Velo3D, Inc. (VELO) Q2 FY2025 Earnings Call Transcript & Summary

Greetings, and welcome to the Velo3D Announces Second Quarter 2025 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, James. You may begin.

Thank you. I'd like to welcome everyone to Velo3D's Second Quarter 2025 Earnings Call. During today's call, management 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 the company's 2024 10-K and additional SEC filings. Please see those documents for additional information regarding those factors that may affect these forward-looking statements. Also, management 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. The company has posted a set of PowerPoint slides providing additional details on its strategic initiatives and financial performance on the Events and Presentations page of the company's Investor Relations website. As a reminder, a replay of this call will be available later today on the Investor Relations page of the company's website. With that, I'd like to turn the call over to Arun Jeldi, CEO of Velo3D. Arun, please go ahead.

Thank you, James. Good afternoon, everyone, and thank you all for joining Velo3D's Second Quarter 2025 Earnings Conference Call. Let me start with a simple message. This quarter marks a pivotal step in Velo3D's transformation from an innovative equipment provider to a recurrent -- recurring high-margin industrial technology platform. We're not just seeing signs of this shift. We are living it operationally, financially and strategically. Our Q2 performance demonstrates not only solid progress, but also the early impact of key changes we have made to position the company for sustainable growth, margin expansion and long-term value creation. RPS building momentum through our platform for scale. A central pillar of this transformation is our Rapid Production Services, or RPS, and I'm pleased to report momentum is building quickly. We officially launched RPS in first quarter. And in just 1 full quarter of operation, the results are already speaking for themselves. RPS directly addresses a critical market need. The ability to deliver high complexity, high-performance production parts at speed onshore, on-demand and with complete digital repeatability. RPS is resonating because it sits at the intersection of manufacturing, capability, national security and supply chain modernization, a convergence that's reshaping the industrial economy. RPS is gaining market share fast. Let's talk numbers because the signal here is loud and clear. RPS bookings grew 79% quarter-over-quarter, showing rapid customer adoption in just its second full quarter of launch. 78% of this growth came from new customers, demonstrating both market expansion and new logos entering our ecosystem. And in terms of industry mix, space and defense accounted for a combined 87% of our RPS demand, with space contributing 54% and defense 33%. This is meaningful. These sectors are high growth, well-funded and high mission-driven, and they are increasingly looking to Velo3D as a trusted production partner. Our success in these verticals is a direct result of years of investment in precision hardware, intelligent software and material science, all of which are now coalescing into a scalable recurring revenue platform. At the end of second quarter, our backlog, including system orders, service contract and RPS projects stood at $16 million. Just weeks later, by July 25, it grew to $18 million. Now here's what's important. While the top line backlog figure is roughly consistent with Q1, the composition has fundamentally improved. We are seeing a significant mix shift towards RPS and services, which are higher margin, more predictable and longer term in nature. This is precisely the kind of revenue transformation we have been focused on, and now it's taking hold. Beyond performance metrics, Q2 was packed with strategic wins and partnerships that further reinforce our leadership in additive manufacturing for mission-critical industries. Let me highlight a few. A $4 million master service agreement with Vaya Space spanning 2 years. This expands our footprint in commercial space sector and deepens production ties with an emerging leader in propulsion and launch technology. The $22 million partnership with Amaero, which continued to gain traction in Q2, a major milestone was the qualification of our powder material through Auburn University's National Center for Additive Manufacturing Excellence, a critical validation point that derisks scale-up in regulated aerospace programs. A 5-year $15 million master service agreement with Momentus, focused on delivering scalable production parts through RPS, a key signal customer confidence in a long-term outsourcing of complex parts to our platform. A new agreement with Ohio Ordinance Works, where Velo3D will provide applications engineering and design analysis services to support their 3D printed military weapons development program. This is a strong vote of confidence in our design to production capabilities in defense space. Mears Machine Corporation, a leader in precision components, purchased its fourth Sapphire XC printer, a clear indicator of both the technical trust and ROI of our customers see in Velo3D platforms. And just recently, we signed a groundbreaking partnership with BlueForge Alliance to develop and qualify copper-nickel for use in our large-format Sapphire XC printers. This is the first time this critical maritime alloy will be adopted for laser bed fusion, and it plays directly into U.S. maritime industrial base program to accelerate shipbuilding and defense supply chain resilience. These wins are strategic, accretive and synergistic to our broader goal to position Velo3D as the backbone of digital manufacturing across national security, energy and industrial sectors. Operational execution and financial visibility. From an operational standpoint, our team is executing with discipline and speed. Our go-to-market motion is becoming sharper and more verticalized and our R&D continues to be focused on unlocking high material performance, system reliability and production scalability. From a financial standpoint, we are seeing the results. $22.9 million in revenue through the first half of 2025 with a clear line of sight to achieving over 30% year-over-year growth. Gross margin improvement driven by better pricing, optimized production and RPS scaling. Stronger operating leverage as we consolidate functions and reduce fixed cost intensity. And most importantly, we remain firmly on track to reach EBITDA profitability by first half of 2026. This will be enabled by a combination of high average selling prices and systems with stronger margins, a growing RPS base that delivers predictable compounding revenue, expansion of our software and service offerings and enhanced operational efficiency across the organization. We are not chasing growth blindly. We are focused on sustainable, profitable scale that drives long-term shareholder value. For investors, here's what this all adds up to. Velo3D is becoming a mission-critical infrastructure provider for precision manufacturing. Our business model is shifting from transactional to platform-driven with clear visibility into customer lifetime value, expanding gross margins and a path to durable profitability. We're building an AI native production-as-a-service model, a category-defining company to the convergence of national defense, space systems, industrial AI and reshore manufacturing. Few companies have this combination of deep technical moat, platform leverage, recurring revenue visibility and alignment with macroeconomic and geopolitical trends that are reshaping the industrial base. So as we close out this quarter, I want to emphasize, we are not just improving the business, we are redefining what this business is. The pieces are coming together, the customers, the contracts, the tech stack, the recurring engine, and it's happening at precisely the right moment in the market. We're building a company that is resilient, essential and built for the long haul. Thank you for your continued support and partnership. I'll now turn the call over to our CFO, Hull Xu, to walk you through the financial details of Q2.

