Q3 2022 Xometry Inc Earnings Call
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Good day and thank you for standing by welcome to <unk> Q3, 2022 earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker presentation there'll be a question and answer session.
Ask a question during this session you will need to press star one one on your telephone you of the inherent in automated message advising your hand is reyes.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your first speaker today, Sean Mill, Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining us on geometry, as Q3 2022 earnings call. 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 third quarter and discuss our guidance for the fourth quarter 2022.
During today's call, we will make forward looking statements, including statements related to the expected performance of our business future.
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 information concerning those risks is available in our earnings press release distributed before the market open today and in our SEC filings included in our Form 10-Q for the quarter ended September 32022 that will be filed with the SEC.
We caution you to not 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.
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 in our Investor presentation, both of which are available on the investors section of our website at investors <unk> 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.
Good morning, everyone and thank you for joining us for our Q3 2022 earnings call.
We are pleased to report another strong quarter with record revenue and record gross profit.
We delivered 83% revenue growth and 182% gross profit growth year over year in Q3.
You have our marketplace is enabling us to gain significant market share and we expect those share gains to continue in Q4 and into fiscal year 2023.
We reduced our adjusted EBITDA loss by $1 $8 million quarter over quarter to $6 5 million underscoring the operating leverage in our model.
Moving onto our Q3 results I will provide a review of our third quarter performance marketplace trends in Q4 and provide an update on key business initiatives.
I will turn the call over to our CFO , Jim Rallo for a more in depth review of our financial results and guidance.
We had a strong Q3 with revenue of $103 $6 million driven by robust marketplace growth and expanding supplier services with the addition of Thomas.
Q3 marketplace revenue was $84 1 million, nearly 55% year over year, and 11% quarter over quarter growth.
<unk> marketplace revenue consists entirely of the historical commentary business, excluding vomitory supplies and financial services.
Marketplace revenue growth was driven by continued strong growth in active buyers and rapid adoption of our platform by larger accounts across both North America and Europe . Likewise, we experienced strong year over year growth in many of the different manufacturing processes offered in our marketplace.
In Q3 active buyers increased 40% year over year to 36789, we added a record 3298 active buyers in Q3, a 17% increase over the prior record set in Q2.
Our value proposition resonates strongly with customers, we saw strength across multiple verticals, including automotive robotics, and automation education, food and beverage as well as ongoing strength in general manufacturing.
The number of accounts with last 12 months spend at least $50000 increased 62% year over year to 974, adding 80 accounts in Q3.
The success of our land and expand strategy, we continue to invest in our enterprise sales engine.
While the number of active buyers and your activity level in this hometree marketplace increased throughout the quarter, we did see marketplace pricing trends become a headwind late in the quarter due to a step change and lower supplier costs.
We will discuss these dynamics in further detail shortly but the overall health of our marketplace ecosystem is strong.
Q3 supplier services revenue was $19 $5 million, including Thomas which we acquired in December 2021.
The vast majority of supplier services revenue is the Thomas marketing services and advertising business, plus historical zama treat supplies and financial services.
We provide convenient access to supplies, enabling manufacturers to lower their cost of operations.
We also improve their cash flow through our growing basket of Fintech products.
With Thomas we've expanded our basket of supplier services, including marketing and advertising solutions.
Our international business continues to deliver strong growth with revenue, increasing 75% year over year and 10% quarter over quarter.
In Q3, we added Polish Norwegian and Dutch languages to our European site.
Additionally, Europe introduced new production technologies, including vacuum casting and compression molding.
Alongside strong topline growth Europe continues to rapidly expand gross margins underscoring the success and demand for our marketplace across geographies.
We remain pleased with the ramp in buyer demand in China, as we're seeing orders from across many verticals, including medical biotech new energy and universities.
We expect China to contribute to revenue growth in 2023.
On top of strong revenue growth gross profit grew 182% year over year in Q3, driven by significant improvements in marketplace gross margin and the addition of higher margin supplier services.
In Q3 marketplace gross margin increased 120 basis points quarter over quarter to 34% and increased significantly year over year.
Over the past three years marketplace gross margin has grown from 18% in 2019 to now over 30%.
