Q1 2022 Velo3D Inc Earnings Call
Hello and welcome to the Zello 3D Reports first quarter 2022 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
Hello, and welcome to the Zillow three D reports first quarter 2022 financial results conference call. At this time, all participants are in a listen only mode.
And answer session will follow the formal presentation.
If anyone should require operator assistance, please press star zero on your telephone.
Do you want you require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Bob Koski head of Investor Relations. For example, three D. Please go ahead. Thank you I'd like to welcome everyone to our first quarter of 2022 earnings conference call on the call today, we will start off with comments.
As a reminder, this conference is being recorded. It's not my pleasure to turn the call over to Baba Kunski, head of Investor Relations for Velo3D. Please go ahead. Thank you, I'd like to welcome everyone to our first quarter of 2022 earnings conference call. On the call today, we will start out with comments from Benny Bullard, CEO of Velo3D, who will provide a summary of the quarter as well as provide an update on the key strategic priorities for 2022.
Benny Butler.
<unk> <unk>, who will provide a summary of the quarter as well as to provide an update on our key strategic priorities for 2022.
Following Benny's comments, Bill McCoom, our CFO , will then review our first quarter 2022 financial results and provide our guidance.
Following Betty's comments Bill Mccomb, our CFO will then review our first quarter 2022 financial results and provide our guidance.
As a reminder, a replay of this call will be available later today on the investor relations page of our website.
As a reminder, a replay of this call will be available later today on the Investor Relations page of our website.
During today's call, we 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 our 2021 10K filing. Please see those documents for additional information regarding those factors that may affect these forward-looking statements.
During today's call we 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 our 2021 10-K filing.
Please see those documents for additional information regarding those factors that may affect these forward looking statements.
Also, we 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 reconciliation.
Also we 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.
Finally, to enhance this call, we will post a set of PowerPoint slides which were referenced during the call on the events and presentations page of our Investor Relations website.
Finally to enhance this call we posted a set of Powerpoint slides, which we will reference during the call on the events and presentations page of our Investor Relations Web site.
With that, I'd like to turn the call over to Benny Buller, CEO of Bellow 3Gate. Benny?
With that I'd like to turn the call over to <unk> CEO of <unk>.
Thanks, Bob, and I'd like to welcome everyone to our first quarter earnings call. Please turn to slide four.
Thanks, Bob and I'd like to welcome everyone to our first quarter earnings call.
Please turn to slide four.
Overall, as our first quarter results show, we are continuing to cement our position as a differentiated technology leader in high value manufacturing.
Overall, our first quarter results show, we are continuing to cement our position as a differentiated technology leader in high value manufacturing.
Our metal additive manufacturing technology changes the way products in aerospace, energy, power and other industries segment are designed and produced. It is used to make some of the most critical parts of these products and we are maintaining our focus on driving the vast blue ocean market opportunity that is enabled by our unique and superior technology.
Our metal additive manufacturing technology changes the way products in aerospace energy power and other industries.
Our design and produce it.
It is used to make some of the most critical parts of this product and we are maintaining our focus on driving the best Blue Ocean market opportunity that is enabled by our unique.
Helios technologies.
I would now like to discuss the specifics of our results.
I would now like to discuss the specifics of our results.
We are pleased with our Q1 performance as we posted our third straight quarterly revenue increase as a public company, added to our backlog and bookings and expanded our new customer footprint. Given these results, we remain highly confident in achieving our 2022 revenue target of 89 million, a year over a year growth rate of 225 percent.
We are pleased with our Q1 performance as we posted our third straight quarterly revenue increase as a public company.
Added to our backlog and bookings and expanded our new customer footprint. Given this result, we remain highly confident in achieving our 2022.
Revenue target of $89 million, a year over year growth rate of 225%.
For the quarter revenue rose 17% sequentially and more than 900% year-over-year as customer adoption of our SAFA technology remains very high. We shipped eight systems during the quarter.
For the quarter revenue rose, 17% sequentially and more than 900% year over year as customer adoption of our self I'll pick a little German batesville, we shipped eight systems do any of that.
Christa.
The meant for our Sephora and Sephora XT systems continued to grow and we exited Q1 with a record backlog of $55 million. Additionally, we booked seven systems during the quarter including a number of new customers.
Demand for our Stefan Stefan XC systems continues to grow and we exited Q1 with a record backlog of $55 million.
Additionally, we booked seven systems during the quarter, including a number of new customers.
2022 visibility has also improved given our performance as we now have more than 75 percent of our 2022 revenue guidance already in backlog recurring or record.
2022 visibility has also improved given our performance as we now have more than 75% of our 2022 revenue guidance already in backlog recurring or recognized.
We also successfully managed our supply chain during Q1 to meet our quarterly production goal.
So successfully managed our supply chain during Q1 to meet our quarterly production goals.
We continue to see challenges in the supply chain, but are working closely with our suppliers to avoid any disruption.
We continue to see challenges in the supply chain, but are working closely with our suppliers to avoid any disruptions.
Finally, we achieved an important milestone for the company during the quarter as we started volume production of our Safari.
Finally, we achieved an important milestone for the company during the quarter as we started volume production of our Salt Lake City.
I would now like to spend a few minutes discussing why we remain confident in achieving our 2022 revenue targets of $89 million.
