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spk03: Hello, and welcome to the Velo3D Reports first quarter 2022 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Bob Akunski, Head of Investor Relations for Velo3D. Please go ahead.
spk06: Thank you. I'd like to welcome everyone to our first quarter 2022 earnings conference call. On the call today, we will start out with comments from Benny Bullard, CEO of Velo3D, who will provide a summary of the quarter as well as provide an update on the key strategic priorities for 2022. Following Benny's comments, Bill McComb, our CFO, will then review our first 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 filing. 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 posted a set of PowerPoint slides which were referenced 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 Bello3D. Benny?
spk01: Thanks, Bob. And I'd like to welcome everyone to our first quarter earnings call. Please turn to slide four. Overall, as our first quarter results show, we are continuing to cement our position as a differentiated technology leader in high-value manufacturing. Our metal additive manufacturing technology changes the way products in aerospace, energy, power, and other industries segments are designed and produced. It is used to make some of the most critical parts of these products, and we are maintaining our focus on driving the vast blue ocean market opportunity that is enabled by our unique and superior technology. I would now like to discuss the specifics of our results. We are pleased with our Q1 performance as we posted our third straight quarterly revenue increase as a public company, added to our backlog and bookings, and expanded our new customer footprint. Given these results, we remain highly confident in achieving our 2022 revenue target of $89 million, a year-over-year growth rate of 225%. For the quarter, revenue rose 17% sequentially and more than 900% year over year, as customer adoption of our Cephar technology remains very high. We shipped eight systems during the quarter. Demand for our Cephar and Cephar XC systems continued to grow, and we exited Q1 with a record backlog of $55 million. Additionally, we booked seven systems during the quarter, including a number of new customers. 2022 visibility has also improved given our performance as we now have more than 75% of our 2022 revenue guidance already in backlog, recurring, or recognized. We also successfully managed our supply chain during Q1 to meet our quarterly production goals. We continue to see challenges in the supply chain but are working closely with our suppliers to avoid any disruptions. Finally, we achieved an important milestone for the company during the quarter as we started volume production of our Sephora XE. I would now like to spend a few minutes discussing why we remain confident in achieving our 2022 revenue target of $89 million. I'll focus my remarks on our improving 2022 visibility on slide five, as well as provide additional details on our ongoing success with our Sephora XE product on slide six, turning to slide five. As I previously mentioned, our 2022 confidence is driven by the fact that we have significant visibility for this year. In addition, we expect to see ongoing strong demand for both our Cephar and Cephar XC systems as customers continue to choose our industry-leading technology for their AM needs. Specifically, the chart provides a detailed breakdown of our 2022 revenue expectations by category exiting Q1 versus where we were coming into the year. As you can see, we made significant progress increasing our 2022 visibility over the last three months and now have more than 75% of our 2022 revenue target already recognized, recurring or booked for this year. A key driver for this improvement is our continued success in securing new system bookings. The result is a significant increase of our shippable backlog that will contribute to our 2022 revenue. This can be seen by the sequential reduction in future bookings needed to reach our 2022 revenue guidance as it fell from approximately 40% of our full year guidance at the beginning of the year to approximately 25% at the end of Q1. In summary, given our Q1 results, strong bookings activity and growing backlog we remain very confident in achieving our 2022 revenue forecast. Moving on to slide six, I would like to highlight our ongoing success with the rollout of our Zephyr XA system. Overall, we believe the increasing demand for our Zephyr XA is directly related to the unique value of our technology and continue to see strong adoption from both our OEM and contract manufacturing partners. As a reminder, The key elements of the Sephora XC relative to the Sephora include about 400% higher production rate, lower part costs by as much as 60% to 80%, and the ability to produce 400% larger volume parts. I also want to briefly highlight that the Sephora XC is utilizing the same intelligent fusion manufacturing technology they use by Sephora and is designed as a scale-up solution. This enables customers to develop their products and qualify their manufacturing technology on Cephar. Then, when they are ready to scale up production volume, they purchase a Cephar XC to achieve the same productivity of multiple Cephars at a fraction of the cost, all while utilizing the same manufacturing process. This core capability enables a seamless production transition and scale-up from Cephar to Cephar XC. This approach is not only driving demand for the Cefar XC, but is also accelerating the adoption of our Cefar system, especially with new customers. Our ability to offer a cost optimized scale up solution for Cefar XC enables more customers to start their journey on the Cefar platform. Specifically for the