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

Good day, and welcome to the iAccess Alpha Virtual Best Ideas Investment Conference 2025. The next presenting company is Velo3D Inc. [Operator Instructions] I'd now like to turn the floor over to today's host, Mr. Arun Jeldi, CEO of Velo3D Inc. Sir, the floor is yours.

Good afternoon, everyone, and thanks for joining the conference. My name is Arun Jeldi. I'm the CEO of Velo3D. Velo3D is a large metal 3D printing equipment OEM. Velo3D, I'm going to turn this -- so it's founded in 2014. We are headquartered in Fremont, California. Currently, we employ about 133 employees. We are the leading provider of advanced metal additive manufacturing 3D printer solutions. We offer a full stack of manufacturing platform across industries such as space, aviation, defense, automotive and energy and semiconductors. So we have a software stack and a hardware stack of fully integrated metal AM solution. The software piece is called Flow software, and also we have a quality assurance software, which is in-house developed and is specific to Velo3D Sapphire machines. Our machines are called Sapphires, and there are three different kinds of Sapphire machines we actually market currently, anywhere between 500 millimeters to 1 meter Z-height is the height of the parts we can print on these metal additive laser bed fusion technology platform. So we have about 63 issued patents currently and 51 pending. This is the -- Velo3D is the only metal additive made and manufactured in U.S. The other competitors are more of Europe or Japan. Coming to the history of Velo3D. In 2024, there was a restructuring of the company, and I'm the CEO of Arrayed Additive, which became the majority shareholder of Velo3D back in 2024. And the reason for Arrayed becoming a majority shareholder is a strong overlap of what as a business we do. Arrayed Additive is focused on lightweight metals like aluminum and magnesium, where Velo is a 3D OEM. So the combination helps a vision of vertical integration of the companies. I'm also CEO of Light Magnesium Products, which is a 100-year-old traditional manufacturing, providing aerospace and defense solutions from last century, which is based in Ohio. And also CEO of Crown Magnesium, which is an R&D level magnesium producer in U.S. So our vision of vertical integration from feedstock to all the way to additive solution fulfills this need of integration by acquiring Velo3D. And the significance of that is we became the biggest metal OEM in 3D printing market currently. So coming to the customers of Velo3D and all my other businesses, we are very much focused on defense, aerospace, space and semiconductors. We also have a contract manufacturing chain, which we also work with on our workflows and also support with our downstream post-processing processes. So majority of our defense, we are focused on is, Navy, Air Force and Army. We work directly with them. And also, we work with several of their primes like Lockheed, General Dynamics, Kratos, Hermeus and Sirkosky. We also have a big footprint in space where Velo is the first mover for SpaceX, where they host about 25 machines of Velo. And SpaceX was an investor back in 2018. They exited after a SPAC. But right now, currently, all the Raptor engines the SpaceX produces, most of the 3D printed is on Velo platform. There are five major parts goes on every single Raptor engine today, which is specifically qualified for Velo3D platform. So they initially pushed the 3D printing in the space. And then later, we -- there are several customers we work currently now with Firefly, Vaya Space Ursa Major, Imulse Space and NASA. Avio is an Italian space agency. Currently, we host about -- I mean, we have about 140 machines deployed across the world, majority in U.S. Also, we have machines in Europe, Japan and Australia. Semiconductor-wise, we work with majority -- major semiconductor companies like Applied Materials, Lam and those are initial qualifiers of their semiconductor machines. We provide parts for those machines specifically. And we have a contract manufacturing group of suppliers who we work with and host our machines like ADDMAN, K-G, Mears, who are focused on aerospace and defense machining and post-processing. And they also host our machines and are big buyers of our machines to spread the supply chain for reducing the risk. We support them through our engineering services and first prototype qualifications in several different levels. So we are deeply rooted in these spaces, like aerospace, space and semiconductors. Coming to the geopolitical demand, the present administration and the previous administration pushed reshoring of majority of manufacturing that increases the national security and economic resilience. And because of the broken supply chain, it became inevitable that the supply chain needs to be built within our borders to reduce the threat from other adversaries. So in last 4 years, the government has pushed about $237 billion on reshoring. Velo became the choice on this to digitalize the manufacturing in U.S. The current supply chain is very broken due to silos of how they work and what data they collect. With the digitalized deployment of these machines, this will help us to collect data very efficiently and also increase our design efficiency because there are no boundaries on the design, and it can be done anywhere on demand without design restrictions. That increases the efficiency of future drones, missiles and aircrafts we produce, and Velo is the frontrunner on these programs. So what are the key challenges and what makes this manufacturing a 3D printing solution as a national readiness is the critical part for production in traditional manufacturing is very slow and fragmented and dependent on manual process. So we have a huge opportunity where we can build the digitalized foundries, what we call as digitalized foundries in different locations close to the OEMs helps us to reduce the supply chain problem and increase the production of various parts needed today. And this enables us on-demand anywhere, anytime. And Velo laid out that foundation in the first 2 years, we have printed files that are digitalized and can be put on any of the Velo machines from small machine to big machines without any changes and can print anywhere any part of the world. And that became an intelligent distribution where most of the data collected helped us as an AI-driven predictive and adaptive build control, which increases our