I would now like to spend a few minutes discussing why we remain confident in achieving our 2022 revenue target of $18 million.
I'll focus my remarks on our improving 2022 visibility on slide 5.
I'll focus my remarks on our improving 2022 visibility on slide five.
as well as provide additional details on our ongoing success with our CFRXC product on slide 6.
As well as provide additional details on our ongoing success with us see products on slide six.
Turning to slide five.
As I previously mentioned, our 2022 confidence is driven by the fact that we have significant visibility for the field. In addition, we expect to see ongoing strong demand for both our Sephar and Sepharx systems as customers continue to choose our industry-leading technology for the AM needs.
As I previously mentioned, our 2022 confidence is driven by the fact that we have significant visibility for this year.
In addition, we expect to see ongoing strong demand for both of US I thought I'd say Fox <unk> systems as our customers continue to choose our industry, leading technology for their families.
Specifically, the child provides a detailed breakdown of our 2022 revenue expectations by category, exiting Q1 versus where we were coming into the year. As you can see, we made significant progress increasing our 2022 visibility over the last three months and now have more than 75% of our 2022 revenue targets already recognized, recurring or booked for this year.
Specifically the chart provides a detailed breakdown of our 2022 revenue expectations by category exiting Q1 versus where we were coming into the year as you can.
You can see we made significant progress in pushing out 2022 visibility, although the last three months and now have more than 75% of our 2022.
Revenue targets, although I do recognize recurring booked for this year.
A key driver for this improvement is our continued success in securing new system bookings. The result is a significant increase of our shipable backlog that will contribute to our 2022 revenue.
A key driver for this improvement is our continued success in securing new system bookings. The result is a significant increase of our shippable backlog that will contribute to our 2022 revenue.
This can be seen by the sequential reduction in future bookings needed to reach our 2022 revenue.
This can be seen by the sequential reduction in future bookings needed to reach our 2022 revenue.
guidance as it fell from approximately 40% of our full year guidance at the beginning of the year to approximately 25% at the end of Q1.
Guidance is it felt from approximately 40% of our full year guidance at the beginning of the year approximately 25% at the end of Q1.
In summary, given our Q1 results, strong bookings activity, and growing backlog, we remain very confident in achieving our 2022 revenue form.
In summary, given our Q1 results strong bookings activity and growing backlog, we remain very confident in achieving our 2022 I think you're focused.
Moving on to slide six, I would like to highlight our ongoing success with the rollout of our Sephora XCC.
Moving on to slide six I would like to highlight our ongoing success with the rollout of our stuff all access system.
Overall, we believe the increasing demands for our CephRxA is directly related to the unique value of our technology and continue to see strong adoption from both our OEM and contract manufacturing partners.
Overall, we believe the increasing demands for us that's what I'd say is related to the unique value of our technology and continue to see strong adoption from both our OEM and contract manufacturing partners.
As a reminder, the key elements of the CEPHR-XC relative to the CEPHR include about 400% higher production rate, lower part cost by as much as 60 to 80%, and the ability to produce 400% larger volume.
As a reminder, the key elements of the Suffolk see Irrelative to the separate include about 400% higher production rates lower pulp costs by as much as 60% to 80% and the ability to produce 400% onshore volume pumps.
I also want to briefly highlight that the CephRxC is utilizing the same intelligent fusion manufacturing technology they use by CephR and is designed as a scale-up solution. This enables customers to develop their products and qualify their manufacturing technology on CephR. Then, when they are ready to scale up production volume, they purchase a CephRxC to achieve the same productivity of multiple CephRs at a fraction of the cost, all while utilizing the same.
I also want to briefly highlight that the stuff out like say is utilizing the same intelligence fusion manufacturing technology. They used by suffer and is designed as a scalable solution that enables customers to develop their products and qualify the manufacturing technology on Stefan then when they are ready to scale up production volume.
Purchase et cetera.
To achieve the same productivity of multiple stephane at the fraction of the cost.
All while utilizing the same manufacturing process. This core capability enabled a seamless production transition from scale up from say hostess gifts.
This core capability enables a seamless production transition and scale up from Ceph R to Ceph R3.
Okay.
This approach is not only driving demand for the CefRXC, but is also accelerating the adoption of our CefR system, especially with new customers. Our ability to offer a cost-optimized scale-up solution for CefRXC enables more customers to start their journey on the CefR Plus.
This approach is not only driving demand for the Stefan exits, but is also accelerating adoption of our self our system.
Especially with new customers, our ability to offer a cost optimized scale up solution that goes that far exceed enable more customers to start their journey on the software platform.
Specifically for the quarter, CFR-XC accounted for more than 45% of our total revenue. As we increase the shipment rate of CFR-XC, our confidence in this year's guidance increases.
Specifically for the quarter, so that's how I see it.
Accounted for more than 45% of our total revenue.
As we increased the shipment rate of say far exceed our confidence in the guidance.
Races.
Looking forward, CEPHA X3 now accounts for more than 90% of our total backpacks.
Looking forward, so far extreme now accounts for more than 90% of our total backlog.
Given these strong trends, we have made the decision to expand our SFRxE production rate starting in the second half of the year.
Given these strong trends, we have made the decision to expand our stuff our exit production rate starting in the second half of the year.
In summary, increasing customer adoption of CFRxE enabled us to exit the quarter with a record total backlog of $55 million, up 17% sequentially and more than 80% year-over-year.
