Q3 2022 Velo3D Inc Earnings Call
Please note this conference is being recorded.
Now I'll turn the conference over to your host Bob <unk>, Vice President of Investor Relations you may begin.
Thank you I'd like to welcome everyone to our third quarter 2022 earnings conference call on the call today, we will start out with comments from <unk> CEO of <unk>, who will provide a summary of the quarter as well as an update on certain key strategic priorities for the balance of 2022.
Following <unk> comments, Bill Mckew, whom our CFO will then review our third 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.
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 and second quarter 2022, 10-Q 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 reconciliations.
Finally to enhance this call we have posted a set of Powerpoint slides, which we will reference during the call on the events and presentations page of our Investor Relations website.
With that I'd like to turn the call over to Ben Ebola.
<unk> three D.
Any.
Thanks, Bob and I would like to welcome everyone to our third quarter earnings call.
We remain very excited about the opportunity for additive manufacturing and continue to believe our technology is rapidly changing the way mission critical parts are manufactured across multiple industries.
I would now like to discuss the specifics of our third quarter <unk>.
On slide four.
At the high level, we're pleased with our Q3 performance as we posted strong year over year revenue growth of 119%.
<unk> sizable backlog by 20% and expanded our new and existing customer footprint.
We also continued to see strong demand for our industry, leading technology during the quarter as Q3 bookings are almost 50% sequentially to $27 million with a backlog now totaling $66 million.
I would also like to highlight the significant operational success, we have had over the last 18 months.
You can see from the chart.
To date revenue has tripled compared to last year, while last 12 months revenue has more than doubled.
This trend reflects not only strong customer demand for our technology, but also our ability to rapidly scale, our business and production operations. This year.
However, our Q3 revenue was below plan and supply chain disruptions limited availability of certain key system components.
These shortages impacted our.
Production schedule and led to a number of customer shipments being delayed to the fourth quarter.
Given the impact of third quarter shipment delays ongoing supply chain uncertainty and the continued initial ramp of <unk> in the system. We are reducing our 2022 revenue guidance to a range of $75 million to $80 million.
To emphasize the adjustment to our 2022 revenue guidance and not fundamental oil demand related but entirely due.
Two the potential impact of the factors I just discussed.
As I mentioned demand for a safer and safer access systems remain high.
This reflects our success in continuing to expand our footprint across multiple markets and new applications.
In particular, we are starting to benefit from our market expansion investments as we added a number of new marquee customers. During the quarter. For example, we are seeing strong traction in Europe as we booked two market, leading European aerospace Oems during the quarter added.
Currently we also added a top tier automotive OEM here in the United States.
Looking forward, we remain very excited about the future as our bookings and backlog growth reflect the increasing adoption of our technology we have.
We're confident that we have a clear path to profitability given our current capital resources.
We will achieve this by leveraging our strong topline growth in combination with a relentless focus on accelerating production efficiency.
We also expect to benefit from our working capital and expense management initiatives as well as return to normalized pricing given the end of our lunch.
Customer and early bird system based coats.
As a result, we believe.
We are well positioned.
To profitably capitalize on the rapidly expanding market for mission critical high value medical pumps.
I would now like to provide some additional color on the challenges we faced in the quarter as well as our strategic initiatives to drive operational improvements in 2023.
Please turn to slide five.
As I previously mentioned, we experienced significant supply chain disruptions during the quarter.
<unk> affected our production plan, specifically, we were impacted by key component shortages, especially at the system level electronics.
Additionally, when we did receive the necessary parts.
Alright, too late in the quarter in order to qualify and ship the systems all the time.
As a result, we didn't meet our production goals for the equivalent.
Wireless supply chain conditions remain challenging we have secured substantially all of the approximately <unk> of our production plant in this quarter.
We also experienced longer than expected production and testing cycle times for us so far exceed one of these systems.
<unk> contributed to our shipment delays.
Similar to the ramp of our <unk> product initial volume production of the <unk> <unk>.
Wanted us with certain challenges that needed to be addressed during the building process, which affected our ability to meet our shipment forecast.
