Xometry, Inc. Q4 FY2023 Earnings Call

Hello and thank you for standing by. Welcome to Xometry Q4 and Full Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker, Shawn Milne. You may begin.

Good morning and thank you for joining us on Xometry's Q4 and Full Year 2023 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 fourth quarter and full year 2023 and discuss our guidance for the first quarter and full year 2024. 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 filings with the US Securities and Exchange Commission, including our Form 10-K for the year ended December 31st, 2023, that will be filed later today. 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 US 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.xometry.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, Shawn. Good morning, everyone, and thank you for joining us for our Q4 and full year 2023 earnings call. In Q4, we had the highest revenue and gross profit in Xometry's history, beating our previous highs from Q3 of 2023. We grew revenue 31% year-over-year to $128 million, driven by accelerating 42% year-over-year growth in Marketplace revenue. Q4 Marketplace gross profit increased 68% year-over-year driven by our AI-powered Marketplace. Q4 Marketplace gross margin improved 500 basis points year-over-year. Overall, in 2023, we delivered 30% Marketplace growth and stronger active buyer and order growth despite an ongoing contraction in US manufacturing. We are gaining significant market share. On top of strong Marketplace revenue and gross profit growth, we improved our operating leverage, reducing our adjusted EBITDA loss in Q4 by 32% from Q3 to $2.9 million, as we continue to balance growth and profitability goals. On a year-over-year basis, Q4 adjusted EBITDA improved by $12.8 million, driven by significant leverage in our core US Marketplace partly offset by investments internationally. Over the past few years, we have rapidly grown our networks and expanded our Marketplace globally, further strengthening our competitive moat. At the same time, we made significant investments in product development and technology infrastructure and selected acquisitions. We now offer tools to digitize work for both buyers and suppliers as well as provide software and information for customers to improve decision-making and increase efficiency. In 2023, we significantly expanded our networks of buyers and suppliers. We added over 14,000 net new active buyers in 2023, an 18% increase over the 2022 period, even as we spent 6% less on advertising. Active suppliers increased 36% year-over-year to 3,429. There is strong demand to join our rapidly growing platform. Our increased focus on top customers and investment in our sales team drove progress in our enterprise strategy. In Q4, accounts with last 12-month spend of at least $50,000 grew 30% year-over-year to 1,331. We added an all-time high of 108 quarterly net additions in Q4. In 2023, we significantly expanded our Marketplace menu, including new processes, materials, finishes and certifications, enabling us to increasingly serve as our customers' one-stop destination. We saw strong growth in production work, including our revamped quick-turn injection molding offering. We expanded the Marketplace to include instant quoting of inserts, multipart assemblies and expanded sheet cutting processes. We made significant progress across product development and technology, including new products and services such as Teamspace, an important foundational work on the Thomas advertising platform. After a successful pilot with several large customers in Q3, in Q4, we integrated Teamspace into the Xometry platform for all of our buyers to use. Teamspace moves the Xometry Marketplace from a focus on individual buyers and parts to procurement teams managing assemblies and products. The early feedback remains positive, with rapid adoption, including over 1,500 teams created since launch. We continue to expand aggressively internationally. In Q4, we launched SOLIDWORKS CAD software plug-ins for customers in the EU, UK and Turkey. We ended 2023 with accelerating growth. However, January was much weaker than we had anticipated, particularly