Quarterly report pursuant to Section 13 or 15(d)

Equity Instruments

v3.22.2.2
Equity Instruments
 9 Months Ended
Sep. 30, 2022
Equity [Abstract]  
Equity Instruments Equity Instruments
Common stock
The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders but are not entitled to cumulative voting rights, have the right to appoint two directors to the Company’s Board of Directors, are entitled to receive ratably such dividends as may be declared by the Company’s Board of Directors out of funds legally available therefor subject to preferences that may be applicable to any shares of redeemable convertible preferred stock currently outstanding or issued in the future, are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding redeemable convertible preferred stock in the event of the Company’s liquidation, dissolution, or winding up, have no preemptive rights and no right to convert their common stock into any other securities, and have no redemption or sinking fund provisions applicable to the common stock.
Common Stock Reserved for Future Issuance
Shares of common stock reserved for issuance on an “as if converted” basis were as follows:
September 30, December 31,
2022 2021
(share data)
Common stock warrants 13,145,000  13,075,000 
Restricted stock units issued and outstanding 6,198,472  4,041,346 
Stock options issued and outstanding 17,731,063  21,191,226 
Shares available for future grant under 2021 Equity Incentive Plan 24,749,094  17,533,471 
Reserved for employee stock purchase plan 5,495,601  3,663,277 
Total shares of common stock reserved 67,319,230  59,504,320 
    
The shares available for future grant under the Company’s 2021 Equity Incentive Plan include un-exercised stock options (vested and unvested) and unvested restricted stock units (RSUs) as of September 30, 2022 and December 31, 2021.
Warrant liabilities
Warrants for common stock of 13,145,000 and 13,075,000 were exercisable 1-to-1 as of September 30, 2022 and December 31, 2021, respectively. Warrants - Common Stock are equity classified and recorded at fair value on the issue date without further remeasurement. Private Placement Warrants, the 2022 Private Warrant and Public Warrants on common stock (as defined below) are liability classified and recorded at fair value on the issue date with periodic remeasurement. Warrants for shares of common stock consisted of the following:
September 30, 2022
Issue Date Expiration Date Number of Warrants Exercise Price per warrant Fair Value on Issue Date per warrant
Fair Value on September 30, 2022
(In thousands)
Private placement warrants - Common Stock 12/02/2020 09/29/2026 4,450,000  $11.50 $2.00 3,605 
2022 Private Warrant - Common Stock 07/25/2022 07/24/2034 70,000  $2.56 $2.43 245 
Public warrants - Common Stock 12/02/2020 09/29/2026 8,625,000  $11.50 $3.30 6,986 
13,145,000  $ 10,836 
December 31, 2021
Issue Date Expiration
Date		 Number of
Warrants		 Exercise
Price per warrant		 Fair Value on Issue Date per warrant
Fair Value on December 31, 2021
(In thousands)
Private placement warrants - Common Stock 12/02/2020 09/29/2026 4,450,000  $11.50 $2.00 7,387 
Public warrants - Common Stock 12/02/2020 09/29/2026 8,625,000  $11.50 $3.30 14,318 
13,075,000  $ 21,705 
Private Placement Warrants - Common Stock
Concurrently with JAWS Spitfire’s IPO, 4,450,000 warrants (the “Private Placement Warrants”) were issued to the Sponsor at $2.00 per warrant. Each Private Placement Warrant is exercisable to purchase one share of common stock at a price of $11.50 per share. Subject to certain exceptions, the Private Placement Warrants have terms and provisions that are identical to those of the Public Warrants. As of September 30, 2022, the number of Private Placement Warrants issued was 4,450,000.
2022 Private Warrant - Common Stock
In conjunction with the joinder and fourth loan modification agreement on July 25, 2022, the Company issued to Silicon Valley Bank warrants to purchase up to 70,000 shares of the Company’s common stock at an exercise price of $2.56 per warrant share (the “2022 Private Warrant”). The 2022 Private Warrant is exercisable until July 24, 2034 and allows cashless exercise in whole or part.
Public Warrants - Common Stock
In conjunction with the JAWS Spitfire IPO, 34,500,000 units were issued to public investors at $10.00 per unit. Each unit consisted of one JAWS Spitfire Class A ordinary share and one-fourth of one warrant (the “Public Warrants”). Each Public Warrant is exercisable to purchase shares of common stock at $11.50 per share. As of September 30, 2022, the number of Public Warrants issued was 8,625,000.
The Public Warrants may only be exercised for a whole number of shares. The Public Warrants became exercisable on December 7, 2021. The Public Warrants will expire 5 years after the completion of the Merger or earlier upon redemption or liquidation.
Private Placement Warrant, Public Warrants - Common Stock and 2022 Private Warrant Liabilities
The issuance of the Private Placement Warrant and Public Warrant liabilities were accounted for upon the reverse recapitalization. See Note 3, Reverse Recapitalization. The 2022 Private Warrant was issued in connection with the joinder and fourth loan modification. See Note 10, Long-Term Debt. The liability for warrants on common stock carried at fair value was as follows:
Nine Months Ended
September 30,
2022 2021
(In thousands)
Beginning Balance $ 21,705  $ — 
Issuance of warrants 170  21,051 
Gain (loss) on fair value of warrants (11,039) (915)
Ending Balance $ 10,836  $ 20,136 
Three Months Ended
September 30,
2022 2021
(In thousands)
Beginning Balance $ 4,053  $ — 
Issuance of warrants 170  21,051 
Gain (loss) on fair value of warrants 6,613  (915)
Ending Balance $ 10,836  $ 20,136 
The liabilities associated with the Private Placement Warrants and 2022 Private Warrant were subject to remeasurement at each balance sheet date using the Level 3 fair value inputs and the Public Warrants were subject to remeasurement at each balance sheet date using Level 1 fair value inputs for the three and nine months ended September 30, 2022 and September 31, 2021.
As of September 30, 2022, the fair value of the Private Placement Warrant and 2022 Private Warrant liabilities take into account the traded stock price as the valuation date used as the underlying stock input, the contract terms, as well as multiple unobservable inputs such as risk-free interest rates, and expected volatility.
Private Placement Warrant
The fair value assumptions used in the Monte Carlo simulation model for the recurring valuation of the private placement common stock warrant liability were as follows:
As of September 30, 2022
As of December 31, 2021
Current stock price $ 3.94  $ 7.81 
Expected volatility 62.0  % 40.5  %
Risk-free interest rate 4.2  % 1.2  %
Dividend rate —  % —  %
Expected Term (years) 4.00 4.75
Expected volatility: The volatility is determined iteratively, such that the concluded value of the Public Warrant is equal to the traded price.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the common stock warrants.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The expected term represents the period that the warrants are expected to be outstanding and is determined using the simplified method, which deems the term to be the average of the time to vesting and the contractual life of the common stock warrants.
2022 Private Warrant
The fair value assumptions used in the Black-Scholes simulation model for the recurring valuation of the 2022 Private Warrant liability were as follows:
As of September 30, 2022
Current stock price $ 3.94 
Expected volatility 77.8  %
Risk-free interest rate 3.8  %
Dividend rate —  %
Expected Term (years) 11.82
Expected volatility: The volatility is determined iteratively, such that the concluded value of the 2022 Private Warrant is equal to the traded price of the Public Warrants.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the common stock warrants.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The expected term represents the period that the warrant is expected to be outstanding and is determined using the simplified method, which deems the term to be the average of the time to vesting and the contractual life of the warrant.
Redeemable Convertible Preferred Stock Warrants
Warrants on redeemable convertible preferred stock of Legacy Velo3D were issued to lenders in connection with borrowings. The fair value on the date of issue is recorded as a debt issue cost (contra-liability) and a liability because the warrant was liability classified. The fair value of the warrants are remeasured each reporting period using Level 3 inputs with the increase or decrease recorded in other income (expense), net in the statements of operations.
The liability for warrants on redeemable convertible preferred stock (carried at fair value) was as follows:
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2021 2021
(In thousands)
Beginning Balance $ 1,922  $ 181 
Change in fair value (Other income (expense), net) (1,023) 718 
Exercise of warrants (Redeemable preferred convertible stock) (899) (899)
Ending Balance $ —  $ — 

