On Thursday, Velo3D (NYSE:VLD) investors sold out of the stock in droves. As a result, according to data compiled by S&P Global Market Intelligence, shares of the 3D printing company were down more than 21% in price week to date as of early Friday morning. A flaw in Velo3D's financial reporting was the root of the problem.
A major accounting error
After market close Wednesday, Velo3D disclosed in a regulatory document that roughly $200,000 it reported as revenue in its third quarter (plus the first nine months of this year) should have been deferred. It added that it will have to accordingly revise several key line items in the quarterly figures, namely total revenue, gross profit, gross margin, and net loss (both overall and on a per-share basis).
Velo3D said it does not anticipate having to fix other items in its financial statements.
This is not, however, just a matter of a few corrections. The 3D printing specialist added that it now expects to be unable to meet the minimum revenue covenant for a set of senior convertible notes it has issued. Those notes mature in 2026 if not converted into equity.
According to the company, it is currently in talks with holders of the notes on a solution to the problem. However, it wrote in the filing, it "may not be able to obtain a waiver or an amendment on favorable terms or at all."
A default -- and worse -- might be on the way
If it fails, a default on those notes might be triggered. In turn, this would give the holders of the securities the scope to declare them due and payable in cash. Velo3D would then enter crisis mode, as it would be moved to issue a warning that the company has significant doubt it would be able to continue as a going concern.
The situation doesn't look good for Velo3D, to put it mildly. The investor nervousness is well justified.
The company said it aims to file a formal, revised third-quarter report to the Securities and Exchange Commission by this coming Monday, Nov. 20.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Velo3D. The Motley Fool has a disclosure policy.
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