as the number of large orders declined significantly. While revenue trends improved from January to February, we expect Q1 year-over-year Marketplace growth will be slower than that in Q4. Since we are still so early in the year, and we want to be prudent, we are providing a full year outlook that assumes a similar trend as Q1 for the remainder of the year. This equates to at least 20% growth in Marketplace and adjusted EBITDA profitability beginning in Q3 and onwards. Since underlying Marketplace metrics are healthy, we're going to continue to execute on our roadmap. We will, of course, tightly control operating expenses as well as make strategic investments in technology and growth to help us achieve our long-term growth and operating margin goals. In 2024, these include; first, expanding our network of active buyers and suppliers; second, driving deeper enterprise engagement; third, expanding the Marketplace menu; fourth, growing internationally; and fifth, enhancing supplier services solutions. We expect to focus on these growth initiatives and on further operating efficiency to drive profitability and improve margins over time. In 2024, we expect our active buyer growth to remain strong. In Q4, active buyers grew 36% year-over-year, even as we balanced advertising investments against profitability goals. In Q1, we expect there to be higher quarter-over-quarter net buyer ads. We continue to invest in our enterprise sales efforts in 2024. Over the past several months, we expanded our sales force to service and grow with our enterprise customers. We're making progress with Fortune 500 companies as they look for a technology partner to help manage their fragmented and complex supply chains. We will continue to improve Marketplace functionality and expand the Marketplace menu, including our new partnership with Google. Xometry and Google are deeply engaged, working together to accelerate the deployment of new auto quoting models within Xometry's AI-powered instant quoting engine. In 2024, we will push deeper into our existing international markets versus entering new geographies. Through xometry.eu, xometry.uk, and xometry.asia, we have leveraged Xometry's core technology to provide localized marketplaces in 14 different languages, with networks of suppliers across Europe and Asia as well as North America. Finally, we are enhancing supplier services, including modernizing the Thomas advertising platform. We are focused on making it easier for suppliers to start their advertising journey and on increasing adoption of Thomasnet. For our suppliers, we continue to enhance Work Center, the digital operating system for manufacturers. We are focusing on improving the overall experience for suppliers, reducing the effort required to accomplish their daily tasks. Xometry is a technology company disrupting a massive addressable market with millions of buyers. As we continue to expand the applications of our AI and increase the breadth of what we can offer, we are serving more and more buyers. Capitalizing on these trends, we expect robust growth in 2024 and for many years to come. The shift to digital, which has happened in so many other industries, is inevitable in custom manufacturing. We continue to expand our competitive moat by improving upon our proprietary pricing and matching algorithms, growing our data lake, enlarging our networks of buyers and suppliers and increasing our global footprint. Before handing the call over to Jim, I want to thank him and wish him well. Jim successfully executed our initial public offering, and helped drive growth and scale in our business, including expanding internationally. Today, we announced that James Milne will be our new Chief Financial Officer, effective March 1st. James was previously at Yelp, where he was Senior Vice President of Finance and Investor Relations. James has significant experience across marketplaces, search and advertising, and will help us capitalize on our leadership position in digitizing manufacturing. He brings extensive operational excellence to Xometry and will help us achieve our long-term operating margin targets. With that, I'll now turn the call over to Jim Rallo.

