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Velo3D ($SPRF - $VLD) Breakdown

Velo3D ($SPRF - $VLD) Breakdown

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Compound interest is the eighth wonder of the world.” - Albert Einstein

To all the Time Investors,

Today we are going to understand a company that is fueling the space industry with its 3D printing technology. In fact, they are a critical supplier for SpaceX’s most critical rocket engine. We will breakdown Velo3D, a company on a mission to build the impossible.

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📖What is Velo3D?

Velo3D is a 3D printing company that utilizes metal additive manufacturing technology to produce high-value metal parts. They focus on delivering end-use parts for aerospace, energy, and specialty industrial applications.

Why enter 3D manufacturing when you have existing supply chains? Benny Buller, founder, and CEO of Velo3D believes that there are two key reasons for 3D manufacturing:

  1. Ability to design better-customized products that are driven by simulation.

  2. To reduce lead times for parts that are difficult to sustain in today’s manufacturing infrastructure

Now, understanding these two reasons why Velo3D? This is the only company to date that broke the barriers of limited additive manufacturing technologies and now delivers user-friendly solutions for customers to optimally design their products that are manufacturable.

📈Market Opportunity

Currently, the high values metal parts market is valued at $101B with metal additive manufacturing at $2B (2% market share). By 2030, the market is expected to grow to $180B with 3D metal additive manufacturing at $35B (20% market share). Now the market today is fragmented and traditional players controlling less than 10%. If the technology scales and the market compounds at an annual rate of ~60%, Velo 3D is in a position to serve $20B of the market by 2030 (11% market share).

It is important to understand that additive metal manufacturing technology is critical for complex parts such as jet engines, fuel delivery systems, and many more. It will continue to propel technological breakthroughs such as autonomous technology, electric vehicles, supersonic aircraft volume, and space.

👨‍💻What are the Strategic Resources?

Product Portfolio:  Velo3D has introduced game-changing support-free technology that can produce any design with complex internal geometries without compromising optimal design.

  1. Sapphire Printer Family: next-generation printers that enable manufacturing with “impossible” geometries. The family of printers, especially with their latest XC design, can achieve 5x productivity improvement and 75% cost reduction per part.

  2. Flow Print Preparation Software: Simulation-driven software identifies predictable outcomes and reduces print preparation time.

  3. Assure Quality Validation: The software works in tandem with Flow and Sapphire to provide reporting insights on machine health, part integrity, and build process.

Velo3D delivers a full-stack offering from design, production, and quality control to ensure high-quality optimal designs.

Developing Resources: The company has claimed that it has the strongest IP portfolio in the metal AM market. The company has 91 patent applications with 48 granted patents. The technology development for high-value metal additive manufacturing took 6 years and $150 million.

Customer Landscape + Partnerships:

The company delivers 3D manufacturing solutions to a series of key customers across three core industries:

  • Space: SpaceX, Lockheed Martin Space Systems, Aerojet Rocketdyne, Astra, Wagner Machine Co., Launcher

  • Aviation / Defense: Leading Jet Engine Manufacturer, Raytheon, Honeywell, Kratos, Boom

  • Energy: Knust-Godwin, Siemens, ConocoPhillips, Mitsubishi Electric

  • Other: Taiyo Nippon Sanso, Lam Research

*The company’s largest customer is SpaceX (the company placed a large order of 22 AM printers to support the production of their starship engines). In 2019 and 2020, SpaceX represented 70% and 30% of the company’s revenue.

Business Model and Growth Strategies:

The company has a pure sale model and a recurring subscription revenue model for its software. Customers can purchase the printers and pay a subscription fee to access its software, or they can lease the printers and software from Velo3D.  Each sector between aerospace, energy, and specialty industrial applications contributes about 15-35% of the 2020 revenue.

Both revenue models highlight strong unit economics based on the investor presentation ranging from 50-60% gross margin. Additionally, as revenue expands the capital expenditures for the company are light (3% of revenue) since 80% of the production is performed by reliable contract manufacturers.

  • 2020A Revenue: $19M | 2026E Revenue: $937M | 91% CAGR

  • 2020A Gross Profit: $5M (33%) | 2026E Gross Profit: $490M (52%) | 114% CAGR

  • 2020A EBITDA: -$19M (-99%) | 2026E EBITDA: $318M (34%)

  • Enterprise Value: $1.6B

    • 71% company ownership post-merger

The company plans to continue accelerating growth through the following initiatives:

  1. Merger: The company will go public through a SPAC with JAWS Spitfire. The company will be fueled with $470M in cash to continue to make investments in engineering, product development, and sales support.

  2. “Blue Ocean Market”: The company is the only one positioned now to deliver high-value performance, reduced lead times, and significant cost savings.

  3. Sapphire XC Production: The large printer will be available in 2021 with the capability to produce parts of 400% larger volume and dropping part costs by 65-80%.

  4. Accelerate new customer acquisition: With distribution partners such as GoEngineer and Taiyo Nippon Sanso the company aims to acquire new customers.

💪Key Strategic Moats

  1. Technology: The company has created a full-stack package with hardware and software that includes design, metal 3D printers, and quality control processes. Their technology is SupportFree Powder Bed Fusion which does not use supports during the print process. This sets them apart from their competitors.

