Q4 2022 Xometry Inc Earnings Call
Speaker 2: Good day and thank you for sending by. Welcome to the Xometry Fourth Quarter 2022 earnings call. At this time, all participants are in a listen-only mode. For the speakers presentation, there will be a question and answer session.
Speaker 2: To ask a question during a 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 stand by that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sean Milne, Vice President of Invest Relations. Please go ahead. Thank you.
Speaker 3: Good morning and thank you for joining us on Zometry's Q4 2022 earnings call. Joining me are Randy Altschuler, Archive Executive Officer and Jim Rallo, Archive Financial Officer. During today's call, we will review our financial results for the fourth quarter in full year 2022 and discuss our guidance for the first quarter in full year 2023.
Speaker 3: 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, including in the Form 10-K for the year ended December 31, 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 comparison. non-GAAP financial measures are presented in addition to and not as a substitute or superior to measures of financial performance.
Speaker 3: prepared in accordance with US GAAP. To see the reconciliation 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 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 Q4 2022 earnings call. While Q4 was a challenging quarter for Xometry, we continued to build global networks of buyers and suppliers.
Speaker 4: and the technology tools that enable them to transact digitally. With our market-leading position and a total addressable market of $2 trillion, we expect to continue to grow rapidly for many years to come. We believe the continuing shift to digital is inevitable, and as the leading two-sided marketplace, our asset-light digital marketplace creates efficiencies and values for buyers and suppliers alike. Our AI-powered algorithms generate instant prices and lead times, and we efficiently connect buyers with the manufacturing technology and manufacturer, which can drastically reduce time to market and strengthen global supply chains.
Speaker 4: While there are no shortcuts, we are steadily and methodically executing on our vision of becoming the de facto digital rails for custom manufacturing. In Q4, revenue increased 46% year-over-year to $98.2 million, driven by marketplace growth and expanding supplier services with the addition of Thomas. Q4 marketplace revenue was $79.1 million, 32% year-over-year growth. Gross profit increased 72% year-over-year, driven by 30% growth in marketplace gross profit and the addition of Thomas. Active buyers increased 45% year-over-year to $40,664, driven by a record addition of 3,875 active buyers in Q4, a 17% increase over the prior record set in Q3. We also set a company record for the largest number of orders in a quarter, in part driven by record order count from existing accounts. The revenue generated by these existing accounts also continues to grow at a rapid clip, reflecting the stickiness of our marketplace.
Speaker 4: In the Q4 earnings presentation, we updated the account cohort analysis that was in our 2021 S1 IPO filing to help quantify that growth. Active suppliers grew by 22% in 2022. Equally important, we increased our share of capacity with them as our spend per supplier grew 22% year over year. Inzometry's international revenue grew 89% year over year and 15% quarter over quarter, driven almost entirely by the growth in our European business. Despite this growth in Q4, we fell short of expectations for the first time since becoming a public company. For only the second time in five years, Inzometry's revenue decreased quarter over quarter. We also saw a notable sequential quarter over quarter decline in marketplace gross margins Almost 6,000 beats in growth Today's imbaltto is the average primarily listed Gilbert fade this weekend Dundas SpringFranconia
Speaker 4: for the first time since Q1 of 2021. With the revenue and gross margin shortfalls, we were not able to absorb operating expense growth, resulting in a higher than expected adjusted EBITDA loss of 14.2 million in Q4. We take this step back in profitability seriously. Accordingly, I'm gonna provide a detailed explanation of what we learned in Q4, and the steps we've taken to mitigate any issues and ensure that Xometry continues to deliver strong durable growth even in a challenging macroeconomic environment. We've already seen progress in Q1, and we are confident in our 2023 outlook. Here's what we learned in Q4, and the steps we have taken to improve our Go Forward results based on this information. First, as we talked about on our Q3 call, our suppliers, influenced in part by macroeconomic factors, changed their behavior, taking jobs at lower prices further impacting pricing. In addition, our buyers traded off longer lead times for lower prices, further impacting average order value. In Q4, average order value in the US marketplace declined approximately 8% quarter over quarter, negatively impacting revenue by six to $7 million compared to expectations. Based on our pricing optimization efforts, we're starting to see average order value rebound in the middle of Q1. Second, some of our largest customers grew less than expected late in Q4. We saw buyers delay their orders, and in some cases,
Speaker 4: reduce expected order quantities. Their slowdown limited overall order growth to 41% year over year in the quarter, a decrease from what we had experienced earlier in Q4. The impact of this lower order growth reduced marketplace revenue by $3 to $4 million in Q4. Our top 200 accounts represented approximately 50% of 2022 US marketplace revenue. Historically, these accounts have grown significantly, yet Zometry still only has a small share of their wallet. In early 2023, we redirected salespeople and customer support against these accounts. Given the higher spend we have with these accounts, we are engaging in enterprise level discussions around strengthening supply chains and driving production order efficiencies. Third, in an environment of falling costs and slowing demand, we expanded our testing of buy-in higher price elasticity to better understand the trade-offs between price and conversion. This resulted in a drag on marketplace growth margin in Q4.
Speaker 4: Using our learnings from Q4, we expect marketplace growth margin to largely rebound in Q1 of 2023. This will also enable Zarmetry to better manage future, unexpected significant shifts in cost. Capitalizing what we learned in Q4, and on the rapid growth of our active buyer base, in Q1 of 2023, we expect to resume the quarterly sequential growth in revenue and growth profit we have delivered over the years. Likewise, we expect a lower adjusted EBITDA loss quarter over quarter. For 2023 overall, we expect to remain in strong growth mode and deliver healthy marketplace revenue growth of approximately 30%. Marketplace gross margin expansion and improve operating leverage. Despite the headwinds of Q4, which carried into early Q1, we are committed to being adjusted EBITDA profitable in Q4 of 2023. In addition to the changes I outlined earlier, here are our primary areas of focus in 2023. One, significantly expand the number of processes, materials, and finishes. We can offer our customers so we become their one-stop destination. It is extremely difficult for any single manufacturer, even those that are vertically integrated, to have the exact capabilities to meet even a fraction of the customer needs. ThomasNet.com offers a number of supplier capabilities across 70,000 categories. This depth and breadth is critical, since our market is not defined by commodity parts or skews, but instead is made up of thousands of different use cases. This is one of the reasons that customer manufacturing market is so fragmented.
Speaker 4: Our marketplace is unique in its ability to meet these needs. Customers are increasingly recognizing this capability as their production order volume grew significantly in 2022 from 2021. We are expanding our capabilities and improving the production buying experience in our platform in 2023. Two, continue to grow aggressively in Europe , including the recent expansion to the UK, which is the third largest manufacturing market in the region. Additionally, in early Q1, we made a small tuck-in acquisition in Turkey to further expand our alternative cost supplier network to serve the European market. In Q4, international revenue grew more than 100% year-over-year on an FX neutral basis. Furthermore, we remain pleased with the rampant buyer demand in China, as we're seeing orders from across many verticals, including medical equipment, biotech, optical tech, and smart equipment industries. We expect China to contribute to revenue growth in 2023.
Speaker 4: Through Xometry.edu, Xometry.uk, and Xometry.Asia, we've leveraged Xometry's core technology to provide localized marketplaces in 13 different languages, with networks of suppliers across Europe and Asia, as well as North America. Three, continue to invest in our work center and industrial buying engine platforms, increasing our footprint with both buyers and suppliers, and enabling us to scale cost effectively. For our suppliers, we made important progress in work center, the SAS-like operating system that is the digital foundation for manufacturers. In Q4, we successfully migrated all Xometry Suppliers to work center to utilize the job board and suite of job management tools. In response to supplier feedback, we improved the display and management of jobs, and enhanced the usability of the system on mobile devices. In 2023, we plan to expand the work center to work center to provide job management tools and capabilities, including support for custom job workflows, job scheduling, and communication tools.
