Please wait. The conference will begin shortly. Good morning. My name is Justin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Xometry Inc. Q1 2024 Earnings Call. I'd like to introduce you to our CEO, Randy Altschuler, CFO, James Miln, and our VP of Investor Relations, Shawn Milne. Sir, you may begin the conference.

Good morning, and thank you for joining Xometry's Q1 2024 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; and James Miln, our Chief Financial Officer. During today's call, we will review our financial results for the first quarter and discuss our guidance for the second 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 our 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-Q for the quarter ended March 31, 2024, 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 Q1 2024 earnings call. Powered by AI, our marketplace continues to gain significant market share as buyers and suppliers realize the value, convenience, and resiliency of our platform to strengthen their supply chains globally. In Q1, we grew revenue 16% year-over-year to $123 million, driven by our Marketplace business. Q1 Marketplace revenue grew 24% year-over-year. We saw strength across many end markets, including semiconductors and industrial equipment, electronics, aerospace and defense, and automotive. Q1 gross profit increased 22% year-over-year. Q1 Marketplace gross profit increased 37% year-over-year, driven by our AI-powered marketplace and increasing network of active suppliers. We expect to further expand Marketplace gross margin and drive strong gross profit growth throughout 2024. On top of strong marketplace revenue and gross profit growth, we improved our adjusted EBITDA loss in Q1 by 37% on a year-over-year basis, driven by leverage in our core U.S. marketplace as our first-quarter results clearly show that with our market-leading position and the size of the available opportunity, we can drive strong revenue and gross profit growth and improve operating leverage regardless of the manufacturing backdrop. Of course, we want to grow as much as possible, which will not only strengthen our competitive moat, but also enable us to achieve our long-term profit margins faster. Here are the investments we've been making to accelerate our results: First, expanding our network of active buyers and suppliers. In Q1, active buyers increased 32% year-over-year with net additions growing 8% quarter-over-quarter. For 2024, we expect our active buyer growth to remain healthy as there are millions of potential buyers, and Xometry brand awareness continues to improve. We also continue to expand our supplier base globally with 36% growth in 2023. In Q1, we expanded our domestic network and added new partners in India, China, and Turkey. For our suppliers, we continue to enhance Work Center, the digital operating system for manufacturers. We are improving the overall experience for suppliers, reducing the effort required to review jobs, track material purchases, and monitor fabrication progress. Second, expanding the marketplace menu. We want to be the go-to destination for our customers' manufacturing needs. To help accomplish that, we need to provide instant quoting for as many manufacturing processes and materials as possible. Like any other industry, the faster and easier you can make it for someone to buy, the more traction you will get. In Q1, we continued to make progress doing just that. For example, in Europe, we expanded the Instant Quoting Engine to include Vacuum Casting, for customers to take advantage of low-cost, high-quality plastic production. To further expedite our deployment of new auto-quoted processes within Xometry's AI-powered Instant Quoting Engine, in Q4 of 2023, we partnered with Google's AI team. Our progress has been encouraging, and in the third quarter of this year, we expect to test multiple new auto quoting models with our U.S. and then European customers. Third, driving deeper enterprise engagement. Some of our biggest customers are the largest companies in the world. While our growth within these accounts has been strong over the years, there's a terrific opportunity to significantly accelerate their adoption of Xometry. To make that happen, we have a two-pronged approach. First, we are leading with our technology. In addition to reducing friction for customers by integrating purchasing directly into the ERP systems, we have deployed and continue to enhance our Teamspace software. Teamspace moves the Xometry marketplace from a focus on individual buyers and parts to procurement teams managing programs. The feedback remains positive, with rapid adoption, including over 2,300 teams and strong engagement on the platform. This year, we've already integrated new features for our injection molding offering directly into Teamspace, which includes a tooling dashboard providing engineering review and fabrication status. Second, we continue to invest in our enterprise sales effort, increasing our bench strength and ramping our sales force to service and grow relationships with our largest customers. We are making progress with global companies as they look for a technology partner to help manage dispersed and complex supply chains. In the United States, a leading global medical device company chose Xometry for an injection molding production program after first prototyping with our platform. The company found value in our quality, time to deliver, and increasing ease of management with our new Teamspace software. We expect to see continued growth with this customer in the quarters ahead as they look to Xometry for additional injection molding services and other manufacturing processes that we bring to market. Also, in Q1, we signed a multiyear agreement with a European customer in the vehicle and delivery space. Xometry was chosen due to the breadth of our marketplace. Using the network of suppliers in the Xometry marketplace, this customer doesn't need to build and manage their own supply chain for their critical product. Fourth, growing internationally. In Q1, international revenue increased 69% year-over-year, driven by strong growth in Europe. In 2024, we continue to push deeper in our existing international markets. In Q1, we added Czech as a language on our EU site. Through xometry.eu, xometry.uk, and xometry.asia, we have leveraged Xometry's core technology to provide localized marketplaces in 15 different languages with networks of suppliers across Europe and Asia, as well as North America. In Q1, international revenue accounted for 18% of total marketplace revenue. We believe international can reach the 30% to 40% level in the long term, as is with many other global online marketplaces. Fifth, enhancing supplier services solutions. In Q1, we continued to invest in important foundational work to modernize the Thomas advertising platform. We remain focused on restoring Thomas advertising growth given the 85% plus gross margins and strong contribution opportunity of the platform. We are now beta testing new self-serve advertising campaign creation tools for suppliers. While still early, we're seeing some positive signs of supplier engagement, including end-to-end self-serve campaign configuration and checkout. We expect the returns on these investments to be strong. We've made similar bets in the past, and they paid off. For example, in 2019, we invested in international expansion, launching in Europe in early 2020. We scaled the international business from $3 million in revenue in 2020 to over $60 million in fiscal year 2023. In addition, we continue to invest in our machine learning-based AI, which is fueling marketplace gross margin expansion. When we went public in mid-2021, our marketplace gross margin was in the 24% range, and we ended Q1 of this year at 32%. Improving our scale in revenue and gross profit dollars provides a clear path to profitability. Coupled with those investments, we remain committed to delivering improving operating leverage each quarter, which James will discuss in more detail. I'm proud of the collective efforts of our team worldwide. Our continued strong growth demonstrates the significant strides we're making to digitize manufacturing supply chains. I'll now turn the call over to James for a more detailed review of Q1 and our business outlook.