I am happy to announce that we have already shipped our first <unk> <unk> this quarter.
Given the history of previous new product ramps. These challenges will diminish as we ramp volume and gain production experience. However, we do not expect to reach the volume levels needed to fully overcome these issues until the first quarter of 2023.
I want to reiterate that demand for the system continues to increase and we will remain focused on efficiently scaling of the FERC <unk> zinc production to achieve our growth quarter shipment target.
Given the challenges I have discussed we have identified and instituted a number of strategic initiatives.
To minimize future supply chain disruptions and improve our overall production efficiency.
Please turn to slide six.
Overall, we made significant progress on <unk>.
Number of initiatives in the quarter.
First we have continued to build our supply chain team as well as improving multiple operational processes with the golar producing shortages in the future.
Second we successfully instituted a number of programs to further streamline our purchasing process and better managed our inventory to meet our challenges this initiatives will enable us.
To materially lower inventory levels, while improving efficiency, we expect to see this benefit starting in the first half 'twenty collectively.
Third we have reorganized our factory floor to accelerate the production process to reduce delay.
Efforts here include tighter management of materials flow to the production sales and reducing production labor waste associated with material shortages.
Looking forward our initiatives for the fourth quarter in 2020 fleet are focused on growing our output through production efficiency gains rather than increasing investment.
We are making progress in these areas and expect measurable benefits from these efforts starting in the first quarter of next year.
Our key focus remains on reducing our system balance of materials cost through a combination of increased outsourcing of sub assembly spots as well as the benefit of increasing volume over our fixed cost base.
Both of these efforts will allow us to scale without materially increasing labor costs, while improving efficiency.
Additionally, we are instituting initiatives to reduce production cycle times by further leveraging our continuous improvement capability on the production floor.
These programs are enabling us to analyze data and processes in real time provide feedback to the team and implement changes more quickly.
Finally, we continue to work with our new and existing vendors to better managers.
To better manage our supply chain, including the staggering of components.
Laborers to better match, our build schedule and minimize overall inventory levels.
I would now like to highlight why we remain very confident in our long term growth opportunities.
<unk> continue to choose our industry, leading technology to produce the most critical metal parts. Please.
Please turn to slide seven.
Overall, we are pleased with our progress in adding new customer as well as expanding our geographic footprint.
Opening of our European operations, and wisdom penetration of new industry, we are addressing a significant portion of the global laser metal.
Although the infusion market.
Additionally, the significant investments we needed to make in building out our sales and marketing group for long term growth is now behind us.
We are already seeing the benefit of this investment as reflected in our strong first quarter bookings and backlog growth.
With our recent hires we believe our sales and marketing organization is now fully staffed to deliver on the next phase of growth for the company.
As I previously discussed we booked a number of new customers during the quarter, including three landmark customers in new markets.
Our European expansion is going well as we booked two industry, leading new aerospace customers in Q3.
Interest remains high in Europe , and we have a number of opportunities to add to our footprint in the fourth quarter.
In the U S. We also added a major automotive manufacturer.
We expand our material applications.
To close out.
Our new customer highlights. We also had three customers acquiring multiple <unk> systems on the initio.
Purchase.
This reinforces the growing acceptance of our technology in the market.
Also we recently shipped our first tool steel machine for automotive applications.
Following our recent margin steel material qualification.
Demand for this application is strong with a first order within a few months of our qualifying announcement.
Quantifying this materials is a game changer for the automotive and building industry.
As it enables production of high quality die cast tooling.
Geometrical flexibility that has not been possible before.
<unk> is the only company that can print the large diameter high quality internal channels needed for those applications, which will enable higher sulfur, while reducing plant costs for the customer.
Finally, we are continuing to expand our industry footprint outside the spec space sector.
With new customer additions.
And follow on purchases from companies in the aviation hypersonic automotive defense and energy industries.
In closing we are excited about the future opportunity and believe we are well positioned to capitalize on the growing demand for high value will be.
<unk> metal parts, we remain confident in our ability to reach profitability given our current liquidity and look forward to executing on our long term strategic vision with that I would like to turn the call over to bill to discuss the financials and our guidance.
