Quarterly report pursuant to Section 13 or 15(d)

Equity Instruments

v3.22.1
Equity Instruments
 3 Months Ended
Mar. 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, 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:
March 31, December 31,
2022 2021
(share data)
Common stock warrants 13,075,000  13,075,000 
Restricted stock units issued and outstanding 4,549,179  4,041,346 
Stock options issued and outstanding 20,786,579  21,191,226 
Shares available for future grant under 2021 Equity Incentive Plan 26,207,150  17,533,471 
Reserved for employee stock purchase plan 5,495,601  3,663,277 
Total shares of common stock reserved
70,113,509  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 March 31, 2022 and December 31, 2021.
Warrant liabilities
Warrants for common stock of 13,075,000 were exercisable 1-to-1 as of March 31, 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 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:
March 31, 2022
Issue Date Expiration Date Number of Warrants Exercise Price per warrant Fair Value on Issue Date per warrant
Fair Value on March 31, 2022
(In thousands)
Private placement warrants - Common Stock 12/02/2020 09/29/2026 4,450,000  $11.50 $2.00 9,434 
Public warrants - Common Stock 12/02/2020 09/29/2026 8,625,000  $11.50 $3.30 18,285 
13,075,000  $ 27,719 
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 initial public offering (“IPO”), 4,450,000 warrants (the “Private Placement Warrants”) were issued to Spitfire Sponsor LLC (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 March 31, 2022, the number of Private Placement Warrants issued was 4,450,000.
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 March 31, 2022, the number of Public Warrants issued was 8,625,000.
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 and Public Warrant Liabilities - Common Stock
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 2021 Form 10-K for further discussion. The liability for private placement and public warrants on common stock carried at fair value was as follows for the three months ended March 31, 2022:
March 31,
2022
(In thousands)
Beginning Balance $ 21,705 
Loss on fair value of warrants $ 6,014 
Ending Balance $ 27,719 
The liability associated with the Private Placement Warrants was subject to remeasurement at each balance sheet date using the Level 3 fair value inputs and the Public Warrants was subject to remeasured at each balance sheet date using Level 1 fair value inputs for the three months ended March 31, 2022.
As of March 31, 2022, the fair value of the common stock warrant liabilities were estimated using the Monte-Carlo simulation. The fair value of the common stock warrants takes 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.
The fair value assumptions used in the Monte Carlo simulation model for the recurring valuation of the private placement common stock warrants and public common stock warrant liability were as follows:
As of March 31, 2022 As of December 31, 2021
Current stock price $ 9.31  $ 7.81 
Expected volatility 34.8  % 40.5  %
Risk-free interest rate 2.4  % 1.2  %
Dividend rate —  % —  %
Expected Term (years) 4.5 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 Company’s common stock 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.
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 for the three months ended March 31, 2022 and 2021:
Three Months Ended March 31,
2022 2021
(in thousands)
Beginning Balance $ —  $ 181 
Issuance of new warrant —  — 
Change in fair value (Other income (expense), net) —  1,514 
Exercise of warrants (Redeemable preferred convertible stock) —  — 
Ending Balance $ —  $ 1,695 
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 for the three months ended March 31, 2022:
March 31,
2022
(In thousands)
Beginning Balance $ 111,487 
Gain on fair value of contingent earnout liabilities 31,232 
Ending Balance $ 142,719 
Assumptions used in the fair value of the contingent earnout liabilities are described below.
As of March 31, 2022 As of December 31, 2021
Current stock price $9.31 $7.81
Expected volatility 50.8% 52.5%
Risk-free interest rate 2.4% 1.2%
Dividend yield —% —%
Expected Term (years) 4.50 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. An average of the two different volatility conclusions is utilized to arrive at the conclusion. Additionally, the Company’s trading volatility was considered, but ultimately not given any weight as there is limited trading data available as of the valuation date. This assumption will be reevaluated 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.