As our marketplace continues to scale and as the number of transactions grow our machine learning becomes smarter driving better matches for buyers and suppliers and helping improve gross margins.
At the same time, we continue to ramp up our network of active suppliers, which further enables our marketplace to successfully match supply and demand and improve gross margins.
The combination of these factors gives us significant confidence in reaching our long term marketplace gross margin target of 35% to 40% at a faster pace than previously expected.
Jim Rallo will provide more detail about this later in the call.
Following up on <unk> summit at the end of June in Q3, we rolled out new products, including the industrial buying engine and work center to provide an integrated solution for buyers and suppliers and to further scale our networks.
The industrial buying engine provides buyer choice, including zama trees instant quoting engine for those customers who want to buy it now.
It also digitizes, the cumbersome and time consuming request for quote process, taking what was once an off platform and integrating it into the heart of Thomas Smith.
The buyer gets to work with trusted high value suppliers and benefits from the convenience of a secured checkout payment options and customer support.
Suppliers benefit from additional exposure to high quality buyers and can take advantage of convenient payment options with the industrial buying engine, we're creating an incremental and scalable revenue stream on Thomas net dot com.
We remain pleased with the early activity in the industrial buying engine and are seeing healthy top of the funnel activity as the number of projects submitted continues to grow.
In Q4, we continue to improve the user experience for buyers and suppliers, creating one call to action and a unified buying experience across the Thomas platform.
Also in Q3, we began rolling out our new cloud based software work center to help suppliers digitize all aspects of their operations work centers are fully featured all in one manufacturing execution system that gives suppliers a one stop view into all of their orders.
Our freemium version of the software was developed with the acquisition of factory for in Q4 of 2021.
Vomitory work center brings everything our suppliers love about Dimitry like our popular job board and our financial services and everything they love about Thomas net all into one easy to use system.
By digitizing all aspects of their operations and less manufacturers focus on what they need to do to grow their businesses and attract new buyers.
One of the best features of work center is that our suppliers can use it to manage all of their work, including work from their non geometry customers.
All the cash flow benefits suppliers know and love our integrated seamlessly and as Dominic you work Center.
The shop finances dashboard suppliers contract payouts take advantage of our instant pay that day and advanced card financial products.
We are pleased with the initial rollout of work center as we've activated thousands of suppliers on the platform, including many Thomas suppliers, who were not zama three partners. We are seeing job scale rapidly on the platform.
One important new functionality in Q4, including workflow customization, enabling suppliers to accurately reflect their unique processes and integrations with several accounting systems, most prominently quickbooks and Oracle net suite, enabling invoice generation directly from work center.
The supplier side of our marketplace is incredibly fragmented with over 625000 manufacturing businesses in the United States, 75% of those businesses at fewer than 20 employees.
With our work center platform, we have a tremendous opportunity to become they're easy to use operating system and provide products and services to these businesses.
Now turning to current business trends.
In Q4, we expect marketplace revenue to grow 40% to 45% and marketplace gross profit to grow over 55%.
We saw continued strong active buyer growth in October and expect another quarter of record new active buyer additions in Q4.
Also in October orders increased over 55% year over year use of our manufacturing marketplace is increasing.
Our AI pricing engine and matching algorithms are responding quickly to changing market conditions, delivering better value for our customers and consequently, increasing order frequency.
We saw a step change in supplier activity as they are increasingly attracted to our marketplace. As it provides them with access to a rapidly growing base of buyers in orders.
We believe the uncertain macro environment may have accelerated this dynamic.
One measure of the significantly change behavior is how long it takes for a job to be accepted.
From August to September jobs were taken at a 36% faster rate as suppliers more aggressively accepted orders, which resulted in the cost of jobs on the marketplace to decline at an unprecedented rate.
As our cost declined our AI driven marketplace lowered prices to buyers, which boosted conversion rates, while dampening our revenue growth in the near term.
While we have observed lower job costs in recent weeks, we can optimize our pricing, while maintaining strong order growth and conversions through changes in our algorithms. We expect the combination of pricing optimization and higher order frequency will grow our revenue per buyer in early 2023, enabling us to deliver robust.
