Q1 2024 Velo3D Inc Earnings Call

Good afternoon, welcome to the volt three D third first quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Operator: Welcome to the Velo3D First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. As a reminder, today's conference call is being recorded. I'll now turn the call over to Mr. Bob Okunski, Vice President of Investor Relations at Velo3D Corporation. Thank you, sir. You may begin.

After the Speakers' presentation, there'll be a question and answer session.

Speaker Change: As a reminder, today's conference call is being recorded are now I'll now turn the call over to Mr. Bob Koski, Vice President of Investor Relations at those three D Corporation. Thank you Sir you may begin.

Yes.

Robert Okunski: Thank you. I'd like to welcome everyone to our first quarter 2024 Earnings Conference Call. On the call today, we will start out with comments from Brad Kreger, CEO of Velo3D, who will provide a summary of the quarter as well as an update on certain key strategic priorities for 2024. Following Brad's comments, Paul Hsu, our CFO, will then review our first quarter 2024 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.

Robert Okunski: Thank you I'd like to welcome everyone to our first quarter 2024 earnings conference call.

Speaker Change: On the call today, we will start out with comments from Brad Krieger CEO of <unk>, who will provide a summary of the quarter as well as an update on certain key strategic priorities for 2024.

Speaker Change: Following brad's comments all Hu, our CFO will then review our first quarter 2024 financial results and provide our guidance.

Speaker Change: As a reminder, a replay of this call will be available later today on the Investor Relations page of our website.

Robert Okunski: During today's calls, 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 2023-10-K and additional 2024 SEC filings. 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.

Speaker Change: During today's calls we will make forward looking statements that are subject to various risks and uncertainties.

Speaker Change: As described in the Safe Harbor slide of today's presentation, today's press release as well as our 2023 10-K and additional 2024 SEC filings. Please see those documents for additional information regarding those factors that may affect these forward looking statements.

Speaker Change: 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.

Robert Okunski: We've also posted a set of PowerPoint slides which we'll reference during the call on the events and presentations page of our investor relations website. Before we get started, I would like to provide some brief comments related to the strategic review we announced in the fourth quarter. This comprehensive process remains ongoing, and the Board of Directors is in discussions with multiple parties related to maximizing stockholder value. As we announced previously, we do not intend to disclose further developments in the strategic review process until we determine that such a disclosure is appropriate or necessary. As a result, we will not be answering questions on the status of the review during this call.

Speaker Change: We have also posted a set of Powerpoint slides, which we will reference during the call on the events and presentations page of our Investor Relations website.

Speaker Change: Before we get started I would like to provide some brief comments related to the strategic review, we announced in the fourth quarter. This comprehensive process remains ongoing and the board of directors is in discussions with multiple parties related to maximizing stockholder value as we announced previously we do not intend to disclose further developments on the strategic review process until we.

Speaker Change: We determined that substitutes disclosure is appropriate or necessary.

Speaker Change: As a result, we will not be answering questions on the status of the review during this call.

Robert Okunski: With that, I'd like to turn the call over to Brad Krieger, CEO of Velo3D. Brad? Thanks, Bob. I'd like to welcome...

Brian Kruger: With that I'd like to turn the call over to Brian Kruger CEO about a three day Brad.

Bradley Allen Kreger: Thanks, Bob. I'd like to welcome everyone to our first quarter earnings call. As we mentioned last quarter, we initiated company realignment to reduce costs, rebuild our bookings pipeline, and recommit ourselves to ensuring our customers are successful while instituting a culture of quality, efficiency, and profitability. Our Q1 results reflect the continued execution on these priorities, as we've made significant progress in several key areas, with more to come this quarter. Our goal of achieving sustainable profitability by year-end remains unchanged.

Brian Kruger: Thanks, Bob I'd like to welcome everyone to our first quarter earnings call as we mentioned last quarter.

Brian Kruger: The company realignment to reduce cost.

Brian Kruger: Build our bookings pipeline and recommit ourselves to ensuring our customers are successful launch, creating a culture of quality efficiency and profitability.

Brian Kruger: Our Q1 results reflect the continued execution on these priorities as we made significant progress in several key areas with more to come this court.

Brian Kruger: Goal of achieving sustainable profitability by year end remains unchanged.

Brian Kruger: With that in mind I'd like to discuss the specifics of our first quarter.

Bradley Allen Kreger: With that in mind, I'd like to discuss the specifics of our first quarter; please turn to slide three. Overall, we met our revenue guidance for the quarter and are now seeing the benefits from the new go-to-market strategy we implemented last year. Q1 bookings improved measurably on a sequential basis, and this momentum is carrying over into the second quarter, giving us significant visibility for this quarter. On the expense side, the successful implementation of our aggressive cost reduction programs over the last six months is yielding results, as OPEX declined by 15% versus Q4 and 30% year over year.