Thank you, Arun. Second quarter revenue was $13.6 million, up 31% compared to the year ago quarter. The increase was driven primarily by a higher number of systems sold. RPS revenue has started to meaningfully contribute to total revenue, and we expect RPS revenue to continue to increase as a percentage of total revenue. Gross margin for the second quarter was negative 11.7% compared to a negative 28% in the year ago quarter. Let me provide some color on gross margin. The reason for the negative gross margin is primarily attributable to 2 systems sold in this quarter that were manufactured in early 2024, where the company had significantly higher fixed costs and overhead. We do not expect such remnants of the past to meaningfully affect future financial performance. As such, we expect gross margin to improve as we go through 2025 as a result of operational efficiency initiatives that we started to implement in the back half of last year and continue to implement this year. As RPS revenue begins to ramp, we expect our overall margin to improve as more and more parts reach production status. Non-GAAP operating expenses, which excludes stock-based compensation, declined year-over-year to $8.1 million as compared to $13.4 million in the second quarter of 2024. This decrease reflects a reduction in all expense categories and savings related to our cost reduction initiatives. Sequentially, non-GAAP operating expenses were also down compared to $8.8 million in the first quarter of 2025. GAAP net loss for the quarter was $13.8 million compared to a net loss of $172,000 in the year ago quarter. Non-GAAP net loss for the quarter was $11.3 million compared to a non-GAAP net loss of $21.7 million in the year ago quarter and $8.9 million in the first quarter of 2025. Non-GAAP net loss excludes stock-based compensation of $2.4 million. Adjusted EBITDA for the second quarter of 2025 was negative $8.9 million compared to a negative $15 million in the second quarter of 2024 and a negative $6.9 million in the first quarter of 2025. As of June 30, 2025, we had a backlog of $15.9 million and $17.8 million as of July 25, 2025. This compares to $16 million in backlog at the end of 2024 and $18 million of backlog in the previous quarter. Importantly, as Arun mentioned, the composition of our backlog made a significant shift toward RPS, driven by strong demand from the space and defense sectors. In terms of our balance sheet, as at the end of the second quarter, we had a cash and cash equivalent of $854,000 compared to $1.2 million at the end of 2024. We are reiterating our 2025 full year guidance today. We expect revenue to be in the range of $50 million to $60 million, gross margin to improve throughout the year, exiting 2025 at or above 30%. We expect full year 2025 non-GAAP operating expenses to be between $40 million and $50 million and capital expenditure of $15 million to $20 million for the year. In conclusion, we remain focused on executing our business strategy with a clear path to profitability on an adjusted EBITDA basis in 2026. With that, operator, I'd like to open the call to questions.

There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks.

Thank you, operator. Velo3D is in the midst of an exciting transformation, one defined by commercial momentum, operational excellence and a sharp focus on value creation. This past quarter was a turning point. We saw continued strong demand across our core verticals, with especially high traction in aerospace and defense industries, where precision, reliability and innovation are nonnegotiable. Our differentiated technology is winning, and that's reflected in the strategic long-term contracts we signed this quarter. These agreements are not just large in value. They are multiyear commitments from industry leaders that expand our backlog and validate our role as a mission-critical partner. We also took a major step forward financially. This model continues to resonate deeply with customers, delivering speed, quality and reliability at scale. Customer confidence in Velo3D is stronger than ever. We are seeing growing adoption of our solutions, increased repeat business and deeper partnerships, all clear signals that we are building something enduring. We believe the opportunity ahead of us is massive. With disciplined execution and strategic focus, we are positioning Velo3D to deliver sustainable growth and long-term value for our shareholders. Thank you for your continued trust, support and investment in our vision. Thank you again.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.