Thanks, Randy, and good morning, everyone. I'd like to start out by thanking the entire Xometry team for a phenomenal four-year run. It has been a privilege to work with such a dedicated group building a leading AI-powered Marketplace, connecting buyers and suppliers in the manufacturing industry. As I leave Xometry, I know it is in good hands as well as set up for continued growth as Xometry continues to execute on digitizing the manufacturing sector. As Randy mentioned, Q4 was a record revenue and gross profit quarter for Xometry, driving significant improvement in adjusted EBITDA on a year-over-year basis. Before I review our Q4 and full year results, one quick note on historical financials, Q4 2022 and full year 2022 results include certain immaterial corrections. We have included tables for immaterial corrections to previously issued financial statements in our Q4 2023 earnings release and earnings presentation. There is no impact to cash from these immaterial corrections. Q4 revenue increased 31% year-over-year to $128 million, driven by strong Marketplace growth. Q4 Marketplace revenue was $112 million and Supplier Services revenue was $16 million, reflecting the discontinuation of the sale of tools and materials. Q4 revenue adjusted for the exit of the tools and materials business increased 34% year-over-year. Q4 Marketplace revenue increased 42% year-over-year, driven by a strong growth in the number of active buyers. Q4 Marketplace revenue per active buyer increased 4% year-over-year. Q4 active buyers increased 36% year-over-year to 55,458 with a net addition of 2,991 active buyers. We significantly reduced marketing spend in the US and Europe in late Q4 as we balanced strong growth against profitability targets. The number of accounts with last 12-month spend of at least $50,000 on our platform increased 30% year-over-year to 1,331. In Q4, the number of net new accounts with LTM spend of at least $50,000 accelerated to 108 additions versus 64 in Q3. Supplier Services revenue declined 15% year-over-year in Q4. We discontinued the sales of tools and materials in the US in Q2, which negatively impacted Supplier Services revenue by approximately $2 million year-over-year in Q4. The number of active paying suppliers in Q4 2023 was 7,271 on a trailing 12-month basis, a decrease of 6% year-over-year. Excluding the impact of the exit of the tools and materials business, active paying suppliers is roughly flat year-over-year. Active paying suppliers is the number of suppliers who have purchased one or more of our supplier services including digital marketing or financial services during the last 12 months. Q4 gross profit was $49.1 million, an increase of 39% year-over-year, with gross margin of 38.3%. Q4 gross margin for Marketplace was 31.3%, up 500 basis points year-over-year. Q4 Marketplace gross profit dollars increased 68% year-over-year. We are focused on driving Marketplace gross profit dollar growth. Q4 gross margin for Supplier Services was 87.3%, driven by the high gross margin of Thomas Marketing and Advertising services and growing financial services. Supplier Services gross margin increased 1,130 basis points year-over-year due to the discontinuation of the sales of tools and materials, which carried a significantly lower gross margin. Moving on to Q4 operating costs. Q4 total non-GAAP operating expenses increased 2% year-over-year to $52 million. Within our operating expenses, sales and marketing is our largest component. In Q4, non-GAAP sales and marketing expenses increased 2% to $22.9 million as compared to $22.6 million in Q4 '22. The increase in non-GAAP sales and marketing expenses on a year-over-year basis was driven by the hiring of additional salespeople to support growth in our land and expand strategy. As I mentioned previously, Q4 advertising spend decreased 19% year-over-year as we balance growth and profitability goals. Q4 adjusted EBITDA loss was $2.9 million or 2.2% of revenue compared with 15.9% of revenue in Q4 2022. Q4 adjusted EBITDA loss declined $12.8 million year-over-year, reflecting strong growth in revenue and gross profit, as well as cost savings and operating efficiency initiatives in improving profitability in our Thomas Advertising and Marketing services business. Turning to segment reporting. In Q4, revenue from our US and international operating segments was $111 million and $17.6 million, respectively. Segment loss from our US and international operating segments for Q4 was $5.9 million and $4.6 million, respectively. At the end of the fourth quarter, cash and cash equivalents and marketable securities were $268.8 million. Now moving on to guidance. We expect Q1 2024 revenue in the range of $118 million to $120 million, representing year-over-year growth of 12% to 14% and 14% to 16%, excluding the discontinuation of the sale of tools and materials. We expect Q1 Marketplace growth to be in the range of 18% to 20% year-over-year. As Randy mentioned, Q1 started off slower as Marketplace revenue growth was softer in January, driven by a lower number of large orders. We expect Supplier Services to be down approximately 15% year-over-year primarily due to the exit of the tools and materials business in May of '23. In Q1, we expect adjusted EBITDA loss to be in the range of $7 million to $9 million, compared to a loss of $11.8 million in Q1 2023, driven by further Marketplace operating leverage and improving profitability in Supplier Services on a year-over-year basis partly offset by investments in international and enterprise. In Q1, we expect stock-based compensation expense to be approximately $5 million to $6 million, which we will exclude from adjusted EBITDA. For 2024, we expect Marketplace growth of at least 20% year-over-year and expect Supplier Services to be down approximately 10% year-over-year, driven by the discontinuation of the sales of tools and materials, and the wind down of noncore services. As Randy mentioned, our Marketplace outlook assumes the Q1 trend persists throughout the year. We expect to be adjusted EBITDA profitable in Q3 2024. For fiscal year 2024, we expect improved operating leverage, partly offset by international and enterprise growth investments. With that, operator, can you please open up the call for questions.