Speaker 4: For buyers, we took significant steps towards improving the industrial buying engine. The industrial buying engine digitizes the cumbersome and time-consuming request for quote process, taking what was once off platform and integrating it into the heart of thomasnet.com. In Q4, the industrial buying engine continued to move on platform, buyers' request for quotes. We saw an increased number of buyers building and submitting their industrial buying engine quote requests. We also saw suppliers beginning to use our on-platform messaging tools to interact with buyers during the quote process.
Speaker 4: While the revenue from the industrial buying engine transactions fees on ThomasNet.com is not yet a significant revenue stream, as we more tightly integrate it with our instant quoting engine, we can increase our buyer's share of all it. For, modernize the advertising products and continue to expand self-service options on AtomismNet.com platform, making it easier for suppliers to start their advertising journey. We are moving to a pay for performance advertising model on ThomasNet.com. Most search and listing engines that support advertising.
Speaker 4: use a pay-per-click or other performance-based advertising model which aligns the interest in buyers and suppliers. As we improve search, we expect to see a higher level of buyer engagement, improving the opportunity for search monetization. This will also help drive growth of our higher margin supplier services as well as boost the use of the industrial buying engine. Five. We aggressively look to increase efficiencies and reduce expenses across our organization. In February , we reduced our workforce by 6% to better streamline operations and improve efficiency and leverage.
Speaker 4: Our efficiency measures will generate operating savings of roughly $8 million on a full year basis. Jim Rallo will provide more context to these changes on our Q1 and Q23 guidance later in the call. The underlying metrics of the marketplace continue to be strong, with record additions of active buyers and record order accounts, including from existing accounts. Our international business had a record quarter. We made good progress with the rollout and adoption of WorkCenter and building integrations to enable Thomas and Xometry users alike to access the breadth and depth of ThomasNet.com's 500,000 suppliers, the full value of which we're continuing to unlock.
Speaker 4: I spend much of my time traveling and meeting with our customers. Whether it's a hyper-growth aerospace company in California or a Fortune 500 consumer product company in the Midwest, buyers struggle with the same problem, efficiently finding solutions that meet the breadth and depth of their manufacturing needs. This highly fragmented, inefficient, opaque market provides worse outcomes for both buyers and suppliers. Our marketplace approach is the best solution to these problems and we won't stop until we've fulfilled our promise. With that, I will turn the call over to our CFO , Drew Marallo, for a closer look at fourth quarter financial results and our business outlook. Thanks, Randy, and good morning, everyone. As Randy mentioned, we delivered solid marketplace growth in Q4 year over year despite increasing macro headwinds and changing buyer behavior. In early 2023, we took actions to reinvigorate marketplace growth and improve operating efficiencies and leverage. We generated Q4 revenue of $98.2 million, a 46% year over year.
Speaker 5: over time. The number of accounts with last 12 months spend of at least 50,000 on our platform reached 1,027 at the end of Q4, up 47% year-over-year. The strength of the US dollar created a slight drag in this metric for Q4 by approximately seven accounts. Supplier services revenue declined 2% quarter-over-quarter in Q4.
Speaker 5: The decline was primarily driven by seasonality in the Thomas business due to the timing of the publication of their trade magazine. As expected, this impacted revenue by approximately 400,000 in Q4. Q4 gross profit was 36 million in increase of 72% year over year. Of course profit margin was 36.7%.
Speaker 5: Q4 gross margin for marketplace was 27.1%, down 330 basis points quarter over quarter. The main driver was our pricing optimization testing which Randy previously mentioned. We expect marketplace gross margin to improve quarter over quarter from Q4 to Q1. Q4 gross margin for supplier services was 76.3%, driven by the high gross margin of Thomas marketing and advertising services. Supplier services gross margin to call in 220 basis points quarter over quarter due to the timing of the high margin and advertising revenue. I previously mentioned and a higher mix of supplies which cares a much lower gross margin. Moving on to Q4 operating costs. Q4 total non-gap operating expenses increased 53% year over year to 50.3 million driven by the addition of Thomas can continued investments in the business and incremental public company costs associated with Sarbanes actually. Within our operating expenses sales and marketing is our largest variable component. And Q4 non-gap sales and marketing expenses were 22.3 million excluding stock based compensation, amortization and restructuring charges as compared to 12.4 million and Q4 2021.
Speaker 5: This increase in non-GAAP sales and marketing expenses on a year-over-year basis was driven by the addition of Thomas sales and marketing costs, continued investment to expand our network of buyers and suppliers, and hiring of additional salespeople to support strong growth in our Land and Expand strategy. On a quarter-over-quarter basis, sales and marketing increased $2.8 million, driven by continued investments in growing our network of active buyers. As Randy mentioned, we delivered record growth in new active buyers in Q4. Additionally, we invested $1 to $1.5 million incrementally quarter-over-quarter to support further international expansion, including rapid growth in Europe , headcounts to support the January launch in the UK, and ramping Asian business. Our just-to-do bidot loss for Q4 was $14.2 million, or 14.5% of revenue,downs to $ quantity. And in that fear goes to star weary and gigantic industry. In corporat Telegraph, we believe that new capital should be adsbled from market operators
Speaker 5: compared to 17.7% of revenue in Q4 2021. Our Q4 just to be with the loss excludes a $1.5 million restructuring charge related to our workforce reduction. Turning to segment reporting, in Q4 revenue from our U.S. and international offering segments was 88.1 million and 10.1 million respectively. Segment loss from our U.S. and international offering segments for Q4 was 20.5 million and 3.9 million respectively. We continued to invest in our international business, which grew 89% year-over-year in Q4 and 105% year-over-year on an FX neutral constant currency basis. At the end of the fourth quarter, cash and cash equivalents were 319.4 million. Now moving on to the next segment, we will be talking about the cost of the loss of the loss. Moving on to guidance, we expect Q1 2023 revenue in the range of 100 to 102 million, representing year-over-year growth of 20 to 22%. We expect marketplace revenue to grow in the mid to high 20% range year-over-year. We expect marketplace growth margin to improve in Q1 quarter-over-quarter driven by our pricing optimization efforts.
Speaker 5: In Q1, we've expected just a debat-dialos to be in the range of 9 to 11 million or 9 to 11 percent of revenue compared to a loss of 12.7 million or 15.2 percent in Q1 2022. Q1, just a debat-dialos will be lower quarter over quarter driven by the growth in marketplace revenue and gross margin in the efforts to streamline operating expenses discussed earlier. In Q1, we expect stock-based compensation expense to be approximately 5 to 6 million, which we will exclude from a just a debat-dialos. We expect 2023 revenue of 470 to 480 million, representing 23 to 26 percent growth year-over-year. We expect marketplace growth in the 30 percent range year-over-year based on current marketplace trends. We expect to be profitable on an adjusted EBITDA basis in Q4 2023. Which is a change from our prior expectations for the second half of 2023. We expect improved operating leverage through 2023 driven by strong buyer and order growth and further improvement in gross margins driving faster gross profit growth in marketplace. We expect significant leverage over fixed and semi-fixed costs including public company costs. Additionally, our January reduction in workforce will reduce operating expenses by roughly 8 million. With that operator.
Speaker 2: Can you please open up the call for questions? As a reminder to ask a question, please press star-1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star-1-1 again. Please send by or compile the Q&A roster. One moment for our first question. Our first question will come from the line of Brian Drab from William Blair. Your line is open. Good morning. Thanks for taking my questions. Randy, maybe you could start just by talking about what you've learned since we spoke last regarding why suppliers are accepting jobs at such a faster rate. And how did that job acceptance, how did the speed of the acceptance trend throughout the fourth quarter and into this year? Yeah, so Brian , good morning. So as we indicated, we did see pricing continue to fall.
