Q3 2021 Xometry Inc Earnings Call
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Good afternoon, and thank you for joining us on Zama trees Q3, 2021 earnings call joining me already Altschiller, our Chief Executive Officer, and Jim Rollo, Our Chief Financial Officer. During today's call. We will review our financial results for the third quarter of 2021 and discuss our guidance for the fourth quarter of 2021.
Today's call, we will make forward looking statements, including statements related to the expected performance of our business future financial results strategy longterm growth and overall future prospects such statements may be identified by terms such as believe expect intend and May These statements are subject to risks.
Uncertainties, which could cause them to differ materially from actual results information concerning those risks is available in our earnings press release distributed aftermarket closed today and in our SEC filings included in the Form 10-Q for the quarter ended September 30th 2021 that will be filed with the SEC on November 10th.
Caution you not to place undue reliance on forward looking statements and undertake no duty or obligation to update any forward looking statements as a result of new information future events or changes in our expectation. We'd also like to point out that on today's call will report gap and non-GAAP results. We use these non-GAAP financial measures internally for final.
<unk> operating decision, making purposes and as a means to evaluate period to period comparisons non-GAAP financial measures are presented in addition to and not as a substitute for or superior to measures of financial performance prepared in accordance with U S gap to see the reconciliation of these non-GAAP measures. Please refer to our earnings.
S release distributed today, and our Investor presentation, both of which are available in the investors section of our website at investors does vomitory dot com a replay of today's call will also be posted on our website with that I would like to turn the call over to Randy.
Good afternoon, everyone and thank you for joining us for a Q3 2021 earnings call. We are pleased to report another strong quarter as we go out the leading marketplace for on demand manufacturing and digitize one of the largest industries in the world.
Secular digital shift and manufacturing continues to accelerate with global supply chain challenges intensifying that trend Fortune 1000 companies are we thinking supply chains and manufacturing strategies and symmetry isn't a tremendous position to deliver on the needs of both our buyers and sell.
Through the breath of our platform across verticals processes and capabilities I will review, our third quarter financial performance and update on key business initiatives, and then turn over the call to Jim for a more in depth review of our financial results I'm going to start with your review of our third quarter performance.
We had a strong Q3 with $56.7 million of revenue as we continue to see rapid adoption of our marketplace by both buyers and sellers. This represents revenue growth of 35% year over year, and 12% growth quarter over quarter.
In 2020 revenue from one customer accounted for 11% of revenue related to sales of masks with the majority of those revenues in Q3 2020, excluding revenue from that customer, which was the minimum and Q3 of this year revenue growth for Q3, 2021 with 77% year over year.
<unk> Q3 revenue growth was driven by continued robust growth and active buyers and rapid adoption of the platform by larger accounts across both North America and Europe.
In today's challenging supply chain and cost environment buyers are increasingly attracted to the zealotry marketplace as we provide flexibility and instant access to a large broad set a seller capabilities.
Additionally, we provide our sellers convenient access to raw materials, and other supplies, enabling them to lower their cost of operations.
We also improve their cash flow to our growing basket of Fintech products in Q3 active buyers increased 61% year over year.
We saw strength across many vehicles, including energy and industrial technology, as well as growing adoption and consumer medical devices Aerospace and defense.
In Q3, we began adding a network of sellers in Mexico, giving our buyers another set of options.
In October we deepened our partnership with Autodesk launching version 2.0 of our App for Autodesk fusion 360, enabling manufacturability feedback and multiple part upload features improving processes for engineers and designers working infusion 360.
In early November we also made a tuck in acquisition of Georgia based big Blue saw which adds enhanced water jet and laser cutting capabilities to our marketplace.
Alongside strong new buyer growth, we drove robust growth within existing accounts, driven by our land and expand strategy and an increase in large orders from assemblies. The number of accounts of last 12 months spend of at least $50000 increased 67% year over year to 603.
Within our large and rapidly growing active buyer base, we have a significant opportunity to become an enterprise solution embedded in product design and procurement workflows as we discussed on our queue two earnings call with the increased exposure and awareness from a recent IPO, we began to invest more in top of funnel marketing initiatives in queue.
Three for both buyers and sellers, which will continue through a Q4.
On top of strong revenue growth gross profit grew 42% year over year on a sequential basis gross profit dollars increased 22% from Q2 Q3 2021 as gross profit margin expanded 210 basis points to 25, 6% driven by improvements.
In pricing and seller matching on our AI powered marketplace as.
Is there a marketplace continues to scale and it's the number of transactions grow our machine learning become smarter driving better matches for buyers and sellers in helping improve gross margins at the same time, we continue to ramp up our network of active sellers, which further enabled zama trees marketplace to successfully match supply and demand and improved.