Thanks Penni.
Moving on to our quarterly financial performance, Please turn to slide nine revenue.
Revenue for the quarter was $19 1 million down slightly versus the second quarter, but up 119% year over year.
Compared to our expectations Q3 revenue was lower due to a number of shipments being delayed to early Q4, as Danny mentioned due to material shortages and the resulting production delays.
Compared to Q2 Q3 year sale revenue declined to $16 5 million due to a decline in asps. As a result of two factors are changing the mix of shipments towards a higher proportion of sapphires versus sapphire axes, and more of our sapphire exceed shipments being to the launch customer and western.
Case in Q2.
This impact was partially offset by higher recurring service revenue, which rose approximately 600000 to $2 6 million in the quarter and reflected the increased number of systems in the field.
On a year over year basis, Europe sale revenue was up 127% from $7 3 million to $16 5 million and recurring revenue was up 80% from $1 4 million to $2 6 million.
Gross margin for the quarter was negative 1% compared to our expectations gross margin was impacted by the delay in <unk> system shipments to the fourth to the fourth quarter and by higher than expected inventory adjustment charges associated with the initial production of our sapphire exceed products.
Compared to Q2 Q3 margin reflects the higher proportion of lower margin loans customer shipments and elevated inventory adjustment charges offset by lower recurring service losses.
Adjusted operating expenses for the quarter, excluding stock based compensation were $22 7 million in line with Q2, G&A was $1 1 million, primarily reflecting a reallocation of facilities and it costs between departments for.
For the same reason R&D and sales and marketing expenses were <unk> 3 million and $6 million lower respectively. Excluding this reallocation operating expenses were largely in line with Q2.
GAAP net income for the quarter was a loss of $75 2 million.
Including a noncash loss of approximately 47 5 million related to changes in the fair value of our warrants and earn out liabilities.
On a non-GAAP basis, which excludes this loss in stock based compensation expense net loss was $22 5 million.
Adjusted EBITDA for the quarter. Excluding the same costs was also a loss of $21 2 million.
Turning to the balance sheet on slide 10.
We exited the quarter with a very strong balance sheet with $113 million in cash and very limited debt.
Cash usage for the quarter was $29 million down $44 million down from $44 million in Q2.
The sequential decline was driven primarily by a lower inventory build compared to Q2 and better working capital management.
Investment in working capital increased by $3 million due to an increase in accounts receivable and inventories offset by an increase in contract liabilities.
The inventory increase was due to higher work in process inventory due to the shipment delays and higher stocks of materials, we expect inventory to decrease over the next three quarters as we ship systems drawdown of stocks in materials and move to more staggered materials deliveries.
<unk> was $5 million, primarily primarily related to final payments for our <unk>.
Construction of our like these facilities and Capex for leased systems.
We expect capex to be slightly lower for the fourth quarter.
Finally, we expect total cash usage in Q4 to be in the range of $25 million to $35 million, depending on the timing of deposit payments for certain recent bookings material receipts and shipments we remain confident that we have the liquidity to fund our business plan through the profitability.
I'd now like to provide our outlook for the balance of the year. Please turn to slide 11.
Overall, we executed well in the third quarter, despite the challenging supply chain conditions. However, spending discussed in his opening comments, we are adjusting our 2022 revenue guidance from $89 million to a range of $75 million to $80 million we.
We expect fourth quarter revenue growth of between 25, and 50% to a range of 24 $29 million, which is largely supported by our existing backlog.
And gross margin of 5% to 10% excluding nonrecurring items.
And inventory adjustments.
This changing full year guidance is driven by the impact of shipment delays in Q3 revenue.
Ongoing supply chain challenges and potential sapphire exceed <unk> zinc production timing risks as we continue with the early stages of ramping production of this product.
Again this adjustment does not reflect any change in business fundamentals or the outlook for customer demand for our systems.
In conclusion, we are focused on executing on a clear path to profitability within our current capital resources. This path is comprised of five elements firstly, realizing our revenue growth on a revenue growth potential and achieving manufacturing productivity.
