Quarterly report pursuant to Section 13 or 15(d)

Equity Instruments

v3.23.3
Equity Instruments
 9 Months Ended
Sep. 30, 2023
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 future issuance on an “as if converted” basis were as follows:
September 30, December 31,
2023 2022
(share data)
Common stock warrants 13,145,000  13,145,000 
Common shares related to debt derivative
 45,132,171  — 
Shares available for future grant under 2021 Equity Incentive Plan 30,298,210  20,861,294 
Reserved for At-the-Market offering 11,876,135  — 
Reserved for employee stock purchase plan 7,371,214  5,495,601 
Total shares of common stock reserved 107,822,730  39,501,895 
In February 2023, the Company entered into the ATM Sales Agreement with Needham, as agent, pursuant to which the Company may offer and sell, from time to time through Needham, up to $40.0 million shares of its common stock pursuant to the Shelf Registration Statement, and in connection therewith, the Company reserved 20,000,000 shares of common stock for issuance under the ATM Sales Agreement. In March 2023, pursuant to the evergreen provisions of the Company’s 2021 Equity Incentive Plan (the “2021 EIP”), the Company registered an additional 9,378,068 shares of common stock for issuance under the 2021 EIP and 1,875,613 shares of common stock for issuance under the 2021 ESPP. In August 2023, the Company issued the Initial Notes, which are convertible into 644.7453 shares of common stock per $1000 in principal amount for a total of up to 45,132,171 shares of common stock. However, the Notes provide that the number of shares of common stock issuable upon conversion or otherwise pursuant to the Notes may not exceed 39,349,491 shares in the aggregate until the Company’s stockholders approve the issuance of such shares in accordance with NYSE listing rules.
The shares available for future grant under the 2021 EIP are net of any un-exercised stock options (vested and unvested) and unvested restricted stock units (“RSUs”) outstanding that may convert to common stock in the future upon exercise or vesting as of September 30, 2023 and December 31, 2022.
Common Stock Warrant Liabilities
Warrants for common stock of 13,145,000 were exercisable 1-to-1 as of September 30, 2023 and December 31, 2022. The warrants on common stock are liability classified and recorded at fair value on the issue date with periodic remeasurement. Warrants for shares of common stock consist of 8,625,000 publicly-traded warrants (the “Public Warrants”), 4,450,000 private placement warrants (the “Private Placement Warrants”) and a warrant to purchase 70,000 shares of common stock (the “2022 Private Warrant”), as summarized in the following table:

December 31, 2022 and September 30, 2023
Issue Date Expiration
Date		 Number of
Warrants		 Exercise
Price per warrant		 Fair Value on Issue Date per warrant
Private placement warrants - Common Stock 12/02/2020 09/29/2026 4,450,000  $11.50 $2.00
2022 Private Warrant – Common Stock 07/25/2022 07/24/2034 70,000  $2.56 $2.43
Public warrants – Common Stock 12/02/2020 09/29/2026 8,625,000  $11.50 $3.30
13,145,000 
Warrant Liabilities – Fair Value
The issuance of the Private Placement Warrant and Public Warrant liabilities were accounted for upon the reverse recapitalization. See Note 3, Reverse Recapitalization, in the audited consolidated financial statements included in the 2022 Form 10-K. The 2022 Private Warrant was issued in connection with the Company’s entry into the joinder and fourth loan modification with SVB. See Note 10, Long-Term Debt, in the consolidated financial statements included in the 2022 Form 10-K. The liability for warrants on common stock carried at fair value was as follows:
Fair Value on December 31, 2022
 Gain on fair value of warrants Fair Value on June 30, 2023 Loss on fair value of warrants
Fair Value on September 30, 2023
(In thousands)
Private placement warrants – Common Stock $ 888  $ 600  $ 1,488  $ (554) $ 934 
2022 Private Warrant – Common Stock 109  31  140  (41) 99 
Public warrants – Common Stock 1,748  1,094  2,842  (992) 1,850 
$ 2,745  $ 1,725  $ 4,470  $ (1,587) $ 2,883 