Speaker 4: through the quarter and you know buyers or suppliers were just more willing than ever to take to take prices at those lower rates and that you know that continued to drive down the AOD as the quarter progressed and then you couple that with as we talk about you know slowing order growth from our our largest accounts and that ended up being a double whammy for us. Right right and so have you seen those exceptions?
Speaker 4: It was a sudden drop of 30 something percent at the end of the third quarter. Is there something faster now than they were before? Has that leveled off? Yes. We are seeing now prices. There are a couple of dynamics at work. One is we indicated we are also doing some price optimization testing in Q4 and that dragged into the beginning of Q1, so in January Q1, because we want to make sure we got it right. So now as we are taking those learnings, we have been optimizing prices. So let me just look at that from the price perspective, you are seeing that we are very selectively raising prices and optimizing it, also trying to make sure that we are maintaining that very strong order growth that we have been seeing.
Speaker 4: At the same time, you are seeing a stable vacation from the suppliers at the prices that they're willing to take things. And so, even though in January , we saw a relatively low AOV in February that's been trending back up. And so overall, that trend is going higher.
Speaker 4: Okay. And just one last question on this. And you've been experimenting with the price, experimenting at lower levels, I guess, but it's now price coming back up a little bit. Are you still in the experimentation phase? Or do you feel like you have something figured out that you hadn't before? And where should we expect price to go in March and beyond? I guess it's going to continue to creep up. Yeah, I think we can solve the learning that we've had. And look, we were aggressive in Q4.
Speaker 4: to have been response to the trends we were seeing. We took that as an opportunity to really invest in the testing, but we've taken those and now you're going to see the AOV's grow as a result of us ending that testing and taking those learnings and optimizing pricing. As we said, raising prices where we think we have the room to do that without impacting this healthy growth in order that we've been experiencing. Great. Okay, thanks very much. I'll get back in mind. Thank you. One moment for our next question. Our next question comes from the line of Matt Hedberg from RBC Capital Markets. Your line is open. Great guys. Thanks. Brandy, I'm wondering if there's any more clarity on maybe why suppliers are accepting orders at a lower rate and just to be clear, are you sure if there's not a competitive reason maybe causing some of these buyers and sellers' decisions? Well, look, I think there's clearly and there's a unusual macro environment. If our suppliers are willing to take prices at lower prices, then that means a couple of things. One is that they probably have less work themselves.
Speaker 4: They have more of a capacity. But also second that we are, we talked about this last query. You know, we are working hard to make it easier and easier for them to work with us. So I think it's sort of a combination of those. Got it. And then maybe just to double click on Thomas Net, are there, are there, what are the specific things that you are focused on in 2023 to drive faster conversions of buyers and sellers? Yeah, so you know, a couple of different things. You know, IBE is operational and we are working very hard. You know, we have been growing very nicely the top of funnel there. We are trying to make it easier and easier for buyers to find what they are looking for. You know, optimize their searching and then make it easier for them to transact. On the put side, we are also just trying to streamline the communication that the supplier has with that buyer. So, you know, take a step back before we bought Thomas all this is happening off platform. We are moving on platform both to the buyer side and the supplier side. So as we get more top of funnel, more activity there. And as we make it easier for buyers to find what they are looking for that will improve, you know, our ability to transact and likewise as we get the suppliers more engaged, that will also improve. So we are working both sides of the equation. Got it. Thanks, Lucas.
Speaker 2: Matt, I would just say, and we talked a little bit about this on the call, but you should expect to see from us this year more advertising solutions, new self-serve advertising solutions on Thomas for suppliers. As you know, historically, that's all had to go through sales people, so the more we can offer self-serve, that's going to be helpful to the business and this Randy called out. You know, we're going to lay the groundwork for paper performance search, which will be really a step-function change for Thomas as well, long-term. Thank you. One moment for our next question. Our next question comes line of Eric Sheridan from Goldman Sachs. Your line is open. Thanks so much. Maybe just one quick follow-up to what we've been talking about so far, and then I'll get into a deeper question. But in terms of where we are in the macro cycle, you know, what sort of visibility DCK have in terms of whether you've absorbed the most, you know, the biggest wave of what would be excess capacity on the partner side of the equation where they've been willing to accept jobs at lower prices and therefore more of that behind you than ahead of you as opposed to the sends you have a visibility of whether the macro environment could get worse over the next three to six months. That would be number one. And they'll come back with a second one after that. Yeah, I mean, Eric, I think we've seen the prices, you know, the cost bottom down, bottom out. So I think as we've indicated, as you move from January to February , we are seeing, you know, we're seeing, we're increasing prices partly because we're really seeing that floor from the supply. And we'll see the price from the shop loading warehouse so already doing the calculation. We already did before, I appointed those that have depend on how we're understanding where radio is going to jump into the classroom. Let's try and save the script for the presentation Tom Brown. Sad Guy Mix Aztecu, Greg
Speaker 2: We sort of reached that floor from the suppliers. Likewise, we made an investment in Q4 to really test the price elasticity of our customer base and we're also taking some of the learnings and we've been raising prices collectively. So I think between the combination of the prices of the cost, bottoming out from the suppliers plus the learnings that we've gotten from our elasticity tests where AOVs are improving. I think that's how Eric for the year, when you look at our guidance for the year, we've tried to be conservative when you look at the AOVs, you know, just not to get ahead of ourselves. Totally understood. And maybe the second one more for Jim, you know, in terms of the way you're framing the efficiencies you're pulling into the business now versus the potential exit velocity of 23. How should we be thinking about incremental margins and mix of sort of fixed versus variable costs or what's implied and maybe the way you're thinking about Q4 of 23. So we better understand how the business is set up from an incremental margin standpoint beyond 2023. Thanks so much. Yeah, good question Eric. So I think a couple things. You know, one, you know, we have some significant costs is cooler around finalizing, servings actually that, you know, that obviously is a one time hit for us. We need to continue to maintain that. But, you know, the initial integration of that was obviously a lot of work for our team. And we obviously use some consultants to get there as well. In addition, I think, you know, well, we, you know, we took a very quick move to institute a risk, which is going to save us $8 million over next year. And then again, you know, we are seeing good, good changes in the growth profit margin. And already, and so we would expect it continue to grow that growth profit margin throughout the year. I think when you look at those those factors put together, you know, we feel pretty confident about getting like I said to that.
Speaker 2: sector, we would expect to everybody on the line, you know, hear evidence of the same trends that you're describing. So the crux of the question is how marketplace or zometry specific these pressure points are. Well, look, I think one thing to be clear about.
Speaker 2: and we see really strong growth in adding order accounts. So we're gaining market share here. I think it has been an hot macro environment. So I don't think that specific in terms of a cost perspective. I don't think that specific to us. I think that's more an overall environment that you're seeing. So I wouldn't describe it to anything particular to us. John , I don't know if you want to. Yeah, now I'm meeting Carl. I mean, you know, we've seen others in the space to actually see their revenues decline year-to-year. And, you know, I'm sure you watch the macro environment as much as we do. And there certainly was some lower manufacturing output in the fourth quarter too.
Speaker 6: Okay, I just wanted to thank you. And then secondly, Randy, if you could just describe, and perhaps a little bit more detail, these place optimization efforts that you're making, because it does seem like the recovery that you're anticipating in 2023 is not really from the macro improving. I think you made a comment that these headwinds are likely to carry into Q1, but rather it's the tuning or optimization of the marketplace algorithm that should enable things to recover. I know that you started doing that after 3Q, and it obviously didn't lead to a significant improvement in the fourth quarter. So what I really want to press on is, what's different this time around? You're tuning efforts that we can feel comfortable with that marketplace growth margin going up in Q1. Thank you.