Thank you. Our first question comes from the line of Ron Josey with Citi. Your line is open.

Hey, guys. This is Jake on for Ron. Thanks for taking the questions. And thank you, Jim, for all your partnership, best of luck in all your future endeavors. First question on Teamspace. So now that that's fully integrated, could you talk to us more about the strength in adoption? How is that contributing to the growth in Q4 and your traction with larger enterprises and winning those larger enterprises? And then just second, on January being slightly weaker than expected, could you share more about what you're seeing and what you think is driving that decline in larger orders? I know you mentioned a softer macro, but any color there would be super helpful. Thanks.

Hey Jake, it's Randy. Regarding Teamspace, we have added over 1,500 teams since our launch, up from 300 teams in Q3. Since rolling out in Q4, we're pleased with this growth. We're experiencing viral user growth within teams and organizations, along with strong engagement on our platform. Teamspace is key to our engagement at the enterprise level. As we penetrate deeper into enterprises, Teamspace is an effective strategy for that. In terms of Q4, we noted a decline in larger orders in January compared to Q4, primarily from larger companies who seemed to be holding back their budgets at the start of the year. We noticed an improvement in February, but that's what we saw in January.

Thank you. Please stand by for our next question. Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks so much for taking the question. Maybe a two-parter on the active buyer trend you're seeing. First, I would love to get a little bit more color on how the cohorts of active buyers look today compared to maybe 12, 18, 24 months ago? And how should we be thinking about the funnel for growth in active buyers as informing some of the confidence around the longer-term growth in '24 and beyond? Thanks so much.

Thank you, Eric. If you look at the investor deck we provided, we updated our cohort analysis on Slide 9. In response to your question about the behavior of new cohorts of active buyers, we achieved a record revenue of over $50 million from these new cohorts in 2023, an increase from $42.6 million in the first year of our 2022 cohorts. Our new cohorts are generating more revenue in their first year, with a significant increase in their second year on the platform. We anticipate ongoing robust growth in our new active buyers and believe there is a vast market with millions of buyers in the Marketplace. As we consider our growth prospects in the coming years, we're confident that this is a key area for us, and we're seeing strong adoption.

Yes. And Eric, it's Shawn. To follow up on that, we reduced our advertising spending in the fourth quarter by 19%, which is reflected in the net adds. We also mentioned this morning that we anticipate improvement in net adds in the first quarter as we return to more typical marketing investments.

Yes. I think from an underlying metrics we talked about before, we don't see any change in the underlying metrics, particularly as it relates to adding new active buyers.

Thank you. Please stand by for our next question. Our next question comes from the line of Brian Drab with William Blair. Your line is open.

Good morning. Thank you for taking my question. I wanted to discuss what you observed towards the end of December and into January and February. Over the past four years, I've noted that revenue typically increases by 14% from the fourth quarter to the first quarter, but now we're seeing a significant drop. Could you provide some insight into what you're seeing in January and February? What do you mean by large orders, and do you anticipate those large orders will increase at some point?

Yes. I mean again, Brian, I think we were taken back by the drop in January. We hadn't expected that. And so I want to give us a big dollar amount, but the large orders are important to us, and we saw a pretty strong drop in January. We have said that, that picked up in February but we're also trying to be prudent for the year. I mean, we had a weaker-than-expected January. We're still less than two months in the full year. But at this point, we just want to be prudent as we think about the guide for Q1 and beyond.

Brian, let me just follow up on that. It's Shawn. For the full year, we are assuming that the Marketplace growth will be at least 20% without expecting an improvement in the run rate. We are taking a cautious approach based on the current trends of the business.

And just to be clear, you saw a little bit of a pickup in February relative to January, but you're saying you're not incorporating that pickup? You're not assuming that the pickup continues through the year or no?

I think we just want to be prudent, yes. I mean, again, January was unexpected for us. Things picked up in February, but we just were less than two months in the full year. We want to be prudent. And we're anchoring ourselves to reach 20%. But at this point, that's where we're going to keep it.

And just to dig a little deeper on the large orders. Is this maybe harder for you to get a handle on in terms of forecasting because you're building up these positions with customers and gaining these large orders and getting integrated into their operations with it's kind of new territory and it's not clear how it can be choppy or what?

No. It was really that people held back their budgets in January. It's not something we can directly compare. Looking at our historical trends, Q4 was stronger for us compared to last year. However, in January, people were cautious with their spending. This was expected based on the trend. As we continue to grow our enterprise initiatives, it will improve our situation, but this isn't about that. This is simply about the cautious approach taken by people in January, whether it's for one month or for an entire quarter.

Brian, we mentioned on the call that the remaining Marketplace metrics are healthy. We have resumed our marketing efforts, and the top of the funnel is strong. We expect the number of active buyers to increase quarter-over-quarter, so the marketplace remains in good shape. We noticed that larger customers have paused some of their spending, and if that changes, it could have an impact, but for now, we anticipate maintaining the current trend for the entire year.

We're just being prudent.

Yes, I think many people are noticing that customers in your target markets are spending more slowly than anticipated at the beginning of the year, which isn't a big surprise. Could you clarify why you have pushed out the profitability target? Is it a mix of expectations for potentially lower revenue along with increased marketing spending? Could you explain that again for us?

It's really related to the revenue. We still plan to continue to improve our margins. We'll be tight on spend. I mean, we're going to make investments. But Brian, it's driven by the revenue.