Gains through increasing our scale.
Secondly, ASP improvements as shipments with the now expired launch customer and really good reservation discounts get behind us.
Thirdly, bill of material cost reductions for sapphire exceed based on longer term higher volume supply contracts with larger strategic vendors.
Firstly, improving working capital efficiency through inventory reductions driven by better planning and staggered monthly deliveries.
And finally controlling operating expenses by managing to flat to modest head count growth base.
Based on these initiatives, we are well positioned to drive reduction in EBITDA losses losses, and cash burn in the coming quarter quarters with that I'd like to turn the call over for questions operator.
And at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue you.
You May press star two if you'd like to remove your question from the queue.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
And my mom increase while we poll for questions.
And our first question comes from the line of Brian Drab with William Blair.
Please proceed with your question.
Hi, Thanks for taking my question.
First I wanted to just ask Scott.
Bill you mentioned several times.
You'll be able to.
The target is to get to profitability with the current resources.
When does that.
And your model when does that need to happen.
Second quarter of next year or third quarter of next year. It seems like it's it needs to happen.
Within a year based on the burn rate.
Hi, Brian .
Think it's a longer horizon and that we plan to bring down our cash burn rate.
By bringing down our inventory and improving profitability.
We also have a major capex behind us now.
So we think that.
<unk>.
We have.
Our our runway.
Through too.
To breakeven profitability and cash.
That's.
Around the end of next year, but I don't want to be precise about it because I.
Not going to give specific guidance on 2023 yet.
We certainly at a minimum.
Get our cash burn rate down to array.
A much smaller level and obviously the.
The smaller of the quarterly burn rate the longer the cash runway is.
You have from any cash balance at a given time.
Okay. Thanks, and then.
If we can get the cash burn rate down into the single digits that gives us plenty of runway on that.
That would certainly be our objective.
I'd like to add here that as Bill said, we didn't finalize yet our 2023 operating plant.
Sure.
We're looking to.
See how we're going to complete our Q4 and 2023 2022 numbers.
As a guideline of what we can accomplish next year, but in some of the scenarios. We are looking next year.
We will be profitable in Q4, but.
Yeah.
This is not something we are.
Committing today.
As we are evaluating the.
The specific work platform.
Thanks, Mike.
Okay.
Eric.
The potential for your revenue.
In 2023 potential.
Potentially be higher than you were originally expecting.
Given your question it looks like supply chain issues are going to prevent you from shipping everything that you wanted to this year demand hasnt changed.
Is this all kind of kind of fall into two.
<unk> thousand 23, and maybe give you a little bit of a.
Tailwind as you start to start the year backlog is up.
<unk> out some of the manufacturing supply chain initiatives.
So right now as I said, we didn't finalize the plan for 2023.
Some of the scenarios, we are looking at the revenue will be very close to what we.
<unk> discussed before.
And then last question is can you.
No you haven't obviously.
Haven't.
Is that your 2023 budgets.
What what can you comment on in terms of.
Opex dollars.
Directionally, even in 2023 versus 2022.
Sure.
We're all trying to model this of course in the cash flow.
That's excellent.
Of all the question you asked because the infrastructure or the Opex will be very similar in 2023.
To the levels, we are exiting 2022.
In terms of dollars per barrel.
Yes.
Yes.
Quarterly spend.
So very very similar.
Okay.
Yes, Okay, alright, thank you very much I'll pass it on.
Thanks, Brian .
Our next question comes from the line of Troy Jensen with Lake Street. Please proceed with your question.
Hey, gentlemen, thanks for taking my questions just to follow up on Brian's about fully funded the profitability. I think you guys also just staff how the shelf Tonight so is that.
Just good corporate governance to get ready for when you do need capital or just kind of touch on that plays into it.
Yes.
We don't want to go beyond what we said in the accompanying press release.
Which is that firstly, because we just anniversaried out 12 months of going public. We now have three eligible so we viewed as good corporate governance practice to put up a shelf we don't have an immediate.
Intention to.
To sell securities.
But the registration statement, obviously does provide us flexibility that.
