Q4 2021 Xometry Inc Earnings Call
Hello. Please standby your dollar Tree, Inc. Q4, 2021 earnings conference call will begin momentarily. Thank you for your patience and please standby.
[music].
Hello, and thank you for standing by and welcome to the Zama Tree, Inc. Q4, 2021 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question answer session to ask a question. During the session you need to press star one on your telephone please be advised.
Today's conference maybe recorded if you require any further assistance. Please press star Zero I would now like to hand, the conference over to your speaker today John Mills.
Of Investor Relations. Please go ahead.
Okay.
Good afternoon, and thank you for joining us on Zama trees Q4, 2021 earnings call joining.
Joining me are Randy I'll, Schuller, our Chief Executive Officer, and Jim Rallo, Our Chief Financial Officer.
During today's call, we will review our financial results for the fourth quarter and full year 2021 and discuss our guidance for the first quarter and full year 2022.
During today's call, we will make forward looking statements, including statements related to the expected performance of our business future financial results strategy long term 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 and uncertainties, which could cause them to differ materially from actual results infer.
Information concerning those risks is available in our earnings press release distributed after market close today and in our SEC filings included in our Form 10-K for the year ended December 31st 2021 that will be filed with the SEC.
We 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 expectations. We'd also like to point out that on today's call. We will report GAAP and non-GAAP results. We use these non-GAAP financial measures internally.
For financial and 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 or superior to measures of financial performance prepared in accordance with U S. GAAP.
To see the reconciliation of these non-GAAP measures. Please refer to our earnings press release distributed today and our Investor presentation, both of which are available on the investors section of our website at investors that's arbitrary dot com a replay of today's call will also be posted on our website.
With that I'd like to turn the call over to Randy.
Thanks, Sean and good afternoon, everyone and thank you for joining us for our Q4 2021 earnings call. We are pleased to report another strong quarter. We ended our first year as a public company on a high note delivering 77% revenue growth and 121% gross profit growth.
Year over year in Q4.
We are rapidly delivering on our mission to build a leading global digital manufacturing marketplace transforming weren't the largest industries in the world. While we're still in the early innings of the secular shift to the digital for manufacturing Fortune 1000 companies are increasingly rethinking their supply chains and manufacturing strategies.
Zama trees uniquely positioned to meet their needs to the breadth of our platform across verticals processes and capabilities.
Likewise, we are uniquely positioned to meet the needs of our sellers through our suite of seller services with our cloud based software platform. We aim to be the operating system for hundreds of thousands of sellers.
Global events over the last two years have crippled supply chains spurred product shortages and limited access to raw materials underscoring the need for rapid digital transformation of the manufacturing industry.
Our two sided marketplace has performed exceptionally well through the manufacturing volatility of the past two years, including Covid ongoing supply chain disruptions and the current tragedy in Ukraine.
Our ability to match buyers and suppliers in real time, and our weekly updates to our AI driven pricing model provides reliable pricing and predictable margins even during periods of volatile commodity prices likewise with their supplier network expanding domestically and abroad, we offer our customers dura.
<unk> supply change irrespective of macro events the.
The vast majority of our orders are fulfilled in country along.
Deviating issues related to overseas shipping delays. The addition of Thomas only enhances our capabilities.
While our thoughts go out to those tragically affected by the war in Ukraine Zama tree continues to have strong and a growing business in Europe, we do not have buyers or sellers in Ukraine, or Russia and have not experienced any business interruption.
Moving on to our strong Q4 results.
I will provide a review of our fourth quarter performance and provide an update on key business initiatives, including the integration with Thomas.
Then I will turn the call over to Jim for a more in depth review of our financial results and outlook.
We had a strong Q4 with revenue of 67.1 million as we continued to see rapid adoption of our marketplace by both buyers and sellers as well as completing the strategic acquisition of Thomas on December nine.
Excluding Thomas Zama tree revenue grew 66% year over year to 63 million and increased a strong 11% quarter over quarter.
Thomas revenue in Q4 from the time of the acquisition was $4 1 million.
While we completed the acquisition of little more than three months ago. Our integration efforts are off to a strong start.
I outlined our progress in road map later in the call and in our earnings presentation.
Q4, Zama three revenue growth was driven by continued robust growth in active buyers and the rapid adoption of the platform by larger accounts across both North America and Europe.
