Velo3D, Inc. (VELO) Earnings Call Transcript

Greetings, and welcome to the Velo3D, Inc. Second Quarter 2026 Financial Results. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, James Carbonara, Investor Relations. Thank you. You may begin.

Thank you, Operator. Good afternoon, everyone, and welcome to Velo3D's second quarter 2026 earnings call. Before we begin, please note that today's call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Please refer to our press release issued earlier today, as well as our filings with the SEC, including our Form 10-K, for a discussion of these risks. We will also reference certain non-GAAP financial measures during the call. Reconciliations between GAAP and non-GAAP results can be found in today's press release, which is available on the Investor Relations section of our website. A replay of this call will also be available shortly after its conclusion. With that, I will turn the call over to our CEO, Arun Jeldi.

Good afternoon, everyone, and thank you for joining Velo3D's second quarter 2026 earnings call. The second quarter represents another important period of execution for Velo3D. As we continue to build on the strong momentum established at the beginning of the year, we are seeing continued expansion across our manufacturing capabilities, growing engagement from strategic customers, and increasing recognition of Velo3D as a critical partner supporting production-scale additive manufacturing across aerospace, defense, energy, and other industrial markets. Our financial performance during the quarter reflected this continuing momentum. Revenue increased 52.3% year-over-year to $20.7 million, driven by continued strength across our aerospace and defense end markets. As qualified programs increasingly transition into production deployments. We believe this performance reflects the continued execution of our strategy and the growing confidence customers are placing in Velo3D as a long-term manufacturing partner. From a profitability standpoint, we continue to demonstrate meaningful operational progress. The gross margin expanded to 21.5%, an increase of 33.2% compared to the prior-year period. This improvement reflects higher manufacturing utilization, improved production efficiencies, stronger operational discipline, and continued benefits from strategic initiatives we have implemented over the past year. It also reflects a refinement in the allocation of certain labor and overhead costs to align with operational activities, which Jim will cover in more detail. Our balance sheet strengthened meaningfully during the quarter. We ended the quarter with $91.1 million in cash and cash equivalents, providing greater financial flexibility to execute our growth strategy and support ongoing operations, manufacturing expansion, and strategic investment. One of the most significant milestones this quarter was the launch of our new Livermore Production Campus. This investment represents a transformational expansion of our manufacturing footprint and is expected to triple the company's manufacturing capacity once fully operational. The campus is expected to become operational later this year and will serve as Velo3D's primary production and manufacturing center. Beyond expanding production capacity, the Livermore campus represents a critical step in Velo3D's evolution into a data-driven digital manufacturing company. Every production build we execute at our own facilities generates valuable manufacturing data that helps improve our software, process intelligence, and production capabilities. By centralizing manufacturing operations within a highly automated production environment, we expect to capture and leverage significantly more real-world manufacturing data to accelerate the development of our next-generation digital design and manufacturing software platform. We believe this creates a powerful competitive edge as our install base and production volumes continue to grow. So does our proprietary manufacturing data set. That data enables us to further optimize print parameters, improve process predictability, accelerate customer qualification and develop increasingly intelligent software powered by artificial intelligence and machine learning. Over time, we believe this flywheel strengthens every aspect of our platform, from design optimization and simulation to in-process monitoring and quality assurance. Ultimately, our vision extends beyond manufacturing hardware. We are building the next generation of digital manufacturing, enabling customers to design and manufacture complex mission-critical parts anywhere, anytime, on demand, and without the design limitations of traditional manufacturing. We believe the Livermore Production Campus is a foundational step toward realizing that vision by transforming Velo3D into a software and data-powered manufacturing company capable of continuously improve the performance of every system deployed across our global manufacturing network. Our distributed manufacturing strategy also continued to gain momentum during the quarter through the expansion of our strategic partnership with Mears Machine Corporation. Mears ordered its fifth Velo3D Sapphire XC metal additive manufacturing system with options for 2 additional systems, further expanding manufacturing capacity, supporting aviation, defense, energy, and space applications. We believe this continued investment reflects the growing confidence our manufacturing partners have in Velo3D's technology and demonstrates how our distributed production model continues to scale alongside customer demand. Expanding our network of qualified production partners enables us to provide greater manufacturing flexibility while strengthening domestic supply chain resilience across several strategically important industries. We also announced a strategic partnership with Aurelia Technologies focused on advancing the use of metal additive manufacturing within next-generation gas turbine systems. Through this collaboration, we expect to support customers pursuing greater design consolidation, faster production product development cycles, enhanced supply chain resilience, and meaningful cost reduction initiatives. We believe partnerships like Aurelia demonstrate the expanding applicability of additive manufacturing beyond traditional aerospace applications and reinforce our ability to deliver differentiated manufacturing solutions across a broader range of industrial markets. Beyond our operational execution, we also continue to strengthen Velo3D's presence within the public markets. During the quarter, we were added to both the Russell 3000 Index and the Russell Microcap Index, increasing our visibility among institutional investors and broadening market awareness of the company. We believe this inclusion represents another important milestone as Velo3D continues to mature as a public company and expand its shareholder base. We also strengthened our corporate governance with the appointment of Lily Mei as an independent director to our Board of Directors. Lily brings extensive leadership experience across both the public and private sectors, including her tenure as Mayor of Fremont, California, one of the nation's leading centers for advanced manufacturing and technology innovation. We believe her experience in economic development, manufacturing ecosystems, and public-private collaboration will provide valuable strategic perspective as we continue executing our long-term growth strategy. More broadly, customers across our pipeline continues to strengthen. We are seeing increasing interest from aerospace, defense, and industrial customers evaluating additive manufacturing for production-scale applications. Existing customers continue expanding into additional programs, while new opportunities increasingly involve larger, more strategic production deployments, we believe these trends reinforce our view that the industry continues transitioning from isolated qualification programs toward broader production adoption. The macro environment also remains highly supportive of our long-term strategy. Governments and commercial manufacturers continue prioritizing domestic production capabilities, supply chain resilience, manufacturing agility, and advanced technology capable of reducing lead times while improving performance. We believe Velo3D remains well-positioned to benefit from these long-term secular trends. As we bring the Livermore Production Campus online later this year and continue executing against our strategic initiatives, we believe Velo3D is entering an important new phase of growth. Our expanded manufacturing capacity, improved liquidity, growing strategic partnerships, and increasing customer adoption provide a solid foundation for continued execution and long-term value creation. Overall, the second quarter represented another meaningful step forward in Velo3D's evolution. We believe the investments we are making today, including our expanded manufacturing infrastructure, strategic partnerships, and continued operational execution, position the company to support the next generation of production-scale additive manufacturing across critical industries. While we recognize there remains significant work ahead, we are encouraged by the momentum we continue to see across our business. Our focus remains unchanged: execute with discipline, scale efficiently, strengthen customer partnerships, and continue investing in the capabilities that we believe will drive sustainable long-term growth, expanding profitability, and long-term shareholder value creation. With that, I'll turn the call over to our CFO, Jim Suva, to walk through our financial performance in more detail.