Thanks, Randy, and good morning, everyone. As Randy mentioned, Q1 revenue increased 16% year-over-year to $123 million, driven by strong marketplace growth. Q1 Marketplace revenue was $107 million and supplier services revenue was $15.5 million. Q1 Marketplace revenue increased 24% year-over-year and was stronger than expected as large order activity improved from the early soft start in January, which we discussed on our Q4 2023 earnings call. Q1 active buyers increased 32% year-over-year to 58,504, with a net addition of 3,179 active buyers. Q1 Marketplace revenue per active buyer decreased 6% year-over-year, primarily due to the impact of a soft start for larger orders in the quarter. The number of accounts with last 12-month spend of at least $50,000 on our platform increased 25% year-over-year to 1,381, with 50 net new accounts as we continue to deepen our relationships with our customers across many end markets. Supplier services revenue declined 17% year-over-year in Q1, primarily driven by the discontinuation of the sales of tools and materials in the U.S. As Randy mentioned, we are modernizing the Thomas advertising platform and are now testing new self-serve advertising tools for suppliers. The number of active paying suppliers for Q1 2024 was 7,159 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 was down approximately 2% year-over-year. Q1 gross profit was $47.9 million, an increase of 22% year-over-year, with a gross margin of 39.0%. Q1 gross margin for Marketplace was a record 32.0%, up 320 basis points year-over-year. Q1 Marketplace gross profit dollars increased 37% year-over-year. We are focused on driving marketplace gross profit dollar growth through the combination of top-line growth and gross margin expansion. Q1 gross margin for Supplier Services was 87.9%, driven by the high gross margin of Thomas marketing and advertising services. Supplier Services gross margin increased more than 10 percentage points year-over-year due to the discontinuation of the sale of tools and materials, which carried a significantly lower gross margin. Moving on to Q1 operating costs. Q1 total non-GAAP operating expenses increased 9% year-over-year to $55.5 million. Within our operating expenses, sales and marketing are our largest component. In Q1, non-GAAP sales and marketing expenses increased 21% to $24.9 million as compared to $20.6 million in Q1 2023. This increase was driven by the hiring of additional salespeople to support enterprise and international growth. Q1 advertising spend increased 2% year-over-year to $8.3 million or 7.8% of marketplace revenue, down 160 basis points from 9.4% a year ago, as we maintained discipline on advertising efficiency. Q1 adjusted EBITDA loss was $7.5 million or 6.1% of revenue compared with 11.2% of revenue in Q1 2023. Q1 adjusted EBITDA loss improved $4.3 million year-over-year or 37%, driven by growth in revenue and gross profit. At the end of the first quarter, cash and cash equivalents and marketable securities were $254 million. Before moving to our guidance, I'd like to share my early thoughts on Xometry and our path to profitability. Since joining Xometry two months ago, I have been able to dive deep into our business and discover some of the customer stories that drive our 58,000-plus buyers to transact on our leading global marketplace. In a massive structural change for our industry, our AI-powered Instant Quoting Engine provides real-time instant pricing and lead times for our buyers as it matches them with the optimal supplier. As we scale our networks of buyers and suppliers, our machine learning AI gets smarter, delivering more efficient pricing and improving gross margin for Xometry. Our teams are dedicated, hard-working, and passionate about the customers and markets we serve. The market opportunity is very large, reinforcing our goal of driving compounding growth for many years to come. As we work to realize our long-term potential, I'm going to leverage my prior finance and operating experience to apply stronger discipline and rigor to our capital and resource allocation across sales and marketing, operations, product development, and G&A. As we continue to scale our revenue and gross profit, we believe that we can reach adjusted EBITDA breakeven as we surpass an approximately $600 million annual revenue run rate. At that level, targeting a gross margin of 38% to 40%, we believe that there is room for growth investments while improving our operating expense efficiencies. As we scale the business above the $600 million level, we would expect a healthy flow-through of incremental margin. Entering 2024, we continue to invest in our sales team and international growth, coupled with the inflationary impact on overall costs, operating expenses increased approximately $3.6 million quarter-over-quarter. We believe that we can drive a healthy return from these investments and have also identified efficiency opportunities. For example, in Supplier Services, we expect an approximately $1 million a quarter improvement in the second half of 2024 from the first half of 2024. Now moving on to guidance. We expect Q2 2024 revenue in the range of $127 million to $129 million, representing year-over-year growth of 14% to 16% or 15% to 17% adjusting for the discontinuation of the sale of tools and materials. We expect Q2 marketplace growth to be approximately 20% year-over-year. We remain focused on our growth initiatives despite an uncertain manufacturing environment. We expect Q2 supplier services to be down approximately 15% year-over-year, primarily due to the exit of the tools and materials business in May 2023. In Q2, we expect adjusted EBITDA loss to be in the range of $6 million to $8 million and adjusted EBITDA margin of negative 4.7% to negative 6.2%, improving from a loss of $8.7 million and 7.8% of revenue in Q2 2023. In Q2, we expect stock-based compensation expense to be approximately $7 million to $8 million or approximately 5% to 6% of revenue. For 2024, we continue to expect marketplace growth of at least 20% year-over-year and expect supplier services to be down approximately 10% year-over-year. We expect to continue to improve our year-over-year profitability through 2024, driven by operating leverage. Since underlying marketplace metrics are healthy, we're going to continue to execute on our strong roadmap of initiatives outlined earlier by Randy.