Margins.
Seller services had a strong Q3 as when we made improvements to our supplies business and drove increasing adoption across our basket of Fintech products in August we relaunched phenomenon supplies, including a site redesign and implementation of a new E. Commerce software platform, the new site expands our product offering from 30.
To 145 categories, and we plan on significantly expanding our skew selection in early 2022.
Usage of our financial products continue to improve including the mid August launch of instant pay we rollout instant pay after the successful launch a fast pay providing our sellers with additional financial products to improve cash flow and more deeply engaged with the marketplace. We are pleased with the adoption and increasing payment volume from instant.
In early November we acquired factory for SaaS based software solution company, which helps manufacturers improve lead times and make data driven decisions through real time production tracking and quality control factory for will serve as a platform to provide sellers suite of tools to help them run their businesses.
More efficiently and cost effectively we plan on integrating this offering with their existing sweet a financial services later in 2022 as we further build out our suite of products and are dedicated sales effort. We expect continued strong growth and sell our services our international business continues to deliver strong growth.
Driven by the team in Europe in Q3 revenue in Europe increased over five 100% year over year, and 48% quarter over quarter, driven by growth in new buyers and strong growth within existing accounts in Q3, the European team continue to expand and several core regional markets, including the UK France.
In Italy. Additionally, we recently hired Vivian Shane as the general manager for Asia Pacific business prior to joining Zealotry Vivian was the business development director for the China region for the French Telecom Orange group and previously held key roles at manufacturing and software companies in the region, we expect a formula.
Launch in that region in early 2022, we have a massive opportunity for international growth International revenue was just over $3 million for the year 2020, and 2021 week of January roughly $11 million year to date currently over 90% of our revenue is generated in the United States.
We see an enormous global opportunity as with other leading global online marketplaces international revenue could be 40% or more of total sales over the next several years.
Lastly, as part of IPO, we pledged 1% of our equity to fund educational opportunities for under represented students environmental conservation efforts in a variety of socioeconomic causes to build a more sustainable future.
As part of that effort, we recently pledged more than $900000 to provide scholarships over the next four years to students enrolled in the department of mechanical engineering at the Howard University College of Engineering and architecture.
With that I will turn the call over to our CFO, Jim Rallo for a closer look at third quarter financial results and business outlook.
Thanks, Randy and good afternoon, everyone is Randy mentioned, we had a strong third quarter and we're expecting continued significant revenue in gross profit growth in queue for.
We generated Q2 revenue of $56.7 million, a 35% year over year increase in up 12% quarter over quarter I was.
Randy mentioned revenue growth in Q3, 21 was approximately 77% year over year, excluding revenue from that one customer.
This increase was driven by strong growth in the number of active buyers, resulting from our continued investment in sales and marketing as we leverage our attractive unit economics as well as existing buyers increasing their spend on the platform.
Q3 active buyers increased 61% year over year to 26187 and Q3 the percentage of revenue from existing account was 95%.
Underscoring the efficiency and transparency of our business model that leads to increasing account stickiness and spend over time, we believe the repeat purchase activity from existing accounts reflects the underlying strength of our business and provides us with substantial revenue visibility and predictability once it account joins our platform we aim to expand the.
A relationship and increase engagement and spending activities from that account over time.
The number of accounts with last 12 months spent of at least 50000 on our platform reach 603 at the end of Q3, 2021 up 67% year over year and 19% quarter over quarter Q3, gross margin was 25, 6% up 130 basis points year over year.
Compared to $24, 3% in Q3 2020.
Q3 gross margin increased 210 basis points from Q2 21, we expect gross margin to improve sequentially in queue for from Q3 and expect that trend to continue into 2022.
Our marketplace continues to scale and is the number of transactions grow our machine worrying become smarter driving better matches for buyers and sellers and increasing gross margin over time.
Moving on to Q3 operating costs Q3, 2021, total operating expenses increased 80% year over year to $28.8 million, representing 57% of revenue.
Q3, 2021 operating expenses included stock based compensation expense of $2.3 million that is allocated across the SG&A line items. Additionally, Q3 operating expense include approximately $1.9 million in incremental public company costs, and 1.2 million related to our charitable contribution.
Within our operating expenses sales and marketing is our largest variable component given our large $260 billion, Tim we intend to aggressively grow our marketplace, including buyer and seller networks sales and marketing costs were nine $8 million in Q3, an increase of 64% year over year driven by continuing to me.
<unk> to expand our network of buyers and sellers are hiring of additional salespeople, including for our basket of seller services and increase stock based compensation expense sales and marketing as a percentage of revenue was 17.3% compared to 14.3% in the same period a year ago.