Marketplace growth.
Additionally, we expect marketplace gross margin to continue to expand in 2023, driving robust gross profit growth as well.
Our Tam is over two trillion 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.
In 2020, our revenue was $141 million in 2022, we expect that to nearly triple at the same time, we expect gross profit dollars to grow over four fold with significant gross margin expansion.
With that I'll turn the call over to our CFO , Jim Rallo for a closer look at third quarter financial results and our business outlook.
Thanks, Randy and good morning, everyone as Randy mentioned, we had a strong third quarter and we're expecting continued significant revenue and gross profit growth for Q4 2022, despite near term pricing headwinds.
We generated Q3 revenue of $103 6 million up 83% year over year, driven by strong marketplace growth and the addition of Thomas and supplier services.
The stronger U S dollar negatively impacted revenue by $1 2 million on a year over year basis.
Starting with Q1 2022 financial results, we provided an additional disclosure for marketplace and supplier services, including revenue and cost of goods sold for each Q.
Q3 marketplace revenue was $84 1 million and supplier services revenue was $19 5 million.
Marketplace growth was driven by a strong increase in the number of active buyers as well as existing buyers increasing their spend on the platform.
Q3 active buyers increased 40% year over year.
To 36789.
In Q3, the percentage of revenue from existing accounts was 96% underscoring the efficiency and transparency of our business model that lead to increasing accounts 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 an account joins our platform.
We aim to expand the relationship and increase engagement and spending activities from that account over time.
The number of accounts with the last 12 months spend of at least 50000 on our platform reached 974 at the end of Q3 up 62% year over year.
The strength of the U S dollar created a slight drag in this metric for Q3 by approximately 12 accounts.
Supplier services revenue declined 3% quarter over quarter in Q3, the decline was primarily driven by the lower supplies revenue.
Q3, gross profit was $40 9 million, an increase of 182% year over year.
Gross profit margin was 39, 5%.
Q3 gross margin for marketplace.
Was 34% up 120 basis points quarter over quarter.
As our marketplace continues to scale and as the number of transactions grow and we expand our network of suppliers or machine learning becomes smarter driving better matches, increasing our gross margin over time.
Q3 gross margin for supplier services was 78, 5% driven by the high gross margin of Thomas marketing and advertising services and growing financial services.
Supplier services gross margin expanded 60 basis points quarter over quarter due to the lower mix of supplies revenue.
Moving onto Q3 operating costs Q3, total non-GAAP operating expenses increased 93% year over year to $47 4 million driven by the addition of Thomas continued investments in the business and incremental public company costs.
Within our operating expenses sales and marketing is our largest variable component in Q3, non-GAAP sales and marketing expenses were $19 5 million, excluding stock based compensation and amortization as compared to $9 5 million in Q3.
2021.
The increase in non-GAAP sales and marketing expenses on a year over year basis was driven by the addition of Thomas sales and marketing costs continued investment to expand our network of buyers and sellers and hiring of additional salespeople to support strong growth in our land and expand strategy.
Our adjusted EBITDA loss for Q3 was $6 5 million or six 3% of revenue compared with 17, 7% of revenue in Q3 2021.
One quick note on GAAP EPS in Q3.
As part of the IPO, we pledge, 1% of the company's capitalization or approximately 403000 shares does Amazon Dot org for charitable contributions to nonprofit organizations. As a result, we recorded a non operating charge in general and administrative expenses, which is excluded from adjusted EBITDA in Q3.
We recorded a charge of $1 million.
Turning to segment reporting in Q3 revenue from our U S and international operating segments was $94 8 million and $8 7 million, respectively segment loss from our U S and international operating segments for Q3 was $10 7 million and $4 3 million, respectively. We continued to invest in our international.
Business, which grew 75% year over year in Q3, and 96% year over year on an FX neutral constant currency basis.
At the end of the third quarter cash and cash equivalents and marketable securities were $341 2 million.
Now moving on to guidance.
We expect Q4 2022 revenue in the range of $104 million to $106 million, representing year over year growth of $55 to 58%.
We expect marketplace gross margin to improve in Q4 quarter over quarter.