quarter, Cefar XC accounted for more than 45% of our total revenue. As we increase the shipment rate of Cefar XC, our confidence in this year's guidance increases. Looking forward, Sephora XC now accounts for more than 90% of our total backlog. Given these strong trends, we have made the decision to expand our Sephora XC production rate starting in the second half of the year. In summary, increasing customer adoption of Sephora XC enabled us to exit the quarter with a record total backlog of $55 million. up 17% sequentially and more than 80% year over year. Visibility for 2022 is high and we remain very positive on the long-term fundamentals of our business. More and more customers increasingly value our leading technology to build without compromise the high value parts they need. I would like now briefly to discuss a few of our key operating metrics for the quarter, as well as review our 2022 targets, which remain unchanged. Please turn to slide seven. We added two new customers in Q1 while booking a number of new customers during the quarter. We are maintaining our guidance for 24 new customers in 2022 through the expansion of our United States footprint, as well as benefiting from the significant customer interest in Europe post our market entry late last year. We also shipped eight systems in Q1. For 2022, we expect to more than double shipments to 48 at the midpoint of guidance, also unchanged from last quarter. Finally, our average existing customer purchases ratio for the quarter was 0.33, which was consistent with our long-term forecast of between 1.2 and 1.4, on an annualized basis. On slide eight, we are providing an update on our key revenue metrics for the first quarter under the same format. Overall, revenue for the quarter was $12 million. Sales revenue was $10 million with the balance from recurring revenue. For 2022, our guidance remains unchanged at $89 million at the midpoint, including approximately $11 million in recurring revenue. Year-of-sale ASP for the quarter was in line with expectations at $1.3 million, as we mentioned last quarter. We expect year-of-sale ASP to rise in 2022 to between $1.5 to $1.7 million as the result of increasing sepharxy sales, as well as a shift in transaction mix to more printer sales. Before turning the call over to Bill to discuss our financials, I would like to conclude my remarks by providing a brief update on our 2022 strategic priorities. Please turn to slide nine. Overall, we continue to see a rapidly expanding global market for high value metal parts and remain committed to providing our customers with the technology to meet their growing needs. First, we remain focused on increasing our existing customer footprint to follow on system purchases. We continue to invest in both our technology and support capabilities as the success of our customers is what drives purchases of additional systems. From a new customer perspective, we are excited about our European expansion this year. We see Europe as a significantly untapped opportunity and based on discussions with potential customers over the last three months, interest in our technology is very high. we expect Europe to account for a material portion of our new customer count for this year. Our second priority is to execute on our manufacturing expansion plans, which will provide the capacity we need to meet the growing demand for our software systems. Overall, we remain focused on successfully managing our supply chain in relation to our production schedule, especially electronic components. To date, we have been able to mitigate any material impact on our business through multi-tier collaborations. We are not only helping our suppliers directly, but also working with their supply chain in the procurement of critical components to ensure we meet our production goal. Additionally, we are leveraging our relationships with our top customers to secure needed inventory. That being said, our supply chain remains an ongoing challenge and we are maintaining higher-than-normal inventory as a mitigation to the risks in the supply chain. Also, with the successful shift to volume production of Zephyr XC, we now have the additional resources to further optimize system performance and production quality, factors that we believe are critical for customer success and key to driving repeat orders. On the cost side, we continue to expect a material reduction in Zephyr XC production costs through the end of the year as we leverage our manufacturing experience. This reduction will be driven primarily by higher volume production over a fixed cost base, as well as benefiting from our accumulated learnings to increase efficiency and throughput. Our final priority is to continue to deliver industry-leading service to our customers. We believe our customer service separates us from our peers and is a critical driver of why we continue to see strong demand from our existing customer base. As a result, we are driving a systematic data-driven effort to continuously improve the reliability and quality of our systems. We believe the reliability of additive machines should reach the level of traditional subtractive milling machines over time, and we will keep investing and improving our products until we achieve this level of reliability. Finally, we continue to expand and develop our growing customer support team to maintain our industry-leading service capabilities. We are excited about what we have accomplished to date and believe we are well-positioned to capitalize on the significant global opportunity for our technology. We remain confident in our 2022 forecast and look forward to executing on our future vision. With that, I'd like to turn the call over to Bill to discuss the financials and our guidance.