As we think about kind of Q2 guidance and when you provided Q1 guidance, I think you pegged it to kind of trends in January. Can you kind of elaborate on what's informing the Q2 guidance? Is it kind of quarter-to-date trends? Were you really pegging to what you're seeing here? Or what level of conservatism is baked in? Or I guess, can you try to provide a little more color as to what's informed the top line guidance for Q2? And then I have a follow-up.

Nick, it's James. Thanks for the question. No, we're really pleased with our Q1 performance across the board, including a 24% marketplace revenue growth and the 37% gross profit growth. As Randy mentioned earlier, we saw some strength across many end markets and are becoming more important for our largest customers. We're clearly taking share powered by our AI-driven marketplace. As we look into Q2, we consider the trends that we're seeing in our business and the healthy marketplace trends, as well as taking into account the opportunities and risks that we see ahead, given the uncertain manufacturing environment. That fit into the guidance range that we provided for the quarter.

Great. And then there's some volatility in revenue per active buyer. I think you called out larger orders being tough to hear so far. Can you speak to kind of just overall order volume or demand for orders? I mean, are orders or conversions pretty consistent, and it's really just a squeeze in pricing or how much people are willing to spend? Any additional color there would be great.

Yes, James, again. So really pleased with our active buyer growth in the quarter, up 32% year-over-year, adding 3,179 buyers. That was up 8% quarter-on-quarter. As we said, the revenue in the quarter was somewhat impacted by the mix of larger orders. As we look across the marketplace, pricing and conversion and active buyers and suppliers, we're pleased with what we're seeing there, a lot of consistent trends with what we've seen in the past few quarters. That is reflected in our guidance going forward.

