Annual report pursuant to Section 13 and 15(d)

Equity Instruments

v3.23.1
Equity Instruments
 12 Months Ended
Dec. 31, 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, 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:
December 31,
2022 2021
(share data)
Common stock warrants 13,145,000  13,075,000 
Shares available for future grant under 2021 Equity Incentive Plan 20,861,294  17,533,471 
Reserved for employee stock purchase plan 5,495,601  3,663,277 
Total shares of common stock reserved
39,501,895  34,271,748 
    
Warrant liabilities

Warrants for common stock of 13,145,000 and 13,075,000 were exercisable 1-to-1 as of December 31, 2022 and 2021, respectively. 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:
December 31, 2022
Issue Date Expiration Date Number of Warrants Exercise Price per warrant Fair Value on Issue Date per warrant
Fair Value on December 31, 2022
(In thousands)
Private Placement Warrants - Common Stock 12/02/2020 09/29/2026 4,450,000  $11.50 $2.00 $ 888 
2022 Private Warrant - Common Stock 07/25/2022 07/24/2034 70,000  $2.56 $2.43 $ 109 
Public Warrants - Common Stock 12/02/2020 09/29/2026 8,625,000  $11.50 $3.30 $ 1,748 
13,145,000  $ 2,745 

December 31, 2021
Issue Date Expiration
Date		 Number of
Warrant		 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 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 December 31, 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 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 . Each Public Warrant is exercisable to purchase shares of common stock at $11.50 per share. As of December 31, 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.
Common Stock 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:
December 31,
2022 2021
(In thousands)
Beginning Balance $ 21,705  $ — 
Issuance of warrants upon the reverse recapitalization —  21,051 
Issuance of common stock warrant in connection with financing 170  — 
Gain (loss) on fair value of warrants (19,129) 654 
Ending Balance $ 2,745  $ 21,705 
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 years ended December 31, 2022 and 2021.
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 December 31, 2022
As of December 31, 2021
Current stock price $1.79 $7.81
Expected volatility 68.0% 40.5%
Risk-free interest rate 4.1% 1.2%
Dividend yield —% —%
Expected term (in years) 3.75 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 December 31, 2022
Current stock price $1.79
Expected volatility 86.9%
Risk-free interest rate 3.9%
Dividend rate —%
Expected Term (years) 11.57
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 Company's common stock trading volatility was considered as of December 31, 2022. A blended weighting of the different volatility scenarios was utilized to arrive at the conclusion, where the Company utilized a 50% implied public warrant volatility and 50% Company common stock trading volatility weighting. The Company may reevaluate this volatility 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 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 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:
December 31,
2021
(In thousands)
Beginning Balance $ 181 
Change in fair value (Other income (expense), net) 4,484 
Exercise of warrants (Redeemable preferred convertible stock) (4,665)
Ending Balance $ — 
Contingent Earnout Liabilities
The contingent earnout liability is for Earnout Shares for pre-closing Legacy Velo3D equity holders (as defined in the Business Combination Agreement as holders of Legacy Velo3D shares, Legacy Velo3D warrants, Legacy Velo3D convertible notes and Legacy Velo3D options immediately prior to the closing date) (“Eligible Legacy Velo3D Equityholders”). The Eligible Legacy Velo3D Equityholders will be entitled to Earnout Shares, pursuant to which they will receive (i) 5.0% of the total number of shares of Common Stock outstanding at the Closing if the shares of Common Stock trade at or above $12.50 for 20 or more trading days in any 30 trading-day period, and (ii) an additional 5.0% of the total number of shares of Common Stock outstanding at the Closing if the shares of Common Stock trade at or above $15.00 for 20 or more trading days in any 30 trading-day period (the “Triggering Events”). The earnout is subject to a five-year earnout period and early trigger upon certain change of control events.
During the time period between Closing and the five-year anniversary of the Closing Date, Eligible Legacy Velo3D Equityholders may receive up to 21,758,148 shares of additional Common Stock, which is based on two tranches or 10,879,074 per tranche as noted above. The Earnout Shares issuable to holders of employee stock options are accounted as stock-based compensation expense as they are subject to forfeiture based on the satisfaction of certain employment conditions. See Note 13, Equity Incentive Plans & Stock Based Compensation, for further discussion.
The estimated fair value of the contingent earnout liabilities at the Closing Date was $120.8 million based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the Earnout Period using the most reliable information available. The change in fair value of contingent earnout liabilities are recognized in the consolidated statement of operations and comprehensive income (loss).
The rollforward for the contingent earnout liabilities was as follows:
December 31,
2022 2021
(In thousands)
Beginning Balance $ 111,487  $ — 
Issuance of contingent earnout liability upon the reverse capitalization
 —  120,763 
Change in fair value of contingent earnout liabilities (94,073) (9,275)
Ending Balance $ 17,414  $ 111,487 
Assumptions used in the fair value of the contingent earnout liabilities are described below.
As of December 31, 2022
 As of December 31, 2021
Current stock price $1.79 $7.81
Expected volatility 89.9% 52.5%
Risk-free interest rate 4.1% 1.2%
Dividend yield —% —%
Expected Term (years) 3.75 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 Company's common stock trading volatility was considered as of December 31, 2022. A blended weighting of the different volatility scenarios was utilized to arrive at the conclusion, where the Company utilized a 50% implied public warrant volatility and 50% Company common stock trading volatility weighting. The Company may reevaluate this volatility 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.