Brian Kruger: Please turn to slide three.

Brian Kruger: Overall, we met our revenue guidance for the quarter and are now seeing the benefits from the new go to market strategy, we implemented last year.

Brian Kruger: Q1 bookings improved measurably on a sequential basis and this momentum is carrying over into the second quarter, giving us significant visibility for this quarter.

Brian Kruger: On the expense side.

Brian Kruger: First full implementation of our aggressive cost reduction programs over the last six months is yielding results as opex declined by 15% versus Q4, and 30% year over year.

Bradley Allen Kreger: We remain focused on prudently managing cash and expect quarterly OPEX to continue to trend down for the balance of the year. We completed our shift to a customer-driven model in both sales and support, and we continue to make material progress on improving system reliability in the field. More on that topic later.

Brian Kruger: We remain focused on prudently managing cash and expect quarterly opex to continue to trend down for the balance of the year.

Brian Kruger: We completed our shift to a customer driven model in both sales and support and we continue to make material progress on improving system reliability in the field more on that topic later.

Bradley Allen Kreger: Finally, we further expanded our pipeline during the quarter with a particular emphasis on our core verticals of defense, space, and aerospace. We were pleased to see a strong rebound in our Q1 bookings as our value-based selling approach is gaining traction. Given this success, we believe we have significant visibility to Q2 revenue, achievement, and shipment goals. Specifically... We continue to see a recovery in existing customer orders, given our reliability initiatives, with approximately 50% of Q1 bookings coming from our current customers.

Brian Kruger: Finally, we further expanded our pipeline during the quarter with a particular emphasis on our core verticals of defense space and aerospace we were.

Brian Kruger: Pleased to see strong rebound in our Q1 bookings as our value based selling approach is gaining traction.

Brian Kruger: Given this success, we believe we have significant visibility to Q2 revenue achievement and shipment goals specifically.

Brian Kruger: We continue to see recovery in existing customer orders, given a reliability initiatives with approximately 50% of Q1 bookings coming from our current customers.

Bradley Allen Kreger: Additionally, on the new customer front, we increased our footprint in defense with the addition of three new customers in the sector during the quarter. We exited the quarter with $22 million in systems backlog, with Q1 bookings totaling $17 million, the majority of which came from our core end market.

Brian Kruger: Additionally, on the new customer front, we increased our footprint in defense with the addition of three new customers in this sector during the quarter.

Brian Kruger: We exited the quarter was $22 million in systems backlog with Q1 bookings totaling $17 million the majority of which came from our core end markets.

Bradley Allen Kreger: As a result of this visibility, we see sequential revenue growth of more than 30% for the second quarter. Our cost control programs are working well, and we remain on track to achieve our cost reduction goals for the second quarter. Finally, given the success of our realignment initiatives, along with our rebound in bookings, we remain well positioned to achieve our goal of cash flow break-even by the end of the year. As we discussed last quarter, we instituted a new go-to-market strategy over the last six months in order to rebuild our bookings momentum. I would now like to highlight some of our completed initiatives that have led to our recent successes, as well as a few initiatives we plan on implementing to sustain this momentum. Please turn to slide four.

Brian Kruger: As a result of this visibility we see sequential revenue growth of more than 30% for the second quarter.

Brian Kruger: Our cost control programs are working well and remain on track to achieve our cost reduction goals for the second quarter.

Brian Kruger: Finally, given the success of our realignment initiatives along with a rebound in bookings, we remain well positioned to achieve our goal of cash flow breakeven by the end of the year.

Brian Kruger: As we discussed last quarter, we instituted a new go to market strategy over the last six months in order to rebuild our bookings momentum I would now like to highlight some of our completed initiatives.

Brian Kruger: Led to our recent successes as well as a few initiatives we plan on implementing to sustain this about ma'am, please turn to slide four.

Bradley Allen Kreger: We continue to benefit from our shift to a customer-driven model, as the mix between new and existing customers has returned to our historical pattern. While this mix can fluctuate due to timing, we expect this split to remain consistent for the balance of the year. As part of our new strategy, we instituted several programs to simplify and improve our fundamental sales process. This includes initiatives focused on improving pipeline qualification, along with leveraging our value-based approach versus a pure technology sell. As a result, we saw a significant improvement in our win rate for the first quarter.

Brian Kruger: We continue to benefit from our shift to a customer driven model as the mix between new and existing customers is returned to our historical pattern. While this mix can fluctuate due to timing we expect the split to remain consistent for the balance of the year.

Brian Kruger: As part of our new strategy, we instituted several programs to simplify and improve our fundamental sales processes.