On a non-GAAP basis, excluding stock based compensation and depreciation and amortization.
Sales and marketing increased 64% year over year to $9.5 million, representing 16.7% of revenue compared to 13.8% in Q3 2020, we expect to continue to invest aggressively in sales and marketing in queue for including new marketing channels increased digital marketing and further hiring at our sales team or just EBITDA.
Loss for Q3 was $10 million or 17.7% of revenue.
Two three adjusted EBITDA was better than our guns, driven by a stronger than expected revenue growth significant gross margin expansion and marketing efficiency. Additionally, roughly $700000 a public company costs were delayed until Q4 2021, and early 2022 and Q3 revenue from R. U S and European operating segments was 51.7 million.
And $5 million respectively.
Los from R. U S and Europe operating segments for Q3 was $12.6 million and 2.2 million respectively. We continue to invest in a European business, which grew over 500% in Q3 with improving gross margins as transaction volume increases at the end of the third quarter cash and cash equivalents of marketable securities were 302.
Four $5 million with no debt in early July we raised approximately $325 million in net proceeds from our IPO and subsequently pay down our debt now moving onto guidance, we expect queue for revenue in the range of $60 million to $62 million representing year over year growth of 58% to 63% and.
Q4, 2021 customer accounted for 10% of revenue excluding revenue from the customer revenue growth guidance is 75% to 80% for Q4 21 as compared to queue for 20 or Q4 21 revenue guidance assumes no revenue from that one customer. Additionally, we do not expect the tuck in.
And a big Blue sore and factory for to be material to queue for revenue or adjusted EBITDA. We expect Q4, adjusted EBITDA loss to be in the range of $11 million to $12 million as we continue to invest in sales and marketing accelerated international spending and higher public company costs in queue for we expect stock.
He is compensation expense in the range of $2 million to $2.5 million, which we will exclude from adjusted EBITDA. Additionally, as Randy previously discussed as part of the IPO, we put 1% of the company's capitalization or approximately 403000 shares at <unk> Dot org for charitable contributions to nonprofit organizations as a result.
Each quarter, we will record a non operating charged through general and administrative expenses, which will be excluded from adjusted EBITDA. In Q3. This charge was $1.2 million and expected to be approximately $1.3 million to $1.6 million a quarter moving forward.
With that operator can you. Please open up the call for questions.
Thank you.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star then the number one on your telephone keypad.
Fast for just a moment to compile Q&A roster.
We have our first question coming from the line of Sterling Audi with J P. Morgan Your line is open.
Hi, This is let's just unplug stoli.
Thanks for taking up my question. Please.
Give the colors. Unlike called the business have been impacted from the containment supplied environment.
Yes, Hi, and welcome and this is Randy Altshuler the CEO so.
The wonderful thing about the damage the marketplace is that it provides our buyers with convenient.
Instant access to a large broad set a seller capabilities. So when there are supply chain issues. There is frankly, no better place for a buyer to go to the damaging marketplace and buyers are looking for new better options and increased flexibility to help alleviate the supply chain challenges and again in our marketplace is ideal to help them.
With those needs.
Also the majority of our orders are fulfilled in country. So this helps alleviate any issues related to overseas shipping delays et cetera. So at the same time, we're hoping the buyers were also helping our sellers and we're providing our cellars the manufacturers access to lower cost and readily available raw materials and tools, which is enabling them to oversee.
Perform in this environment and we're constantly growing our cellar base and adding additional options for buyers, including an economy option in new countries such as Mexico.
So overall winter them to marketplace, we're able to help both buyers and sellers and all kinds of environments, particularly in a challenging environment would supply chain issues.
Patterns and then a quick follow up on that can you give us a sense on the trains after the venue for active biased during the quarter and what was that what was driving that increase in the portal.
Yes.
As we should've mentioned earlier in the call we had.
In 2020, a large customer that was selling management in 2020.
Accounted for over 11% of our sales, but if you take out that one customer that obviously this sort of disproportionately boosted the revenue per customer than to trend is very nice excluding that so we're happy with the revenue per customer trend.
Thanks, I appreciate it base.
Okay. Thank you I am.
Right at the next question.
Thank you we have the next question for Brian Drab with William Blair. Your line is open.
Hi, Thanks for taking my questions.
If we could talk about the acquisitions, a little bit a little bit more detail.
First of all I'm, just wondering with big Blue saw if I.
Learn a little bit about the thinking around.
Buying well it looks like I guess an operating.
Company is instead of just adding them to the network through the broker model.
To start with that.