spk05: Thanks, Benny. Moving on to our quarterly financial performance, please turn to slide 11. Revenue for the quarter was $12.2 million, up 17% sequentially and more than 900% year-over-year. The sequential increase in year-of-sale revenue was driven by an increase in ASPs for printed sale transactions due to a richer mix of Sapphire XCs. Recurring revenue also increased sequentially due to higher lease and service revenue from an increased number of systems in the field and a catch-up of revenue which was affected by contract delays in Q4. On a year-over-year basis, year of sale revenue was up from $200,000 to $10.2 million, and recurring revenue more than doubled from $900,000 to $2 million. Gross margin for the quarter was 0% in line with our forecast. We ramped up production of Sapphire XC systems in Q1, and as we foreshadowed last quarter, Q1 gross margin was therefore impacted by launch customer pricing higher material costs, and higher labor and overhead for these systems. As we continue to ramp production volumes through the year and accumulate experience in building Sapphire XCs, we remain on track with the outlook for gross margin that we gave last quarter and the 30% gross margin target by the fourth quarter of this year. Adjusted operating expenses for the quarter, excluding stock-based compensation, rose $5 million, or 28% sequentially, to $23.2 million. R&D expenses rose $3.4 million as we increased spending on a widening range of technology initiatives and increased personnel costs. G&A increased $900,000 driven by increased headcount, professional services, and public company costs. Sales and marketing increased $700,000 due to increased headcount and other costs. GAAP net loss for the quarter was $65.3 million including a non-cash charge of approximately $37 million related to changes in the fair value of our warrants and earn-out liabilities. On a non-GAAP basis, which excludes discharge and stock-based compensation expense, net loss was $23.1 million. Adjusted EBITDA for the quarter, excluding the same costs, was a loss of $22 million. Turning to the balance sheet on slide 12, We exited the quarter with a very strong balance sheet with $186 million in cash and very limited debt. Cash usage for the quarter was $37 million. Investment in working capital of $12 million was primarily driven by an increase in inventory to provide a cushion against current difficult supply chain conditions and to position us for second half production growth. We expect inventory to stabilize in the second half of the year by when we will have built a sizable inventory cushion and as we ramp production. CapEx was $3 million, primarily related to the build-out of our new manufacturing facility, which we disclosed last quarter. We've largely completed the CapEx for the facility and now have the capacity necessary to meet our growth forecasts. We expect total cash usage in Q2 to be similar to or slightly higher than Q1. This reflects our conscious decision to increase inventory to support our growth given current supply chain challenges. We expect our cash flow will decline in the second half of the year, and we believe we have ample liquidity to fund our long-term growth plan. I'd now like to provide our guidance for 2022. Please turn to slide 13. As many discussed, we believe we have significant visibility into achieving our 2022 revenue forecast, as we have more than 75% of our forecast already accounted for by recognized Q1 revenue, backlog, and recurring revenue. Our 2022 guidance remains unchanged and is as follows. Total revenue in the range of $87 to $91 million. We expect continued growth in our bookings rate with 2022 bookings in the range of 47 to 49 systems. We expect customer additions totaling 24 new customers in 2022. Finally, our shipment guidance also remains unchanged and in the range of 47 to 49 shipments. In summary, given our continued sales momentum, growing backlog, strong demand for our Sapphire XC system and solid balance sheet, we are well positioned to capitalize on what we see as significant growth opportunities in the additive manufacturing market in the years ahead. With that, I'd like to turn the call over for questions. Operator?
spk03: Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Brian Drab from William Blair. Your line is now live.
spk07: Hey, good afternoon. Thanks for taking my question. First, I was wondering, Benny, if you could just give us a sense for the feedback that you're getting from the XCs that are in the field, from the customers that are using those XCs now that you have some more data points.
spk01: Mm-hmm. We have a number of XCs that are operating now, and the customer is generally very happy with them. We are installing them very quickly now. All the first few XCs are, as you know, to the launch customer, so they are all within one customer.