Speaker 4: Yeah, look, and I just want to make it clear, and I think for, and Carl, you said it, you're right, for 2023, we've taken a conservative view on our AOD, make sure that we're not buying into a macro improvement by sort of taking account, kind of where, you know, being conservative on that element. I think also just in that point, you know, we continue to grow market share in the steam robust order growth. I think in terms of our ability to control it, you know, we wanted to make sure the test ran through, but we do have the ability, you know, to raise, as the cost for the suppliers to bottom out. And so that's sort of, you know, it's been going down lower as we raise our, as we raise our prices through our selected, you know, through our price optimization, that just enabled us to get a healthier margin. And without sacrificing that, that increase in order account, or order growth from our customers. And that's when we were testing, we got pretty aggressive. And that testing, you see what is that price last business? I mean, we've a very good sense about how would you contain, be to gain that share of customer wealth without, and costing us dollars, our ability to add more cost, and more price for, or charge them more. So I think we feel very good about the results of the optimization. And you will see the results of that here in Q1. Okay. Good context. Thank you, Randy. Okay. One moment for next question. Our next question on Confiron of Ron Josie from City. Okay.
Speaker 3: strategy here, we've tried to bring in an account, we add buyers in an account, and that's how it really drives that growth. That's actually a good segue into the second question I had here, Randy and Sean, and Jim, you talked about slowing order growth from Zomotry's largest accounts, but also realigning the sales force of focus on those top 200 accounts.
Speaker 4: If you could help us understand just the plan to call it expand in those top 200 accounts, that would be helpful and where are you in that process of realignment. Thanks, guys. Yeah, so our top 200 accounts represent almost 50 percent of our US marketplace revenue. So as we sort of became a call, one of the things, unfortunately, we experienced unexpectedly, being huge bore with that was a slowdown from that group. And so really as we saw that trend, we made sure that we re-aligned our sales force and our support to focus on voting deeper into those customers. And we provided with case studies to land and expand. So we're trying to go deeper and deeper into them. For a number of reasons. First of all, these are large companies that have tremendous spend on custom manufacturing. So even though we've grown rapidly with them, since they joined us, that's their skill. We're still a very small portion of their...
Speaker 4: I think we have a lot of active buyers, so making sure we're focused on those that provide the greatest opportunity for profitable growth. Q4 was a reminder of that, and we're doubling down that here in Q1 throughout this year that that's where in terms of just where we put our headcount, that's where we want to put it.
Speaker 4: Thank you guys. One moment for next question. Our next question on cuffline of Corey Carpenter from JP Morgan. Your line is open. Hey guys, this is Danny Fyfe from off of Corey Carpenter. I said two quick ones on the international. So for international expansion is the key driver growth there, really more geared towards expanding the amount of countries you're operating in or is it really geared towards expanding the depth in each market with offerings. And then another one on international. Can you talk about what was attracted about the marketplace in Turkey required and maybe if we should expect to see more of these bolt on acquisition in future. Thanks.
Speaker 2: Yeah, so I think when you look at Europe , it's actually both a thing you mentioned. So we are adding sales folks in different countries. We're also expanding our capabilities in Europe . When you look at the recent tuck-in acquisition we did with TREE, what that did was give us really a low cost network in Europe . So think about similar cost model to what you would have in a China or Asian network. And the beauty of that is we can ship in 24 hours from TREE to really anywhere in Europe . So you're lowering your lead times and still giving our European customers an accounting option if you would. So both, again, growth in sales force and continued growth in Europe . And the different countries in Europe is what's robbing that. Yeah, so we're going deeper into markets. You know, there's huge markets that we're in in Europe already. When you look at the German speaking countries, when you look at France and Italy and Spain, but we're also adding new markets as we talk about it.
Speaker 2: You know, maybe they decided to order, you know, less parts per order, any change in kind of lead times, I think you alluded to something like that to reduce cost to maybe a little bit more color on buyer behavior. Yeah, great question. So we did see buyers trade off lead time for price. We did see some reduction in quantity. So the thing that you're talking about are absolutely spot on. And you know, that also obviously impacted the average order values that we saw as we affected it.
Speaker 2: before and in the beginning of Q1. And then in terms of pinpointing that improvement, I thought that back to my initial question, how much is that is driven by the suppliers versus the buyers? Maybe they're adding more parts to the order. Maybe they're, you know, maybe doing expedited or standards in lieu of economy, but can you just dig into a little bit in terms of the specifics around the improvement?
Speaker 4: and the environment is also, you know, some of our price optimization.
Speaker 7: Okay, make that. And then, yeah, okay, got it. And then just in terms of margins, I just wanted to dig into the commentary a little bit on Q1 specifically. So I think you said that they're gonna rebound or normalize and forget the exact words, but would you expect them to rebound to level that you saw on Q2 or Q3 last year? And then just last quarter, you talked about accelerating that timeline to achieve your long-term targets. So you still...
Speaker 4: We're back to what we think is a very healthy growth profit margin on the marketplace side.
Speaker 8: Okay, make sense. All right. One moment for our next question. Our next question comes from a Robert Graham from New Capital. Your line is open. Okay.
Speaker 2: Hi, I'm Good Morning and thank you for taking my question. I'm a price optimization, you know, what you did there. Was that just sort of a just a sweeping price change across all or most categories or was it maybe more surgical in categories and with groups of users? I'd say we did wide testing.
Speaker 4: I think you've hit a spot on and we do, we have different, we're running different tests and different technologies and for customers at different points in their, you know, in their journey with geometry. So whether or not they're just a brand new customer moving to the second order, versus the customer has been here longer and again versus if you're looking at folks as additive, manufacturing versus machine in English.
Speaker 2: And we benefit that as we move forward. So just to make sure you understand your answer, Randy, does that suggest that there's potentially some more wood to chop here that maybe there's more price optimization by category or otherwise?
Speaker 4: to come that you haven't addressed? I think we're always gonna be testing price elasticity all the time. We're always gonna be running tests on that, but we don't expect that to have the material impact on growth margins that you saw in Q4 of last year. We really funded a big number for that. We do not expect that to happen in Q1 and beyond of this year. My follow-up question is simply, you know,
The existing accounts sale of 96, you know, been hovering around 95, 96% for some time. I'm wondering, and I know that that speaks to the stickiness of the model, but I'm wondering what the actors' buyers growth is continuing to be, you know, quite strong. The assumption there is that some of those active buyers are new accounts, right? So when does existing account percent, when does that number start to go down? And perhaps maybe should it have gone down by now? Yes, God is strong. I mean, just remember that, you know, a new buyer would spend less, right? Then someone who's been, you know, an accountant spending over time, right? So it's that kind of dynamic. But if you actually look at, you know, sort of revenue per buyer, and Q4, I mean, that that's part of, you know, part we saw a very strong active buyer growth in Q4. But again, we saw, you know, some of our existing customers order less. So that that was, you know, the bigger impact in terms of revenue per buyer. Okay, thank you. Thank you. And as a reminder, that's star one, one for questions, star one, one.
Please sound by, we can pause the Q&A roster. And now I'm not showing any further questions in the queue. This concludes today's conference call. Thank you for participating. You may not disconnect. Everyone, have a great day. The conference will begin shortly. To raise and lower your hand during Q&A, you can dial start one, one.
I.
Good day and thank you for sending by. Welcome to the Xometry fourth quarter 2022 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 a session, you will need to press star one one on your telephone. You will then hear an automated message advising your hands raised to withdraw your question.
Please press star one one again. Please send by. We can please send by that today's conference is being recorded. I would like to hand a conference over to you today. Sean Noen, Vice President of Invest Relations. Good morning and thank you for joining us on Zomotry's Q4 2022 Erden's call. Joining me are Randy Altschiller, Archive Executive Officer and Jim Rallow, Archive Financial Officer. During today's call, we will review our financial results for the fourth quarter in fully year 2022 and discuss our guidance for the first quarter in fully year 2023.