Contingent Earnout Liabilities
In connection with the Reverse Recapitalization and pursuant to the Business Combination Agreement, eligible former Legacy Velo3D equity holders are entitled to receive additional shares of common stock upon the Company achieving certain Earnout Triggering Events (as described in the Business Combination Agreement) (the “Earnout Shares”). See Note 18, Equity Incentive Plans & Stock-Based Compensation, in the audited consolidated financial statements included in the 2021 Form 10-K for further discussion on the contingent earnout liability.
The change in fair value of contingent earnout liabilities are recognized in the condensed consolidated statement of operations. The rollforward for the contingent earnout liabilities was as follows:
Nine Months Ended
September 30,
2022
Beginning Balance $ 111,487 
Gain on fair value of contingent earnout liabilities (58,110)
Ending Balance $ 53,377 
Assumptions used in the fair value of the contingent earnout liabilities are described below.
As of September 30, 2022
As of December 31, 2021
Current stock price $3.94 $7.81
Expected volatility 78.6% 52.5%
Risk-free interest rate 4.2% 1.2%
Dividend yield —% —%
Expected Term (years) 4.00 4.75
Expected volatility: The expected volatility was derived from the implied volatility of Velo3D’s Public Warrants. The implied volatility is determined iteratively, such that the concluded value of the Public Warrant is equal to the traded price using a Monte Carlo Simulation. Additionally, the historical traded prices of the Guideline Public Comparables (“GPC”) are relied upon to calculate an estimate of volatility for the Company. Volatility for each comparable is calculated as the annualized standard deviation of continuously compounded returns. The selected GPC have been identified as comparables as they operate in a similar industry to that of Velo3D. Additionally, the Company’s trading volatility was considered as of September 30, 2022, with a 33% weighting as there is limited trading data available as of the valuation date. A blended weighting of the three different volatility scenarios is utilized to arrive at the conclusion. The Company intends to reevaluate this assumption in subsequent quarters.
Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities corresponding to the expected term of the Earnout Shares.
Expected dividend yield: The expected dividend rate is zero as the Company currently has no history or expectation of declaring dividends on its common stock.
Expected term: The expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method, which deems the term to be the average of the time to vesting and the contractual life of the Earnout Shares.