The geometry marketplace to provide flexibility and instant access to a large broad set of seller capabilities. Additionally, we provider sellers convenient access to supplies, enabling them to lower their cost of operations.
We also improve their cash flow through our basket of Fintech products.
In Q4 active buyers increased 49% year over year we.
We saw strength across many verticals, including consumer products robotics medical devices, and electronics and semiconductors as well as ongoing strength in general manufacturing.
Additionally, we drove robust growth within existing accounts powered by our land and expand strategy and the increase in large orders including production.
The number of accounts with the last 12 months spend of at least $50000 increased 80% year over year to 701, adding a record 99 accounts that metric in Q4.
Given the success of our land and expand strategy, we are investing to expand our enterprise sales effort in the near term.
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 in October we launched version two point over the Zama tree App for Autodesk fusion 360, a leading CAD design platform.
Version 2.0 offers manufacturer ability feedback and multiple part upload features improving the user experience for engineers and designers working in fusion 360.
We continued to expand our seller services revenue, including improvements to our supplies business and our basket of Fintech products. The usage of our financial products continued to improve including instant pay which launched in the fall.
Our financial products improve salaries cash flows and engagement levels.
Our international business continues to deliver strong growth driven by the team in Europe.
In Q4 revenue in Europe increased over 300% year over year. Additionally, in Q4, we hired a general manager for our Asia Pacific business to quickly scale up our team and platform. We expect to formally launch a localized marketplace in that region by the end of Q1 and begin taking orders in Q2.
We have a tremendous opportunity for international expansion and are investing to drive future growth.
International revenue grew over 400% to $16 $2 million for 2021 up from just over $3 million in 2020.
Currently over 90% of our revenue is generated in the U S. We see an enormous global opportunity and with other leading online marketplaces international revenue could be up to 40% or more of total sales over the next several years.
On top of strong revenue growth gross profit grew 121% year over year, Excluding Thomas Cemetery gross profit dollars increased 83% year over year and 20% from Q3 to Q4, 2021 driven by improvements in pricing and seller matching and our AI powered marketplace.
As our marketplace continues to scale and as the number of transactions grow our machine learning becomes smarter driving better matches for buyers and sellers and helping improve gross margins at the same time, we continue to ramp up our network of active sellers, which further enables our marketplace to successfully match supply and demand and improved.
Gross margins.
On top of the strong financial result in Q4, we made three acquisitions, including Big Blue Sol factory for and Thomas to improve our marketplace experience for buyers and sellers and strategically transform our market and growth opportunities.
Thomas is a leading online platform for industrial product sourcing supplier selection and marketing services. The addition of Thomas accelerates the growth of zama trees marketplace, creating exceptional scale of buyers and manufacturers. We have established an end to end suite of seller services, including digital marketing.
<unk> and Advertiser services.
Thomas is accretive to our margins and accelerates our path to profitability.
We are executing against our integration plan as we now go to market as one company, we've integrated our teams centering them around marketplace and seller services, we have a robust product roadmap focused on driving more buyers and sellers to the marketplace as we strive to become an enterprise solution for both.
For buyers, we expect to integrate our instant quoting technology in the Thomas platform in Q2.
Opening up Thomas's 1.4 million plus registered users and 20 million annual sourcing sessions to our marketplace.
The technology behind this integration is based on our Zama tree everywhere initiative, which can be integrated in minutes to unlock zama trees instinct voting on virtually any web site. We are launching zama three everywhere later in March.
Additionally, in Q2, we will expand our coding capabilities into new categories based on the data and suppliers from the Thomas network.
Buyers will not only be able to choose from expanded categories and processes, but be able to more easily find local suppliers and with an expanded set of certifications.
Also buyers will be able to choose from over 45000 diversity certified suppliers a category that is increasingly important to enterprise buyers.
Also by the end of Q2, we will rollout our one identity single sign on our buyers will be able to seamlessly purchase across vomitory instant quote and Thomas RF Q with a single sign on.
One identity will create a unified shopping cart across platforms to easily facilitate purchase and payment.
For sellers, we introduced a new supplier analytics dashboard and the Thomas platform, which provides real time data on buyers that are in market with this fire services and the buyers engagement with the suppliers profile.
Recently, we introduced a self service option for sellers to purchase Thomas advertising services on the Thomas platform.
Our new self service option removes frictions for new customers and introduces a new entry price point for our marketing advertising service offerings.