During today's call, we will make four 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, intent, 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, including in the form 10K for the year ended December 31st, 2022, that will be filed with the SEC. We caution you not to place undue reliance on four looking statements and undertake no duty or obligation to update any four 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 comparison. 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 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 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 Q4 2022 earnings call.
While Q4 was a challenging quarter of resometry, we continued to build global networks of buyers and suppliers and the technology tools that enable them to transact digitally. With our market-leading position and a total addressable market of $2 trillion, we expect to continue to grow rapidly for many years to come. We believe that continuing shift to digital is inevitable, and as the leading two-sided marketplace, our asset-light digital marketplace creates efficiencies and values for buyers and suppliers alike. Our AI-powered algorithms generate instant prices and lead times, and we efficiently connect buyers with the manufacturing technology and manufacturer, which can drastically reduce time to market and strengthen global supply chains. While there are no shortcuts, we are steadily and methodically executing on our vision.
record set in Q3. We also set a company record for the largest number of orders in a quarter, in part driven by record order count from existing accounts. The revenue generated by these existing accounts also continues to grow at a rapid clip, reflecting the stickiness of our marketplace. In the Q4 earnings presentation,
We updated the account cohort analysis that was in our 2021 S1 IPO filing to help quantify that growth. Active suppliers grew by 22% in 2022. Equally important, we increased our share of capacity with them as our spend per supplier grew 22% year over year. Xometry's international revenue grew 89% year over year and 15% quarter over quarter driven almost entirely by the growth in our European business. Despite this growth in Q4, we fell short of expectations for the first time since becoming a public company. For only the second time in five years, Xometry's revenue decreased quarter over quarter. We also saw a notable sequential quarter over quarter decline in marketplace gross margin.
based on this information.
First, as we talked about on our Q3 call, our suppliers, influenced in part by macroeconomic factors, changed their behavior, taking jobs at lower prices, further impacting pricing. In addition, our buyers traded off longer lead times for lower prices.
Further impacting average order value. In Q4, average order value in the US marketplace declined approximately 8% quarter over quarter, negatively impacting revenue by $67 million compared to expectations.
Based on our pricing optimization efforts, we're starting to see average order value rebound in the middle of Q1. Second, some of our largest customers grew less than expected late in Q4.
We saw buyers delay their orders and in some cases reduce expected order quantities. Their slowdown limited overall order growth to 41% year over year in the quarter, a decrease from what we had experienced earlier in Q4.
The impact of this lower order growth reduced Marketplace revenue by $3 to $4 million in Q4. Our top 200 accounts represented approximately 50% of 2022 US Marketplace revenue.
Historically, these accounts have grown significantly, yet Zometry still only has a small share of their wallet. In early 2023, we redirected salespeople and customer support against these accounts. Given the higher spend we have with these accounts, we are engaging in enterprise level discussions around strengthening supply chains and driving production order efficiencies.
Third, in an environment of falling costs and slowing demand, we expanded our testing of buyer price elasticity to better understand the trade offs between price and conversion. This resulted in a drag on Marketplace Gross Margin in Q4. Using our learnings from Q4, we expect Marketplace Gross Margin to largely rebound in Q1 of 2023. This will also enable Zometry to better manage future.
unexpected significant shifts in cost. Capitalizing what we learned in Q4, and on the rapid growth of our active buyer base in Q1 of 2023, we expect to resume the quarterly sequential growth in revenue and growth profit we have delivered over the years.
Likewise, we expect a lower adjusted EBITDA loss quarter over quarter. For 2023 overall, we expect to remain in strong growth mode and deliver healthy marketplace revenue growth of approximately 30 percent.
marketplace gross margin expansion, and improve operating leverage. Despite the headwinds of Q4, which carried into early Q1, we are committed to being adjusted EBITDA profitable in Q4 of 2023.
In addition to the changes I outlined earlier, here are our primary areas of focus in 2023. One, significantly expand the number of processes, materials, and finishes. We can offer our customers so we become their one-stop destination.
It is extremely difficult for any single manufacturer, even those that are vertically integrated, to have the exact capabilities to meet even a fraction of the customer needs.
ThomasNet.com offers supplier capabilities across 70,000 categories.
This depth and breadth is critical since our market is not defined by commodity parts or skews, but instead is made up of thousands of different use cases. This is one of the reasons that custom manufacturing market is so fragmented.
Our marketplace is unique in its ability to meet these needs. Customers are increasingly recognizing this capability as their production order volume grew significantly in 2022 from 2021.
We are expanding our capabilities and improving the production buying experience in our platform in 2023. Two. Continue to grow aggressively in Europe including the recent expansion to the UK, which is the third largest manufacturing market in the region.
Additionally, in early Q1, we made a small tuck-in acquisition in Turkey to further expand our alternative cost supplier network to serve the European market. In Q4, international revenue grew more than 100% year-over-year on an FX neutral basis. Furthermore, we remain pleased with the ramp-and-buyer demand in China.
as we're seeing orders from across many verticals, including medical equipment, biotech, optical tech, and smart equipment industries. We expect China to contribute to revenue growth in 2023. Through Zometry.EU, Zometry.UK, and Zometry.Asia, we've leveraged Zometry's core technology to provide localized marketplaces in 13 different languages, with networks of suppliers across Europe and Asia, as well as North America. Three, continue to invest in our work center and industrial buying engine platforms.
increasing our footprint with both buyers and suppliers and enabling us to scale cost effectively. For our suppliers we made important progress in work center, the SAS-like operating system that is the digital foundation for manufacturers. In Q4 we successfully migrated all Zometry Suppliers to work center to utilize the job board and suite of job management tools. In response to supplier feedback we improved the display and management of jobs.
and enhance the usability of the system on mobile devices. In 2023, we plan to expand the Work Center job management tools and capabilities, including support for custom job workflows, job scheduling, and communication tools. For buyers, we took significant steps towards improving the industrial buying engine. The industrial buying engine digitizes the cumbersome and time-consuming requests for a process, taking what was once off platform and integrating it into the heart of ThomasNet.com.
In Q4, the Industrial Bying Engine continued to move on platform buyers' requests for quotes. We saw an increased number of buyers building and submitting their Industrial Bying Engine Firing Import Requests.
We also saw suppliers beginning to use our on-platform messaging tools to interact with buyers during the quote process. While the revenue from the industrial buying engine, Transaction Feeds and ThomasNet.com is not yet a significant revenue stream, as we more tightly integrate it with our infant quoting engine, we can increase our buyer's share of all it.
4. Modernize the advertising products and continue to expand self-service options on at ThomasNet.com platform, making it easier for suppliers to start their advertising journey.
We are moving to a pay for performance advertising model on ThomasNet.com. Most search and listing engines that support advertising use a pay for quick or other performance based advertising model which aligns the interest and buyers and suppliers.
As we improve search, we expect to see a higher level of buyer engagement, improving the opportunity for search monetization. This will also help drive growth of our higher margin supplier services as well as boost the use of the industrial buying engine. 5. Aggressively look to increase efficiencies and reduce expenses across our organization.
In January , we reduced our workforce by 6% to better streamline operations and improve efficiency and leverage.
Our efficiency measures will generate operating savings of roughly $8 million on a full-year basis.
Jim Ralla will provide more context to these changes on our Q1 and 23 guidance later in the call. The underlying metrics of the marketplace continue to be strong, with record additions of active buyers and record order accounts, including from existing accounts. Our international business had a record quarter.
We made good progress with the Rollout and Adoption of Work Center and building integrations to enable Thomas and Zometry users alike to access the breadth and depth of ThomasNet.com's 500,000 suppliers.
the full value of which we're continuing to unlock. I spend much of my time traveling and meeting with our customers. Whether it's a hyper-growth aerospace company in California, or a Fortune 500 consumer product company in the Midwest, buyers struggle with the same problem.
efficiently finding solutions that meet the breadth and depth of their manufacturing needs. This highly fragmented, inefficient opaque market provides worse outcomes for both buyers and suppliers.