  2. Scale: The company utilized contract manufacturers to assemble the hardware component and to also allow customers to print. Ultimately, the company has low CAPEX and the potential to quickly scale through its distribution partners and through their software and services. This creates the ultimate environment for strong unit economics and high margins.

  3. Team: The company is founder-led with deep experience in applied materials and manufacturing and backed by top-tier investors and strategic business partners such as SpaceX.  

⚠️Key Critical Risks

  1. Competition: The additive manufacturing industry is fragmented and competitive. Legacy competitors such as GE, Reinshaw, and 3D systems have far more capital resources and are also developing 3D printing powder bed fusion systems. New competitors such as Desktop Metal and Relativity, which is building the world’s largest 3D printer for rocket production, are also entering the market.

  2. Product Differentiation: The majority of the revenue was driven by the company’s sale of their Sapphire printers. The strong unit economics is highly dependent on the company’s ability to build recurring revenue streams through AM software systems and service contracts.

  3. Customer Risk: SpaceX is the company’s largest customer consisting of 70% revenue in 2019 and 30% in 2020. While the share of revenue is being dispersed that still poses a high risk early in the growth stage.

🧬Team DNA and Vision

  • Benny Buller, CEO, Co-Founder – Prior, executive leadership experience at Applied Materials and First Solar. Benny was also an investor at Khosla Ventures. I think this quote he published on LinkedIn perfectly summarizes what he stands for “Not everything that is hard is worth doing, but almost everything worth doing is hard.”

  • Bill McCombe, CFO – Prior, CFO of HZO, and Executive Vice President of Maxar Technologies. Proven track record to deliver growth and strong financial results.

  • Dr. Greg Brown, VP Technology – Prior, executive engineering leadership in Applied Materials and Nanosolar. Strong experience in material sciences and process engineering.

  • Alex Varlahanov, VP Engineering – Prior, leadership in Finisar and Guzik. Strong experience leading teams developing manufacturing equipment and precision test equipment.

Team Composition:  The team is composed of highly technical and capable leaders with the expertise to grow and scale the business. The team is continuing to expand their engineering talent and will also focus resources on building out their sales capabilities. Additionally, they have investors such as Bessemer Venture Partners, Khosla Ventures, and partners such as SpaceX, and Lam Research to ensure they are equipped with the appropriate resources to scale and dominate the AM market.

🤯Key Insights for Time Investors:

  • If we look at the industry from a bird’s eye view, then we can agree 3D printing will empower optimal designs of products, reduce lead times and supply chain complexities, improve efficiency, and ultimately reduce costs significantly compared to traditional manufacturing. Research conducted by third-party resources and by respected investment institutions such as ARK invest suggests the market will continue to compound at 60% by 2030. More importantly, the integration of AI will enable highly optimized designs that are impossible to build with traditional manufacturing.

  • Now Velo3D, unlike its competitors, offers a full-stack additive manufacturing solution that allows engineers to deliver mission-critical components without supports for any geometry. This ensures that design is not compromised, and the company can deliver components for space rockets, jet engines, fuel delivery systems, and energy production at faster speeds, lower costs, and more importantly at high levels of optimal designs. Traditional additive manufacturing requires supports to be added to prevent the destruction of the part thus limiting design.

  • As we analyze the financial performance, Velo3D is one of the few SPACs that highlights strong demand from reputable customers who are leaders in their respective industries and a strong pipeline of revenue. With $19M in sales for 2020, the company has a clear path to hit $89M by 2022. This is heavily supported with $15.8M in bookings for the Sapphire XC and $26.4M in pre-orders as well. This also assumes their revenue subscription model starts growing as well through their AM systems and services.

  • Barry Sternlicht's from Jaws Spitfire informed CNBC that "Elon wanted to buy Velo3D, they didn't want to sell, so we had an opportunity to take them public." 

  • Here are some comments from customers and investors, that have worked for competitors in the space, regarding the technology that Velo3D has developed:

    • “Velo3D is at least 5 years ahead of any competition” – Head of Additive Manufacturing at SpaceX

    • “I was impressed by the technology that they developed. They had a really easy-to-use design software tool [and] they had this really deep quality control and assurance component.” – CEO of Piva and Managing director at GE Ventures (Source: TechCrunch)

  • Now, while there are benefits, it’s important to note that the company does face competition from legacy players like GE, Renishaw and new incumbents like Desktop Metal and Markforged. Acquisitions will happen as the highly fragmented 3D market becomes more consolidated. Product innovation will also accelerate. So it’s important to understand which of these companies will come out dominant based on the market they are serving and the proprietary technology they claim to be dominant. Wait for inflated expectations to dry out and then pay attention to the key customers that are demanding their services. This will create a clearer path of understanding who can potentially lead the path with talent, technology, and execution.

  • The new Sapphire XC platform will open growth opportunities that will deliver larger parts and significant cost savings and is scheduled to be deployed in Q4 of 2021. Keep an eye on this because it’s critical to achieving the next growth stages of the company. With this technology, Velo3D believes they can achieve $20B TAM which equates to an 11% market share. This is the company’s greatest benefit but also the greatest risk.

Stay incurably curious!

-Igli G. Laçi

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Additional resources and sources I used for all the Time Investors (Leeeetttsss Gooooooo!!!)

Disclaimer:  The companies mentioned in my newsletter are not investment advice. This is simply information researched to help you learn about industries and various public companies.

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