production levels and also the design enhancement on the legacy parts which can be changed in the new programs to make the products efficient. And this helps Velo to collect a lot of data, which we have been collecting data from the last 7 years. So in the next 10 years, Velo platforms become the AWS of advanced manufacturing, providing a Platform as a Service. So in that route, what we introduced is a rapid production solutions where we are hosting the machines currently and printing parts because these machines eventuality is to print parts, and we are adopting that model right now to gain the data collection within our organization and make efficient parts for the big OEMs and defense contractors and also primes. So what made our solutions efficient is the lead times. Traditional manufacturing is the lead time currently is anywhere between 8 to 20 weeks. And the most important thing is time. So Velo can actually qualify and get these productions pretty fast and can actually make the CAD file and produce within 4 weeks of its requested -- was the customer request. So that reduces the cost and increases the efficiency for the customers and also increases the data collection and also profitability of the company in general. So Velo as a digitalized manufacturing solution has proven that in various platforms. And that's why the DoD and others love the platform because it's secure within states and the machines doesn't -- are not sold to adversaries. And this increases the efficiency by controlling in the national security on the cybersecurity level because the software is inbuilt, and we control all the software and data within the country. So Velo became a choice for most of the national security programs. So how did we prove that is one of the major example I can give is, one of the major primes came to us on a traditional manufacture munitions program, and it normally takes about 9 to 12 months. We were able to qualify the same legacy program in 3 months and went to production with 25% in the cost reduction and increasing the efficiency. We were able to produce triple the number of parts with a lesser cost in the time line what they asked for, which traditional manufacturing took about 12 months, we were able to produce in 3 months. So that is one of the major example on the defense level. Coming to the semiconductor, one of the OEM came to us back in November with a part requested about 9 parts. And they were able to qualify that this is a program for 3 years, but we were able to finish in 9 months. And currently, those all parts, which are additively printed is being tested on that. And 2026 is the production year for those semiconductor programs. We have done the same for Navy, Army and all defense contractors. So Velo is leading that way in reducing the time and increasing the efficiency in production of parts. What changed Velo from the previous model to current model? So previously, the company was able to only sell a single sale of revenue where they're just focused on machine sales. In 2024, when Arrayed took over Velo as a majority shareholder, we changed that the previous model -- this model was tested a little bit, but it went full fledged after Arrayed took over as this is the prime level of revenue sources where now Velo has recurring revenue with this 4-layer revenue generation. What we call the Rapid Production Solutions, which produces -- we host the machines and produce parts for the -- our customers. And we also sell the machines to actually hold the capacity for them. And as a service, all the spares and consumables are one of the service. And also, we provide the concept to prototype to production level engineering services. So there is a recurrent revenue model, which is created now. And we are hoping to get to the EBITDA positive by mid-2026. This changed completely how the long and long-term view and strategy for the company. And this is the year we have proven that concept. And we are going to increase that production level to expand beyond Fremont to Midwest and host about 400 machines in the next 5 to 6 years and do the parts production in Midwest facility to reduce the cost by 15%. So if you see the trajectory on from '25, '26 and '27, there is a 50% annual growth recorded due to Rapid Production Solutions. And the mix of system sales and parts production will increase the RPS will take over most of the revenues by 2027. Still the majority of the revenue is also comes from system sales. So we are implementing this model to make sure that we have executed that and last 3 quarters can talk a lot of volume of what we have changed and how the company is moving forward to getting that EBITDA profitability by 2026. There are several changes in operational efficiency and robust pipeline we have built, and we have reduced a lot of warrants and financial liabilities on the company and increased higher margins on RPS right now. Currently, the business model -- on parts production, we do about 50% to 60% on gross margin. On the machines, we do about 35% to 40%. Parts and spares and services, we do about 40%. So that is the current gross margin profitability on those. And on the parts production, we have about -- the BOM cost or the production of each machine is about $1.9 million, and we sell it about $4 million. And the ROI on each machine on parts production is $2 million per year and the life of the machine is for 10 years. So in a lifetime, you have about $20 million in revenue on each machine we host and the parts we produce. And in addition to that, you have spares and consumables and engineering services that add up to all the revenues on the recurring basis because it's a snowball effect once you -- in aerospace and defense, once you qualify these machines as a platform, that will continue for a lifetime of that part because of the FAI rules. So 2026, we are expanding out of Fremont because we are now fully occupied by 2025, hosting 25 machines in our Fremont facility. And then '26, we're going to start deploying the machines and manufacturing in Midwest facility. The ramp-up will be more, and we are hoping to build about 40 machines next year. And fully expand our capabilities in Midwest. So Velo is the first mover in mission-critical AM with proven IP, and it's transforming its high-margin recurring revenue business. And there's a deep traction of defense and aerospace. So we have a great team of people who actually push those to the limits. And please let me know if you have any questions for me.