Our marketplace approach is the best solution to these problems and we won't stop until we fulfill our promise. With that, I will turn the call over to our CFO Drummer Allo for a closer look at fourth quarter financial results and our business outlook. Thanks, Randy. Good morning, everyone. As Randy mentioned, we delivered solid marketplace growth in Q4 year-to-year.
driven by marketplace growth in the addition of Thomas and supplier services. The stronger US dollar negatively impacted revenue by 1.1 million on a year over year basis. Q4 marketplace revenue was 79.1 million and supplier services revenue was 19.1 million. Q4 marketplace growth of 32%
was driven by a strong increase in the number of active buyers year-to-year, while revenue per buyer was impacted by lower pricing and softening order rates as Randy previously mentioned. Q4 active buyers increased 45% year-to-40,664. In Q4, the percentage of revenue from existing accounts was 96%.
underscoring the efficiency and transparency of our business model that leads to increasing account stickiness and spend over time. 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 last 12 months spend of at least 50,000 on our platform reached 1027 at the end of Q-1.
As expected, this impacted revenue by approximately 400,000 in Q4.
Q4 gross profit was 36 million an increase of 72% year-over-year. Of course profit margin was 36.7%.
Q4 gross margin for marketplace was 27.1%. Down 330 basis points quarter over quarter. The main driver was our pricing optimization testing which Randy previously mentioned.
We expect Marketplace gross margin to improve quarter over quarter from Q4 to Q1. Q4 gross margin for supplier services was 76.3% driven by the high gross margin of Thomas marketing and advertising services. Supplier services gross margin declined 220 basis points.
quarter over quarter due to the timing of the high margin in advertising revenue. I previously mentioned and a higher mix of supplies which carries a much lower gross margin.
Moving on to Q4 operating costs, Q4 total non-gap operating expenses increased 53% year over year to 50.3 million driven by the addition of Thomas, continued investments in the business, and incremental public company costs associated with Sarbanes actually. Within our operating expenses, sales and marketing is our largest variable component.
In Q4, non-gap sales and marketing expenses were 22.3 million excluding stock-based compensation, amortization and restructuring charges as compared to 12.4 million in Q4 2021.
This increase in non-gap sales and marketing expenses on a year over your basis was driven by the addition of Thomas Sales and Marketing Costs continued investment to expand our network of buyers and suppliers, and hiring additional salespeople to support strong growth in our land and expand strategy. On a quarter of a quarter basis, sales and marketing increased 2.8 million
driven by continued investments in growing our network of active buyers. As Randy mentioned, we delivered record growth in new active buyers in Q4. Additionally, we invested 1 to 1 and a half million incrementally quarter over quarter to support further international expansion, including rapid growth in Europe , headcount to support the January launch in the UK, and ramping Asian business. Our just to be the dot loss for Q4 was 14.2 million or 14.5% of revenue.
compared to 17.7% of revenue in Q4 2021. Our Q4 justi-bit-dialos excludes a $1.5 million restructuring charge related to our workforce reduction. Turning to segment reporting, in Q4 revenue from our U.S. and international operating segments was $88.1 million and $10.1 million respectively.
Segment loss from our U.S. and international operating segments for Q4 was 20.5 million and 3.9 million respectively. We continued to invest in our international business, which grew 89% year-over-year and Q4 and 105% year-over-year on an FX neutral, constant currency basis. At the end of the fourth quarter, cash and cash equivalents were 319.4 million.
Now moving on to guidance. We expect Q1 2023 revenue in the range of 100 to 102 million, representing year over year growth of 20 to 22%.
We expect Marketplace revenue to grow in the mid to high 20% range year over year. We expect Marketplace gross margin to improve in Q1.
Quarter over quarter driven by our pricing optimization efforts. In Q1, we expected just the diva dot loss to be in the range of 9 to 11 million or 9 to 11 percent of revenue compared to a loss of 12.7 million or 15.2 percent in Q1 2022.
Q1 Adjusted EBITDA loss will be lower quarter over quarter driven by the growth in marketplace revenue and gross margin in the efforts to streamline operating expenses discussed earlier. In Q1, we expect stock-based compensation expense to be approximately 5 to 6 million, which we will exclude from Adjusted EBITDA. We expect 2023 revenue of 470 to 480 million.
international
We expect improved operating leverage through 2023 driven by strong buyer and order growth and further improvement in gross margins driving faster gross profit growth in marketplace. We expect significant leverage over fixed and semi-fixed costs, including public company costs. Additionally, our January reduction in workforce will reduce operating expenses by roughly 8 million on a four-year basis.
With that operator, can you please open up the call for questions? As a reminder to ask a question, please press start 11 on your telephone and wait for your name to be announced. To address your question, please press start 11 again. Please send by or we can part of the Q&A roster. One moment for our first question. Thank you.
Our first question of conflian, Brian Drab from William Blair. Your line is open. Morning. Thanks for taking my questions. Randy, maybe you could start just by talking about what you've learned since we spoke last regarding why suppliers are accepting jobs at...
such a faster rate. And how did that job acceptance, how did the speed of the acceptance trend throughout the fourth quarter and end of this year? Yeah, so Brian , good morning. So as we indicated, we did see pricing continue to fall through the quarter. And buyers or suppliers were just more willing than ever to take prices at those lower rates. And that continued to drive down the AOD as the quarter to progress. And then you couple that with, as we talked about.
You know, slowing ordered growth from our largest account and that ended up being a double-wam before us. Right. Right. And so have you seen those exceptions from feeds change at all? I mean, it was a sudden drop of 30-something percent. So at the end of the third quarter, they're accepting faster now than they were before.
are our largest accounts and that ends up being a double whammy for us. Right, right. And so have you seen those exceptions? Feeds change at all. I mean, it was a sudden drop of 30-something percent. So at the end of the third quarter, they're accepting faster now than they were before or is that level off? Yeah.
And so even on, so let me just look at that, just from the price perspective, that you're seeing that we're very selectively raising prices and optimizing it, also trying to make sure that we're maintaining that very strong order growth that we've been seeing.
At the same time, you are seeing a stableization from the suppliers at the prices that they're willing to take things. And so, even though in January , we saw a relatively low AOV in February that's been trending back up. And so overall, that trend is going higher. And just one last question on the, you've been experimenting with the price. Thank you.
experimenting at lower levels, I guess. But now, the price is coming back up a little bit. Are you still in the experimentation phase? Or do you feel like you have something figured out that you hadn't before? And where should we expect price to go in March and beyond? I guess it's...
It's going to continue to creep off. Yeah, I think we've consolidated the learnings that we've had. And look, we were aggressive in Q4, sort of in response to the trends we were seeing. We took that as an opportunity to really invest in the testing. But we've taken those. And now you're going to see the AOVs grow as a result of us ending that testing and taking those learnings and optimizing pricing. Guys, we've said raising price.
Matt Hedberg from RBC Capital Markets. Your line is open. Great guys. Thanks. Randy, I'm wondering if there's any more clarity on maybe why suppliers are accepting orders at a lower rate and just to be clear, are you sure there's not a competitive reason maybe causing some of these buyers and sellers' decisions?
Well, look, I think there's clearly an unusual macro environment. So if our suppliers are willing to take prices at lower prices, then that means a couple of things. One is that they probably have less work themselves. They have more open capacity. But also, second, we are, we talked about this last query. We are working hard to make it easier and easier.