The new dashboard and self service options are foundational components of our strategy to significantly grow the number of premium suppliers and the frequency at which they actively engage with the Thomas platform.
We expect to rapidly expand the number of premium sellers in the platform from roughly 5000 today given that there are 500000 registered sellers on the platform.
Also for sellers, we will release, a new version of our order management software in Q2 to integrate seamlessly with the geometry marketplace and with the Thomas net dot com platform, giving suppliers a one stop view into all of their orders at the end of Q2, we expect to launch a premium version of the software as well.
Look to drive deep adoption within our seller base. The operating system will serve as the platform to deliver our basket of seller services to our base of manufacturers and drive further engagement on our marketplace.
We expect that our product release schedule will drive additional growth and revenue synergies for the balance of 2022, we remain confident in our plan to deliver up to $400 million in revenue in 2022, which Jim will provide more detail on later in the call.
We have limitless opportunities to fuel our growth this.
This year will see us expand our marketplace domestically and abroad and deliver additional services to buyers and suppliers.
Our Tam is over two trillion dollars and the massive 35 trillion dollar global manufacturing industry.
We will continue to invest to further capitalize on our position as the leading two sided marketplace.
And 'twenty 'twenty, our revenue was $141 million in 2022 we expect that to nearly triple to $400 million and at the same time, we expect gross profit dollars to grow over four fold with significant gross margin expansion.
And we're just getting started.
With that I'll turn the call over to our CFO, Jim Rallo for a closer look at fourth quarter financial results and our business outlook.
Thanks, Randy and good afternoon, everyone as Randy mentioned, we had a strong fourth quarter and we're expecting continued significant revenue and gross profit growth in Q1 and 2022.
We generated Q4 revenue of $67 1 million up 77% year over year, excluding Thomas So how much you generated revenue of 63 million, 66% revenue growth year over year.
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 in Q4, Thomas contributed $4 1 million in revenue from the time of acquisition on December 9th 2021.
In Q4, 2021 our Kpis are reported for zama tree on a standalone basis, excluding Thomas.
Q4 active buyers increased 49% year over year to 28130 in Q4, the percentage of revenue from existing accounts. It was 95% underscoring the efficiency and transparency of our business model the leads to increasing accounts stickiness and spend overtime.
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 an account joins our platform, we aim to expand the relationship and increase engagement and spending activities from the account over time.
The number of accounts.
With the last 12 months spend of at least 50000 on our platform reached <unk> 701 at the end of Q4, 2021 up 80% year over year.
Q4, gross profit was 20.9 million, an increase of 121% year over year.
Gross profit margin was 31.2%.
Excluding Thomas Zama tree gross profit margin was 27.5% up 250 basis points year over year compared to 25%.
In Q4 'twenty 'twenty.
Q4 gross margin for Zama tree increased 190 basis points from Q3, 2021 excluding Thomas.
As our marketplace continues to scale and as the number of transactions grow our machine learning becomes smarter driving better matches for buyers and sellers and increasing our gross margin over time.
Moving onto Q4 operating costs.
Q4 operating costs include Thomas from the date of the acquisition.
Q4, 2021 total operating expenses increased 131% year over year to 43.5 million on a non-GAAP basis Q4 operating expenses increased 103% year over year.
Q4, 2021 operating expenses included $5 7 million of transaction costs related to acquisitions and stock based compensation expense of 2.6 million that is allocated across our SG&A lines.
Additionally, Q4 operating expenses include approximately $2 2 million of public company costs, and $1 1 million related to our charitable contribution.
Within our operating expenses sales and marketing is our largest variable component given our large and expanding Tam of two trillion, we will continue to invest in growing our marketplace of buyers and sellers non.
non-GAAP sales and marketing costs were $12 4 million in Q4, an increase of 91% year over year, driven by continued investment to expand our network of buyers and sellers are hiring of additional salespeople.
And 1.4 million from the Thomas acquisition.
Our adjusted EBITDA loss for Q4 was 11.9 million or 17.7% of revenue Thomas was not material to the Q4. Adjusted EBITDA is the acquisition occurred on December 9th our Q4, adjusted EBITDA loss was approximately 1.8 million higher quarter over quarter due to additional public company costs and investments in sales and marketing.
And international expansion in Asia Pacific and the United Kingdom.