James, I would just love to hear more about where you see the most opportunities on the advertising side. Maybe you could elaborate a little bit more in terms of certain enhanced search as well as things we should be aware of or keeping in mind on the roadmap, where you see the biggest opportunity given your prior relevant experience there.

And I see you're talking about Thomas and the Thomasnet Supplier Services.

Yes, I mean, partly what you see in terms of self-service capabilities. You've seen some announcements there beta testing some things, but I would really love to hear what we should expect for the product side this year.

Yes. And thanks for the question. This is Randy jumping in. So we're enhancing, as we talked about, now we've been investing in handling the Thomasnet platform and the journey for both the searchers and for the advertisers. So on the searching side, we are putting enhancements to the accuracy of the search. We're looking at different ways to display that search, modernizing it from the search end of it. And then on the supplier side, on the advertising side, we talked about moving to a pay-for-performance model, and we've been beta testing that. This will help guarantee better search results for the searchers and a better ROI for the advertisers. We've been working on this for a number of quarters, and as we said, this quarter, we started beta testing it or in Q1, we started testing it and early results are positive.

Yes. Jay, I was just looking; I think that some extent gives us an exciting opportunity that can really influence the marketplace. As Randy mentioned, there are a lot of opportunities to improve the performance there and the experience for customers and suppliers. So looking forward to working with the team on improving that as we go forward.

That's helpful. And just a quick follow-up. In terms of investment priorities, Randy, really great to lay those out and the clarity there. Could you speak to any plans for headcount increases this year tying back to those various areas?

We don't really comment about specifically headcount. I think in general, we are trying to be rational with our costs as we push for profitability. So we're going to be balancing that, and we'll make those headcount selectively in the areas that align with our initiatives. In particular, we did call out the enterprise sales team. We've been increasing our bench strength here, and that's investing in that. So that's why you saw some uptick in the sales expense quarter-over-quarter.

This is Tyler on for Brian. Just to start off with, can you explain the sequential improvement in marketplace gross margin? Obviously, marketplace revenue was down sequentially, and can you just explain what actually happened there? Was it just finding suppliers for jobs at lower prices? And then I have a follow-up.

You cut out a little bit there, but I think you're asking about our gross margin performance in the quarter and the improvement year-over-year and sequentially. We were very pleased with this performance. As we mentioned on the call, Q1 marketplace gross margin was a record at 32.0%, up 320 basis points year-over-year and up 70 basis points quarter-over-quarter. This drives our gross profit growth.

Yes. One thing you want to add, and this is Randy, just to be clear, and you sort of were cutting out a little bit, but we are seeing consistent pricing trends across the marketplace from what we saw in the first quarter and last year as well. So as James talked about, we're seeing gross margin improvement as we get more data that empowers our algorithms and as we grow our number of suppliers. Overall, ranking trends are very consistent over the first quarter and last year as well.

Okay. Sounds good. And I apologize for cutting out. Let me know if it's really coming in choppy. But my follow-up is with your Google Cloud partnership. Is that going to impact how you currently auto quote? Or is this just for bringing on new services? Like for example, if someone wanted to quote CNC service right now, that new partnership hasn't changed how that algorithm is working.

The algorithms are intended to shorten the time that we can launch new auto-quoted processes. As we mentioned in the script, we expect in the third quarter to start testing multiple new processes in the third quarter, first here in the United States with U.S. customers and then in Europe. That's the focus of the partnership.

Yes, there's nothing from the Google partnership that's impacting the algorithms here in the first quarter.

Great. Jim, I know it's still early days for Teamspace, but maybe thinking more so on the customer feedback side, could you just discuss the ability of the solution to help you maybe become more pervasive or deeper into your customers and then also kind of enhance that value proposition as a platform versus a tool? And then at scale, is there any thoughts on how this might help with revenue visibility?

Yes. This is Randy. I'll take particularly the first part of it. We are very pleased with the acceptance and adoption that we're seeing at Teamspace. We have over 2,300 teams right now, which is a really nice increase since we last reported. We've also been making enhancements so it can be not just to really enhance the platform and go deeper into our enterprise customers, in particular, as we talked about during the call, that includes tooling processes and enhancements we're making with our injection molding offering and tool libraries and being able to share that and run it all through Teamspace, where, as you can imagine, those are often group projects. We also talked about a large customer that we've been doing injection molding with who started prototyping with us and now is in production, and that's being done in part because of their adoption of the Teamspace software. Our sales team is continuing to show that to customers, and we expect to get continued deeper penetration with our enterprise customers using Teamspace.

