Velo3D (NYSE: VLD) reported a mixed financial outcome for the third quarter of 2023. Citing a strategic realignment to improve operational efficiency and cash flow, the company missed earnings expectations. Despite a year-over-year revenue increase and a sequential improvement in free cash flow, Velo3D announced a significant workforce reduction. It updated its revenue guidance due to booking delays and ongoing realignment initiatives. Complementing this period of realignment, the company also solidified its European strategy by naming Schoeller-Bleckmann Oilfield Technology (SBOT) its exclusive contract manufacturing partner in the DACH region.
In the third quarter, Velo3D’s revenue climbed to $22.4 million, up from $17.8 million in the same period last year, reflecting the company’s ability to expand its market presence. Nonetheless, earnings per share (EPS) told a different story, as the company registered a loss of 12 cents per share, which was more significant than the 7 cents per share loss anticipated by analysts. This difference in earnings highlights the financial strain from the restructuring efforts and market challenges Velo3D is navigating as it works to streamline its operations and improve its bottom line.
CEO Benny Buller highlighted the firm’s substantial achievements, including the widespread adoption of their Sapphire technology. However, Buller recognized the company’s rapid growth may have overshadowed cash flow, profitability, and customer service excellence. Despite facing delays in bookings and orders, which have led to updated revenue guidance for the year, Velo3D remains optimistic about its position in the rapidly growing additive manufacturing (AM) industry.
The brand’s latest strategic direction is to optimize free cash flow and improve operational efficiency, aiming for profitability in 2024. Buller emphasized that the changes are projected to bring about a 40% reduction in overall cost structure by the first quarter of 2024, with significant reductions in operating expenses and facility costs.
On the financial side, Velo3D ended the quarter with a strong liquidity position, holding $72 million in cash. Yet the company registered a net loss of $17.1 million, with a non-GAAP net loss of $18.9 million and an adjusted EBITDA loss of $16.3 million. The revenue increase was attributed to “higher average selling prices” and a “favorable product mix,” while gross margin declined due to reduced system volume and inventory cost increases. According to Buller, the realignment strategy led to a 20% workforce reduction and an anticipated 15% quarterly operating expense savings.
During an earnings call with investors on November 6, 2023, Buller provided deeper insights into the company’s recent challenges and the measures to overcome them. Although Buller noted that revenue tripled and customer base doubled in 2022, the company “grew too fast,” and that caused some problems with customer service – they just couldn’t keep up. This led to some unhappy customers, which decreased sales in 2023.
To make things right, Velo3D is adding more resources to customer support. They’re training their teams better, setting up groups focused on solving problems quickly and ensuring the people who make the products work closer with those who talk to customers. This way, they can provide a “swift issue resolution and customer success.”
This “sales structure overhaul” includes the appointment of Michelle Sidwell as the new Executive Vice President of Sales. With Sidwell’s extensive experience, Velo3D is aiming to upgrade its order growth. The company is refocusing its efforts on established markets like space, defense, and aerospace, where it has a strong presence. Additionally, Velo3D is seeking international partnerships and exploring new material and application development.
Following the strategy to enhance its sales structure and market focus, Velo3D has also taken significant steps to strengthen its presence in Europe. Velo3D has partnered with SBOT as its exclusive contract manufacturing partner for the oil and gas industry in the DACH region, comprising Germany, Austria, and Switzerland. This move ensures SBOT adds a new Sapphire printer to its current lineup, expanding its production capacity of high-quality metal parts.
Also, as part of its realignment, Velo3D has temporarily paused additional inventory investments, choosing instead to purchase materials needed to fulfill existing orders. This strategic decision is part of its cost-saving measures, and management says it will ensure its ability to deliver products in the upcoming two quarters. Looking ahead, the company intends to closely align material purchases with the expected order fulfillment rate, effectively managing its inventory to reflect demand.
At the same time, the company is carefully choosing which new R&D projects to fund. Management uses a return on investment (ROI) criterion for project approval. This rule will ensure they only spend money on R&D projects that are likely to be profitable and add value to the company. In the third quarter, this strategy led to a $2.6 million reduction in R&D and a 10% decrease in non-GAAP operating expenses compared to the previous quarter of 2023.
Looking forward to the last quarter of the year, Velo3D anticipates it as a transitional period with revenue projected between $15 million and $27 million and gross margin expected in the range of 5% to 17%, excluding non-recurring charges related to cost reduction initiatives. The company maintains that its realignment strategy will extend its capability to achieve profitability goals in 2024, including reaching free cash flow breakeven in the second quarter.
Velo3D’s third-quarter results have been a driving force for change, pushing a series of strategic decisions to stabilize the business and ensure a profitable future. While the immediate financial results have not met expectations, the firm has taken quick steps to adjust to the challenges of the high-value metal parts AM market. With these changes in motion, Velo3D looks toward 2024 to achieve sustainable profitability and reinforce its leadership in the industry.
“Our new go-to-market strategy, disciplined sales process and focus on our strong markets will provide a strong foundation to rebuild our backlog and pipeline for 2024 success. In closing, we remain excited about our future opportunity and believe our realignment puts us in a much stronger position to achieve our profitability goal next year,” concluded Buller during the earnings call.
As the AM industry matures, Velo3D’s “strategic realignment” could potentially serve as a case study for startups that are learning to balance growth and financial health.
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