One note on GAAP EPS, our Q4, GAAP EPS included $5 7 million and transaction related costs, which are excluded from Q4 adjusted EBITDA turning to segment reporting it is worth noting that the majority of Thomas revenues are in the U S. In Q4 revenue from our U S and Europe operating segments was 61.8 million.
And $5 3 million, respectively segment loss from our U S and Europe operating segments for Q4 was 21.1 million and $2 8 million respectively.
We continue to invest in our European business, which grew over 300% year over year in Q4 with improving gross margins as transaction volumes increase.
At the end of the fourth quarter, our cash and cash equivalents and marketable securities were 116.7 million with no debt in early February we raised approximately $278 9 million in net proceeds from our convertible notes offering.
Now moving onto guidance.
We expect Q1 2022 revenue in the range of 81 to 82 million representing year over year growth of 84% to 87%.
Given the change of mix in our business with Thomas for modeling purposes, we're providing gross profit margin ranges for Q1 and 2022.
We expect Q1 gross profit margin in the range of 38% to 39%.
Starting with Q1 'twenty Tony to financial results, we will provide an additional disclosure for marketplaces and supplier services. We report revenue and cost of goods sold for each Thomas will be included and supplier services.
We expect operating leverage to improve quarter over quarter in Q1.
And through 2022 in Q1, we expect adjusted EBITDA loss to be in the range of 12, five to $13 5 million as we were increasing our spend by approximately $2 million.
There are two primary contributors first is an increase in compensation cost for individual employees, reflecting the overall inflationary environment.
Second we are making incremental investments in sales technology and international expansion as Randy mentioned, we continue to invest in sales, including expanding our enterprise sales team based on the significant progress we are seeing in our land and expand strategy given the robust product release schedule that Randy mentioned, we are also investing more.
Heavily in technology in Q1. Additionally, we invested to further drive international expansion, including the launch of our local marketplace in China and further expansion in Europe, specifically in the U K.
We will be live and up and running in China, beginning in Q2.
In Q1, we expect stock based compensation expense to be in the range of $4 million to $5 million, which will be excluded from adjusted EBITDA Q.
Q1, 2022 stock based compensation rules flush.
Flex the acquisition of Thomas.
Additionally, as part of the IPO, we pledge, 1% of the company's capitalization or approximately 403000 shares to domtar dot org for charitable contributions to nonprofit organizations.
As a result, each core we will record a non operating charge to general and administrative expenses, which we will exclude from adjusted EBITDA. In Q4. This charge was $1 1 million and we expect this number to be similar in Q1.
Before I provide full year guidance I want to take a moment to explain two factors influencing revenue for the balance of 2022 on top of our strong organic growth.
First we expect the majority of revenue synergies from the Thomas acquisition to be driven by the conversion of Thomas users to buyers on the zama three marketplace.
Based on the timing of our product release roadmap, we expect the revenue synergies to commence in Q2 and build through the balance of 2022.
Second we are seeing a notable shift to production orders from many of our biggest customers. This shift can be seen in the strong growth in accounts with LTM spend of at least $50000.
As a result revenue from these accounts will ramp up significantly as the year progresses for fiscal year 2022.
We expect revenue in the range of 390 to 400 million representing year over year growth of 79% to 83%.
We expect strong growth for the marketplace as well as strong growth for seller services, including the acquisition of Thomas.
We are targeting a gross margin range of 37% to 39% for 2022.
We expect 2022 adjusted EBITDA loss to be in the range of $32 million to $36 million.
We expect operating leverage to improve going forward, especially in the second half of the year driven by strong revenue and gross profit growth and the anniversary of our public company costs from our June 2021 IPO on top of improving zama tree operating leverage.
We expect improving profitability for Thomas.
We expect to be profitable on an adjusted EBITDA basis in 2023.
With that operator can you. Please open up the call for questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Our first question comes from Sterling Auty with Jpmorgan you May proceed with your question.
Yeah, Thanks, Hi, guys so to start.
Be curious very significant increase in the number of sellers. What are you seeing that's attracting more sellers to the network before you even get the benefit of you know Tom potentially from Thomas sellers coming on to the marketplace.
Hey, Tony it's Randy and great to speak with you.
So I think it's a number of factors trailing one is I think sellers are attracted to our tremendous customer base.
And the opportunity irrespective of their own a VAT salaries, particularly what they've historically done to get work at any time.