As a reminder.
As marketplace revenue grows at a faster rate and supplier services, we would expect total gross margin to be lower in Q4 than Q3.
Additionally in Q4, there is seasonality in the Thomas business due to the timing of the publication of their trade magazine. This will impact revenue by approximately 500000.
In Q4, we expect adjusted EBITDA loss to be in the range of $8 million to $9 million or 8% to 9% of revenue compared to a loss of $11 9 million or 17, 7% in Q4 2021.
Q4, adjusted EBITDA loss will be higher quarter over quarter due to the impact of lower than expected revenue, while non-GAAP operating expenses will grow quarter over quarter in line with our prior expectations.
Given our attractive unit economics and opportunity to gain share in this massive market, we're continuing to invest to grow our business as Randy mentioned, we expect robust marketplace growth and gross profit growth in 2023 and.
In Q4, we expect stock based compensation expense to be approximately $5 million to $6 million, which we will exclude from adjusted EBITDA.
Based on our stronger than expected marketplace gross margin trends.
We now expect to reach our long term marketplace gross margin target range of 35% to 40% in 2024.
Versus prior expectations of 2026.
We now expect to be profitable on an adjusted EBITDA basis in the second half of 2023, driven by strong buyer and order growth and further improvement in gross margins driving faster gross profit growth in our marketplaces.
We expect significant leverage over fixed and semi fixed cost, including public company costs.
With that operator can you. Please open up the call for questions.
Thank you Sir.
As a reminder to ask a question you will need to press star one on your telephone.
Please standby, while we compile the Q&A roster.
And I show. Our first question comes from the line of Brian Drab from William Blair. Please go ahead.
Good morning, Thanks for taking the question.
Hey, Bryan.
Good morning.
Just Jim you just mentioned.
Expectation for profitability in the second half of 'twenty three.
Is that a change or are you calling out a change.
And your expectation or is that restating the expectation.
Yes, yes.
I am making a slight change here, Brian So I think again, we said earlier that we would be.
Adjusted EBITDA profitable for the entire year I think we're looking more at really the second half of the year on that now.
Okay got it okay.
And.
Well, one thing that I noticed that.
When I'm looking at.
Your lead times and the pricing.
I see.
See some decline in the pricing I was wondering if you could quantify that further and then also.
Okay.
And any change have you been able to change your lead times at all.
And the last you know.
A couple of quarters here.
I seem to be detecting those.
For some of the parts that you're manufacturing lead times may have actually.
Improved slightly I don't know if thats true or not just hoping you could comment on that.
Yeah, Hey, Brian it's Randy so.
As we mentioned on the call the time to acceptance.
Dropped 36%, so if things got taken 36% faster, which is unprecedented drop for us.
Youll see that as a key driver of cost. So thats why costs went down so dramatically and again, we werent accustomed to that.
We are now working on optimizing pricing.
And so the combination of that plus the increase order frequency makes us confident that in the beginning of next year, we can reverse the trend on revenue per buyer.
And in terms of lead times, we're always working to optimize those again both on conversion from a pricing perspective. So it's another lever for us to push.
As we wanted to grow market share with our customers, but at the same time optimize our revenue as well.
Thanks.
You've mentioned the <unk>.
Speed with which the.
Quotes are being accepted but can you talk at all about.
What that resulted in in terms of.
The decline in price.
Yes, sure and let me just take a step back.
Just to be clear and again, let me start with buyer demand is very healthy.
As we said we added the perhaps the number of <unk>.
Quarter over quarter Ad.
Active buyers and we expect that number to be even bigger in Q4, and then on top of that the order frequency has been increasing as well.
The way that our pricing work days.
We actually do cost discovery so.
When we when our customer access to price our algorithm do cost discovery with our suppliers and we have an expected cost at which we think suppliers will take that.
We will take that order and then we have a margin on top of that what happened in late Q3 and into Q4 is that suppliers, we're taking jobs much earlier in that schedule.
And as a result, the cost was unexpectedly lower on pricing only lower than we had seen in the past.
And so even with healthy margin on top of that that drives down your your gross revenue from that order and again, we've never seen such a dramatic drop so quickly.