[Operator Instructions]

Are we expected to update on Defense prime deals mentioned in Q3? Yes. We'll be releasing some press releases. I mean, due to public in nature, I can't disclose, but you will see pretty quickly those prime deals coming out in press releases. How should we think about the revenue mix between RPS and system? So the RPS will be about 40% of the revenue and system sales will be more of 60% in '26. It takes about 2 to 3 years to get the RPS to the levels of 70% revenue because of qualifying time line. So by '27 is a year where we see a majority take off RPS on our revenue model. What are we doing for iRocket? iRocket, initial phase of their rocket development and other products they are developing. They recently bought a machine from Velo, and we are developing some parts for them on their rocket engines. So it's a long-term contract, what we have done with iRocket. What mix of service and versus selling of machines do you want to get to? So the service part should be -- it's a snowball of a tax it actually increases as we go because once you qualify a program and that's, let's say, two, three parts, and they will come back for 10 more parts. So if you see the legacy parts and services that will qualify on Velo machines, that business can last for a few decades, and then it keeps increasing the volumes. So there will be more need of hosting more and more machines. And also, the customers buy these machines because they want to hold their own capacity rather than depending on our own machines. So there will be a huge increase on both ends of services and machines. What are the main drivers behind the projected exit to 30%? So previously, there is a huge overhead on the company. We used to have about 300 people, right now, 133 people with very less overhead. We are increasing the margins to 30%. That is the driver. Main driver is reducing the operational cost and also increasing the efficiency and also making sure we have watched our profitability on each service or machine we sell to the extent that it will cover the gross profit. Is iRocket buying machines or will it be in RPS? They did both. Right now, we are printing parts for iRocket and also they are buying machines. They bought just another machine recently. I hope I answered all your questions.