In summary, increasing customer adoption of the Forex C enabled us to exit the quarter with a record total backlog of $55 million up 17% sequentially and more than 80% year over year.
Visibility for 2022 is high and we remain very positive on the long-term fundamentals of our business.
Visibility for 2022 is high and we remain very positive on the long term fundamentals of our business.
More and more customers increasingly value our leading technology to build without compromising the high value parts they need.
More and more customers increasingly value and leading technology to build without compromising the high value parts they need it.
I would like now briefly to discuss a few of our key operating metrics for the quarter as well as review our 2022 targets, which remain unchanged. Please turn to slide seven.
I would like now briefly to discuss a few of our key operating metrics for the quarter as well as.
To review, our 2022 targets, which remain unchanged. Please turn to slide seven.
We added two new customers in Q1 while booking a number of new customers during the quarter.
We added two new customers in Q1, while booking.
A number of new customers during the quarter.
We are maintaining our guidance for 24 new customers in 2022 through the expansion of our United States footprint, as well as benefiting from the significant customer interest in Europe post our market entry late last year.
We are maintaining our guidance for 24, new customers in 2022 through the expansion of our United States footprint as well as benefiting from the significant customer interest in Europe post our market entry late last year.
We also shipped eight systems in Q1. For 2022, we expect to more than double shipments to 48 at the midpoint of guidance, also unchanged from last quarter.
We also shipped eight systems in Q1.
For 2022, we expect to more than double shipments to 48 at the midpoint of guidance also unchanged from last quarter.
Finally, our average existing customer purchases ratio for the quarter was 0.33 which was consistent with our long-term forecast of between 1.2 and 1.4 on an annualized basis.
Finally, our average existing customer purchases ratio for the quarter was <unk> 33, which was consistent with our long term forecast of between one point to one four on an annualized basis.
On slide eight, we are providing an update on our key revenue metrics for the first quarter under this report.
On slide eight we are providing an update on our key revenue metrics for the first quarter under the same format.
Overall, revenue for the quarter was $12 million. Sales revenue was $10 million with the balance from recurring revenue.
Overall revenue for the quarter was $12 million.
<unk> revenue was $10 million with the balance from recurring revenue.
For 2022, our guidance remains unchanged at $89 million at the midpoint, including approximately $11 million in recurring revenue.
For 2022, and our guidance remains unchanged at $89 million at the midpoint, including approximately $11 million.
Recurring revenue.
Year-of-sale ASP for the quarter was in line with expectations at $1.3 million, as we mentioned last quarter. We expect year-of-sale ASP to rise in 2022 to between $1.5 to $1.7 million as the result of increasing Saffar XC sales as well as a shift in transaction mix to more printer
Europe cell ASP for the quarter was in line with expectations of one point.
One $3 million as we mentioned last quarter, we expect Europe Celsius pay for rides in 2022 between one five to $1 $7 million. That's the result of some questions.
Sales as well as a shift in transaction mix to more printer sales.
Before turning the call over to Bill to discuss our financials, I would like to conclude my remarks by providing a brief update on our 2022 strategic priorities.
Before turning the call over to bill to discuss our financials I would like to conclude my remarks by providing a brief update on our 2022 strategic priorities. Please turn to slide nine.
Overall, we continue to see a rapidly expanding global market for high-value metal parts and remain committed to providing our customers with the technology to meet their growing needs.
Overall, we continue to see a rapidly expanding global markets for high value parts and remain committed to providing our customers with the technology to meet the growing inmates.
First, we remain focused on increasing our existing customer footprint to follow on system purchase.
Trust.
We remain focused on increasing our existing customer footprint will follow on.
System purchases, we continue to invest in both our technology and support capabilities as the success of our customers is what drives purchases of additional systems.
We continue to invest in both our technology and support capabilities as the success of our customers is what drives purchases of additional.
From a new customer perspective, we are excited about our European expansion this year. We see Europe as a significantly untapped opportunity and based on discussions with potential customers over the last three months, interest in our technology is very high. We expect Europe to account for a material portion of our new customer count.
From a new customer perspective, we are excited about our European expansion this year.
We see Europe , as a significantly untapped opportunity and based on discussions with potential customers over the last three months interest in our technology is very high we expect Europe to account for a material portion of our new customer count for this year.
Our second priority is to execute on our manufacturing expansion plans, which will provide the capacity we need to meet the growing demand for us so far.
Our second priority is to execute on our manufacturing expansion plans, which will provide the capacity we need to meet the growing demand for our surface systems.
Overall, we remain focused on successfully managing our supply chain in relation to our production schedule, especially electronic components.
Overall, we remain focused on successfully managing our supply chain.
<unk> to our production schedule, especially electronic components.
To date, we have been able to mitigate any material impact on our business through multi-tiered collaboration.
Date, we have been able to mitigate any material impact on our business through a multi tiered collaborations.
We are not only helping our suppliers directly, but also working with our supply chain in the procurement of critical components to ensure we meet our production.
We are not only helping our suppliers directly but also working with our supply chain in the procurement of critical components to ensure we meet our production goals. Additionally.
Additionally, we are leveraging our relationships with our top customers to secure needed inventory.
Additionally, we are leveraging our relationships with our top customers to secure needed inventory.