Yes, so Brian good evening, and yes, big Blue saw we weren't looking too. It's it's a very small company, but they built this tremendous was bounded over 15 years ago by a software engineer.
And he.
He has built some terrific instinct quoting capabilities.
For laser Jan.
And for water J and so we wanted to take any any build the zone engine for that so for US we wanted to take that technology that great and quoting technology as well as the data that he's accumulated and use that to enhance our instant quoting engine for our large customer base or a large user base. So that's going to just accelerated.
Dr capability for waterjet major cutting in the marketplace.
That makes great sense.
And then can you just talk a little bit more about the thinking behind the factory for.
Acquisition.
Yeah, and then unpacked before you know.
It's a SaaS based solution.
And founded in 2015, they're based in L. A and they help manufacturers manage their production. So production planning quality control. So by embedding the SaaS state solution into the damage new marketplace for our sellers will help them to be.
More efficient will provide speaking into the cellars with narrow marketplace and it also provides us real time insight into their availability available capacity and utilization and then finally, Brian. We can also integrate our fintech products into that as well so as they manage their own book of business outside is DAMA treat you are doing it.
Within the zone into the marketplace and likewise as we're working with them and makes it stick your relationship too.
Great.
I'm just going to ask one more just along these lines around acquisitions.
You mentioned that the revenue wouldn't be material in the fourth quarter, but can you give us any sense, what does that mean exactly I mean like less than 5% of revenue or what.
Yeah.
It is less than 1% and also understand Brian Ya. We close these in November and we've also got to we've got the holidays coming up in queue for Greg.
Greg.
Think it's.
I think it's there.
Yeah, Hey, Brian It's Sean Mill, New that you can look at it this way, it's 1% or less if you actually look on a pro forma their revenue versus our toll revenue for the year.
Okay, Alright, thanks, Sean Thanks, Randy for this quarter, it's Dominion exactly understood. Thank you.
We have our next question coming from the line as Nick Jones with seating your line is open.
Hi, This is all just sign around her neck.
Just a couple of questions just to follow up on the big Blue saw aggregation can you confirm so then are you not acquiring.
Manufacturing capability.
We are Nick but it's it's tiny and is Shawn said, it's a demand.
It's not material it's it's.
It's very small I mean, we really again, we did the deep blue so acquisition because of the instant quoting.
Platform or engine that that the boundary is built and the data that he's accumulated from being in business over 15 years, and that's just gonna help enrich our own offering in our marketplace for.
Water Genin laser cut.
Got it got it and then.
Separately.
You mentioned being able to provide raw materials.
Supplier base are you, saying are you seeing any impact of inflation or are you sort of nuclear tradition sort.
Help your suppliers out with.
Inflationary pressures at their school.
Yeah. So.
I think in general when you think about when you play and think about inflation. So.
The Dharma tree platform re prices weekly so that enables us to offer both prices for both the buyers and sellers that incorporate any changes in raw materials or labor.
So we're keeping up on that for both buyers and the sellers.
And.
Our platform provide better efficiency in pricing for our buyers and verify AI matches buyers with the right sellers taking into account many different inputs. So.
It's not just about the cost of material or.
Or labor, but it's also things like what kind of capacity a particular supplier.
Supplier might have at a time or celebrate every time the utilization specific equipment they've got.
So all those things are helping us provide great pricing for both the buyers and the sellers.
Going through typically to the materials.
In this inflationary environment, where some sellers or some.
Some suppliers are struggling to find materials, we effectively operated group purchasing organization for them and we enable them to get those quicker and at lower prices. So of your small manufacturers you might be struggling with those issues as part of the dominant marketplace you get the benefit of our of our better Brian.
Power in our expedited lead times for those kinds of materials.
Great. Thank you.
Thank you we have our next question coming from the line of math Hedberg, we'd RBC capital markets. Your line is open.
Hey, guys. Thanks for taking my questions.
Where do you want to start with you.
I think one of the things that always intrigued us with a tree is sort of the diversity and use cases.
<unk>.
During the appeal you cited a number of production runs that we're leveraging geometry can you talk about the pipeline for more production run use cases.
As the platform matures as buyers and sellers sort of increase is sort of curious on the Cape of that site.
The network.
Yeah, So I think.
And good to hear from you and I think.
As we think about what are the indicators of the larger orders that were there were producing through this non entry marketplace and we kind of highlighted in particular, you're seeing more and more assemblies sort of an indicator of that or the number of accounts of more than $50000 of spend over an LPN basis and that number grew 67%.
<unk>.
Year over year two of 603 accounts. So I think that's a good proxy.
Not only for us.