If there were to be a financing opportunity was advantageous to the company.
And stockholders, we would be better positioned to take advantage of it.
Cut I think that that really says everything that we.
We currently think about the on the topic.
Okay, maybe just one more thing in the same category.
Okay.
As we said we didn't make our plans for 2023 affiliate and finalize our plans.
We're looking for scenario, which we are going to become profitable before the end of 2023. This is our goal yet and we're looking at how we can accomplish that.
In those scenarios, we definitely made the more cash but.
The market cap.
Capital market and the world are very unpredictable business, so we want to be ready.
Right.
Yes, good corporate governance I get it.
Hey, I have a follow up on a couple of the customer comments here. So I know during the quarter you guys announced that kept in a specific order and I know they ship into auto but that is not as soon as the auto OEM that you mentioned in the prepared remarks script.
Yes.
So theres two is a new a new auto OEM that is not in one quarter.
OEM is.
It's an OEM.
And it's a.
A big large company.
Just wanted to be clear, so and then on the European customers to this quarter am I remembering correctly, you guys had one last quarter.
Higher Q to Q2.
We had that we had that customer we have a customer in Europe .
<unk> alright.
Sure.
But this too.
In addition to that so that the customer towards.
Yeah perfect.
And then just on the on the launch customer pricing as that can be completed now in Q4, and our last quarter. Bill you provided a nice chart that showed kind of learned this launch pricing system sales are going to hit I'm. Just wondering if that's going to linger into next year.
Just note that could help us limit on our growth strategy.
We've already shipped the last system.
In that quarter, two the launch customer.
Net.
Debt.
Thats already occurred.
Okay.
Yes, so to be flushed out now okay perfect.
Have any I know I asked this a lot just love to get your thoughts to just any change on the competitive landscape, obviously, who I thought was your biggest customer your biggest competitor.
Now get acquired by a bigger entity.
There is some debate whether or not that's good or bad for competition, but just kind of thoughts on the competitive landscape. Please.
So.
Our biggest competitor.
<unk> was and remains the same company.
Company has not been acquired.
Okay.
<unk> has not been our largest competitor.
Okay.
Okay great.
Sorry.
The other German guys your biggest competitor.
Yes, there is.
Significantly larger.
Great exactly but I guess I didn't think there as far along and support list is what I was kind of lean towards there.
Okay.
Okay.
Just a question Youre absolutely before.
<unk>.
Any change in this.
We are working with a lot of customers that we are seeing a lot of things in the market.
Okay.
I don't see any of these other companies and a useful capability for with actually enables customer to make the bus.
So they are very useful.
So.
Well those are the headlines.
Alright.
You said well stated very clear. Thank you good luck going forward. Thanks for the time.
Xtra.
Our next question comes from the line of Jim Ricchiuti with Needham <unk> Company. Please proceed with your question.
Alright, Thank you and good afternoon, Ben and I just wanted to go back to a comment you made about operating expense relative to.
For 'twenty three relative to Q4 exiting Q4 I may have missed it Bill did you actually talk about Opex because.
Opex for Q4, what I'm asking I guess is will that be.
Increased from Q3 levels, you've got a big trade show here. So how do we think about operating expense for Q4, if we're going to assume that it doesn't change that much in 'twenty three.
Yes, it should be.
Relatively flat in Q4.
And.
We said were.
We believe it.
2023, Opex will be.
Relatively similar.
Remarks, I mentioned that we're managing to flat too.
Modest growth head counts and that sets the major driver of Opex.
Got it.
And the other question I had is just.
With respect to components and securing the necessary components.
To meet your Q4 plan.
I'm wondering what kind of impact that might have on gross margins. If you've had to go out into the market and aggressively purchase these parts.
That that might end up being again, a headwind to your Q4 gross margin.
I think.
Firstly, the the components that.
Resulted in the shipment delays were a.
A very small proportion of the total bill of material.
But obviously if this 5% of the bill of material that you don't have you cant ship the system. So.
I guess that that's 0.1.
Net.
We saw the bulk of the impact.
Of.
On material cost.
