leadership position in the metal additive market. On this slide, we are highlighting the significant market share gains we have made over the last two years, as customers continue to choose our Cefar family of printers for their AM needs. For example, we have gone from approximately 3% market share in Q1 of 2021 to approximately 20% of the end of the first quarter of 2023. In fact, as I previously mentioned, we ended Q1 as the second largest supplier of solution in our industry, according to third party data. Additionally, according to Smartech, we were the leading market share gainer for the 12 months period ending in Q1 2023. We believe we will continue to gain share in the future as we expect to significantly exceed the industry growth rate. This is due to several key factors. First is our technology. We offer the only fully integrated end-to-end metal AM solution for mission critical parts in the industry today. We provide customers with the design freedom to print the complex high quality parts they need for some of the most demanding applications in the world today, including the space, defense, commercial aviation, and energy industries. We are also seeing the benefit from customers shifting to an onshore manufacturing as they simplify their supply chain. Providing them with a scalable solution allows them to improve part quality while significantly shortening lead times. This scalability is what drives existing customer purchase and why we feel our land and expense strategy is critical to our future growth. Please turn to slide five. As of the end of the second quarter, we have more than 100 systems in the field and approximately 40 customers. This translates into a more than 400 increase in our installed base in the last three years. This growth has been primarily driven by existing customers adding additional machines as they increase capacity and add new applications. The chart on the left highlights the power of this dynamic as our top customers continue to add their manufacturing base on an annual basis. In fact, more than 50% of our base has more than one system, with 20% now owning four or more systems. On a long-term basis, we expect our existing customer purchases to be approximately 50% of our revenue. This is also a successful strategy with our contract manufacturing partners, as parts customers have more than doubled over the last 18 months. Finally, we continue to diversify our customer base as we are seeing increasing new customer traction, particularly in the defense and aerospace industries. Turning to slide six, I wanted to provide a quick update on a few of our important verticals as well as our Q2 successes. Overall, we continue to broaden our footprint across multiple industries. As you can see from the chart, we have significantly expanded our customer footprint. from our initial reliance on the space vertical to include markets such as defense, energy, aviation, contract manufacturing, and other applications. Space remains one of our largest verticals as we offer customers in full parts performance while giving them the ability to rapidly implement design changes to lower development costs. We remain the leader in space, adding NASA and Avio in Europe as new customers in Q2. We are also starting to see significant traction in the defense industry, and this vertical is our fastest growing end market. To put this into perspective, defense was only 5% of our customer base at the beginning of 2022, and now constitutes close to 20%. Our success in defense is primarily due to our ability to reduce replacement part lead times in addition to providing systems for new weapon development. Specifically, we added three new defense customers in Q2, bringing our total defense customer base to nine. As I previously mentioned, defense accounted for more than 35% of our first half 2023 systems revenue, which shows a strong traction in this market. Aerospace remains an important end market for us, and we are pursuing a number of important global opportunities. We see the potential for future growth in this segment as customers continue to look for solutions that improve supply chain efficiency and reduce costs. Finally, contract manufacturing remains a core vertical for us, as existing customers continue to expand their AAR footprint. As I previously mentioned, we now have more than 200 parts customers through RCM supply chain and expect to add additional parts customers in the second half of the year. I'd like to close out my remarks by providing an update to our 2023 strategic priorities. Please turn to slide seven. Our primary focus for this year remains driving to profitability by significantly improving EBITDA. This will be done through revenue growth, margin expansion, and expense control. As a result, we expect to materially improve cash flow in the second half of the year. First, on improving EBITDA. We now expect year-over-year revenue growth more than 35% given our solid Q2 2023 results. While down from our previous forecast, it is still significantly more than double the industry growth rate for this year. This confidence is driven by our new customer success this quarter as well as increasing visibility into existing customer demand in the second half of the year. As a result, we expect to gain share in the second half as we continue to expand our footprint in key verticals such as defense, space, and the industrial markets. We also made progress on expanding gross margin in the second quarter and remain on track for sequential improvements through the end of the year. This further expansion will be driven by lower material costs and increasing overall volume as well as higher ASPs given the continued makeshift to our Sephora XC products. Additionally, we expect to realize the full benefits of our production efficiency initiatives in the second half of the year. We continue to focus on prudently managing our expenses as we execute on our cost control initiatives. We are still targeting a 20% year-over-year decline in Q4 2023 operating expenses. We believe we have the programs in place to achieve this milestone. We expect OPEX to decline each quarter for the balance of the year. Finally, improving cash flow. We expect sequential improvement in cash flow as we go through the year driven by improved EBITDA, as I just discussed. Additionally, we will benefit from reduction in working capital needs as the year progresses. In closing, we are excited about the future opportunity and believe we are well positioned to capitalize on the growing demand for high-value 3D printed metal parts. Our path to profitability is clear, and we remain confident in achieving our goals for this year. With that, I'd like to turn the call over to Bill to discuss our financials and provide our guidance.