spk07: Right. Okay. Yeah, of course. So they're all at the launch customer. Mm-hmm. And then, you know, speaking of, you know, the customers, I was also curious on the customer count. You know, you had a couple new customers this quarter, and then that's going to really accelerate. That count is going to accelerate as you move through the year, it looks like. I guess that makes sense if you move past the launch customer, and then the customer base will be much more diversified in the second half. Can you talk about that?
spk01: Exactly. Exactly right. Yeah, so we have a pretty good backlog of customers. new customers for whom we're going to ship, as well as we are developing. There's a lot of new customers that are close to closing. And we also mentioned that we closed a few new customers in the last quarter. So the combination of all that is we are going to see a lot of new customer shipments in the next few quarters. Okay. I guess I'll just ask
spk07: Last – because I don't have a ton of questions right now because it seems like everything kind of went according to your plan. But my question is, you know, did anything surprise you in the first quarter? Or am I right in getting the sense that things are going according to plan?
spk01: Things are going more or less to plan. The thing that was really difficult still this quarter is the supply chain challenges. We had to spend a lot of time securing components, but we were able to mitigate significant shipment delays.
spk07: Right. Okay. Thanks very much. I'll talk to you more later. Thanks, Mark.
spk03: Thank you. Next question is coming from Wanzi Mohan from Bank of America. Your line is now live.
spk00: Hi, thanks for taking my question. This is actually John on behalf of WAMSI. So I just want to touch up on the gross margin a little bit. Just wondering how much gross margin impact from this quarter is coming from inflationary pressures, so supply chain and rising costs versus lower pricing from the lunch customer.
spk01: Yeah, so I'll take this question. So inflation is of relatively minor impact on this. We predicted last quarter that this quarter gross margin will be around 0%, and that's what happened. And we continue to predict that next quarter, the current quarter, which are operating now, will be much better. And this is really related to the learning curve of launching a new product. And as you are becoming more efficient in reducing waste and your cost goes down, as well as we were transparent about that, the pricing point for the bunch customer is significantly lower as they bought the system before there was a system. So the combination of those is what's driving this gross margin exactly as we predicted last quarter.
spk00: Okay, got it. And a quick follow-up, if I may. So you've, you know, talked about the margin target for 4Q of 30%. So how should we think about the margin trajectory in the next couple quarters to get to that 30%?
spk01: Yeah, so we provided the data on that last one, if you recall. the rate at which we're going to improve it. Bill, do you want to?
spk05: Yeah, there's a chart in the last quarter's earnings presentation. You can see that the launch customer pricing effect largely affects Q1 and Q2 and should be much more limited in Q3. And we break out in that presentation the relative impacts of the three different factors. And, you know, I would say just in general that things are proceeding, you know, in accordance with our expectations.
spk00: Okay. Got it. Yes. Thank you. Just wanted to make sure. Yeah.
spk05: That's live for guidance on that question.
spk00: Okay. Thank you.
spk03: Thank you. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.
spk02: Hey, gentlemen. First off, congrats on a nice quarter and a challenging environment.
spk05: Thanks, Troy. Thanks.
spk02: Thank you so much. Hey, Bill. You're very welcome. Bill, to start with you, 75% of the year is done based on kind of Q1 revenues and the backlog. So I guess what I'm curious is, can you talk about the timeline from receiving an order to shipping for revenue? And I guess I'm trying to figure out, are you guys build an order or build a forecast?
spk05: The, you know, from the construction and shipment portion of the timeline is, I asked Benny to jump in here, about four weeks. From from receipt of an order to commencing shipment depends on where the order comes in the queue, frankly. And so that can vary a lot. So the best metric is it takes us about a month to assemble, integrate, test, and ship a system. And the timeline between order and commencing production is quite variable depending on the circumstances, you know, how many orders are ahead of that order in the queue.
spk01: Bill, maybe I can shed more light on that, if you don't mind. Please. So, we generally can ship CIFARs relatively quickly. So, in most cases, the base CIFAR systems are shipped between six to ten weeks from order. Right now we have a pretty significant backlog with Sepharoxy, and right now the backlog stands at about five months or so, five to six months.
spk02: And then, Benny, for you, you know, I've asked this before, and I'll probably continue to ask it, but just competition, you know, SLM seems to be talking more now about, you know, their ability to do supportless metal. I'm guessing it's still probably early days for them, but have you seen any, you know, Any meaningful competition with your technology? No. Short and sweet. I like it. One last question. Am I right in thinking you guys shipped out three XCs in the quarter?