Our land to expand strategy, but also for larger orders and we're really seeing those in many different sectors.
And sometimes their production runs and sometimes their production runs plus assembly. So it's a mix of those but as you see that $50000 does it counts more than $50000 grow quarter over quarter. That's a good sense of.
Order size grow larger and larger.
That's super helpful. And then maybe maybe one for Jim.
The gross margin improvement is certainly noticeable and it's great to hear you talk about that improving into queue for next year.
I know a lot of that is there is a lot of reasons for that including I think improving algorithm.
Algorithms, but also the benefit of financial services and I know, it's it's still small but can you help us think about.
The past.
Four.
Financial services products, becoming a more mature more material contributor to revenues does something you plan to break out if it gets to a certain scale.
Yeah, so not absolutely.
<unk> said earlier that we would break that out if it becomes material is.
It is not material at this time I would tell you that the the growth is still really good in that product for us.
So the adoption is continuing to grow but but really the right now the AI is driving the increase gross profit margin so as.
As we get bigger and bigger as I've said before right. The more transactions that we have the more orders the bigger revenue the more data and that's really what's occurring right now so when you see that jump right now, it's all driven frankly organically by the model.
And then like I said, we're happy to break out of solar services in general.
What's what's up against a bigger part of the business.
And that this is Randy just to jump in going back to Brian's question about factory for with tools light factory for offering are sellers. The SaaS products were embedding we're going to be embedding index products into that so that will help drive more adoption for then for your everyday use.
Just the word that they are getting from the from the damaging marketplace.
Super helpful guys, well done on the quarter.
Thank you. Thank you so much.
Again in order to ask a question simply press Star then the number one on your telephone keypad that it started then the number one on your telephone keypad.
We have our next question coming from the line of Karl Harrison with UBS. Your line is open.
Thank you and Randy in gym, congrats on managing through the supply constraints over the last three months that's impressive maybe a couple of questions more around the sellers. Our suppliers. So you gave us some steps around the progress on buyers were you were you happy with and can you offer any color on the <unk>.
Expansion of the supplier network during the.
Quarter, and then secondly did you encounter any issues were given the supply constraints among sellers. They just didn't have the capacity to.
Take on jobs on this on the tree board or did than that now.
Not really come up as an issue during the quarter. Thank you.
Yes, Carl So I think the evidence and the fact that that wasn't an issue is twofold first you're seeing we had that very rapid revenue growth.
That you saw that we experienced in Q3, and we're continuing to guide to tremendous revenue growth in queue for as well.
And then you're also seeing the margin expansion, which is as a result of not only the AI and the increase data and enabling us to match people better, but it's also a signal of an increase in number of active sellers in our marketplace as well so.
So those two things can help contribute to that that growing margin profile and because we are using that AI Carl that enables us non too and as we're growing that enables us to find those matches. So supply was not a constrained for us and again that is evidenced by our surging revenue and our surgeon gross profit margins.
Got it okay impressive thank you.
Thank you so much.
Thank you we have a follow up question coming from the lineup, Brian Drab with William Blair. Your line is open.
Yeah did you mentioned the number of sellers after manufacturing partners.
We did not Bryan, but we are going to put that into our into our 10-K, we will update that auto parts.
Okay.
A growing number but we will give the exact number in the 10-K.
Got it and then just on the supply chain.
A lot of questions have been coming in around how you guys would performance in the in this environment and I'm. Just wondering are you seeing.
Some customers that.
Just can't get what they need elsewhere.
And coming to you with the orders that or maybe even larger than.
Typical.
Larger larger volume runs.
Whether it's CNC or injection molding or something just because they know they can get it at Dharma Trina, how how is that playing out what are you hearing from the customers in that respect.
We will look again I'll go back to our guidance, which is.
$58, 63%.
When you look into range.
In Q4, and then when you've heard that Nash customers, 75% to 80%. So it's accelerated growth and I I think.
Certainly Brian as part of that is because we're doing larger orders and again that goes back to the stat of customers with more than $50000 on an LPN basis, and I think more.
To be exempted there are supply chain issues are marketplace provides customers with that flexibility and and and we give them. If there is we give them lots of different options.
Both internationally and Nash and across the United States. So it just it's a perfect anecdote for for us any supply chain constraints or concerns and frankly, it's the same thing for the salaries like we are reliable for those salaries that maybe for other reasons when we're talking about having troubles of sourcing.
<unk> for for jobs or other raw materials were also great input for a great solution for that as well so it really helps both sides.
Right right. Okay. Thanks for taking the question.
Thanks, Brian.
Thank you that then concludes the Q&A portion of the call. Thank you for participating you may now disconnect.
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