Xometry : Q2 2022 Earnings Call Transcript

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EDITED TRANSCRIPT

XMTR.OQ - Q2 2022 Xometry Inc Earnings Call

EVENT DATE/TIME: AUGUST 10, 2022 / 12:30PM GMT

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AUGUST 10, 2022 / 12:30PM, XMTR.OQ - Q2 2022 Xometry Inc Earnings Call

C O R P O R A T E P A R T I C I P A N T S

James M. Rallo Xometry, Inc. - CFO

Randolph Brody Altschuler Xometry, Inc. - Co-Founder, CEO & Director

Shawn Christopher Milne Xometry, Inc. - VP of IR

C O N F E R E N C E C A L L P A R T I C I P A N T S

Brian Paul Drab William Blair & Company L.L.C., Research Division - Partner & Analyst

David Cyrus Silver CL King & Associates, Inc., Research Division - Senior VP & Senior Analyst

Eric James Sheridan Goldman Sachs Group, Inc., Research Division - Research Analyst

Karl Emil Keirstead UBS Investment Bank, Research Division - Analyst

Matthew George Hedberg RBC Capital Markets, Research Division - Analyst

P R E S E N T A T I O N

Operator

Good day, and thank you for standing by, and welcome to Xometry Inc. Second Quarter 2022 Financial Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Shawn Milne, Head of Investor Relations. Please go ahead.

Shawn Christopher Milne - Xometry, Inc. - VP of IR

Good morning, and thank you for joining us on Xometry's Q2 2022 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; and Jim Rallo, our Chief Financial Officer.

During today's call, we will review our financial results for the second quarter and discuss our guidance for the third 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. Information concerning those risks is available in our earnings press release distributed before the market opened today in our SEC filings included in the Form 10-Q for the quarter ended June 30, 2022, 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 reconciliations of these non-GAAP measures, please refer to our earnings press release distributed today in our investor presentation, both of which are available on the Investors section of our website at investors.xometry.com.

A replay of today's call will also be posted on our IR website. With that, I'd like to turn the call over to Randy.

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AUGUST 10, 2022 / 12:30PM, XMTR.OQ - Q2 2022 Xometry Inc Earnings Call

Randolph Brody Altschuler - Xometry, Inc. - Co-Founder, CEO & Director

Thanks, Shawn. Good morning, everyone, and thank you for joining us for our Q2 2022 earnings call. We are pleased to report another strong quarter with record revenue and gross profits. We delivered 89% revenue growth and 217% gross profit growth year-over-year in Q2.

We reduced our adjusted EBITDA loss by $4.4 million quarter-over-quarter to $8.3 million, making significant progress to being adjusted EBITDA positive in 2023. We are rapidly delivering on our mission to build a leading global digital manufacturing marketplace, transforming one of the largest industries in the world. While we are 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.

Xometry is uniquely positioned to meet their needs through the breadth of our platform across verticals, processes and capabilities. Likewise, we are uniquely positioned to meet the needs of our suppliers through our growing suite of supplier services.

At the end of Q2, we hosted our first Xometry summit to showcase product releases that enable Xometry to increasingly become the de facto operating system for buyers and suppliers to connect and deliver in our over $2 trillion market.

By providing buyers with more choices, we will capture more of their spend and gradually become their one-stop shop for all their needs. The same thing is true for the suppliers, many of whom are not currently Xometry partners. With our new cloud-based software platform Xometry work center, we aim to be the operating system for hundreds of thousands of suppliers. We are opening a work center to third-party developers to create integrated applications to benefit suppliers.

If we can find additional ways to provide value to those suppliers, the size of our supplier base will grow exponentially. For those who did not see the event, it is archived at live.xometry.com. I will discuss these launches in more detail later in the call.

Since our founding in 2013, Xometry has grown very quickly. This growth has continued unimpeded during the disruptive events over the last 2 years, proving that our marketplace can deliver durable growth, irrespective of the macro environment.

Our unique 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 inflation. Likewise, with our supplier network expanding domestically and abroad, we offer customers resilient supply chain.

Moving on to our Q2 results. I will provide a review of our second quarter performance and provide an update on key business initiatives, including the recent launches of the new industrial buying engine on Thomasnet and Workcenter, then I will turn the call over to our CFO, Jim Rallo, for a more in-depth review of our financial results and outlook.

We had a strong Q2, with revenues of $95.6 million, driven by accelerated marketplace growth and expanding supplier services with the addition of Thomas. Q2 Marketplace revenue was $75.6 million, growing over 55% year-over-year and 17% quarter-over-quarter. Marketplace revenue consists entirely of the historical Xometry business, excluding Xometry supplies and financial services.

Marketplace revenue growth was driven by continued strong growth in active buyers and the rapid adoption of the 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 Q2, active buyers increased 40% year-over-year to 33,491, adding a record 2,808 in Q2. We saw strength across multiple verticals, including automotive, electronics and semiconductors, robotics and automation as well as ongoing strength in general manufacturing. The number of accounts with last 12-month spend of at least $50,000 increased 76% year-over-year to 894, adding a record 104 accounts in Q2.

As we've discussed in our Q1 call, we continue to see growing traction in production orders from several customers across industries and manufacturing processes, including robotic assemblies in agriculture and injection molding for an electrical vehicle company. Given the success of our land and expand strategy, we continue to invest in our enterprise sales engine.

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AUGUST 10, 2022 / 12:30PM, XMTR.OQ - Q2 2022 Xometry Inc Earnings Call

Q2 supplier services revenue was $20 million, including Thomas, which we acquired in December of 2021. The vast majority of supplier services revenue is the Thomas Marketing Services and Advertising business, plus historical Xometry 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 baskets' supplier services, including marketing and advertising solutions.