Thanks, Arun, and good afternoon, everyone. I am pleased to announce that second quarter results were even stronger than the first quarter results. We continue to see solid execution across the business, which drove an acceleration in our financial results, both quarter-over-quarter and year-over-year. We delivered robust revenue growth, continued improvement in our gross margins, grew our backlog, further strengthened our balance sheet, and secured an expansion site that is expected to triple our manufacturing capacity. This comes at a time when we are experiencing continued demand from our customers, which gives us great confidence in the direction of our business. With that, let me walk you through the financial results for the quarter. Second quarter 2026 revenue was $20.7 million, up 52.3% compared to $13.6 million in the year-ago quarter. The increase was driven primarily by an increase in the average selling price and an increase in RPS revenue. Second quarter 2026 revenue also grew sequentially, up 50% from $13.8 million in the first quarter 2026. Gross margin for the second quarter was 21.5% compared to negative 11.7% in the year-ago quarter and 17.2% in the first quarter of 2026. The gross margin increase reflected higher average selling prices, a more favorable product mix, and refinement in the allocation of certain labor and overhead costs from cost of revenue to operating expenses to align with current operational activities. We are not only pleased with the gross margin improvement in the second quarter, but we also expect gross margin to improve as RPS scales, new Sapphire XC systems are built to order, and positive leverage from top-line revenue growth. Operating expenses for the second quarter were $15.5 million, up from $10.0 million a year ago. On a non-GAAP basis, excluding $2.4 million of stock-based compensation, operating expenses were $13.1 million, up compared to $8.8 million in the prior-year quarter. The increase reflects a return to hiring to support our strong revenue growth and backlog, as well as the refinement of certain labor and overhead costs described a moment ago. GAAP net loss for the second quarter was $11.5 million, an improvement of $1.8 million compared to the net loss of $13.3 million in the year-ago quarter. Non-GAAP net loss for the second quarter was $9.0 million, excluding stock-based compensation of $2.5 million and certain other items, an improvement compared to a non-GAAP loss -- non-GAAP net loss of $11.4 million in the year-ago quarter. Adjusted EBITDA for the second quarter of 2026 improved to negative $8.1 million compared to negative $8.9 million in the second quarter of 2025. As of June 30, 2026, we had a backlog of $31 million, up from the $16 million backlog at the end of the second quarter of 2025. Our backlog reflects strong demand across our customer end markets. Importantly, the composition of our backlog continues to show year-over-year growth in RPS fueled by strong demand from our customer base. Moving on to the balance sheet. We had $91.1 million of cash and cash equivalents as of June 30, 2026, up from $39 million at the end of 2025. We made significant progress on strengthening our balance sheet during the first half of 2026. In April, we completed an underwritten registered direct offering raising approximately $50 million in gross proceeds. And during the second quarter, we raised $59.4 million in gross proceeds under our at-the-market offering program. We also completed debt-to-equity conversions of $18.5 million, and as a result, we reduced our outstanding debt by more than 70% to $8.2 million as of quarter end. These actions collectively strengthen our liquidity and provide additional flexibility to support ongoing investments in our people, operations, and growth initiatives. Overall, the second quarter was marked by continued execution across the business and an acceleration from the first quarter driven by strong revenue growth, expanded margins, and a stronger balance sheet, all positioning the company to continue executing on our strategic priorities. The opening of our Livermore, California expansion site, which is expected to triple our manufacturing capacity, is well-timed to enable us to capture the accelerated demand we are experiencing and move us to the next chapter in the history at Velo3D. The customer support for this expansion has been overwhelmingly positive, and we are working to get permitting and production ramped up as fast as possible. With that, I'll turn the call back over to Arun.