Brian Kruger: This includes initiatives focused on improving pipeline qualification along with leveraging our value based approach versus a pure technology. So as a result, we saw significant improvement in our win rate for the first quarter.

Bradley Allen Kreger: Additionally, we've also narrowed our customer focus to those markets where we've had significant success. These include the space and aerospace sectors, but more importantly, increasing our footprint in defense, a market that we remain very excited about. Again, we see a huge opportunity in defense in areas such as hypersonics and legacy part production. We have been, and continue to be, in discussions with the DoD leadership about how we can be a leader in their transition to AM.

Brian Kruger: Additionally, we've also narrowed our customer focus to those markets, where we've had significant success. These include the space and aerospace sectors, but more importantly, increasing R. R.

Brian Kruger: Our footprint in defence a market that we remain very excited about.

Brian Kruger: Again, we see a huge opportunity in defense in areas, such as hypersonic and legacy part production.

Brian Kruger: Have been and continue to be in discussions with the Dod leadership about how we can be a leader in their transition to <unk>.

Bradley Allen Kreger: Looking forward, we are investing the resources required to fuel new market expansion by leveraging our experience in sectors such as space to open new application areas in both aerospace and defense. We are also exploring new pricing and packaging models to drive growth, while reducing overall production costs by improving our manufacturing and installation efficiency. Finally, we started a program working directly with the supply chain of key defense primes to better position the company as a long-term trusted partner to our defense customers. This has already paid off as we continue to receive orders related to the $825 billion defense spending bill, which was approved in late March.

Brian Kruger: Looking forward, we are investing the resources required to fuel new market expansion by leveraging our experience in sectors such as space.

Brian Kruger: And new application areas in both aerospace and defense.

Brian Kruger: Also exploring new pricing and packaging models to drive growth.

<unk> overall production cost by improving our manufacturing and installation efficiency.

Brian Kruger: Finally, we started a program working directly with the supply chain of key defense primes to better position. The company has a long term trusted partner to our defense customers.

This is already paid off as we continue to receive orders related to the $825 billion of spec chicken spending Bill which was approved in late March.

Brian Kruger: While we're excited about the growth potential given our go to market changes. These efforts will not come to fruition without executing on our internal realignment initiatives to position the company for success.

Bradley Allen Kreger: While we're excited about the growth potential given our go-to-market changes, these efforts will not come to fruition without executing on our internal realignment initiatives to position the company for success. I'd like to briefly provide an update on the 2024 strategic priorities we laid out. Please turn to slide five. We continue to execute on our quality enhancements, as we saw a 40% sequential improvement in both days to install and labor related to our XC installation efforts.

Brian Kruger: I'd like to briefly provide an update on the 2024 strategic priorities we laid out.

Brian Kruger: Please turn to slide five.

Brian Kruger: We continue to execute on our quality enhancements as we saw 40% sequential improvement in both days to install and labor related to our XC installation efforts.

Bradley Allen Kreger: This was made possible through the success of key initiatives that we launched in the second half of last year, focused on improving the quality of our printers and streamlining installation processes. We are most proud of the customer experience and success improvements we achieved in the first quarter. We accelerated the rollout of reliability upgrades to the field and established a regular cadence of providing reliability improvement updates to our customers. Additionally, our pipeline continues to fill with qualified candidates, as we've started to rebuild our backlog, exiting the first quarter at $22 million.

Brian Kruger: This was made possible through the success of key initiatives that we launched in the second half of last year focused on improving the quality of our printers and streamlining installation processes.

Brian Kruger: We are most proud of the customer experience and success improvements we've accomplished in the first quarter.

Brian Kruger: Accelerating the rollout of reliability upgrades to the field and established a regular cadence of providing reliability improvement updates to our customers.

Brian Kruger: Additionally, our pipeline continues to fill with qualified leads as we've started to rebuild our backlog exiting the first quarter at $22 million.

Bradley Allen Kreger: This success demonstrates that our customers value our technology and that we are successfully addressing the reliability issues in the field. Finally, to reiterate, we further reduced our cost structure by 30% year over year and remain confident that we see a clear, executable path to cash flow breakeven in the second half of 2024.

Brian Kruger: This success demonstrates our customers value our technology and that we are successfully addressing the reliability issues in the field.

Brian Kruger: Finally to reiterate we further reduced our cost structure by 30% year over year and remain confident that we see a clear executable path to cash flow breakeven in the second half of 2024.

Speaker Change: Before turning the call over to haul for financials I wanted to highlight some of the recent manufacturing and customer successes, we've had and why customers continue to choose Palo <unk> technology for their needs.