That being said, our supply chain remains an ongoing challenge and we are maintaining higher-than-normal inventory as a mitigation to the risks in the supply chain.
That being said our supply chain remains an ongoing challenge and we are maintaining higher than normal inventory as a mitigation to delays in the supply chain.
Also, with the successful shift to volume production of Ceph RxE, we now have the additional resources to further optimize system performance and production quality, factors that we believe are critical for customer success and key to driving repeat order.
Also with the successful shift to volume production of the FRC.
Now have the additional resources to further optimize system performance and production quality factors that we believe are critical for customer success and keep the driving what they told us.
On the cost side, we continue to expect a material reduction in FRXC production costs through the end of the year as we leverage our manufacturing experience. This reduction will be driven primarily by higher volume production over a fixed cost base, as well as benefiting from accumulated learnings to increase efficiency and throughput.
On the cost side, we continue to expect a material reduction in production.
Production costs for the end of the year as we leverage our manufacturing experience. This reduction will be driven primarily by higher volume production of our fixed cost base as well as benefiting from our accumulated learnings to increase efficiency and throughput.
Our final priority is to continue to deliver industry-leading service to our customers.
Our final priority is to continue to deliver industry, leading service to our customers.
We believe our customer service separates us from our peers and is a critical driver of why we continue to see strong demand from our existing customers.
We believe our customer service separates us from our peers and is a critical driver of why we continue to see strong demand from our existing customer base.
As a result, we are driving a systematic data-driven effort to continuously improve the reliability and quality of our
As a result, we are driving a systematic data driven effort to continuously improve the reliability and quality of our systems.
We believe the reliability of additive machines should reach the level of traditional subtractive milling machines over time and we will keep investing and improving our products until we achieve this level of reliability.
We believe the reliability of additive machines should reach the level of traditional subtractive milling machines overtime.
And we will keep investing in improving our products until we achieve this level of for liability.
Finally, we continue to expand and develop our growing customer support team to maintain our industry-leading service capability.
Finally, we continue to expand and develop our growing customer support team to maintain our industry leading service capabilities.
We are excited about what we have accomplished to date and believe we are well positioned to capitalize on the significant global opportunity for our technology.
We are excited about what we have accomplished to date and believe we are well positioned to capitalize on the significant global opportunity for our technology. We remain confident in our 2022 forecasts and look forward to executing on our future vision. With that, I'd like to turn the call over to Bill to discuss the financials and our guidance.
I remain confident 2022 forecasts and look forward to executing on our future vision.
With that I'd like to turn the call over to bill to discuss the financials.
Guidance.
Thanks, Benny. Moving on to our quarterly financial performance, please turn to slide 11. Revenue for the quarter was $12.2 million, up 17% sequentially and more than 900% year-over-year. The sequential increase in year-of-sale revenue was driven by an increase in ASPs for printed sale transactions due to a riching mix of Sapphire XC.
Thanks, Danny moving onto our quarterly financial performance. Please turn to slide 11 revenue for the quarter was $12 2 million up 17% sequentially and more than 900% year over year, but.
The sequential increase in yield sale revenue was driven by an increase in asps.
<unk> sale transactions due to a richer mix of Sapphire see.
Recurring revenue also increased sequentially due to higher lease and service revenue from an increased number of systems in the field and a catch-up of revenue which was affected by contract delays in Q4. On a year-over-year basis, year of sale revenue was up from $200,000 to $10.2 million and recurring revenue more than doubled from $900,000 to $2 million.
Recurring revenue also increased sequentially due to a higher lease and service revenue from an increased number of systems in the field and a catch up of revenue, which was affected by contract delays in Q4.
On a year over year basis year sale revenue was up from 200000 to $10 2 million and recurring revenue more than doubled from $982 million.
Gross margin for the quarter was 0% in line with our forecast. We ramped up production of SAFIRE-XC systems in Q1, and as we foreshadowed last quarter, Q1 gross margin was therefore impacted by lower customer pricing, higher material costs, and higher labor and overhead for these systems.
Gross margin for the quarter was zero percent in line with our forecast.
Ramped up production of Sapphire exchange systems in Q1, and as we foreshadowed last quarter Q1 gross margin was therefore impacted by launch customer pricing higher material costs and higher labor and overhead for these systems as we continue to ramp production volumes through the year and accumulated experience in building SaaS.
As we continue to ramp production volumes through the year and accumulate experience in building Sapphire XCs, we remain on track with the outlook for gross margin that we gave last quarter and the 30% gross margin target by the fourth quarter of this year.
We remain on track with the outlook for gross margin that we gave last quarter and a 30% gross margin target by the fourth quarter of this year.
Adjusted operating expenses for the quarter, excluding stock-based compensation, rose $5 million, or 28% sequentially, to $23.2 million. R&D expenses rose $3.4 million as we increased spending on a widening range of technology initiatives and increased personnel costs.
Adjusted operating expenses for the quarter, excluding stock based compensation rose $5 million or 28% sequentially to $23 2 million R&D expenses rose $3 4 million as we increased spending on a widening range of technology initiatives and increased personnel cost.
G&A increased $900,000 given by increased headcount, professional services, and public company costs.
G&A increased 900000, driven by increased head count and professional services and public company costs.
Sales and marketing increased $700,000 due to increased headcount and other costs.