spk01: We actually deliberately didn't mention this number. We prefer for business intelligence purposes not to provide the breakdown. so that it's not as transparent for our competition to break down our pricing.
spk02: Okay. All right. Well, gentlemen, congrats and keep up the good work. Thank you so much. Thanks, Mark.
spk03: Thank you. As a reminder, that's star one to be placed into question queue. Our next question today is coming from Jim Rashudi from Needham & Company. Your line is now live.
spk04: Hi. Good afternoon. I wonder if you could – Talk a little bit about the composition of the backlog. Are you surprised that you have as significant a mix of XC in the backlog? I know at one time it wasn't entirely clear whether the base SAFIRE would be a more meaningful part of the backlog. Are you surprised by the accelerated shift, I guess is what I'm asking.
spk01: Yes, so it's a really good question. We forecasted that about half of our systems will be SEPHER and SEPHER XA. We still see all the indications that this rough mix is about true. The difference is, and the reason why the backlog is so rich with SEPHER XA is because our production rates right now on SEPHER is much faster than on Sephora XA. So we are shipping many more Sephora than Sephora XA at this moment while we are booking them at a similar rate. So that's kind of the reason for why the backlog is so biased towards the Sephora XA.
spk04: Got it. Thank you for that clarification. That's helpful.
spk01: Yeah, and that will change later in the year. the separation production rate will increase as we discussed. Go ahead, please. And really the intent is to get it to a rate that will match the rate which we are booking them.
spk04: I see. Right. With respect to the interest you're seeing in Europe now that you have a stronger presence there, what What types of customer prospects are you seeing? Is this a mix of contract manufacturers or OEMs?
spk01: You're absolutely right. It's a mix of contract manufacturers and OEMs. In fact, I'm taking this call right now from Europe in an airport between two European countries. We see strong interest from OEMs and we see strong interest from contract manufacturers And in fact, I believe that Europe will start with a stronger bias of our systems going to contract manufacturers than we currently see in the United States because it doesn't have kind of the bias that we had in the United States with our launch customer where we had quite a lot of systems to the single customer.
spk04: And the final question I have, and maybe Bill, this may be one for you, is I'm wondering if how we should be thinking about operating expense, a pretty significant step up from Q4 levels, and particularly on the R&D side where it looks like you guys are investing pretty heavily, which is obviously a good thing. But just in general, operating expense, how do we think about that over the next couple of quarters? Should we see that growth rate on a sequential basis slope?
spk05: Yeah, so just to provide some color, Jim, our average headcount in the quarter increased about 20%, and that rate will come down to probably in the region of half of that level going forward for the remaining three quarters. So we had to front load a lot of hiring to be in a position to have the, you know, first of all, We've been building out the sales force in Europe aggressively. We've had to build out the field service network and grow the engineering staff. So that was a driver where we'll see the growth rate. That headcount cost is a significant driver of OPEX, and we'll see that growth rate slow. We will continue to invest aggressively in R&D. But the other factor that will slow the growth rate is that we had a lot of front-loaded costs that were for professional services and public company costs. So that, you know, we'll see those costs probably decline in absolute terms. And then things like payroll tax, the contributions are much higher in the first quarter than the fourth. So that will also slow the growth rate. In summary, I think we'll see much slower growth in OPEX for the balance of the year. But obviously, I should caveat that by saying that to the extent good investment opportunities come along, we will be in a position where we may want to take advantage of them. So that's the current outlook sitting where we are today, but obviously things can change. Okay, thank you.
spk03: Thank you. We've reached into our question and answer session. I'd like to turn the floor back over to Benny for any further or closing comments.
spk01: So I want to thank everyone for this call. We are extremely proud of what we have accomplished this quarter and how we are keeping executing on our plan. As we are executing, we are becoming more and more confident in our ability to grow the business in the very fast pace that we forecasted. I'm extremely grateful for our team that through a combination of commitment, talent, and passion is pushing us forward. So thank you for all the Velo team and its customers and partners. And with that, I'd like to end the call. Thank you.
spk03: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time. and have a wonderful day. We thank you for your participation today.
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