Bradley Allen Kreger: Before turning the call over to Hole for financials, I wanted to highlight some of the recent manufacturing and customer successes we've seen and why customers continue to choose Velo3D's technology for their AMVs. Please turn to slide six. On the left, we internally designed and built a turbofan for demonstration purposes, to highlight our ability to print parts with significant low angles and overhangs without support, something our competitors have a difficult time mastering.

Speaker Change: Please turn to slide six.

Speaker Change: On the left we internally designed and built a turbofan for demonstration purposes to highlight our ability to print parts with significant low ingalls and overhangs without support.

Speaker Change: Our competitors have a difficult time matching.

Bradley Allen Kreger: This part was built on a Sapphire XC in aluminum and is one of the largest CP1AM parts ever built in this material. This part was done as a single piece in less than three days, as compared to traditional casting processes that could take weeks or months, while also requiring significant upfront investment and typically yielding lower results.

Speaker Change: This part was built on the Sapphire XC and aluminum and it's one of the largest C. P. One am parts ever built in this material.

Speaker Change: This part was done as a single piece in less than three days as compared to traditional casting processes. It can take weeks or months, while also requiring significant upfront investment and typically yielding lower results.

Speaker Change: In the middle we are highlighting our leading position in heat exchanger production as our technology is particularly well suited for the complex nature of these parts for.

Bradley Allen Kreger: In the middle, we are highlighting our leading position in heat exchanger production, as our technology is particularly well-suited for the complex nature of these parts. For example, one of our partners, a large semiconductor equipment manufacturer, is using our technology to produce heat exchangers for use in next-generation AI chips. Finally, on the right, we went head-to-head with other AM companies in a surfacing trial for a hypersonic ramjet. By printing this part on our system, the customer was able to reduce the cost by $20,000 and significantly reduce their lead time from six weeks to just days.

Speaker Change: For example, one of our partners our largest semiconductor equipment company is using our technology to produce heat exchangers for use in next generation AI chip production.

Speaker Change: Finally on the right. We went head to head with other E. M companies and is surfacing trial for hypersonic ramjet.

Speaker Change: By printing this part of our system the customer was able to reduce the cost by $20000 and significantly reduce their lead time from six weeks to just days.

Bradley Allen Kreger: On the competitive front, we were able to achieve this result three times faster than our closest competitor and with the highest surface quality across all participants in the trial. In closing, I am very encouraged by the progress we have achieved so far and remain excited about our future opportunities. While there is still a lot of work to be done, we firmly believe we have turned the corner, and we are in a much stronger position to achieve our 2024 goals. With that, I would like to turn the call over to Hull to discuss our finances and provide our guidance. Paul?

Speaker Change: On the competitive front, we were able to achieve this result, three times faster than our closest competitor and with the highest surface quality across all participants in the trial.

In closing I'm very encouraged with the progress we've achieved so far and remain excited about our future opportunity.

Speaker Change: There's still a lot of work to be done we firmly believe we have turned the corner and we are in a much stronger position to achieve our 2024 goals.

Paul: With that I would like to turn the call over to haul to discuss our financials and provide our guidance Paul.

Paul: Thanks, Brad.

Paul Hsu: Before reviewing our financial results, I wanted to say how excited I am to be part of the Velo3D team and share the reasons why I joined Velo3D at this juncture. As I took some time between my last job and joining Velo3D, I did some thinking as to what I was looking for in my next adventure. I was looking for a company with leading-edge technology and products, serving markets that are ready to adopt and have high demand for this technology. I was also looking for a company with a professional management team wanting to grow the business at a rapid pace. I believe I have found it in Velo.

Paul: Before reviewing our financial results I wanted to say how excited I am to be part of developed <unk> and share the reasons why I joined battle through the at this juncture.

Paul: And that took some time between my last job and jogging Velo three D. I did some thinking as to what I was looking for my next adventure.

Paul: I was looking for a company with leading edge technology and products serving markets that are ready to adopt and have high demand for this technology.

Paul: I was also looking for a company with a professional management team wanting to grow the business at a rapid pace.

Paul: I believe I found it in Belgium.

Paul: With any new technology being turning to successful products. There is always a period of growing pains.

Paul Hsu: With any new technology being turned into successful products, there's always a period of growing pains. I believe the current Velo team has... identified the challenges and are actively addressing them. While only being here a few weeks, I'm already impressed with the Velo team's dedication, focus, and desire to make this company a successful and profitable enterprise. I'm looking forward to helping Brad and the team execute on our realignment initiative. As Brett mentioned, we are making significant progress in a number of areas, and I am encouraged by our success to date. While there is still a lot of work to do, I believe we have turned a corner and are now well on the way to achieving our 2024 plan.

Paul: I believe the current L O team has.

Paul: Identified the challenges and are actively addressing them.