Sales and marketing increased 700000, due to increased head count and other costs.
Gap net loss for the quarter was $65.3 million, including a non-cash charge of approximately $37 million related to changes in the fair value of our warrants and earn-out liabilities. On a non-gap basis, which excludes discharge and stock-based compensation expense, net loss was $23.1 million. Adjusted EBITDA for the quarter, excluding the same costs, was a loss of $22 million. Turning to the balance sheet.
GAAP net loss for the quarter was $65 3 million, including a noncash charge of approximately $37 million related to changes in the fair value of our warrants and earn out liabilities on a non-GAAP basis, which excludes this charge and stock based compensation expense net loss was $23.
$1 million adjusted EBITDA for the quarter, including the signed excluding the same costs was a loss of $22 million.
Turning to the balance sheet on slide 12.
We exited the quarter with a very strong balance sheet of $186 million in cash and very limited in debt. Cash usage for the quarter was $3.5 million.
We exited the quarter with a very strong balance sheet with $186 million in cash and very limited debt.
Cash usage for the quarter was 37 million.
Investment in working capital of $12 million was primarily driven by an increase in inventory to provide a cushion against current difficult supply chain conditions and to position us for second half production growth. We expect inventory to stabilize in the second half of the year by when we will have built a sizable inventory cushion and as we ramp production.
Investment in working capital of $12 million was primarily driven by an increase in inventory to provide a cushion against difficult supply chain conditions and to position us as the second half production growth.
We expect inventory to stabilize in the second half of the year by when we will have built a sizable inventory cushion and as we ramp production.
CapEx was $3 million, primarily related to the buildout of our new manufacturing facility, which we discussed last quarter. We've largely completed the CapEx for the facility and now have the capacity necessary to meet our growth.
Capex was $3 million, primarily related to the build out of our new manufacturing facility, which we disclosed last quarter.
Largely completed the Capex for this facility and now have the capacity necessary to meet our growth forecast.
We expect total cash usage in Q2 to be similar to or slightly higher than Q1. This reflects our conscious decision to increase inventory to support our growth given current supply chain challenges.
We expect total cash usage in Q2 can be similar to or slightly higher than Q1. This reflects our conscious decision to increase inventory to support our growth given the current supply chain challenges.
We expect our cash flow to decline in the second half of the year, and we believe we have ample liquidity to fund our long-term growth.
We expect our cash burn will decline in the second half of the year and we believe we have ample liquidity to fund our long term growth plan.
I'd now like to provide our guidance for 2022. Please turn to slide 13.
I'd now like to provide our guidance for 2022, please turn to slide 13.
As many discussed, we believe we have significant visibility into achieving our 2022 revenue forecast, as we have more than 75% of our forecast already accounted for by recognized Q1 revenue, backlog, and recoding revenue.
As Manny discussed we believe we have significant visibility into achieving our 2022 revenue forecast as we have more than 75% of our forecast already accounted for by recognized Q1 revenue backlog and recurring revenue.
Our 2022 guidance remains unchanged and is as follows. Total revenue in the range of $87 to $91 million. We expect continued growth in our bookings rate with 2022 bookings in the range of 47 to 49 systems. We expect custom additions totaling 24 new customers in 2022. Finally, our shipment guidance also remains unchanged and in the range of 47 to 49 shipments.
2022 guidance remains unchanged and is as follows total revenue in the range of $87 million to $91 million. We expect continued growth in our bookings rate with 2020 to bookings in the range of 47% 49 systems, we expect customer additions totaling 24, new customers in 2020.
Two finally, our shipment guidance also remains unchanged and in the range of 47 to 49 shipments.
In summary, given our continued sales momentum, growing backlog, strong demand for our Sapphire XC system, and solid balance sheet, we are well positioned to capitalize on what we see as significant growth opportunities in the additive manufacturing market in the years ahead. With that, I'd like to turn the call over for questions. Operator? Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone.
In summary, given our continued sales momentum growing backlog strong demand for our Sapphire XC system and solid balance sheet, we are well positioned to capitalize on what we see as significant growth opportunities in the additive manufacturing market in years ahead with that I'd like to turn the call over for questions operator.
No.
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Our first question today is coming from Brian Drab from William Blair. Your line is now live.
Our first question today is coming from Brian Drab from William Blair. Your line is now live.
Hey, good afternoon. Thanks for taking my question.
Hey, good afternoon, thanks for taking my questions.
First, I was wondering, Benny, if you could just give us a sense for the feedback that you're getting from the XCs that are in the field, from the customers that are using those XCs, now that you have some more data points.
First I was wondering if you could just give us a sense for the feedback that you're getting from the <unk> that are in the field from the customers that are using those <unk> now that you have.
Some more data points.
We have a number of secures that are operating now, and the customer is generally very happy with them.
They would have a number of facilities that are operating now.
And the customers generally very happy with them.
We are installing them very quickly now. All the first few axes are, as you know, to the launch customers, so they are all within one customer.
We are studying installing them very quickly.
It's all over the first few exits.
No to the launch customers so they're all within one customer.
Right. Okay. Yeah, of course. So, they're all at the launch customer.
Right Okay, yes.
Yes of course, so they're they're all at the launch customer and.
And then, speaking of the customers, I'm also curious on the customer count.
And then you're speaking of the.
Customers I was also curious on the customer count.