Yes, that makes a ton of sense. And then maybe just as a follow-up on the guidance side of thinking about the macro implications. From macro indicators, PMI has improved a bit. Can you remind us on how you think about that in relation to your business, whether or not that's a good leading indicator?

Yes. Thanks, Matt. So as we talked about, we're really pleased with our Q1 performance. We take a lot of the trends that we're seeing across our buyers, the conversion, the margin suppliers. We look at those and we consider the guidance ahead, but we do take into account the uncertainty in the macro environment. There are various indicators out there. So we look at the aggregate of those as well as what we're seeing internally. There is some choppiness out there, and so we're taking that into account.

Maybe a two-parter on international, and thanks for all the detail in the prepared remarks. When you look out at the contribution potential for international on a multiyear view, could you break it into pieces of how much of it is down to execution on what's already been put in place versus elements where the company still needs to do incremental investments broadly in the international opportunity? Just trying to understand the mix of growth and margin and how you think that sets up for contribution in the years ahead.

Yes, Eric, it's Randy. I'll jump in here, and James can jump in afterwards. As we talked about, particularly this year, we're focused on going deeper in our existing geographies. We set up the infrastructure there. We've got our site in 15 different languages. We've localized it. We've got sales teams that are there and built the infrastructure. These are giant markets. While we're proud of the growth that we've seen in international, we know that even within the existing markets, it can be much larger. You should expect to see us gain some real leverage from those investments made in the existing markets.

I wanted to dig in a little bit more on the investment side of things. And I guess my question is more or less why now? If I think back to last year, I feel like it was more characterized around sort of operational discipline in targeting EBITDA profitability. It sounds like you're changing that a little bit and ramping up investments now, which pushes out EBITDA profitability. By my math, I think, to next year based on the implied guide for the second half. Can you provide some more color on exactly what you're doing, the timing around it, and then at what point will we see some of those benefits?

Sure. This is Randy. Look, when we brought in James as our new CFO, I asked him to work with me and the rest of our team to refine and validate the healthiest path to profitability into our long-term operating margin. This included having operating expenses a little higher than expected. So as a result, we feel that about a $600 million run rate, about $150 million per quarter, is the appropriate level for breakeven. Underlying marketplace metrics are healthy across buyers, pricing, margin suppliers in an uncertain macro. We're going to continue to execute on a robust roadmap of growth initiatives.

Yes, Greg, this is James. Just building on what Randy said. Our first-quarter results clearly show that with our market-leading position and the size of the opportunity, we can drive strong revenue and gross profit growth and improved leverage. Marketplace growth was up 24%; Marketplace gross profit dollar growth was 37%. As Randy said, we've been working on the healthiest path to profitability so that we can continue to invest responsibly in our long-term growth initiatives. At the same time, Q1 OpEx came in higher than expected because of the investments we're making, as well as some inflationary impacts in overall expenses we've seen across areas like employee benefits, software costs, and others. As we refine and validate that path forward, we believe we can reach adjusted EBITDA breakeven as we surpass this approximately $600 million annual revenue run rate. We do expect to see continued leverage. We will update you as we go in the future quarters.

Yes. Okay. That makes sense. And I just want to dig in a little bit more to Q1 specifically. You were clear. You guided initially Q1 based on what you saw in January, and you outperformed above the previous range. So can you give us some sense of what you saw in February and March? And is the Q2 guide similar to how you guided last quarter, where it's based on what you're seeing in April? Or is it more based on what you've seen year-to-date and making some assumptions on how May and June trends might play out?

Yes. Thank you, Greg. It's James. We are really pleased with the 24% year-over-year growth. It was better than expected as that large order activity improved from the early soft start that we talked about on the Q4 2023 earnings call. It demonstrates our ability to execute. It remains an uncertain manufacturing environment. As we look at our trend in Q2, we take into account the risks, uncertainties, and opportunities in this environment; we've built that into the guidance range for Q2.

Okay. And any color on what you saw in April versus maybe February, March, and Q1 in general?

No, we're not going to provide more color on the monthly rate.

Fair enough, all right. Best of luck.

Thank you.

Thank you. This now concludes the meeting. Thank you for joining, and have a pleasant day.