Our international business continues to deliver strong growth with revenue increasing 136% year-over-year. In Q2, we further expanded our sales presence in the U.K., Germany, France and Nordic regions. Alongside strong top line growth, Europe continues to rapidly expand gross margins, underscoring the success and demand for our marketplace across geographies.

In addition, we formally launched the platform in China at xometry.asia in late Q1 and began taking orders from Chinese customers in April. We are pleased with the initial launch and continue to scale up the in-country team and supplier base and expect China to contribute to revenue growth in 2023.

On top of strong revenue growth, gross profit grew 217% year-over-year in Q2, driven by significant improvements in Marketplace gross margin and the addition of higher-margin supplier services. In Q2, Marketplace gross margin increased 180 basis points quarter-over-quarter to 29.2% and increased significantly year-over-year.

Over the past 3 years, Marketplace gross margins have grown from 18% in 2019 to now to close to 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%. On top of strong financial results, Q2 marked the largest product release schedule in Xometry's history, as we introduce new products and services to provide an integrated solution for buyers and suppliers and further scale our networks.

On June 29, we hosted our first Xometry Summit with the theme of powering tomorrow supply chain. With Xometry's unique ability to match buyers and suppliers in real-time and through our expanding supplier networks in the United States and internationally, Xometry is helping buyers and suppliers come together and create locally resilient supply chains.

At the event, we announced the launch of the industrial buying engine on thomasnet.com. The industrial buying engine helps enterprise customers source and purchase from a large network of suppliers, all within the thomasnet.com ecosystem. The industrial buying engine provides buyer choice, including Xometry's 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 done off-platform and integrating it into the heart of thomasnet.com.

The buyer gets to work with trusted high-value suppliers and benefits from the convenience of the 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 thomasnet.com. We are pleased with the early activity in the industrial buying engine and are seeing healthy buyer demand at the top of the funnel as the number of projects initiated is beginning to scale at a good pace, and we're seeing increased engagement on the platform from suppliers. As we review the data and receive feedback from buyers and suppliers in the IDE, we are regularly making changes to user experience to optimize transaction flows.

Also at the summit, we introduced our new cloud-based software, Workcenter, to help suppliers digitize all aspects of their operations. Workcenter is a fully featured all-in-one manufacturing execution system that gives suppliers a one-stop view into all of their orders.

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AUGUST 10, 2022 / 12:30PM, XMTR.OQ - Q2 2022 Xometry Inc Earnings Call

The freemium version of the software was developed with the acquisition of FactoryFour in Q4 of 2021. Xometry Workcenter brings everything our suppliers love about Xometry, like our popular job board and our financial services and everything they love about Thomasnet all into 1 easy-to-use system.

By digitizing all aspects of their operations, it lets manufacturers focus on what they need to do to grow their business and to attract new buyers. One of the best features of Workcenter is that our suppliers can use it to manage all of their work, including work from their non-Xometry customers. All the cash flow benefits suppliers know and love are integrated seamlessly in the Xometry Workcenter.

Through the shop finances dashboard, suppliers can track payouts, take advantage of our InstantPay, FastPay and Advance Card financial products. We are pleased with the adoption of active suppliers in Workcenter since the launch. Additionally, we're opening up the API-enabled Workcenter to third-party developers. By expanding the ecosystem, we can provide our rapidly expanding supplier base with even more innovative products and services.

Additionally, late in Q2, we expanded the menu on our Marketplace, extending our quoting capabilities into new categories based on the data and suppliers from the Thomas network. Buyers can choose from expanded categories and processes.

The new processes include laser tube cutting and tube bending. These processes improve the Marketplace ability to offer production orders and increasingly become a one-stop shop for our buyers. We have limitless opportunities to fuel our growth.

This year, we'll see us expand our marketplaces domestically and abroad and deliver additional services to buyers and suppliers. Our TAM is over $2 trillion in the massive $35 trillion global manufacturing industry. We will continue to invest to further capitalize on our position as the leading 2-sided marketplace.

In 2020, our revenue was $141 million. In 2022, we expect that to nearly triple to $400 million. At the same time, we expect gross profit dollars to grow over fourfold with significant gross margin expansion. We are well on our path to adjusted EBITDA profitability.

With that, I will turn the call over to our CFO, Jim Rallo, for a closer look at second quarter financial results and the business outlook.

James M. Rallo - Xometry, Inc. - CFO

Thanks, Randy, and good morning, everyone. As Randy mentioned, we had a strong second quarter, and we are expecting continued significant revenue and gross profit growth for the balance of 2022. We generated Q2 revenue of $95.6 million, up 89% year-over-year, driven by strong marketplace growth and the addition of Thomas in supplier services. .

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. Q2 Marketplace revenue was $75.6 million and Supplier Service revenue was $20 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.

Q2 active buyers increased 40% year-over-year to 33,491. In Q2, the percentage of revenue from existing accounts was 95% underscoring the efficiency and transparency of our business model, that lead 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 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-month spend of at least $50,000 on our platform reached 894 at the end of Q2, up 76% year-over-year.

Q2 gross profit was $37.7 million, an increase of 217% year-over-year. Gross profit margin was 39.4%. Q2 gross margin for Marketplace was 29.2%, up 180 basis points quarter-over-quarter. As our Marketplace continues to scale and as the number of transactions grow and as we expand our network of suppliers, our machine learning becomes smarter, driving better matches, increasing our gross margin over time.

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