Thank you, Jim. Looking ahead, we are increasing our 2026 revenue guidance to $65 million to $75 million, from $60 million to $70 million, reflecting continued adoption of rapid production solutions and expansion of our large-format additive manufacturing capabilities across both existing and new programs. We continue to expect sequential improvement in gross margins, with margins projected to exceed 30% in the second half of 2026 as production volumes increase and we realize further operational efficiencies. Non-GAAP adjusted operating expenses are expected to remain disciplined in the range of $45 million to $55 million as we continue investing selectively to support strategic growth initiatives. Capital expenditures are expected to remain in the range of $40 million to $50 million, primarily for RPS expansion, subject to availability of sufficient financing. We continue to expect to achieve positive EBITDA in the second half of 2026. Operator, we can open the call to questions.

[Operator Instructions] Our first question comes from the line of Jaeson Schmidt with Lake Street.

Just curious if you could disclose how much RPS revenue was in Q2, and then relatedly, just given the strength you saw in Q2, how are you thinking about RPS as a percentage of revenue exiting this year?

So the revenues in RPS has grown double digits from the last year. As I mentioned in the past like the RPS full growth takes about 3 years, and exiting this year, we're doubling that percentage from last year, which will be about 25% to 30%.

Got you. And then just as a follow-up, I think previously the goal was to have 40 printers by year-end. Just curious with this new facility, how you're thinking about the overall fleet exiting this year?