You know, IBE is operational and we're working very hard. You know, we've been growing very nicely the top of funnel there. We're trying to make it easier and easier for buyers to find what they're looking for, you know, optimize their searching and then make it easier for them to transact. On the flip side, we're also trying to streamline.
the communication that the supplier has of that buyer. So, you know, take a step back before we've all talked about this, all this is happening off platform. We're moving on platform both to the buyer side and the supplier side. So as we get more top of funnel, more activity there, as we make it easier for buyers to find what you're looking for, that will improve, you know, our abilities, transact and likewise, as we get the suppliers more engaged, that will also improve it. So we're working both sides of the equation. God it, thanks like I said. And Matt, I would just say, and we talked to Sean, we talked a little bit about this on the call, but...
You know, you should expect to see from us this year, you know, more advertising solutions, new self-serve advertising solutions on Thomas for suppliers. As you know, that, you know, historically that's all had to go through sales people, so the more we can offer self-serve, that's going to be helpful to the business and this range called out. We're going to lay the groundwork for paper performance search, which will be really a step-function change for Thomas as well, long-term.
Thank you. One moment for our next question. Our next question comes from Lyon of Eric Sheridan from Goldman Sachs. Your line is open. Thanks so much. Maybe just one quick follow up to what we've been talking about so far, and then I'll get into a deeper question. But in terms of where we are in the macro cycle, you know, what sort of visibility do you think you have in terms of whether you've absorbed the biggest wave of what would be excess capacity on the partner side of the equation where they've been willing to accept jobs at lower prices. And therefore, more of that behind you than ahead of you as opposed to...
that the sense you have of visibility of whether the macro environment can get worse over the next three to six months. That would be number one, and they'll come back with a second one after that. Yeah, I mean, I think we've seen the prices, you know, the cost bottomed out. So I think what we've indicated is you move from January to February . We are seeing, you know, we're seeing, we're increasing prices partly because we're really seeing...
that floor from the suppliers, we sort of reach that floor from the suppliers. Likewise, we made an investment in Q4 to really test the price of the last 50 of our customer base and we're also thinking some of the learnings and we've been raising prices collectively. So I think between the combination of the prices of the cost, bottoming out from the suppliers plus the learning that we've gotten from our elasticity tests, you know, where AOVs are improving. I think that's how direct for the year. When you look at our guidance for the year, we've tried to be conservative when we look at the AOVs.
and just not to get ahead of ourselves. Totally understood. And maybe the second one more for Jim. In terms of the way you're framing the efficiencies you're pulling into the business now versus the potential exit velocity of 23, how should we be thinking about incremental margins and mix of sort of fixed versus variable costs or what's implied and maybe the way you're thinking about Q4 of 23. So we better understand how the business is set up from an incremental margin standpoint.
beyond 2023. Thanks so much. Yeah, we have good question Eric. So, I think a couple things. You know, one, you know, we have some significant cost this cooler around finalizing starvings actually. That, you know, that obviously is a one time hit for us. We need to continue to maintain that. But, you know, the initial integration of that was obviously a lot of work for our team. And we obviously use some consultants to get there as well. In addition, I think, you know, look, we, you know, we took a very quick move to institute a Rift, which is going to save us $8 million.
over next year. And then again, you know, we are seeing good changes in the growth profit margin already. And so we would expect it to continue to grow that growth profit margin throughout the year. I think when you look at those factors put together, you know, we feel pretty confident about getting, like I said, to that, that profitability and just a little bit of basic Q4.
Yeah, and maybe Eric just had a little, a little, you know, commentary there. You know, so when you look at things like our GNA and in particular our product belt and line items, you know, would expect the game real leverage. And we had been going in, you know, Q4, obviously, was sort of an anomaly for us, where we went the wrong direction. But we expected to gain real leverage on the line items in particular. And, you know, it's marketing that will continue to grow, but we're, we're monitoring that as well. So I think we, I think we, you know, we're going to gain substantial efficiency as the core of the year of those on. And this gym also indicated and we said,
You know, you're going to see gross profit margins largely in marketplace largely rebound here in Q1 and with that positive trend, you know, kind of resuming what you saw from us in prior quarters going on that just that that also adds incremental dollars for every dollar revenue, incremental profit for every dollar revenue as we leverage those those expense those off-act clients. Thanks for the color one moment for our next question.
Next question on the line of Carl Kierstedt from UBS. Your line is open. Maybe to Ferrandi, these macro issues you are describing them around suppliers willing to take lower prices and slowing order growth from buyers. I am just curious whether this is a little bit more unique to an online marketplace model like yours or company specific versus macro in the sense that
As we see results across the manufacturing sector, we would expect to everybody in the line hear evidence of the same trends that you are describing. So the question is how market place, or isometry specific, these pressure points are? Well, look, I think one thing to be clear about, and we mentioned the call, but I just want to double down on that, is we are gaining market share. So not only we have an record number, we have a record number of active buyers.
but we continue to see very strong growth trans-in adding active buyers and we see really strong growth in adding order accounts. So we're a gaming market share here. I think it has been an hot macro environment, so I don't think that specific in terms of a cost perspective. I don't think that specific to us, I think that's more an overall environment that you're seeing. So I wouldn't...
That's driving for anything particularly to do with Sean. I don't know if you want to. Yeah, now I'm meeting Carl. I mean, you know, we've seen others in the space actually see their revenues decline year a year. And I'm sure you watch the macro environment as much as we do. And there certainly was some lower manufacturing output in the fourth quarter too. Got it. Okay. Just wanted to talk about that. Thank you. And then secondly, Randy, if you could just describe and perhaps a little bit more detail these place optimization efforts that you're making because it does seem like the.
recovery that you're anticipating in 2023 is not really from the macro improving. I think you made a comment that these headwinds are likely to carry into key one, but rather it's the tuning or optimization of the marketplace algorithm that should enable things to recover. I know that you started doing that after 3Q and it obviously didn't lead to a significant improvement in the fourth quarter. So what I really want to pass on is what's different this time around your tuning efforts that we can feel comfortable with that marketplace, close margin, going up in Q1. Thank you.
you're anticipating in 2023 is not really from the macro improving. I think you made a comment that these headwinds are likely to carry into Q1, but rather it's the tuning or optimization of the marketplace algorithm that should enable things to recover. I know that you started doing that after 3Q and it obviously didn't lead to a significant improvement in the fourth quarter. So what I really want to pass on is what's different this time around. You're tuning efforts that we can feel comfortable with that marketplace growth margin going up in Q1. Thank you. Yeah, look.
And I just want to make it clear, I think, for N. Carl, you said it. You're right. For 2023, we've taken a conservative view on our AOD to make sure that we take into account. We're not buying into a macro improvement by taking into account where being conservative on that element. I think also just in that point, we continue to grow market share and we're seeing robust order growth. I think in terms of our ability to control it, we wanted to make sure the test ran through, but we do have the ability to raise as the cost from the suppliers at bottom.
in Q1. Okay, good context. Thank you, Randy.
One moment for our next question. Our next question will come from Rhine and Ron Josley from City. Go in and open. Great. Thanks for taking the question. I have two. Maybe Randy, can you talk a little bit just about annual active buyers and cohorts? I mean, we've talked some pretty strong growth here in annual active buyers and additions in the quarter. I'm wondering if you expect a ramp in new buyer activities? Slow at some point. Now to prior quarters. Or do you think the cohorts? Or do you think this?
co-forbob we've seen on that slide in the presentation can continue in terms of overall growth and have a quick follow-up. Thank you. I think we're continuing to see very healthy additions of active buyers. So, you know, that's been growing steadily throughout 2022. We obviously hit a record in two four of this past year in terms of the quarter-over-quarter ads of active buyers and we expect healthy trend to continue in 23. We also added, you know, for folks who haven't seen it, if you look at the earnings sector, now we've attached
that you can find on our site. You can see we actually added a fly that showed the revenue contributions from our cohorts. And I think you can see from that, that we're seeing really strong, growing contributions from those cohorts. And we expect that trend to continue. And Ron, hey, Sean, I just want to add to on that cohort slide just to be clear. You know, you were asking about the active buyer growth, which was a record this quarter. And you know, as Randy said, we expect that to be healthy going forward. The cohort slide is based on a count basis.