Fair Value on December 31, 2021 Loss on fair value of warrants Fair Value on June 30, 2022 Gain on fair value of warrants
Fair Value on September 30, 2022
(In thousands)
Private placement warrants – Common Stock $ 7,387  $ (6,007) $ 1,380  $ 2,225  $ 3,605 
2022 Private Warrant – Common Stock —  —  —  245  245 
Public warrants – Common Stock 14,318  (11,645) 2,673  4,313  6,986 
$ 21,705  $ (17,652) $ 4,053  $ 6,783  $ 10,836 
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, 2023 and September 30, 2022.
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. The 2022 Private Warrant is exercisable to purchase one share of common stock at a price of $2.56 per share and allows cashless exercise in whole or part. The Public Warrants may only be exercised for a whole number of shares. The Public Warrants became exercisable on December 7, 2021.
Private Placement Warrant – Fair Value Assumptions
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, 2023
As of December 31, 2022
Current stock price $ 1.56  $ 1.79 
Expected volatility 84.0  % 68.0  %
Risk-free interest rate 4.8  % 4.1  %
Dividend rate —  % —  %
Expected Term (years) 3.00 3.75
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 – Fair Value Assumptions
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, 2023
As of December 31, 2022
Current stock price $ 1.56  $ 1.79 
Expected volatility 101.9  % 86.9  %
Risk-free interest rate 4.6  % 3.9  %
Dividend rate —  % —  %
Expected Term (years) 10.82 11.57
Expected volatility: The expected volatility was derived from the implied volatility of the Company’s publicly traded common stock as of September 30, 2023.
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.
Contingent Earnout Liabilities
The contingent earnout liability is for Earnout Shares (as defined below) 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”). During the time period between September 29, 2021 (the “Closing Date”) 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 (the “Earnout Shares”), which is based on two tranches or 10,879,074 per tranche. 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 11, Equity Incentive Plans & Stock Based Compensation, for further discussion.
The rollforward for the contingent earnout liabilities for the three months ended September 30, 2023 and 2022, was as follows:
Fair Value on December 31, 2022
 Gain on fair value of warrants Fair Value on June 30, 2023 Loss on fair value of warrants
Fair Value on September 30, 2023
(In thousands)
Contingent Earnout Liabilities $ 17,414  $ 7,810  $ 25,224  $ (10,810) $ 14,414 
$ 17,414  $ 7,810  $ 25,224  $ (10,810) $ 14,414 

Fair Value on December 31, 2021 Loss on fair value of warrants Fair Value on June 30, 2022 Gain on fair value of warrants
Fair Value on September 30, 2022
(In thousands)
Contingent Earnout Liabilities $ 111,487  $ (98,994) $ 12,493  $ 40,884  $ 53,377 
$ 111,487  $ (98,994) $ 12,493  $ 40,884  $ 53,377 
Fair Value Assumptions – Contingent Earnout Liabilities
Assumptions used in the fair value of the contingent earnout liabilities are described below.
As of September 30, 2023
As of December 31, 2022
Current stock price $1.56 $1.79
Expected volatility 84.0% 89.9%
Risk-free interest rate 4.8% 4.1%
Dividend yield —% —%
Expected Term (years) 3.00 3.75
Expected volatility: The expected volatility was derived from the implied volatility of the Company’s publicly traded common stock as of September 30, 2023.
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.
Debt Derivatives
In August 2023, the Company issued the Initial Notes, which contain embedded debt derivative liabilities that convert principal into shares of the Company’s common stock (as described below) in order to receive other favorable financing terms. The embedded debt derivative liabilities are bifurcated from the Notes and presented separately in the condensed consolidated balance sheets. The debt derivative liabilities are recorded at fair value on the issuance date with periodic remeasurement. Changes to the fair value of the debt derivative liabilities are recorded as gains or losses in the condensed consolidated statements of operations and comprehensive income (loss).

The Initial Notes are convertible into 644.7453 shares of common stock per $1,000 in principal for a total of up to 45,132,171 shares of common stock as of September 30, 2023. The debt derivative liability is related to Convertible Shares (as defined below) for the Initial Notes. See Note 9. Long-Term Debt, for further information. As of August 14, 2023, the Notes entitled the Investor to receive 475.1722 shares of the Company’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $2.10 per share of the Company’s common stock), or 33,262,054 shares of additional common stock (the “Convertible Shares”) in respect of the Initial Notes. On August 17, 2023, the conversion rate applicable to the Notes was adjusted to 644.7453 shares of the Company’s common stock per $1,000 principal amount of Notes (equivalent to a conversion price of approximately $1.55 per share of the Company’s common stock), or 45,132,171 of Convertible Shares in respect of the Initial Notes. However, the Notes provide that the number of Convertible Shares issuable upon conversion or otherwise pursuant to the Notes may not exceed 39,349,491 shares in the aggregate until the Company’s stockholders approve the issuance of such shares in accordance with NYSE listing rules. The derivative can be settled in cash, shares, or a combination of cash and shares.

In addition to standard antidilution provisions, the Notes include terms that could change the timing of the conversion. The Notes include a “Forced Conversion Trigger” that allows the Company to elect to convert the entire principal amount of the Notes into a number of shares at the applicable conversion rate on the date of conversion if the last reported sale price of the Company’s common stock exceeds 175% of the then applicable conversion price on at least twenty volume-weighted average price (“VWAP”) trading days in any thirty consecutive VWAP trading day period beginning after the issuance date of the Notes and ending on the date upon which the Company notifies the Investor of such conversion.
The rollforward for the debt derivative liabilities for the three months ended September 30, 2023, was as follows:
Fair Value on August 14, 2023 (Issuance Date)
Loss on fair value of debt derivatives
Fair Value on September 30, 2023
(In thousands)
Debt derivatives
 $ 13,890  $ (3,648) $ 17,538 
$ 13,890  $ (3,648) $ 17,538 
Fair Value Assumptions – Debt Derivative Liabilities
Assumptions used in the fair value of the debt derivative liabilities are described below.
As of September 30, 2023
Current stock price $1.56
Expected volatility 65.8%
Risk-free interest rate 4.8%
Dividend yield —%
Expected Term (years) 2.84
Expected volatility: The expected volatility was derived from the median volatility derived from the Company’s guideline public companies as of September 30, 2023.
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 Notes are expected to be outstanding and is determined using the simplified method, which deems the term to be the average of the time to conversion and the contractual life of the Notes.