So we're building about 20 to 25 machines. I mean, 20 are brand-new machines and 5 or 6 we're buying back from the field. So about 25 machine capacity. We already have 15 machine capacity built in Fremont. So with the new improvements, there is a 9 to 10 bay, which we're going to keep it here, and the next 10 will be deploying to, I mean, Livermore. So that will give you a 40-machine capacity by end of the year. But the actual capacity ramp-up starts in 2027.

Our next question comes from the line of Greg Palm with Craig-Hallum.

Just starting with the kind of more of a broad, high-level discussion on kind of demand. I mean, as it relates to your bookings, what are you seeing from your customer base as it relates to your current customers versus potential new customers? And then, from like a high-level standpoint, I'd just love to kind of get more color on what you're seeing across various end markets, because it clearly seems like demand for metal additive technology is really accelerating right now.

Yes, I mean, there are several bottlenecks, Greg, in general in aerospace and the fields we are serving, like space, defense and energy markets are booming. So if you see, there are a lot of new visions and new companies are popping up every day, and the defense market with the stockpile and the recent international conflicts has raised a lot of concerns on the manufacturing and the stockpile bring back in manufacturing. So that is creating quite a bit of demand, and energy markets in general with the data centers and other AI boom. We need a lot of electricity. So that is creating a market for specific turbines and both fusion, fusion and other ways of clean energy. And in the space, obviously, there's a lot of space race and multiple space companies now is really pushing the limits to speed up their production rates. So we're running out of space and we're trying to catch up with the demand we have. So it's, as I mentioned last year, we have already seen this, right? So I mentioned it. We absolutely need 100 machines as of today to actually run all the programs on the demand we have. But we're lagging behind on the production of more machines, and we're trying to keep up and pushing the limits to get as soon as possible. So by next year, we'll have half of that capacity, and the following year, we'll have half of the capacity beyond 2027. By mid-2028, we're focusing to get all the 100 machines up. And those will be sold before we can actually build. So that's how much demand we are ramping up.

I guess as it relates to that, your confidence level in being able to build that rate, I mean significantly higher than what you have been doing this year or last. So maybe you can just give us some sense on what it relates to supply chain or labor or anything else that's on your mind?

Every company goes through supply chain problems. It's not that is more worry for me. My thing is, it's now the demand is higher than what anybody can create today. So my biggest problem is like getting the people at the skill level growth and then getting alignment with single point failures and creating the double layers of things. That work we have been doing from last 1.5 years, as I mentioned. The last 1.5 years for Velo is just purely the stability of the company, okay? And now we are beyond that point. Now it's a growth phase. The growth phase represents the higher margins, operational efficiencies that you can do with the funds available to the company and the financial struggles in the last year didn't help us to really do what we want. And this year we have the stability to create that ecosystem we always envisioned for, and it's ramping up faster. And as my vision is coming to fruition, you can always see like what we told we're doing it in sequential form. And it's inevitable that if our adversaries have a 10 million square foot already existent, and you don't even have a 250,000 square foot of additive in the country, it's quite evident that we absolutely need the capacity to bring back all the programs and all the production and the prototype models right now is moving on to the productions at a bigger scale. And we need actually 300 or 400 machines as of -- in the next 1 or 2 years. But we can only build 100. And metal additive is so hard. It's not that -- especially when you have specific requirements in space and defense and the precision. Velo is beating everybody to on the tech side to prove that point, and we have been doing this for almost 7 years on the printing side. And still that, I still feel like there's a lot more to go. So there's an absolute need on that.

Yes. Okay. And then two quick housekeeping. If I can, I think you said Livermore operational this year. Will it start to produce revenue-generating parts later this year or early next?

So we're pushing to get that done by fourth quarter because it's absolutely necessary. Fremont is fully occupied. And we thought of first quarter, but it's inevitable that we have to get by fourth quarter. So we're pushing those boundaries to get that operational and put those machines running to produce parts and also build machines there.

Yes. Okay. And then one for Jim. I think you said there was a reclassification of costs from COGS to OpEx. Can you quantify what that was in the quarter, and is there expected to be an additional amount here going forward?