We let it play out for some weeks, we're gathering the data and now <unk>.
Now we're in the process of implementing this price optimization now.
Tuning our algorithm.
I'm just kind of unprecedented.
Decrease in time to acceptance.
Got it.
Said another way.
You might not give give up as much of that.
Exactly exactly where we're trying to optimize it.
Exactly exactly we want to optimize conversion rates and revenue and we may have given up that's exactly right. We don't need to we didnt need to give up as much as we had we let it run for weeks, we wanted to get the data and now we're improving our algorithm to take that kind of significant drop into account.
And then Brian just.
Just to double click on that as Randy was saying like.
The the buyer activity has never been stronger and the supplier engagement has never been stronger.
How are pricing works the jobs discuss taken off it.
A much faster pace.
Okay, Alright, I will get back in line, thanks very much.
Alright, Thanks, Brian .
Thank you.
And I show. Our next question comes from the line of Eric Sheridan from Goldman Sachs. Please go ahead.
Thanks for taking the question maybe I'll just.
Follow up on on the element of the pricing dynamics that we can better understand some of the potential.
Potential for behavior going forward on the platform. So in terms of the pricing coming down and jobs are getting sort of accepted quicker.
How should we be thinking about that feeding into a more volatile macro environment in terms of elements of both buyer growth beyond Q4.
Elements of what can happen to pricing if demand slackens, a little bit as well. So maybe just give us a little bit of your base case analysis of how we should be thinking about the.
The demand pricing and sort of buyer growth dynamics.
More volatile macro environment that'd be number one and then as we get into next year I know, it's a little early to be talking about 'twenty, three but is there any guardrails or or thoughts you want us to keep in mind in terms of thinking about the mixture of buyer growth and revenue per buyer growth as you lap those <unk>.
<unk> acquisition into next year irrespective of what happens in the macro environment. Thanks.
Yes, thanks, Eric So look we this quarter, we added about 3300 active buyers, which was or a quarter of our covered net adds have been about 2500 last quarter. We did 2800 and in Q3, we did 3300 and as we indicated on the call here, we think that number is going to.
It jumped up again in Q4 beyond that so as we're in this uncertain macro environment, youre actually seeing more and more buyers coming to the marketplace.
And we think that you'll continue to see that strong active buyer growth growing into into next year.
And the good thing is if you get those active buyers and.
And as we as our reps.
New provider goes back up that has a amplitude magnifying effect or a multiplying effect moving forward. So we think thats very strong.
We also think that again, we had not been accustomed our algorithm didn't take into account this sort of dramatic sudden drop we didn't want to move too hastily to make changes to it but kind of as what I just described to Brian earlier.
Didn't mean to give up as much as we did so when we balanced that with conversion. So we were confident that going into Q1, we can reverse that trend on revenue per buyer.
And now on a on a larger growth base of active buyers and we'd anticipated that could again could have a multiplying effect as you go through two.
2023.
Hey, Eric it's Sean So just to double click on that if you look at it.
And your model with active buyers and we're seeing as Randy said, we expect that number and even grow in Q4.
Lay that out and starting in 2023, what youre going to see is the active buyer growth year over year is going to remain very strong.
Great. Thanks for the color.
Thank you.
And I show.
Our next question comes from the line of.
Cory Carpenter from JP Morgan Your line is open.
Maybe just to start.
I want to talk a little bit more about international expansion case, what geographies, you're seeing strength in.
And then also based on what you're seeing early on in China.
And curious how that informed as <unk> talked about.
International, possibly being 40% of revenue over time.
Is that kind of still the right ballpark based on what Youre seeing today.
Yes in terms of.
It's Sean.
Very strong growth as Jim said on the call, 96% growth FX neutral, yes. The other thing to keep in mind is we're going we're up against the 500% comp last year. So the demand trends in Europe are strong.
We continue to add new languages new.
People, new sales new geographies in Europe , So Europe is going very well.
And it was as we said on the call. We remain pleased with early demand in China, and we expect China to add to revenue growth in 2023, and certainly no change from our perspective in terms of the long term, we think international will be 40% of our marketplace revenue long term.
