Xometry, Inc.

Good day and thank you for standing by. Welcome to Xometry's Q3 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. 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 Milne, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on Xometry's Q3 2022 earnings call. Joining me are Randy Altshuler, our Chief Executive Officer, and Jim Rollo, our Chief Financial Officer. During today's call, we will review our financial results for the third quarter 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 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 and in our SEC filings included in the Form 10-Q for the quarter ended September 30, 2022, 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 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 investor section of our website at investors.zometry.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 profits. We delivered 83% revenue growth and 182% gross profit growth year over year in Q3. The value of 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 on to 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. Then 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. 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 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 36,789. We added a record 3,298 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 of at least $50,000 increased 62% year over year to 974, adding 80 accounts in Q3. Given the success of our land and expand strategy, we continue to invest in our enterprise sales engine. While the number of active buyers and their activity level in the Xometry marketplace increased throughout the quarter, we did see marketplace pricing trends become a headwind late in the quarter due to a step change in 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 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 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 top-line 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 30.4% 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 our Xometry Summit at the end of June, in Q3 we rolled out new products, including the Industrial Buying Engine and WorkCenter, to provide an integrated solution for buyers and suppliers and to further scale our networks. 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 Thomas Smith. The buyer gets to work with trusted, high-value suppliers and benefits from the convenience of a secure 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 remain pleased with 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. WorkCenter is a fully featured, all-in-one manufacturing execution system that gives suppliers a one-stop view into all of their orders. The freemium version of the software was developed with the acquisition of Factory 4 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 one easy-to-use system. By digitizing all aspects of their operations, it lets manufacturers focus on what they need to do to grow their businesses and 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 instant pay, fast pay, and advanced card financial products. We are pleased with the initial rollout of WorkCenter as we've activated thousands of suppliers on the platform, including many Thomas suppliers who were not Xometry partners. We are seeing jobs scale rapidly on the platforms. We will add 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 NetSuite, enabling invoice generation directly from WorkCenter. The supplier side of our marketplace is incredibly fragmented, with over 625,000 manufacturing businesses in the United States. Seventy-five percent of those businesses have fewer than 20 employees. With our work center platform, we have a tremendous opportunity to become their 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 percent and marketplace gross profit to grow over 55 percent. 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 and orders. We believe the uncertain macro environment may have accelerated this dynamic. One measure of the significantly changed 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 costs declined, our AI-driven marketplace lowered prices to buyers, which boosted conversion rates while dampening our revenue growth in the near term. While we've 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 $2 trillion in the massive $35 trillion global manufacturing industry. We will continue to invest to further capitalize on our position as a 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 fourfold 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.