And just keep in mind the whole land and expand strategy here. We've tried to bring in an account. We add buyers in an account. And that's how it really drives that growth. That's actually a good segue into the second question I had here. The Andy and Sean just, and Jim, you know, you talked about slowing order growth from Zomotry's largest accounts, but also realigning the sales force to focus on those top 200 accounts. So if you could help us understand just the plan to call it expand in those top 200 accounts, that would be helpful. And where are you in that process of realignment? Thanks, guys.
Yeah, so our top 200 accounts represent almost 50% of our US marketplace revenue. So as we sort of became a call, one of the things, unfortunately, we experienced unexpectedly in Q4 with that was a slowdown from that group. And so really as we saw that trend, we made sure that we re-aligned our sales force and our support to focus on going deeper into those customers. We provided by the case studies, the land and expand. So we're trying to go deeper and deeper into them. For a number of reasons. First of all, these are large.
companies that have tremendous spend on custom manufacturing. So even though we've grown rapidly with them since they joined us, there's still a very small portion of their overall spend on custom manufacturing. So this is very fertile ground for us to grow into. And as we've gotten bigger with them, we're also getting the opportunity to do more and more with them to get bigger orders, larger orders. So it's an investment that makes a lot of sense. Particularly if we do more production, more end-used parts, this is very fertile ground for us. So focusing our technical resources on that as well to go deeper makes a lot of sense.
Likewise, as we expand the menu of the things that we can offer, so as we more tightly integrate all the capabilities that the suppliers and Thomas offer, that enables us more and more to be that one-stop shop or one-stop place for those accounts to go. And again, those accounts have such a big spend as we broaden what we can offer them more and more they can default more of that spend to us. So, it's sort of a multi-strung strategy. I think we have a lot of active buyers, so making sure we're focused on those that provide the greatest opportunity for profitable growth. Q4 was a reminder of that and we're doubling down that here in Q1 throughout.
and marketplace in Turkey required, and maybe we should expect to see more of these bolt-on acquisitions in the future. Thanks. Yeah, so I think when you look at Europe , it's actually both the things you mentioned. So we are adding sales folks in different countries.
We're also expanding our capabilities in Europe . When you look at the recent Tuck-In acquisition we did with Tree, what that did was give us really a low-cost network in Europe . So think about similar cost model to what you have in like a China or Asian network. And the beauty of that is we can ship in 24 hours from Turkey to really anywhere in Europe . So you're lowering your lead times and still giving our European customers.
An economy option if you would. So both again, growth in the sales force and continued growth in different countries in Europe is what's driving that. Yeah, so we're going deeper in the markets. You know, those are huge markets that we're in in Europe already. When you look at the German speaking countries, when you look at France and Italy and Spain, but we're also adding new markets as we talked about, you know, we are now having a physical presence in the UK. We're transacting in pounds. That's the third largest market in Europe . So it's still early days there, but lots of room to grow. And then just double down on what Jim said about Turkey.
A lot of European manufacturing is done there. It's very familiar ground with Europe , so it just offers us a great opportunity. And there's growth opportunity in Turkey itself. But we get two different things for that. Got it. Thanks. One moment for our next question. Our next question comes from Greg Palm from Craig Halen. Your line is open. Yeah, morning. Thanks for taking the questions. You know, I know you've been testing this price elasticity in Q4. I know we focused a lot on the...
behavior on behalf of your suppliers, but I'm curious if what you were doing change the behavior at all in terms of your buyers, whether you know maybe they decided to order you know less parts per order, any change in kind of lead time, I think you alluded to something like that to reduce cost to maybe a little bit more color on buyer behavior.
Yeah, great question. So we did see buyers trade off the time for price. We didn't see some reduction in quantity. So the thing that you're talking about are absolutely spot on. And that also obviously impacted the average order values that we saw as we, you know, as we exited Q4 in the beginning of Q1. Again, we said we've seen that trend change in February . We've also, you know, we're we can benefit of our price optimization. So we expect that, that AOV to start rebounding and that's rebound in February and we expanded. Except if that was a good trend, that debt we're trying to be conservative for this year.
And so not get ahead of our skis on it, but it certainly has improved from where it went in Lakeview 4 and the beginning of Q1. And then in terms of pinpointing that improvement, I'll sort of tie that back to my initial question. How much of that is driven by the suppliers versus the buyers? Maybe they're adding more parts to the order, maybe they're maybe doing expedited or standards in lieu of economy, but can you just dig into a little bit in terms of the specifics around the improvements? Yeah, I mean, we are seeing buyers, we're seeing less buyers, there is more urgency from the buyers.
as we're sort of getting further into this quarter. So they are trading off less on the lead time than they had been doing, you know, as we saw at the end of Q4 in the beginning of this year. So there is some change in the buyer behavior. And then part of it is also, you know, some of our price optimization. Okay, and then, yep, okay, got it. And then just in terms of margins, I just wanted to dig into the commentary a little bit on Q1 specifically. So I think you said that, you know, they're gonna rebound or normalize, I forget the exact words, but would you expect them to rebound to levels that, you know, you saw in Q2 or Q3 last year, and then just...
You know, last quarter you talked about accelerating that timeline to achieve your long-term targets. Are you still comfortable with that in 2024? Are these recent results changing or thinking there? Absolutely. We're still comfortable with that. And I think the rebound in Q1, I think we're seeing that to be very... We use the term largely rebound and we come out largely rebound. We're going back to Q3. So we're seeing a very... We're back to what we think is a very healthy growth profit margin on the marketplace side. Okay, my sense. Alright, thanks. Special optics. Thank you. One moment for our next question. Our next question comes from Leib Kappital. Your line is open. Hi. Good morning and thank you for taking my question. I'm a price optimization, you know, what you did there. Was that just sort of a just a sweeping...
price change across all or most categories? Or was it maybe more surgical in categories and with groups of users? I'd say we did wide testing. I think you've hit it spot on and we're running different tests and different technologies. For customers at different points in their journey with Xometry, so whether or not they're just a brand new customer moving to the second order, versus the customers getting here longer. Again, if you're looking at folks in additive manufacturing versus machine ingress, molding, et cetera. So we ran a bunch of different tests.
So, and we thought, look, it was a very interesting period and we thought it was the time when we're grabbing market share and we wanted to really test this. And we thought this was a smart move to fund it and reap the benefits of it as we move forward.
So just to make sure you understand your question, your answer Randy says does that suggest that there's potentially some more wood to chop here that, you know, maybe there's more price optimization by category or otherwise to come that you haven't addressed.
I think we are always going to be testing price elasticity all the time. We are always going to be running tests on that, but we don't expect that to have the material impact on gross margins that you saw in Q4 of last year. We really funded a big number for that. We do not expect that to happen in Q1 and beyond this year. My follow up question is simply, the existing account sales of...
Yes, God is Sean. I mean, just remember that, you know, a new buyer would spend less rights than someone who's been, you know, an accountant spending over time, right? So it's that kind of dynamic. But if you actually look at, you know, sort of revenue per buyer in Q4, I mean, that's part of, you know, probably saw a very strong active buyer growth in Q4. But again, we saw, you know, some of our existing customers order less so that that was, you know, the bigger impact in terms of revenue per buyer.
Okay, thank you. Thank you. And as a reminder, that's star 11 for questions, star 11. Please don't buy, we can power the Q&A roster. And now I'm not showing any further questions in the queue. Thank you for participating. You may not disconnect. Everyone, have a great day. Thank you.