There are a few more.

Few more? What is the average size of the projects do you do on service side? Right now, the service side, we average about $175,000 to $213,000 is average. What milestones should investors monitor to track progress towards your long-term growth targets? So the major milestones is more qualification of these programs. And also the sale of the machines and also we're investing quite a bit on R&D to increase this efficiency. So those will be the long-term growth targets. And the number of machines hosting has increased from, let's say, 10 last year to 25 by early or mid-'25, mid-'26. As the fleet increases, you can expect that revenue generation on those will be one of the growth targets you can project on. How are you positioning the business if tariff policy becomes more restrictive in '26? So one of the things is like the expansion and also renegotiating some of the pricing on these tariff so that the vendors can actually take the hit on the tariff and increase our volumes. So that's one of the things what we are trying to achieve. What are the largest near-term pipeline opportunity by customer? The DoD and defense contracts have been very much a big driver and semiconductor qualification will increase the fleet to 20 or 30 machines in the future. That is a recurring revenue and also qualifying several different space programs on Velo. We have secured almost 70 different programs just this year, if you see the filings and whom we are working with. So that just can give you the good idea of how the pipeline is increasing. We expected only like closing of 10% or 15% of the deals, but we are closing 30% to 40% of the deals currently at a rapid speed. So the pipeline is growing really fast. 40 machines you're making next year, how many for sale? We would say 50-50. That's what our analysis is. So we host 20 machines and we sell 20 machines. What are you hearing from key A&D customers regarding program ramp timing and budget visibility of 2026? So different customers, basically, the timing of that all depends on the qualification of those parts, which we are running about four production programs right now for them. The visibility is right now, we thought of giving -- increasing by 30%. It seems like they're actually adding on 100% of what we can do. So that's the speed they are going with. So 2026 is the year where the true nature of the ramp-up on Velo3D will be visible. Will Velo3D generate incremental revenue from the next-gen SpaceX Raptor 4 engine? Yes. We are still in contact with SpaceX and SpaceX is actually increasing their fleet and also sending us parts to print. So we are in good terms with SpaceX. Are we still on schedule to be positive? Yes, we are still scheduled to be positive in the first half of 2026. Is Velo considering working with new defense tech primes like Anduril? We are. Anduril is currently the customer of Velo. We are already working with their lot of programs, and we are increasing their parts and other programs. We are combining our forces to get more contracts together. Will SpaceX buying more machines? We are in talks with SpaceX. I can't disclose the deal until it happens, but most likely they will. What is the relationship with Mears? Mears is a post-processing downstream contract manufacturer, which we collaborated. They are trying to host some of our machines and qualify some of their programs on our Velo machines, which increases both sides, the ore flow and also the program qualification will give more demand to Velo machines. How does Velo3D see the massive increase in demand in drones in USA. We are already seeing that and the allocation with Anduril and Velo3D and SpaceX and some of the programs together. Velo3D is the choice for a lot of these programs because of U.S. manufacturer large metal size. Is the machine that Mears is showing as a new machine? It's an XC machine, which has been in production from last 2 years, but we made some changes to that. But yes, that is our large format machine, what Mears is showcasing, but those been existent from last 1.5 years. Mears is hinting at a new machine that this is a new machine? They're just buying machines from us. I don't know what the new machine is, but they're not the machine manufacturers. Velo is the machine manufacturer. So Velo has that new version of it, which is Sapphire XC, which is our large format machine. Any other questions? I think I answered all your questions, hopefully. Just let me know if any of these are skipped or...

Okay. Gentlemen, if there are no more questions, that will conclude the Velo3D Inc. presentation.

Thank you so much for the opportunity.

Thank you, sir. You may now disconnect, and please consult the conference agenda for the next presenting company.