From the current environment in the early part of 2022, when we had to go out and buy putting purchase orders for.
A significant amount of material that showed up as inventory and.
In Q2 and.
We still continue to carry.
Much of it in Q3, so most of that impact from a type material market.
As already in the numbers in Q2 and Q3.
As we mentioned last time.
Now burning through that inventory and flowing and getting into cost of goods and into shipment.
Shipments.
So we wouldn't expect.
Further incremental negative pressure on material costs from here.
I think as we mentioned in the past we have negotiated some deals.
Two which will bring material cost reductions and those will start showing up.
That material start slowing this quarter and it will end up in cost of goods in the first quarter of first and second.
In following quarters.
Of next year.
So hopefully we will we will see an improving trend.
And we've been able to further.
Component.
And sub assembly.
Deals that we're looking to do to to try to to bring build material costs down even more.
Okay and one final question, if I may just slipping in gist.
In light of the.
You alluded to it the overall macro environment. The uncertainty are you seeing any change in customer behavior or has there been any change in terms of anticipated order.
Activity or any.
Andy D G bookings at all.
Are you still seeing fairly consistent demand that you had expected going into the quarter.
Okay.
So we don't see yet the bookings.
I didn't see the booking what we did see are two different things we saw.
One.
Customers.
Have a more trouble secured capital budgets.
Capital budgets take longer to secure.
And so.
Capital companies.
Postponing payments.
Okay, so collections become slower.
Okay.
Got it.
And our next question comes from the line of <unk> Mohan with Bank of America. Please proceed with your question.
Yes, thanks for taking my question.
I guess I wanted to go back to the comment you guys made about working capital.
Improvement too maybe.
Drive much lower cash burn.
Racking to $25 to 35 million right now.
<unk> fourth quarter can.
Can you give us some sense of how much of that benefit to get down to the single digit would come from the improvement in inventory versus other areas and and how soon can you get to a single digit sort of cash burn rate.
That's my first question I have a follow up.
Okay.
Sure.
Good.
So first dealer inventory reduction is a cash flow equivalent is let them in.
EBITDA.
Equivalent per se right.
On the EBITDA side, we are planning to get to.
This level is as I said, we didn't finalize the numbers yet but.
The.
Some scenarios, we hope we can get there in Q3.
Yeah.
The.
Inventory levels that we operate right now.
Very high.
In the last.
A few quarters.
We will not able yet to reduce them in a significant way.
Because.
A lot of the inventory that we have an inventory that will last into <unk>.
Next year and a lot of that is inventory of things that we had trouble sourcing. So we've made a deliberate decision to keep very high levels of inventory.
This year.
This is starting to improve so we are going to start seeing in Q1.
A gradual reduction in inventory I would not plan.
I don't want to set the expectation that in Q4, you're going to see inventory dropped so domestically, which we're going to start seeing inventory dropping in Q1.
<unk>.
Okay.
And we hope to get to a significantly better inventory levels and what we have right now by the end of data so the reduction in the inventory level.
And the working capital improvement should help us.
It gets to a better cash flow.
EBITDA.
When it comes to.
The second part of next year.
Why don't you think.
And any particular in any given quarter.
Working capital reduction is going to be a single digit million dollars.
I see okay.
When that would happen the other drivers of profitability improvement.
We are.
Is an important one.
We're getting behind us not only the launch customer deals, but also the early good reservation discounts.
So.
The bulk of al.
Now early shipments were.
<unk>.
At that kind of pricing.
Price you'd priced under one of those two arrangements so.
As we move into normal pricing, that's going to be a significant benefit.
And then I also mentioned the bill of materials.
Reductions that were.
Sure.
Part of which was already negotiated and more of which we hope to negotiate going forward.
You're going to see impacts from all four.
For those things.
Okay. That's helpful.
Can I ask about your supply constraints you I think you said that you.
<unk>.
Procured enough components to meet the revenue guidance that you have here for the fourth quarter as you look into the early part of next year do you see these supply chain issues alleviating deal how confidence that you'll be able to procure the components necessary do you need to do that now.