We've also been making terrific improvements to user experience for them and our matching algorithms continue to get better and better. So when he salary does come to our marketplace, they're more likely to find something that fits right into their sweet spot and then on top of that you know we've been expanding our basket of seller services and that's also very.
Attractive so between finding them, great customers and it being reliable as we scale, we get more and more of that.
And as giving them more and more value added services to make their businesses better and I think that's that's creating a lot of a lot of goodwill and attraction by them.
That makes sense and then one follow up can you maybe help us understand you dove into it a little bit in the prepared remarks, but maybe go a little bit further around the impacts that you're seeing on the business from the tight supply chains that that continue.
Yeah. So you know.
Zama tree is a very durable model and throughout before Covid during COVID-19 during supply chain. During these geopolitical we haven't seen any impact on our business.
And you know and so we kind of laid out some of the reasons behind that we've got.
You know first of all most of what we do is done in country. We've got we gave customers access to these localized networks.
And so.
So it just it has an impact in fact, it just sort of as double down for customers the need that they need to have it an option like zama tree.
At the source if theres increasing.
Predictability in the world and there's more challenges in the world. So I think that's also one of the reason why you're seeing that nice increase in accounts of more than $50000 of spend more and more customers are leaning heavier every into using us as their de facto supply chain.
Understood. Thank you.
Thanks, so much.
Thank you. Our next question comes from Eric Sheridan with Goldman Sachs. You May proceed with your question.
Thanks, so much for taking the question and I hope everyone's well on the team maybe two if I can first coming back to Thomas can you talk a little bit more about how the revenue contribution builds as we move through the year, what sort of a base case assumption by the company and what could cause that base case assumption to have variability as you execute moving through the year.
That'll be number one and number two bigger picture question any update on international expansion and how you think about the international opportunity in the years ahead. Thanks, so much.
Yeah. They are just on Thomas.
We have a lot of new products coming out that's going to help grow their revenue as we get through 2022, but when you think about the business just go back to our prepared remarks that the revenue synergies are really accruing from us converting the Thomas buyers onto this arbitrary platform. So that that's the way to think about.
The growth outlook for the balance of the year.
And just add that Eric if you look at our product roadmap and I know, we threw a lot of people, but if you look in the slide deck, we're launching something called zamindari everywhere, that's going to launch.
<unk> at the end of this quarter, we're using that technology to embed our instant quoting engine in Thomas net and so as we talk about converting that 1.4 million registered Thomas users and geometry buyers it'll be right there in their environment and again, we're gonna be releasing the technology behind that and other places.
Later this month, so it will be ready to go for for next quarter and that will be very helpful.
Yeah, Eric This is Jim on our international expansion.
So a couple of updates here as Randy said in his in his remarks earlier, we have launched in China, We've actually already had a transaction.
They go through and you know what.
Why is this significant for US is because we've had a great network of sellers in China, but we have not developed a network of buyers in China. So.
We've got a team on so on the ground there now.
We are obviously trying to grow that team significantly over the next couple of quarters, obviously the opportunity in China is as dramatic when you look at the opportunity.
As far as the size of the the GMP there.
I think when you look at Europe, So just to remind folks in Europe Europe are.
Our office is based in Germany.
That's our main corporate headquarters in Europe, there, but we're expanding the sales team and in other countries.
The U K really is one of our whenever a bigger sales groups now and were.
We're launching there. Additionally, so I think the idea is right. We're gonna it's back to the land and expand right. We're in we're in Asia now our headquarters in Shanghai, where we continue to expand in China, and again, where we're making the investments.
Investments in Europe to continue to expand there and just to add today, Eric you can go to.
As Jim said that decided in China, just launching that as almond tree Dot Asia, and where we're up and running there so very excited about that.
Thank you. Our next question comes from Brian Drab with William Blair. You May proceed with your question.
Hi, Thanks for taking my questions.
On the last comment that you made Jim.
This is gonna be Mike. My question is that could you still be breakeven in 'twenty 'twenty three in terms of EBITDA and he said yes.
It's a little harder.
Slightly harder to picture I think after seeing guidance.
No negative $34 million EBITDA at the midpoint for 22.
Can you talk about is that you.
What gets you there is it the.
The revenue growth and 23, combined with I guess, obviously leverage and slowdown in.
You know not such a step function increase in expenses or or you know.