You know, you had a couple of new customers this quarter.
You had a couple of new customers this quarter.
and then that's going to really accelerate. That count is going to accelerate as you move through the year, it looks like. I guess that makes sense, if you move past the launch customer and then the customer base will be much more diversified in the second half. Can you talk about that? Exactly, exactly right. Yes, so we have a pretty good backlog of new customers for whom we're going to ship, as well as we are developing. There's a lot of new customers that are close to closing. So, and we also mentioned that.
And then that's going to really accelerate that count is going to accelerate as you move through the year. It looks like I guess that makes sense to move past the launch customer and then the customer base to be much more diversified in the second half can you talk about that exactly exactly yes. So we have a pretty good backlog of.
New customers, who are going to ship as well as well.
We are developing.
There is a lot of new customers that are close to closing.
No.
And we also mentioned that.
and we closed a few new customers in the last quarter. So the combination of all that is we are going to see a lot of new customer shipments in the next few quarters.
Yeah.
We closed a few new customers in the last quarter. So the combination of all that is we're going to see a lot of customer shipments in the next few quarters.
In this quarter.
Okay, I guess I'll just say last.
Yeah.
Okay.
I guess I'll, just say, yes last.
I don't have a ton of questions right now because it seems like everything kind of went according to your plan. But my question is, did anything surprise you in the first quarter, or am I right in getting the sense that...
Because I don't have a ton of questions right now because it seems like everything kind of went according to your plant, but my question is.
Did did.
Anything surprised you in the first quarter or is that or.
Am I right and getting the sense that.
Things are going according to plan.
Things are going to more or less to plan. The thing that was really difficult still this quarter is the supply chain challenges. We had to spend a lot of time securing components, but we were able to mitigate the significant shipment delays. Right. Okay. Thanks very much. I'll talk to you more later.
Things are going to more or less to plan.
It was really difficult still this quarter is the supply chain challenges.
We have to spend a lot of strength securing components.
But.
We were able to mitigate this.
Significant shipment delays.
Right.
Thanks, very much I'll talk to you more later.
Thank you Brian .
Thank you. Your next question is coming from <unk> Mohan from Bank of America. Your line is now live.
Hi. Thanks for taking my question. This is actually John on behalf of WAMSI. So I just want to touch up on the gross margin a little bit. Just wondering how much gross impact, gross margin impact from this quarter is coming from inflationary pressures, so, you know, supply chain and rising costs versus, you know, lower pricing from the lunch customer.
Hi, Thanks for taking my question. This is actually John on behalf of Onesie.
So.
I just wanted to touch up on the gross margin a little bit just wondering how much gross impact gross margin impact from this quarter is coming from.
Inflationary pressures, so our supply chain and.
Rising costs.
Comfortable versus lower pricing from the launch customer.
Yes, so I'll take this question. So inflation is a relatively minor impact on this. We predicted last quarter that this quarter gross margin will be around zero percent and that's what happened and we continue to predict that next quarter, the current quarter, which are operating now will be much better. And this is really related to the learning curve
Yes, so I'll take this.
Question so.
Inflation is a relatively minor impact on this.
We predicted.
<unk>.
This quarter gross margin will be around zero for something Thats whats happened and we continue to predict that next quarter. The current quarter whichever operating that will be much better.
This is really related to the.
The learning curve.
Of launching of new products.
and as you are becoming more efficient in reducing waste.
And as you are becoming more efficient.
In and reducing waste.
and your cost goes down as well as we were transparent about that the pricing point for the launch customer is significantly lower as they bought the system before there was a system.
<unk>.
And.
Okay.
Costco has done as well as.
We're transparent about that pricing point for the launch customer is significantly lower.
As they bought the system before there was a system.
So the combination of those is what's driving this NOS margin exactly as we predicted last quarter.
So the combination of those.
Driving this.
Gross margin exactly as we predicted.
Last quarter.
Okay got it and a quick follow up if I may so you.
Okay, got it. And a quick follow-up, if I may. So, you've, you know, talked about the margin target for 4Q of 30%. So, how should we think about the margin trajectory in the next couple quarters to get to that 30%?
You talked about.
The margin.
<unk> target for <unk> of 30%, so how should we think about the margin trajectory.
So the next couple of quarters to get to that 30%.
Yeah. So we provided the data on that.
Thanks.
If you recall.
the the the rates which we are going to approve it and to improve it. I build you on to
The the rates at which we're going to approve it.
To improve it.
You want to.
Yeah, there's a chart in the last quarter's earnings presentation. You can see that the launch customer pricing effect largely affects Q1 and Q2, and should be much more limited in Q3, and we break out in that presentation.
Yes.
There's a chart in the.
Last quarter's earnings.
Presentation.
You can see that the.
Our launch customer pricing effect is largely a fixed Q1, and Q2 and should be much more limited in Q3.
And we break out in that.
<unk>.
The relative impacts of the different the three different factors. And, you know, I would say just in general that
The relative impacts should be different the three different factors.
I would say just in general.
Things are.
things are proceeding in accordance with our expectations.
Proceeding.
Accordance with our expectations.
<unk>.
Okay, got it. Yes. Thank you. I just wanted to make sure that's live for guidance on that question.
Okay got it yes. Thank you just wanted to make sure.
Yes.
Slide four guidance on that question.
