Xometry, Inc.

Good day, and thank you for standing by. Welcome to the Xometry Q3 2023 earnings 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. 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. To withdraw your question, please press star 11 again. 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, VP of Investor Relations.

Good morning, and thank you for joining us on Xometry's Q3 2023 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 of 2023 and discuss our guidance for the fourth quarter and full year 2023. 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 U.S. Securities and Exchange Commission, including our Form 10-K for the year ended December 31, 2022, and our Form 10-Q for the quarter ended September 30, 2023, that will be filed later today. 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 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 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.

Thank you, Sean. Good morning, everyone, and thank you for joining our Q3 2023 earnings call. In Q3, we had record financial results, including our highest revenue and gross profit in Xometry history. We reduced our adjusted EBITDA loss by 51% from the prior quarter on our path to profitability. Behind those strong results was record additions of active buyers and orders and leverage on all of our operating expenses. With momentum from Q3 carrying into Q4, we are successfully executing what we set out to do in the beginning of this year. Return to our historical marketplace revenue growth of 40% plus, expand gross margins, improve operating efficiencies, and reduce fixed costs so we could go from a $11.8 million adjusted EBITDA loss in Q1 to potentially break even in Q4. This positions Xometry for robots growth and full-year adjusted EBITDA profitability in 2024. We continue to innovate and expand. In October, we launched TeamSpace, a collaboration tool to augment our enterprise sales efforts and increase our organic buyer growth. Additionally, today we announced a new exciting partnership with Google Cloud to leverage Vertix AI to accelerate instant quoting for new markets on Xometry's AI-powered marketplace. I will outline each in more detail later in the call. Here are some of the financial highlights from Q3 and their expected impact on Q4. Let's start with revenue. We grew revenue 15% year-over-year to $119 million, driven by strong 22% year-over-year growth in marketplace revenue, offset by a 16% year-over-year decline in supplier services revenue, primarily due to the discontinuation of our sale of tools and materials. Marketplace revenue included 78% year-over-year growth in our international segment, primarily in our European markets. We had forecast even more revenue growth in international in Q3, but some of that has been pushed into Q4 due to the timing of certain orders. U.S. Marketplace Q3 revenue was also strong, with the highest sequential quarterly growth in the last 12 months, growing $9 million quarter-over-quarter from Q2 of this year. In both the U.S. and internationally, growth was across many customer verticals, including general manufacturing, industrial equipment, aerospace, and defense. Growth remains strong in injection molding, as recent investments in technology and processes are driving an expanding pipeline of business. Underlying activity in the marketplace is strong, with active buyers and orders in Q3 growing over 40% year over year. In Q4, We expect marketplace revenue growth and active buyer growth to converge as quarterly revenue per active buyer remains stable year over year. This will power overall marketplace growth of approximately 40% in Q4. Coupled with relatively flat quarter over quarter supplier services revenue, we expect overall revenue growth in Q4 in the range of 30%. Next is gross profit. Gross profit increased 13% year over year to 46.2 million, driven by 25% growth in Marketplace gross profit. Over the last two years, we've expanded Marketplace gross margins by 550 basis points. In Q4, we expect Marketplace gross margins to increase sequentially quarter over quarter, driven by our machine learning algorithms and the growth of our network of suppliers. Finally is our adjusted EBITDA. As I noted earlier, in Q3, we further improved our operating leverage, reducing our adjusted EBITDA loss from Q2 by 51%, or $4.4 million. This is a result of higher revenue and gross profits, increased operating efficiency, and cuts we've made in our fixed costs. In Q3, we balanced our advertising investments against profitability goals, with advertising spend down 7% year-over-year. Our marketplace unit economics continue to improve, driven by expanding gross margins and increasing advertising efficiencies. partly driven by the strong growth in our SEO traffic. We reduced our cost to acquire a net new active buyer by 27% year over year. Powering our strong Q3 financial results and the outlook for Q4 was progress we made in different areas of our business. Here are some of the highlights. One, 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. TeamSpace further expands our enterprise solutions and land and expand strategy. We expect TeamSpace to drive organic user growth on the marketplace and further drive advertising efficiency. The early feedback is positive with rapid adoption, including over 300 teams created since launch. Two, we continue to expand aggressively internationally. Customers and orders are ramping at a solid pace in recently launched markets, including the United Kingdom. In Q3, we added Portuguese to our European site and launched new automated inspection reports for buyers. In early Q4, Xometry Asia, in collaboration with Alibaba Group's 1688.com, launched our instant quoting technology on 1688's B2B wholesale marketplace mobile app. Through Xometry.eu, Xometry.uk, and Xometry.asia, we've 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. Three, we made further progress expanding our marketplace menu with new processes, materials, finishes, and certifications. In Q3, we launched a new certification on the platform, AS9100, which is an important quality management standard for the global aerospace industry. This further expands our capabilities in this vertical and is particularly relevant for customers ordering flight parts. Four, we continue to modernize advertising products and expand self-service options on the ThomasNet platform, making it easier for suppliers to start their advertising journey. In Q3, we made further investments to move to a pay-for-performance advertising model on thomasnet.com. Five, Today, we announced a partnership with Google Cloud, leveraging Vertix AI to help accelerate deployment of new auto-quoting models within Xometry's AI-powered instant quoting engine. Since our inception, we've been utilizing AI to instantly quote a growing number of categories in our marketplace. Leveraging Vertix AI, Xometry expects to accelerate the deployment of new auto-quoting models. With the data we have for hundreds of additional unique categories, including many on ThomasNet, we can further grow our customer share wallet in the giant custom manufacturing market. This partnership represents a formidable combination. Xometry is a technology company disrupting an addressable market that can be measured in multi-trillion dollars and millions of buyers. As we continue to expand the application of our AI, increase the breadth of what we can offer, and grow our international footprint, we are serving more and more buyers. Likewise, as we continue to gain market share, we expect more and more suppliers to participate, accepting jobs from buyers, advertising on ThomasNet, and using our work center software. Capitalizing on those trends, we not only expect accelerated revenue growth in Q4 of this year, we expect robust growth in 2024 and for many years thereafter. We went public in 2021 with the goal of driving significant shareholder value by building a large, disruptive, leading technology company in one of the largest global industries. The shift to the digital, which has happened in so many other industries, is inevitable in custom manufacturing. We are the market leader, and every day we continue to expand our competitive mode by improving upon our proprietary pricing and matching algorithms, growing our data lake, enlarging our network of buyers and suppliers, and increasing our global footprint. Throughout 2023, our sequential revenue growth and profitability have improved each quarter. In Q4, we expect accelerating revenue growth of approximately 30% and the potential to be adjusted EBITDA breakeven, setting Xometry up for a powerful 2024. With that, I will now turn the call over to our CFO, Jim Rolla.