Paul: Well I've only been here a few weeks I'm already impressed with the battle team's dedication focus and desire to make this company a successful and profitable enterprise.

Yes.

I'm looking forward to helping Brad and the team executed on our realignment initiatives.

As Brett mentioned, we're making significant progress in a number of areas and I am encouraged with our success to date.

Paul: While there is still a lot of work to do I believe we have turned the corner.

Paul: And are now well on our way to achieve by 2024 plan.

Paul: Moving on to our quarterly financial performance, Please turn to slide eight.

Paul Hsu: Moving on to our quarterly financial performance, please turn to slides. First quarter revenue was $10 million, up significantly from Q4'23 and in line with our guidance. The sequential improvement was entirely driven by increased shipments, as we started to benefit from our new go-to-market strategy that was implemented in Q4 of 23. Gross margin for the first quarter was negative 29%, and primarily due to lower fixed costs.

Paul: First quarter revenue was $10 million up significantly from Q4 23 and in line with our guidance.

Paul: The sequential improvement was entirely driven by increased shipments.

As we started to benefit from our new go to market strategy that was implemented in Q4 of 23.

Paul: Gross margin for the first quarter was negative 29%, primarily due to lower fixed cost absorption.

Paul: We expect a positive gross margin in the second quarter given increased system shipments.

Paul Hsu: We expect positive gross margin in the second quarter given increased system shipments, improvement in our balance of material costs, and ongoing benefits from our new long-term supply contract. We also made significant progress in reducing operating cost structure in the first quarter as non-GAAP OPEX declined 15% sequentially to $14 million, excluding the costs and charges related to our realignment initiative. The decrease in operating expenses reflects a reduction in all expense categories and savings related to a realignment initiative. Specifically, R&D expense declined by $4.8 million. GNA declined.

Paul: The improvement in our balance of material cost and ongoing benefits from our new long term supply contracts.

Paul: We also made significant progress in reducing our operating cost structure in the first quarter as non-GAAP Opex declined 15% sequentially to $14 billion.

Paul: Excluding the costs and charges related to our realignment initiatives.

Paul: The decrease in operating expenses reflects a reduction in all expense categories.

Paul: Savings related to our realignment initiatives.

Paul: Specifically R&D expense declined by $4 $8 million.

Paul: G&A declined.

Paul Hsu: $2.1 million, and sales and marketing were down slightly compared with last quarter. We expect OPEX to decline by over 10% in the second quarter with additional quarterly reductions for the balance of the year. Gap net loss for the quarter was $28.3 million, including a non-cash charge of approximately $3.1 million related to changes in the fair value of a warrant and earn-out liability. On a non-gap basis, which excludes these non-cash charges and stock-based comp, net loss was $20.2 million.

Paul: $2 1 million.

Paul: And sales and marketing was down slightly compared with last quarter.

Paul: We expect Opex declined by over 10% in the second quarter with additional quarterly reduction for balance of the year.

GAAP net loss for the quarter was $28 3 million, including a noncash charge of approximately $3 1 million related to changes in the fair value of the warrants and earn out liabilities.

Paul: On a non-GAAP basis, which excludes these non cash charges and stock based comp net loss was $20 2 billion.

Paul: Adjusted EBITDA for the quarter, excluding the same items.

Paul Hsu: Adjusted EBITDA for the quarter excluding the same items was negative 11.7 million. As we discussed, we expect to see a positive growth margin in the second quarter with continued improvement as we go through the year. I want to briefly reiterate the four key drivers we highlighted last quarter that will drive this improvement. Please turn to your slide now. First, we're just starting to benefit from our bond cost reduction initiatives that we started in Q4. We have identified and started to implement approximately 25 separate programs to lower our SAFIRE-XC costs by more than 30% by the end of the year.

Paul: Negative $11 7 million.

Paul: As we discussed we expect to see a positive gross margin in the second quarter with continued improvement as we go through the year.

Paul: I want to briefly reiterate the four key drivers that we highlighted last quarter that will drive this improvement.

Paul Hsu: Second, is our continued product mix shift to larger format, higher priced Sapphire XE systems at a reduced BOM cost. We have also added programs to improve the monetization of our maintenance and parts recurring revenue streams, as well as expanding our consumable business, such as powder sales. Third, is just becoming more operationally efficient in a factory. This will be accomplished through improved overhead cost absorption as we scale system volume in addition to leveraging our new supply agreements in a shift to utilizing a higher number of system subassemblies. Finally, improving field support efficiency, which is directly tied to customer system reliability.

Paul: Please turn to slide nine.

Paul: First we're just starting to benefit from our Bom cost reduction initiatives that we started in Q4.

Paul: We have identified at the enterprise and started to implement approximately 25 separate programs to lower our staff our X C cost.