And then Brian just based on Randy's comment there, we've anchored to at least 20% Marketplace growth. We also talked about expanding Marketplace gross margin in '24. So you're going to see very healthy Marketplace gross profit dollar growth.

Yes. I mean our gross profit will grow faster than our revenue.

Thank you. Please stand by for our next question. Our next question comes from the line of Nick Jones with Citizens JMP. Your line is open.

Hi. Thanks for taking the questions. I guess just on kind of the inputs to Marketplace revenue, active buyers and Marketplace revenue per active buyer. I think the expectation was active buyers and Marketplace revenue to kind of converge to the same growth rate, but it sounds like there's some volatility now in Marketplace revenue per active customer kind of implied in the 1Q guide? Like it sounds like that's probably going to step down. Is that the right way to think about it? And will that be kind of volatile throughout the year? Do you expect it to kind of stabilize the Marketplace revenue per active buyer like post 1Q?

Good morning, and thank you for the question. Due to the larger orders, we expect revenue per buyer to be lower in Q1. While we anticipate robust growth in active buyers, the challenging situation in January has led us to take a cautious approach, adjusting our projections for the rest of the year. We still expect strong growth in active buyers, but we're considering the difficulties of January when estimating revenue per buyer for the full year.

Got it. And then on just kind of following up on the gross profit margins in the Marketplace business. I think prior by second half of '24 the target was kind of 35% to 40%. Is that target still good? Maybe kind of the new revenue expectations?

Yes. We don't see any change in our outlook in terms of margins. The growth of our Marketplace margins, Supplier Service margins are strong. Again, the only thing that's sort of changed here is that in January, we saw a drop in those large orders that impacted our revenue per buyer. And we're less than two months in the year, we got to be prudent here. We're anchoring ourselves to at least 20%. But at that point, that's where we're thinking right now, just to be prudent.

Thank you. Please stand by for our next question. Our next question comes from the line of Cory Carpenter with JPMorgan. Your line is open.

Hi. Good morning. I have two questions. First, could you tell me about February? Are the levels back to what they were in the fourth quarter, or are they still softer, maybe somewhere in between? Second, can you provide an update on the Google Cloud partnership and how you anticipate it will roll out, including when you expect to implement those instant quoting capabilities in 2024? Thank you.

Yes. So as we said, we haven't been more specific. We said February is stronger than January. So I just will leave it at that. And then in terms of Google, there's a lot of hard work going on there. We've got some exciting things we're doing with them. I think when we announced the partnership, we said it would be a number of months before we'll see those models. We're still on target for that. So I don't want to throw out an exact date yet, but certainly, the expectation of releasing those new instant quoting of additional processes and equally important, enabling us to deploy even more even faster. That's still on target, but we haven't nailed down a specific date yet.

Okay, great. And just a quick follow-up. You mentioned in Supplier Services winding down, I think, some other stuff potentially besides tools-materials. Is that correct? And if so, I'm just curious what that is?

It's minor and not significant at all. It's just some ancillary services offered by Thomas that aren't profitable and are not part of our core operations. The anticipated drop in Supplier Services this year is primarily due to the discontinuation of our historic supplies business.

Thank you. Please stand by for our next question. Our next question comes from the line of Matt Hedberg with RBC. Your line is open.

Hey, great. Thanks for taking my question, guys. Randy, just kind of philosophically speaking, are there things that can be done and maybe it's just a scale factor though. Are there things that could be done to reduce some of the volatility in Marketplace revenue? And maybe as a follow-up, what are some of the assumptions around Teamspace that you guys are baking into '24 expectations?

Yes. In terms of increasing volatility, you're correct that as we grow and continue to integrate ourselves on an enterprise level, this will provide some protection against that volatility. As we expand, embedding ourselves deeper into the supply chain should benefit us significantly. Regarding Teamspace and its influence, we view it as part of our broader enterprise strategy. We anticipate robust growth in new active buyers this year as we invest further into enterprise. This is an integral part of our overall efforts from both a technology and sales standpoint.

Got it. Thanks. And then for Jim, you're pushing out some of the EBITDA targets a little bit here on some of the revenue weakness. I'm wondering though, could you help us think about what that means for free cash flow? And then I know it's lagging EBITDA, but any sense for a timeline for getting to free cash flow breakeven?