Okay, Great and yes, Korea, certainly Oh, sorry go ahead, yes.
Jim I would just I would add a couple of things right. There. So when we look at the dynamics of China right. Now we're seeing the same sort of growth trajectory as we have in Europe over.
Over the last couple of years. Additionally, we did add UK, so that launched this quarter as well.
And we added three or four different languages I can't remember off the top of my head exactly which ones those are but we continue to expand the capability of the marketplace in Europe .
Maybe Randy for you just.
Certainly been busy the last few quarters with the integration of Thomas just as we think out to 'twenty. Three you gave us some initial guardrails on the financial side, but just curious more from a product perspective and integration of Thomas perspective.
Where can we expect your biggest focus areas to be next year.
Yes, I mean, it will continue to be and I'm not sure a copper we brought on a new chief product Officer, Brendan Stern, who came from us from indeed to really excited with that addition.
When you think about comments on the supplier side overall, we have two key focus is.
One is work center and as we reported we have now thousands of activation. So we are very excited about that and we're seeing a nice uptick in the amount of non <unk> slash Thomas work, that's being processed in work center as well as.
Not only it was <unk> suppliers, who are using work center, but it is also Thomas suppliers, who warrants on entry supplier. So we're really excited about that we're going to continue to invest in that build out the suite of offering that creates a very sticky relationship with our suppliers, which has knock on effects throughout our ecosystem.
And then as we got our financial products. There that also gives us a great monetization efforts. So a lot of focus on work Center and then on the IV on Thomas continuing to.
Streamline that make it very easy for buyers coming in to transact on Thomas and Likewise, just make it really easy for the suppliers.
To respond and to transact and Thomas and as well, we think that also ties in nicely to the advertising Thomas.
A lot of time as the revenue comes from suppliers who are.
Paying to bump up in searches on Thomas net as we do more transactions on <unk> itself, we think that will enhance that advertising business.
Okay, great. Thank you both.
Okay.
Thank you.
And I show. Our next question comes from the line of Matt Hedberg from RBC. Please go ahead.
Great. Thanks for taking my questions Randy I wanted to double click on.
What is fundamentally causing these orders to be taken earlier because to me it feels like a very foolish thing.
These orders are being accepted quicker.
But I guess I'm curious what do you think is underpinning that that change.
Look I think it's a couple of thing and it really is a step change for us.
First we're continuing to optimize our matching algorithms getting to know which suppliers are good for which jobs. That's part of our algorithm is on the matching side. So our Canadian continuing to optimize that clearly we are getting stickier with our suppliers things like work center help with that it just continues to cement that relationship. So I think that's very important.
And then.
It's a weird environment as you know with other companies. So there may be some impact as well from the macro hard for us to do that you really know that but certainly we're very happy about this dynamic because in the long term even any entering early next year, it's a very positive change for us.
Got it Okay, and then maybe just to double click on Thomas.
I think we're all et cetera.
The ability to onboard those tis amiri, maybe a little bit more of a.
Little bit more granularity on how that's progressed since work center.
Are there things that you look to further optimize to perhaps bring more of those buyers and sellers on Amazon the tree.
Yes, I mean.
I think it's more of the same we're just constantly trying to make the user experience easier make the communication easier between buyers and suppliers just streamline that so it's easier for them just to complete the transaction the check out.
Im works and in particular continue to build out the capabilities to manage their overall business. So we can we can capture more of their their share. So.
We're just doing lots of if you were doing lots of daily enhancements to our UI and what we're offering on all of those products and Matt just we called it out on the prepared remarks, but we're rolling out integrations with the accounting packages this quarter and Thats, something <unk> and thats going to be.
<unk> centre with Quickbooks remember they don't typically these machine shops run their business off Clipboards and excel spreadsheets and simple accounting. So we'll integrate that in and that should also continue to help with the rollout.
Thanks, guys.
Thank you.
One moment for our next question.
And I show. Our next question comes from the line of Karl Keirstead from UBS. Please go ahead.
Thanks, I've got two Randy and Jim.
The street ends up modeling.