Paul: More than 30%.

Paul: Yeah.

Paul: Second is a continued product mix shift to our larger format.

Paul: Our XC systems at a reduced Bom cost.

Paul: We have also added programs to improve the monetization of our maintenance and parts to recurring revenue streams as well as expanding our consumable business such as <unk> powder sales.

Paul: Third is just becoming more operationally efficient factory.

Paul: This will be accomplished through improved overhead cost absorption as we scale system volumes. In addition to leveraging our new supply agreement and that shifts to utilizing higher number of system sub assemblies.

Paul: Finally, improving field support efficiency, which is directly tied to customer system reliability.

Paul Hsu: While this has been a drag on gross margin for the past couple of quarters, we firmly believe the changes we have made in our service organization will minimize the impact in the near term while allowing us to expand margins in the second half of the year. On slide 10, we are providing some additional detail on our operating expense reduction initiative. As we highlighted, we have significantly reduced our cost structure over the last six months and expect this to continue to trend down for the balance of the year.

Paul: This has been a drag on gross margin for the past couple of quarters. We firmly believe the changes we have made in our services organization will minimize the impact.

Paul: Near term, while allowing us to expand margins in the second half of the year.

Paul: On slide 10, we're providing some additional detail in our operating expense reduction initiatives.

Paul: As we highlighted we have significantly reduced our cost structure over the last six months and expect this to continue to.

Trend down for the balance of the year.

Paul: We expect Q2 opex to decline by more than 10% as we see continued benefits from a more efficient spend and our sales and marketing and G&A functions with additional reductions in R&D given our product.

Paul Hsu: We expect Q2 OpEx to decline by more than 10%, as we see continued benefits from a more efficient spend in our sales and marketing and G&A functions, with additional reductions in R&D, given our product roadmap. Finally, we are also evaluating additional cost reduction measures. Now, I'd like to provide our outlook for fiscal year 2024. Please turn to slide 11.

Paul: Roadmap.

Paul: Finally, we are also evaluating additional cost reduction measures.

Paul: Now I'd like to provide our outlook for fiscal year 2024, Please turn to slide 11.

Paul Hsu: As mentioned, we expect sequential quarterly improvement in revenue, margin, and operating expenses in 2024 as we start to benefit from our realignment initiative. For Q2, we expect sequential revenue growth of greater than 30%. Our full year 2024 guidance is as follows. We expect revenue to be in the range of $80 to $95 million. Post-margin improvements for the balance of the year were a post-margin of approximately 30% in the fourth quarter of 2024, with non-GAAP operating expenses in the range of $40 to $50 million.

Paul: As mentioned, we expect sequential quarterly improvement in revenue margin and operating expenses in 2024, as we start to benefit from our realignment initiatives.

Paul: For Q2, we expect sequential revenue growth of greater than 30%.

Paul: Our full year 2024 guidance is as follows.

We expect the revenue to be in the range of $80 million to $95 million.

Paul: Gross margin improvements for the balance of the year with gross margin up.

Paul: Proximately, 30% in the fourth quarter of 2024.

Paul: non-GAAP operating expenses in the range of $40 million to $50 million.

In conclusion.

Paul Hsu: In conclusion, we are focused on executing a realignment of strategies with a clear path to profitability through improvements in operating efficiency, margin, and cash flow. We continue to believe that we are well on our way to achieve sustainable profitability as we exit 2024. With that, I'd like to turn the call over to questions. Operator.

Paul: We are focused on executing our realignment of strategies with a clear path to profitability through improvements in operating efficiency.

Paul: And cash flow.

Paul: We continue to believe that we are well on our way to achieve sustainable profitability as we exit 2024.

Speaker Change: With that I'd like to turn the call over to questions.

Speaker Change: Operator.

Speaker Change: Thank you.

Operator: Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your headset before pressing the start button. And our first question comes from James Ricchiuti with Needham & Company. Please proceed.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.

Speaker Change: You May press star two if he would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: Yeah.

Speaker Change: And our first question comes from the line of James Ricchiuti with Needham <unk> Company. Please proceed.

James Andrew Ricchiuti: Hi, good afternoon. So you're suggesting a significant improvement in gross margin, I guess getting to a positive gross margin in Q2, and that's at around $13 million or so in revenue. What I'm trying to understand are some of the levers that are going to generate that kind of improvement? Is it, I mean, will you get enough manufacturing absorption to get to a break-even gross margin off of those revenues?

James Andrew Ricchiuti: Hi, good afternoon.

James Andrew Ricchiuti: So you're you're suggesting a significant improvement in gross margin I guess getting to.

James Andrew Ricchiuti: Positive gross margin.