Okay.
Thank you.
Thank you. Our next question is coming from Troy Jensen from Lake Street Capital. Your line is now live.
Your next question is coming from Troy Jensen from Lake Street Capital. Your light is now live.
Hey gentlemen, first up, I congratulate you on the next quarter in a challenging environment.
Hey, gentlemen, first Stefan congrats on a nice quarter in a challenging environment.
Thanks, Chuck Thank you so much.
Thank you so much. Hey, Bill. You're very welcome. Bill, let's start with you. You know, 75% of the year is done based on kind of Q1 revenues and the backlog. So I guess what I'm curious is, can you talk about the timeline from receiving an order to shipping for revenue? And I guess I'm trying to figure out, are you guys bill-to-order or bill-to-forecast?
We welcome Bill to start with you, 75% for the quarter strikes you as the year has done.
On kind of Q1 revenues in the backlog. So I guess, what I'm curious is can you talk about the timeline.
From receiving an order to shipping for revenue and I guess I'm trying to figure that you can build the order build the forecast.
Okay.
The.
Tom.
The construction and shipment portion of the timeline
The construction shipments portion.
The timeline is.
I asked Benny to jump in here about four weeks from.
Our spending to jump in here about four weeks.
from receipt of an order to commencing shipment, you know, depends on
The receipt of an order to commencing shipment depends on.
where the water comes in the cube, frankly, and so that can vary a lot.
The order comes in the queue frankly.
And so that can that can vary a lot.
The best metric is it takes us about a month to assemble, integrate, test, and ship a system and, you know, the time
The best metric is it takes us about a month to assemble integrate test and ship a system and.
The timeline between order and commencing production.
It's quite variable depending on the circumstances, how many orders are ahead of that order in Q.
quite variable depending on the circumstances, you know, how many orders are ahead of that order in the queue.
Okay.
I can shed more light on this if you delay.
Please.
So we generally.
So.
We generally.
can ship CEPHRs relatively quickly. So in most cases, the base CEPHR systems are shipped between six to 10 weeks from order. Right now, we have a pretty significant backlog with CEPHR-XA, and right now, the backlog stands at about five months or so.
Yeah.
And you can ship Sepharose relatively quickly.
So in most cases.
The base their persistence.
Between six to 10 weeks from Aldo right.
Now we have a pretty significant backlog with support let's say.
And right now the backlog.
Five months or so.
Perfect.
And then Benny for you, you know, that's just before I'll probably continue to ask about just competition You know SLM seems to be talking more now about you know their
And then Lenny for you.
That's just before I'll, probably continue to ask about just competition.
<unk> seems to be talking more now about.
I'm guessing it's still probably early days for them, but have you seen any meaningful competition?
Spotless metal.
Im guessing its still probably early days for them, but.
Have you seen any any.
Any meaningful competition with that with your technology.
No.
I like it. One last question, am I right in thinking you guys shipped out three XCs in the quarter?
Sure.
One last question.
Am I right in thinking you guys shipped at <unk> in the quarter.
Yeah.
We actually deliberately didn't mention this number and we prefer for business intelligent purposes.
We actually do.
Deliberately business mentioned this number.
Prefer for business intelligence purposes.
not to provide the breakdown so that it's not as transparent for our competition to break down our pricing. Okay all right well gentlemen congrats and keep up the good work.
Not to provide the breakdown.
Okay.
So that it's not as transparent score our competition too.
Break that lower pricing.
Okay, Alright, well gentlemen, congrats and keep up the good work.
Okay. Thanks, Ron.
Thank you I just a reminder that star one to be placed in the question queue. Our next question today is coming from Jim Ricchiuti from Needham <unk> Company. Your line is now live.
Our next question today is coming from Jim Rashoudi from Neatman Company, your line of
Hi. Good afternoon. I wonder if you could, um,
Hi, good afternoon.
Wonder if you could.
Talk a little bit about the composition of the backlog. Are you surprised that?
Talk a little bit about the composition of the backlog are you surprised at that.
you have as a significant mix of XC and the backlog. I know at one time it wasn't entirely clear whether the base sapphire would be a more meaningful part of the backlog. Are you surprised by the accelerated shift? I guess is what I'm at.
Do you have there.
A significant mix.
See in the backlog I know at one time it wasn't entirely clear.
Whether the pace Sapphire would be.
A more meaningful part of the backlog are you surprised by the accelerated shifts I guess is what I'm asking.
Yes, so it's a really good question. We forecasted that about half of our systems will be Sapphire and Sapphire XA. We still see all the indications that this rough mix is about true. The difference is and the reason why the backlog is so rich with Sapphire XA is because our production rates right now on Sapphire.
Yes, so it's a really good question.
We forecasted.
Both hassle for our systems will be separately or exit.
We still are.
See all the indications are that.
The rough mix is about stroke.
The the difference is and the reason why the backlog is so rich with sofar Xa is because our production rates right now on Sapphire as.
is much faster than on CIFRXC. So we are shipping many more CIFR than CIFRXC at this moment while we are booking them at a similar rate.
As much faster so far I'd say, so the real shipping any more stuff all of that stuff. All I can say at this moment, while we're booking them at a similar rate. So that's kind of the reason for that.
So that's kind of the reason for why the backlog is so
Provide the backlog is so.
So those are the <unk>.