Yes. So I think, look, the free cash flow is obviously going to come after we get to adjusted EBITDA positive. So I think that's going to put that out a little further. We never really gave a date on that to begin with. So look, I would expect that to follow shortly after we're adjusted EBITDA positive, but that's going to be a quarter or two probably after that.

Thank you. Please stand by for our next question. Our next question comes from the line of Greg Palm with Craig-Hallum. Your line is open.

Yeah, good morning. Thanks for taking the question. I just want to go back to the implied outlook for Q1 in terms of active buyers versus revenue per buyer. Does the implied lower revenue per buyer that you talked about, I just want to make sure we're clear, is that solely due to a lower number of larger orders and not a broader moderation in pricing overall? And then for the full year, guide, does that take into account sort of a flat or stable revenue per buyer that is implied in Q1? Or does it assume some improvement in that metric throughout the year?

To clarify, we are not incorporating an improvement into our guidance at this point. We are still early in the year and are being cautious, and we want to set that expectation. Therefore, we don’t anticipate an improvement. However, we did note that February is better than January. Unfortunately, January did not meet our expectations, especially due to the impact of larger orders. I want to emphasize that this is not indicative of a broader trend of customers downgrading their purchases, and we are not experiencing deflationary prices. The issue is primarily around the larger orders. On a positive note, we have been expanding our number of accounts. We achieved a record number of additions of accounts with over $50,000 in spending during Q4, adding 108 accounts, which is the highest we've ever seen. These accounts are contributing a larger share of our revenue, which is significant and exciting for us. In the long run, this will support growth and profitability. Nonetheless, in January, when clients were more conservative with their budgets, it negatively affected us.

Yes. Okay. And then if I could just compare the Q1 outlook to your Q3 '23 numbers. I mean, you're guiding revenue basically flat or same levels as Q3 '23, but EBITDA loss, almost twice as worse. When you think about sort of that bridge is the majority or most of that or maybe entirely due to higher OpEx within that? Is it a lot of it more on the advertising side? Or maybe you can help tie that out.

If we look back at Q3 and compare it to Q1, the main factor affecting us is the operating expense line. We have made investments in our sales team, which we mentioned during the call, and we are continuing to expand that team to support our enterprise initiatives. Additionally, we are investing more internationally, where we saw significant growth towards the end of the year, and we aim to sustain that momentum for strong growth in the coming years. Lastly, similar to other public companies, we are experiencing an increase in people costs, payroll taxes, and benefits as we move from late Q4 into Q1, which is noticeably impacting our financials given our current business size.

Yeah, understand. Okay. I will leave it there. Thanks.

Thank you. Please stand by for our next question. Our next question comes from the line of Kunal Madhukar with UBS. Your line is open.

Hi. Thanks a lot. This is Jason on for Kunal from UBS. I have a couple of questions. So the first one, in terms of your 2024 Marketplace guidance, could you please unpack your at least 20% growth outlook for Marketplace revenue? And help us understand what you guys are assuming in terms of customer growth and pricing? Also, could you comment on how much of the 2024 revenue guidance is from the new verticals you guys recently added, leveraging Thomasnet? And then I have a follow-up.

It's Shawn, I'll take that. Randy mentioned that we anticipate robust growth in our active buyers for 2024. We expect the number of new active buyers to increase from Q4 into Q1 as we restart our marketing investments. Therefore, you can expect strong growth in active buyers. After a slow January, which affects revenue per buyer, we're factoring in a lower rate for the rest of the year. These are the key elements supporting our 20% growth target that we discussed. What was your follow-up question?

How much of 2024 revenue is from the new verticals leveraging Thomasnet?

We have many initiatives in place to expand the marketplace menu. As mentioned, we're continually adding new categories from Thomas and have recently partnered with Google. We are currently working closely with Google and expect this partnership to help speed up the introduction of new categories later this year. These efforts aim to increase revenue per buyer. However, our current forecast for the year is based on the trends observed in January and early February.

Got it. For the second question. So regarding your comment on softer January orders, I was curious if you could help us understand which specific verticals that drove the decline in large orders? Thank you.

Yes. It really wasn't confined to any specific vertical or geographic area; it was more widespread. As Randy mentioned, larger customers who usually place bigger orders seemed to pause, and we believe they have cut back on their budgets. However, we felt it was wise not to anticipate an improvement at this time, and that's our current situation.

Thank you. I'm showing no further questions in the queue. Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.