First half 'twenty three post this print will depend on how comfortable we feel about how quickly hometree can as you put it Randy toone. The algo. So can you get us comfortable with your ability to tune it fairly quickly. So for instance, when was the last time that the algorithm sort of got caught off guard.
And how quickly we're able to tune it to get things back on track in other words how.
Make us comfortable perhaps if you can that you can do so in Q1 is here.
As you're suggesting and then I've got a follow up thanks a lot.
Yeah, Carl it's Jim I'll take the first part and I'll, let Randy take the second as far as timing of the re tune.
But if you recall right we had a situation very similar to this.
Back in the first quarter of 'twenty, one so before we went public.
We had talked about that openly about how.
We had some inflationary issues going on particularly with materials.
We didn't know if that was going to stay in place or not.
So once we understood the dynamics of what was happening there.
<unk>.
We implemented.
<unk> right, new new algorithm protocols, and we fix that situation. So we have a very it's very similar to what is occurring right now.
I'll, let Andy give you.
Randy gave you some more details I mean, Carl we have control.
We have control over our obviously our pricing to our customers.
So.
It's not difficult for us, it's easy for us to literally change the algorithm.
From that perspective, what we wanted to do.
These last few weeks since the end of Q3, when we started seeing this trend is to model out.
The trade off between price and and conversion rates right is that elasticity that's very important.
And again this was unprecedented we'd never we're always trying to balance that but we had never seen such a rapid decline in price and cost in such a short period of time.
So now that we gather weeks of data and we don't want to be too hasty on that we feel confident than we are in the process of implementing changes to optimize that pricing. That's why we're we are confident that going into Q1 and the math is pretty simple if the revenue per buyer increases in Q1 from Q4 with our growing base of active buyers which is never.
Been bigger and as we said we're going to continue to accelerate into Q4 that will have a good multiplying effect.
Got it okay. That's very helpful. Thank you both and then my follow up maybe for you Jim just checking my math I think Randy you said that for <unk>, you're expecting marketplace revenue growth of 40%, 45%. So at the midpoint that would be $87 million and gross profit marketplace gross profit growth of 55%, which would get you to.
$27 million, so if I take 27 over 87, it sounds to me unless my math is wrong that you're guiding to marketplace gross margin percentage of 31% that would actually be up a smidge from what you did in the third quarter just want to stress test that math.
Yes, we've indicated that we are going to have higher gross margins for marketplace in Q4 than Q3 that will continue.
Terrific. Thank you both.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone.
And I show. Our next question comes from the line of David Silver from CL King <unk> Associates. Please go ahead.
Yes.
Hi, Thank you.
I wanted to go back to just a comment or two in your opening remarks, but.
I believe at one point you talked to you discussed quote unquote, a step change in supplier activity.
And I'm wondering if that's kind of the number of suppliers.
Or is that.
Similar to maybe the.
Quicker acceptance rate in other words.
Our suppliers, becoming more engaged on your platform at a faster rate than let's say the buyers, which we track regularly but.
What was that kind of step change effect that you discussed in your prepared remarks. Thank you, yes, yes, absolutely we always have more active buyers, but we're really just that change was.
They're just as you said their behavior on their on their platform their activity level and just their eagerness to take the jobs much faster.
They took them 36% faster in a very short period of time that change it and thats been a persistent change which has endured.
It's just they're more comfortable it's stickier, we've been again, we've been trying to optimize the matching algorithms.
Things like work center are helping with that so that's really been the step change and again, it's in the long term a very positive trend for us.
Okay. So just trying to clarify if that was something beyond different then.
Your earlier comments. So thank you for that and then I was just wondering if you could maybe just make a comment on the trend.
Discuss the trend in marketplace revenue here quite a bit but.
Yes.
The supplier services revenue trend was just just a little bit.
Hello.
I was modeling and whatnot and it is down a little bit sequentially.
That also related to the quicker acceptance rate in some manner or is it is it due to other factors.
So it's really viewed our materials business, we sell supplies two or so outside of Thomas.
Right, which grew quarter over quarter, it's really just our supplies business and that can be somewhat.
Little bit.
And changed a little bit quarter over quarter. So thats why you saw a dip.
Okay, great. Thank you very much.
Thank you.
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