What can you do to give us a little more clarity on how we get to breakeven.
Yeah, Bryan I, certainly understand the I certainly understand the question, but I think we've got we're going to we'll get significant synergies in 2023 from Thomas.
We're going to be ramping up our when I say it we're ramping down really the the adjusted EBITA loss throughout next year.
And we feel confident right now that we can get to that number now let me be clear, though when I say that number I think when we talk about being profitable for 2023, what we're talking about is profitability on an adjusted EBITDA basis.
And.
Although it's actually Shawn jump in here and add a little bit more color around that.
Thanks, Jim Brian the way to think about it is you know you're seeing really strong growth in revenue and stronger growth in gross profit dollars and if you map that out for the next several quarters against a lot of fixed costs in our operating model, especially in our G&A and we anniversary the big step up.
And public costs in the middle of last year, Youre going to see significant operating leverage in the second half of 2022, and that's going to be your glide path to take into 2023. So we can take a little bit of that offline, but that's that's the basic picture.
Yeah, that's really helpful. Thank you both.
And then just one follow up for now.
In the second quarter Youre going to insert the quoting engine or may have the quoting them to go live and Thomas just one can you talk a little bit about.
What that will look like but what services will we be able to go find that theyre quoting engine available for and then I do.
No. If you could also comment on you know.
What else are you having to do to get that to work in terms of getting.
Sellers that had been on the Thomas platform.
To to participate.
Yeah.
Yeah, and Brian just before I answer it it's about participate as in taking work from from geometry customers.
Yeah, I'm, just thinking that in the old days.
And the Thomas model, they would get enacted salary gets connected with someone that now the seller is getting worked through a quoting engine.
Different life for them and I'm trying to picture that again.
Yeah. So let me let me answer both won at both questions for you. So in terms of putting the technology.
And coating technology in Dethomas, Matt as I said earlier, we're going to be launching zamindari everywhere very soon.
And that is the underpinning of what we're gonna be using to place that into Thomas net so we're very confident from a tech perspective that that works and that will offer.
Brian all of our current services that we have on geometry dotcom today those will all be offered in that.
We also mentioned in the roadmap that we're going to be expanding the breadth of those services.
Leveraging and in large part of the terrific.
Seller or manufacturing base. It resides in Thomas So you'll see the existing zamindari quoting engine be embedded in Thomas and then Youll see later in the quarter us expand the processes that we offer there. So that's on the on the customer side and just from a tech perspective, we've got that downward feeling very good about that.
And we'll make sure we have a good user experience for their registered users Thomas registered users on the on the salaries higher supplier side.
We also talked about releasing for factory for one pane of glass to enable Thomas lifted suppliers to get RF queues and to get work from Zama tree, So think about that supplier here.
He or she has got the ability with a click of the button to not only accept RF queues from people going direct but also if they want to get work from geometry. It's also a one click of the button.
So, we're making that experience really easy for them and we're putting it all in one place so you'll have to swizzle between both in <unk> and in that one pane of glass. They can also manage their own work as well. So that's why we're giving the system away as we talked about on a premium basis.
And so that will be available by the end of Q2 to all the listed suppliers and Thomas.
Got it okay. Thank you very much.
It's Brian.
Thank you. Our next question comes from Matt Hedberg with RBC Capital You May proceed with your question.
Great guys. Thanks.
Randy I guess, you know given given some volatility in underlying commodity prices.
How does your model work from a pricing perspective, you know, maybe if theres a longer lead time, it's based on a set commodity price that changes dramatically just sort of curious how that relationship works for both the buyers and the sellers.
Yeah. So I think it's important to know that were replaced pricing R. R. R.
Model every week.
And so that takes into account if there are any changes in raw materials or labor.
And remember when we give the quote to the customer and the customer buys right in the back of that we're giving the quote to the to the seller to the manufacturers. So the two are produced hand in hand, the buyer wineries is produce understood as predicting what the price will be from the sellers. So as we adapt that model were trained that model with new data every week.
That's updating their prices we offer for buyers and sellers. So that's why and as we get more data, we get more and more efficient and likewise as we get more buyers that helps as well that's why even in an inflationary environment, you're seeing our gross margins actually improve.
And as you see we're also seeing great growth in the business. So it really hasn't had any impact just because we're using this machine learning it's updating every week to make it work.
