What happened
The stock of Velo3D (VLD -5.23%) ran up 39% by 1:56 p.m. ET on Wednesday. The additive manufacturing company, known for signing SpaceX as its first customer, crushed its earnings report.
Revenue shot up 160% from a year ago, and 60% from the previous quarter. Sales are jumping so fast, CEO Benny Buller thinks the company might grab the top spot in its industry by the fourth quarter.
So what
In the second quarter, Velo3D reported $19 million in sales, so that fantastic growth is coming off a tiny base. Last year, the company came public via a special purpose acquisition company (SPAC), and like a lot of SPAC stocks, it might be too early for conservative investors to consider. But the potential is nonetheless exciting.
Velo3D has developed a process that might (finally) fulfill the promise of 3D manufacturing. The company's machine, the Sapphire, creates metal parts via lasers. A lot of additive manufacturing companies do that. But what makes Velo3D special is that the resulting part isn't seeing the degradation that is common in the industry.
Usually a part that has been 3D manufactured requires additional support to keep it from breaking. With the Sapphire, no supports are needed. And as an added bonus, there's no need for parts to be redesigned for the printer. Unlike the rest of the industry, with Velo3D you can use your existing designs and the machine will print them right up.
Elon Musk, the CEO of SpaceX, liked the technology so much, he offered to buy the company. But Buller wanted to stay independent as this is his life's dream. So the company elected to come public via a SPAC in order to raise enough money to scale up with the SpaceX demand.
When Velo3D stock hit the markets, the head of additive manufacturing at SpaceX was quoted as saying, "Velo3D is at least five years ahead of any competition."
Now what
In the company's second-quarter earnings call, Buller noted that revenue is skyrocketing while its peer group's revenue has been flat, or down, over the same period. And he predicted his company will emerge as the market leader, possibly as soon as the end of the year.
The company is highly confident that it will achieve $89 million in revenue for 2022, a 225% growth rate over 2021. It just launched the Sapphire XC 1MZ, the largest version of its additive-manufacturing device. But more important for forecasting, Velo3D has already booked 95% of its revenue target for the year. The company has had to deal with supply chain issues, so it's always possible in this macro environment that something could go wrong. But the demand is clearly there.
The company now has $142 million in cash and very little debt. Velo3D burned through $44 million in cash in the quarter, but expects that burn rate to drop significantly in the third quarter. And it's increased its revolving credit with its bankers from $18 million to $45 million. The chief financial officer says it has ample liquidity for the future, and predicts the company will break even based on earnings before interest, taxes, depreciation, and amortization (EBITDA) in late 2023.
What's the difference in burn rate? Velo3D loaded up on inventory parts in the quarter, trying to fulfill all its orders. But because of delays in the supply chain, not all those orders were shipped as quickly as the company wanted. In other words, even though second-quarter growth was spectacular, it actually fell short of what it could have been. So the third-quarter outlook for the company (and the stock) is very bullish.