Got it. Thank you for that clarification. It's helpful. Yeah, and that will change later in the year.
Got it.
You for that clarification that's helpful. Yes.
And that will change later in the year.
the separate production will increase as we discuss.
Production will increase as we have discussed.
And.
And the end, please, go ahead, please. Go ahead. And really, the intent is to get it to a rate that will match the rate to which we are booking them.
Go ahead please.
And really the intent is to get it to a rate that will match the right, which we're working on it.
Let's see right.
Right. With respect to the interest you're seeing in Europe now that you have a stronger
With respect to the.
Interest you are seeing in Europe now that you have.
A stronger presence there.
What types of customer prospects are you seeing? Do these, is this a mix of contract manufacturers or OEM?
What what types of customer prospects are you seeing to these is this a mix of contract manufacturers or Oems.
Europe , certainly like it it makes us.
When infections Nols in fact I'm, taking this call right now from Europe in an airport between two European countries.
So so.
Uh huh.
We see strong interest from Oems and we see strong interest from our contract manufacturers.
And in fact, I believe that Europe will start with a stronger bias.
Our system's going to control point et cetera.
We currently see in the United States.
Because it doesn't have.
Because of that bias that we have in the United States with our launch customer, where we had quite a lot with Cisco.
Christa.
And the final question I have and maybe Bill, this may be one for you is I'm wondering
And the final question I have and maybe Bill just maybe one for you is I am wondering.
How we should be thinking about operating expense, a pretty significant step up from Q4 levels and, you know, particularly on the R&D side where it looks like you guys are investing pretty heavily, which is obviously a good thing. But I'm just in general operating expense. How do we think about that over the next couple of quarters? Should we see that growth rate on a sequential basis slow?
How how we should be thinking about operating expense I'm, a pretty significant step up from Q4 levels and particularly on the R&D side, where it looks like you guys are investing.
Pretty heavily which is obviously a good thing, but I am just seeing general operating expense, how how do we think about that over the next couple of quarters should we see that growth rate.
Sequential basis slow.
Yeah, so just to provide some color, Jim, our average head count in the quarter increased about 20% and that rate will come down, you know, to probably in the region of half of that.
Yes, so just to provide some color.
Jim.
Our average head count in the quarter increased about 20% and that rate will come down.
Probably in the region of half of that.
level going forward for the remaining three quarters. So we, we had to front load a lot of high end to be in a position to have the, you know, first of all, we've been building out the sales force in Europe aggressively. We've had to build out the
Level going forward for the remaining three quarters.
To Frontload a lot of time to be in a position to have the first that we've been building out.
Sales force in Europe aggressively build out.
field service network and grow the engineering stuff.
Field service network and.
Gross engineering stuff so.
That was a driver where we'll see the growth rate. That head count cost is a significant driver of OPEX and we'll see that growth rate slow. We will continue to invest aggressively in R&D. But the other factor that will slow the growth rate is that we had a lot of front loaded costs that were of that for professional services and public company costs.
That was a driver where we see the growth rate.
Head count cost is a significant driver of Opex, you can see that growth rates slow.
We will continue to invest aggressively in R&D.
The other factor that will slow the growth rate is that we had a lot of frontloaded costs.
That we're all that for professional services and public company costs.
So that, you know, we'll see those costs probably decline in absolute terms.
So that.
We will see those costs from the decline in absolute terms.
And then things like payroll tax the contributions are much higher in the first quarter than the fourth so that will also slow the growth.
And then things like payroll tax the contributions are much higher in the first quarter than the fourth.
That will also slowed the growth rate so.
In summary, I think we'll see, you know, much
In summary, I think we will see much much slower growth in opex through the balance of the year.
much slower growth in artifacts with a balance of the best.
But obviously, I can caveat that by saying that, you know, to the extent good investment opportunities come along, you know, we will be in a position where we may want to take advantage of them. So that's the current outlook sitting where we are today, but, you know, obviously things can change.
But obviously.
Caveat that by saying that.
To the extent.
Good investment opportunities come along.
We will be in a position we may want to take advantage of them.
The current outlook sitting where we are today.
Obviously things can change.
Okay. Thank you.
Thank you, we've reached into our question and answer session. I'd like to turn the floor back over to Benny for any further
Thanks, John .
We've reached end of our question and answer session I'd like to turn the floor back over to Ben for any further or closing comments.
So I want to thank everyone for this call and we.
So I want to thank you everyone.
This call.
We do.
I'm extremely proud of what we have accomplished this quarter and how we are keeping executing on our plan.
So extremely proud of what we have accomplished this quarter and how we are keeping executing on our plan.
As we are executing, we are becoming more and more confident in our ability to grow the business in the very fast pace that we forecasted.
As we are executing.
Becoming more and more confident in our ability to grow the business in the.
Very fast pace that we forecasted.
I'm extremely grateful for our team that through a combination of commitment, talent and
Extremely grateful for our team.
Through a combination of commitment talent and.
passion is pushing us forward. So thank you for all the development, it's customers and partners and with that I'd like to end the call. Thank you. Thank you that just concludes this
The passion.
Pushing us forward. So thank you for all the documents and customers and partners and with that I would like to.
Thank you.
Thank you that does conclude today's teleconference and webcast you may disconnect your lines at this time.
Have a wonderful day, we thank you for your participation today.