Got it. Thank you that makes a lot of sense and then Jim.
I guess thinking about the impact of Thomas on 2022, I think when you guys announced the acquisition I think you said at the time it did about $67 million in trailing 12 month revenue and I believe sort of.
What's the base assumption that that Thomas revenue should be growing roughly in line with zama three sort of core revenue was that kind of the baseline assumption.
But not exactly let me let me explain that so what we said was do we expect the combined business to have a similar growth rate than what we've had in the past.
So how that's going to work is we're going to leverage our ability to it with the synergies with the sellers and buyers of Thomas right.
Most of those transactions will occur on the zama tree marketplace.
So and.
On a combined basis, we do expect the growth to be continuing and.
We don't see.
You know, we don't see issues with that we're really changing the way Thomas is operating from a transactional standpoint again, it hasnt been a transactional marketplace.
And that's you know as Randy said in his remarks that that's one of the benefits of synergies, we'll see as well.
Got it okay that makes it.
That makes a lot of sense. Thanks, guys.
Thank you. Our next question comes from Matt Schindler with Bank of America. You May proceed with your question.
Yes, hi, guys.
With the recent change in commodity prices.
Which had been rather fast and volatile what is the chance and what mitigates your impacted gross profit when you give a guaranteed price ahead of time.
Before a contract is completed.
Yes, so we train our pricing every week. So we've got you know we're using machine learning until we were repricing. The model every week and so that ensures that our pricing incorporate any changes in raw materials labor costs et cetera, and when we do that we're producing there prices for both the buyers and the <unk>.
So when we so if a buyer comes to our site and she looks for a price we're giving her that price taking consideration at that within that period of what we think the salaries. The manufacturers can make it. So it's all happening at the same time that's why.
Even irrespective of the macro environment, you've seen us actually grow our gross margins.
And that's also as we're getting more and more data and we're getting more active buyers as well, but we really don't have any risk of inflation catching I, suppose where pricing for buyers and sellers virtually at the same time.
And what percentage of a typical contract.
Is raw material.
Is it mostly labor or is it.
It's a smaller part it's a small part of it.
So it's not it's not a big part of it.
So obviously extreme volatility even in this umbrella to be short term contracts.
When it's only a small percentage of the total is not going to have a big effect on gross profit no matter, what and your engine already accounts.
That's exactly right.
Great. Thank you.
Thank you. Our next question comes from Karl Keirstead with UBS. You May proceed with your question. Okay, Great. Maybe a couple H M. During your remarks, when you were framing Europe revenue guidance of 390 400, you mentioned that one thing.
You were thinking through is that what you called a shift in production orders and if I heard you correctly, you mentioned, perhaps a mix shift to some of the largest buyers can you just clarify what you meant by that and what the impact on revenues and profitability might be from that shift. Thank you.
Yes, I think when you think about production.
Orders, Carl what they tend to get deliver over certain time periods. So.
So those those orders we record revenue when we ship so.
What happens with that is one.
We've got the ability right to predict a lot more because we know exactly what when we're going to ship Monroe. The amount we're going to ship. So you think about that it's almost it's almost like a real SaaS model almost for manufacturing right. We've got that locked in those orders also tend to be larger so so think about larger orders due.
A levering over a certain period of time, they could hit all in one quarter, it could possibly rollover to a different quarter and so forth, but we just want to make sure. We're clear on revenue recognition, we record that revenue when we when we ship and you know while we called this out is if you look at our.
If you look at our accounts, where that spend over 50000 or more as jumping up a lot both in absolute dollars for us and also in the number of accounts over 50000 and.
And that's the reason why that is were getting these larger again more what I would say is like real manufacturing.
Runs.
Yeah, and Karl just to jump in a little bit. So we've added production level manufacturing technologies to design to marketplace like injection molding light dye casting like stamping and so we've really seen greater adoption of that as we go deeper into our customers become more of an enterprise solution. They are embracing those.
And it does those technologies that are creating these.
These production orders. So for example, we're doing a lot more injection molding medical devices were doing stamping for electric vehicle companies. So that's an exciting trend for us and we expect that trend to continue as customers embrace this more and more quarterly call. This this is what we've been talking about for a while which is the evolution of the marketplace.
Got it okay that sounds like net good news okay. Thanks for that and then maybe as a follow up.