How are you thinking about.
The persistence of these supply chain issues.
Okay.
Okay.
So I think thats.
Have succeeded in resolving.
Most if.
Not all of the supply chain issues that we suffered in the last two quarters.
Okay.
There is a famous.
Famous last words sales, saying with heroes of the supply chain issues. So I would not be surprised if there will be something new coming up.
But.
I think I'm on.
Optimistic this quarter.
Based on our policy.
Specifically for Q4, where we are with the supply chain.
And the Fox for the systems that we need to produce in Q4.
We already have the parts, we need for those for the Sculpsure shipments.
So.
So this is much better state than we were last time around when we had the earnings call. So that's that's a good state is it going to.
Keep like that into Q1 I hope so.
So I suspect so but.
It's not guaranteed.
We also entered into some long term supply contracts with certain vendors side of it they have an estimated quarterly quantity from us and so they know exactly what they need to procure and I have a lot more lead time to go make sure that they have the components they need to deliver the assemblies that we've ordered from them. So I think in.
That respect to a much better place than we were.
In early 2022.
Okay. Thank you very much.
Thanks, Tony.
And our final last question comes from the line of Shannon Cross with Credit Suisse.
Please proceed with your question.
Thank you very much I wanted to go back to the loan included a question I know you have I think you have a line with Silicon Valley Bank that had something there.
They were really finding upon installation I'm not sure. If that's correct if I'm remembering right can maybe you talk about.
The liquidity that you might have.
And then you get to the point, where maybe inventory doesn't come down likely to expect that our costs are higher than anticipated.
Sure we have two lines with Silicon Valley Bank one is.
A.
Working capital revolver wishes.
30 million Bucks, I think only $3 million of that is drawn.
And the second facilities.
$20 million I should say.
The second facility is.
As a.
Equipment financing facility for systems that we lease to customers.
And that's $15 million in total and approximately little less than one third draw on it at this point. So we have some reasonable amount of undrawn facilities.
From Silicon Valley Bank.
Okay. That's helpful.
Okay.
We launched the Shannon.
John you there.
Alright, sorry about that.
What I wanted to understand I know, we've talked a lot about inventory, but I'm just curious as you look at your inventory.
Given the growth expectations that you do have because obviously youre still a great company I guess I'm trying to figure out how we balance what you can draw down near term.
Kind of the ongoing inventory levels, you may need to have to be able to manage the revenue growth, but at least theoretically should be coming through the <unk>.
So I don't know if you could talk a little bit about how you're thinking about that what maybe levels of cash do you think you need to have to manage the business. Just anything you can give because clearly there are some concerns out there.
Given the supply chain challenges right.
Yes, I think.
The difference in the approach to inventory levels is that in the beginning of this year.
Yes.
In general we were targeting because.
We had such.
<unk>.
Limited visibility on where problems might arise we were targeting holding six months of.
Components six months worth of production.
And.
What we're now implementing is much more staggered deliveries where we have.
One one and a half time 1115 months of.
Of inventory now look we haven't it would take us.
You mentioned.
Yes.
Well into next year to two.
To work through all that extra inventory.
Hi.
These longer term contracts and stagger deliveries you can have.
If you can count on those deliveries you can have a much smaller quantity of on hand materials.
So that.
It's how we are able and why we're confident that we can bring down inventory and increased production at the same time.
Okay, and none of your Oh, sorry go ahead sorry.
Alright, so just kind of said, we're getting much more experience with our suppliers for the XC product and so we're getting much more comfortable.
A.
Much more comfortable with the reliability and the ability to deliver on a staggered monthly basis.
Okay, and then I was just ask what percent of your inventory you have right now.
Secondly finished goods or almost finished goods versus.
Mona.
Probably applicable.
Third.
<unk>.
Around a third.
Third plus or minus with finished goods.
Okay.
Thank you very much for taking my question.
Just just to make sure.
Alright.
Is above 30%.
Okay.
Great. Thank you very much.
Thank you.
So I'd like to thank everyone for taking the call.
Taking the time.
Again, we will talk with you again next quarter.
And this concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.