James Andrew Ricchiuti: Q2, and that's at around $13 million or so of revenue so what I am.

James Andrew Ricchiuti: I'm trying to understand is what are some of the levers that are going to generate that kind of improvement is it I mean.

Speaker Change: What do you get enough manufacturing absorption to get to a breakeven gross margin off of those revenues.

Paul Hsu: Yeah, hi Jim, this is Hall. Yes, that is the plan. As we fill out the factory floor, some of the fixed costs will be absorbed by more system shipments. That'll help on the gross margin side, so yeah, you're exactly right.

Jim: Yeah, Hi, Jim This is the whole, yes that is the plan as we fill out the factory floor and some of the fixed costs would be absorbed by a more assistance system shipments.

Jim: That'll that'll help on the gross margin side I'm, sorry, yes, yes.

Jim: Right.

Jim: And you can get that kind of improvement just even with.

Paul Hsu: And you can get that kind of improvement just even with, you know, still, I would say sequentially, it's a healthy level of improvement in gross margin, but you're still at a relatively low level. So it's just coming from manufacturing absorption, or are there some other components to that? It's just puzzling to me when I look at where you ended up coming in at gross margin for Q1.

Jim: Still I would say sequentially, it's at a healthy level the improvement in gross margin, but you're still at a relatively low level. So it's just coming from manufacturing absorption or theres. Some other components.

Speaker Change: Components. So that it's just puzzling to me when I look at where you ended up coming in at gross margin for Q1.

Speaker Change: Yeah, and you know as we as we build more systems, we are able to utilize some of the less expensive.

Paul Hsu: Yeah, and as we build more systems, we are able to utilize some of the, you know, less expensive inventories that we have on hand that also help on the margin side. So, you know, more system shipments are overall much better for us.

Speaker Change: Inventory that we have on hand.

Speaker Change: That also help on the on the margin side, so more system shipments as overall much better for us.

Speaker Change: Okay. Okay.

Speaker Change: Wondering how we.

Paul Hsu: Okay, okay, wondering how we should think about cash burn in the current quarter, any color you could provide. So I'll back...

Speaker Change: Should think about cash burn.

Speaker Change: Current quarter.

Speaker Change: Any any color you can provide.

Paul Hsu: So, OPEX for the last quarter was non-GAAP OPEX of $14 million and change. We expect about a 10% reduction sequentially.

Speaker Change: Yeah.

Speaker Change: So opex for the last quarter was non-GAAP Opex was $14 million and change I would expect.

Speaker Change: About 10% reduction sequentially.

Okay.

Speaker Change: Okay.

James Andrew Ricchiuti: Okay, I'll join the queue. Thank you.

Speaker Change: I'll join.

Speaker Change: Join the queue. Thank you.

Speaker Change: And our next question comes from the line of Brian Canceling <unk> with Alliance Global Partners. Please proceed.

Operator: And our next question comes from the line of Brian Kinslinger with Alliance Global Partners. Please proceed.

Matthew: Yes, Hi, this is Matthew on for Brian Thanks for taking our questions today.

Matthew: Yes. Hi, this is Matthew on behalf of Brian. Thanks for taking our questions today. Can you quantify a little bit more widely the improvement in printing machine downtime at your installed base over the last six months? And are the majority of your customers now evaluating purchasing new systems? And then one more, in that same vein, can you comment specifically on whether you're seeing a return in demand from your largest customer from 2022, which dropped down in 2023?

Speaker Change: Can you quantify a little bit more widely the improvement in printing machine downtime at your installed base over the last six months and are the majority of your customer is now evaluating purchasing new systems and then one more like in that same vein.

Speaker Change: Can you comment specifically on whether Youre seeing a return in demand from your largest customer from 2022, which shall dropdown in 2023.

Speaker Change: Sure so in terms of customer reliability.

Bradley Allen Kreger: Sure. So, you know, in terms of customer reliability, if we don't provide details on, you know, specifics of numbers, what I could say is, you know, we've made material improvements for our customers, right? And so when we're talking to our customers, and they're looking at, you know, placing orders for additional systems, they're typically looking at being able to achieve, with their existing systems, the throughput, uptime, and utilization values that meet their economic models, right, for originally purchasing the system. And so I think what we're seeing is that we're helping customers get to that point where their models are valid, and they feel comfortable that making additional investments will continue to deliver that kind of a result.

Speaker Change: <unk> provides details on specifics of numbers what I can say is you know we've made material improvements for our customers and so when we're talking to our customers and then looking at placing orders for additional systems, they're typically looking at being able to achieve right with their existing systems need throughput and.

At the time and utilization values that meet their economic models right originally purchasing the system.

Speaker Change: So I think what what we're seeing is we're helping customers get to that point, where.