Jim You gave us your full year calendar 'twenty two revenue gross margin adjusted EBITDA, but in terms of the contribution of Thomas if I could just go back to that.
You you didn't specifically identify the Thomas contribution I think most people on the line are thinking loosely you know $70 million from Thomas in calendar 'twenty. Two is that a good estimate and maybe at least qualitatively can you talk about the impact on adjusted EBITDA and gross margins. Thanks, Jim.
It's Sean I'll take that I mean, we won't give specific Thomas guidance, but I think the way youre thinking about the growth rate there makes sense and we've got a lot of great products and services coming out from Thomas and will start to bend that growth curve over 2022.
As Jim said in his prepared remarks, some in and you've seen in our in our filing around the acquisition. It was sort of roughly breakeven at that time and as we grow revenue.
And we knew we have new options like self serve we can improve the margins at Thomas over time, and that's part of what you see in the back half of the year and to our 2023 comment.
Got it thank you.
Thank you. Our next question comes from Dan David Silver with C. L. King you May proceed with your question.
Okay. Thank you.
I guess the first question I'd like to follow up I think it was Jim who mentioned the overall strategy of converting <unk>.
Thomas unit users over to the Zama tree platform and I think you mentioned is one element of that are a key element of the zama tree everywhere function, but I'm just I'm just wondering.
What other elements to that strategy.
Do you expect to implement to kind of drive that adoption from the Thomas base of users over to Zama tree and in particular, I mean, I think I understand why the sellers would be quite enthusiastic about the combination, but just curious how you're thinking about.
Getting those buyers that to this point you know, we're not paying directly for the use of the service to to become paid.
Paying users on this arbitrary platform. Thank you yeah, Yeah. Great question. So let me talk about 1.4 million registered users. Let me also start by saying Tom is.
<unk> as we just reported has a a and we had a record number of active buyers in Q4 that number was I think 28 28000. So just put that perspective Thomas has got one 4 million registered users and they've been around for 100 years. So theres still a lot of people who.
We don't know about geometry, so right off the bat by integrating damage free everywhere and integrating our technology into Thomas net that will immediately give those thomas users' exposure and they don't need to know as yet so that's a great opportunity right as read of that and we're going to make it a very user friendly experience for them to buy when they go to Thomas net.
But then the other good news is that we've got our other tools.
To help to help it make it easier for the Thomas users. So we've got our integrations with the CAD programs popular CAD programs like solid works.
We just announced it.
Enhanced in our remarks about 2.0 for fusion 360.
And so we'll have more of those integrations come out and then we're also integrating directly into our users or to our buyers ERP systems. So we successfully complete the integrations and Cooper and our rebar and other systems.
And again, just making it really easy for that Thomas user whether or not that Thomas users on the Thomas site or whether or not they're using their three D CAD programs or whether or not there any ERP, they can find us and convert anywhere.
Okay.
Thank you for that that's great.
One other question and I'll apologize in advance if this sounds a little naive, but it's about your capital raise from January so when I look at your fourth year December 31 balance sheet, you know theres, a certain amount of cash there and I look at your fiscal year 2022 guidance. So to me this was a.
<unk>, where you know you could fund typical operations from the cash on hand for a considerable amount of time, but I'm. Just wondering if you could maybe just elaborate a little bit more on your thinking behind the timing and the size of the capital raised in other words, what what is it going to allow you to do with that additional.
Financial capability that maybe.
He wouldn't be able to do or wasn't in this current <unk>.
'twenty two.
Fiscal 'twenty two outlook.
What does it bring to the table for you. Thank you.
Yes, David I don't think it was specifically around 2022, we certainly had enough cash on the balance sheet.
To frankly get us to profitability I think the you know for US it was opportunistic around the market at the time for our convertible debt.
We're very confident in the growth of our stock over a long period of time and so we certainly believe the conversion factor will be taken into place. There and also you know we got a 1% interest rate. So I think when you look at the cost of capital.
Trying to be as efficient as we can with that cost of capital for our shareholders.
And you know frankly, we were concerned a little bit with the macro environment and the global macro environment.
And I think you know our raise was very timing.
Timing appropriate and so it wasn't about worried about next year or the year. After it was about making sure we had enough.
Our balance sheet to do whatever we want to to grow the business.
Alright, that's great. Thank you very much.
Okay.
Thank you.
That concludes today's conference call. Thank you for participating you may now disconnect.
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