Speaker Change: Their models are valid and they feel comfortable that making additional investments will continue to deliver that kind of a result.

Speaker Change: Got it.

Bradley Allen Kreger: and maybe one. I'll have one. Yeah, thank you.

Speaker Change: And maybe one on one.

Speaker Change: Thank you and I'll add one thing is that you know.

Paul Hsu: I'll add one thing: on the customer service side, we've been able to address more issues than they come up with, so I think that's definitely a good trend.

Speaker Change: The customer service side, we've been able to address more issues than they come up so I mean, that's definitely a good trend right.

Speaker Change: Yeah, alright, thanks very much.

Matthew: Yeah, all right, thanks very much. And then one more, just a similar question as it relates to government purchasing. On this end, we thought the concern was reliability and that the contractor would reevaluate when that's fixed. Can you provide any updates related to government product evaluation or any ongoing testing in that vein or any communication?

And then one more just a similar question as it relates to government purchasing.

Speaker Change: Hum.

Speaker Change: We thought the concern was reliability and that the concept of regret reevaluate when that six can you provide any updates related to government product evaluation or any ongoing testing in that vein or any communication.

Speaker Change: So I mean in terms of government spending and there was a way that comes to US is typically indirectly right. So you have a number of government program hypersonic. So various programs coming through defense and yes. Those are ultimately being serviced by the defense crimes and in the defense primes are leveraging contract manufacturers and more.

Bradley Allen Kreger: So, I mean, in terms of government spending, the way that comes to us is typically indirectly, right? So you have a number of government programs, you know, hypersonics or various programs coming through defense. And, you know, those are ultimately being serviced by the defense primes. And then the defense primes are leveraging contract manufacturers, in most cases, that are the customers utilizing our technology. So if you look at customers like, you know, mirrors that we added at the end of last quarter, that's directly tied to defense and supporting defense primes and ultimately government spending.

Speaker Change: Most cases that are the customers utilizing our technology.

Speaker Change: If you look at customers like mirrors to be added at the end of last quarter, that's directly tied to defense.

Speaker Change: And supporting defense primes, and ultimately in government spending, but again, it's coming to us kind of indirectly through that supply chain.

Bradley Allen Kreger: But again, it's coming to us, you know, kind of indirectly through that supply chain. So I'm not sure if that kind of addresses your question, but I think the evaluations being done are ultimately being done by contract manufacturers who are guided to us or directed to us by, again, the primes.

So I'm not sure if I that kind of addresses your question, but it maybe so the evaluations being ultimately being done by our contract manufacturers, who are guided to us are directed to us by the enterprise and the government programs.

Bradley Allen Kreger: Okay, I got it. Alright, that's all from me. Thank you.

Speaker Change: Okay got it.

Speaker Change: Alright, I think Thats all for me. Thank you.

Speaker Change: Additionally, our efforts.

Speaker Change: Efforts been paying off.

Sorry that we announced three new customers just in the defense sector.

Matthew: and this is an area where we're seeing a lot of traction right now. It's a unique market defense, and it's something we see as a tailwind for us throughout 2024 and going forward. Alright, thank you for the call here, guys.

Speaker Change: And this is an area, where we're pretty seeing a lot of traction right.

Speaker Change: It's a unique market defense is clearly ramping up and it's something we see.

Speaker Change: A tailwind for us throughout 2024 and going forward.

Alright, Thank you for the color guys.

Matthew: Alright, thank you for the color, guys.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thank you.

Operator: Here we go, Joe. Ladies and gentlemen, this will conclude our question and answer session, and I'd like to turn the call back to Brad Kreger for closing remarks.

Joe: Yes, Hi, Joe.

Bradley Allen Kreger: Ladies and gentlemen, this will conclude our question and answer session I would like to turn the call back to Brad Kreger for closing remarks.

Bradley Allen Kreger: Yeah, I want to thank everybody for attending and look forward to meeting with you again at the end of next quarter. You know, I continue to be very optimistic for the balance of 2024, quite pleased with the progress we've made in the first quarter, and again, with the sort of secular tailwinds from defense behind us, we are well positioned to achieve our plan for 2024. So thanks again.

Bradley Allen Kreger: Thank you, yes, I want to thank everybody for attending and look forward to meeting with you again at the end of next quarter.

Bradley Allen Kreger: We need to be very optimistic for the balance of 2024.

Bradley Allen Kreger: Quite pleased with the progress we've made in the first quarter and again with the sort of secular tailwind from defense behind US we are well positioned to achieve our plan for 2024.

Bradley Allen Kreger: Thanks again.

Speaker Change: This concludes today's conference you may disconnect your lines at this time thank.

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

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Speaker Change: Thank you for your participation.

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