Q4 2023 Xometry Inc Earnings Call

February 29, 2024

One we expect there to be higher quarter over quarter net buyer adds.

We continue to invest in our enterprise sales efforts in 2024 over the past several months, we expanded our sales force to service and grow with our enterprise customers, we're making progress with fortune 500 companies as they look for a technology partner to help manage dispersed fragmented and complex supply chains.

We will continue to improve marketplace functionality and expand the marketplace menu, including our new partnership with Google Verdicts AI.

Zama tree and Google are deeply engaged working together to accelerate deployment of new auto quoting models within zama trees AI powered instinct quoting engine.

In 2024, we will push deeper into our existing international markets versus entering new geographies.

The reason I'm Mitre, EU geometry that U K and damaged Dot Asia, we've leveraged <unk> core technology to provide localized marketplaces in 14 different languages with networks of suppliers across Europe, and Asia as well as North America.

Finally, we are enhancing supplier services, including modernizing the Thomas advertising platform we.

We are focused on making it easier for suppliers to start their advertising journey and an increasing adoption of Thomas net.

For our suppliers, we continue to enhance work center the digital operating system for manufacturers, we are focusing on improving the overall experience for suppliers, reducing the effort required to accomplish their daily tasks.

Zama treats a technology company disrupting a massive addressable market with millions of buyers.

As we continue to expand the applications of our AI and increase the breadth of what we can offer we are serving more and more buyers.

Capitalizing on these trends, we expect robust growth in 2024 and for many years thereafter, the shift to the digital which has happened and so many other industries is inevitable and custom manufacturing, we continue to expand our competitive moat by improving upon our proprietary pricing and matching algorithms growing our data lake and <unk>.

Our networks are buyers and suppliers and increasing our global footprint.

Before handing the call over to Jim I want to thank him and wish him well Jim successfully executed our initial public offering and help drive growth and scale in our business, including expanding internationally.

Today, we announced that James Miller will be our new Chief Financial Officer effective March 1st James was previously at Yelp, where he was senior Vice President of Finance and Investor Relations.

James has significant experience across marketplaces search and advertising and will help us capitalize on our leadership position in digitizing manufacturing. He brings extensive operational excellence the zama tree and will help us achieve our long term operating margin targets.

With that I'll now turn the call over to Jim rollout.

Thanks, Randy and good morning, everyone I'd like to start out by thanking the entire zama tree team for a phenomenal four year run it has been a privilege to work with such a dedicated group building, a leading AI powered marketplace connecting buyers and suppliers in the manufacturing industry.

As I leaves arbitrary I know it is in good hands as well as set up for continued growth as arbitrary continues to execute on digitizing the manufacturing sector.

As Randy mentioned Q4 was a record revenue and gross profit quarter for Zama tree driving significant improvement in adjusted EBITDA on a year over year basis.

Before I review, our Q4 and full year results. One quick note on historical financials, Q4, 2022, and full year 2022 results include certain immaterial corrections. We have included tables for immaterial corrections to previously issued financial statements in our Q4 2012.

Three earnings release and earnings presentation, there is no impact to cash from these immaterial corrections.

Q4 revenue increased 31% year over year to $128 million driven by strong marketplace growth Q4 marketplace revenue was $112 million and supplier services revenue was $16 million, reflecting the discontinuation of the sale of tools and materials.

Q4 revenue adjusted for the exit of the tools and materials business increased 34% year over year.

Q4 marketplace revenue increased 42% year over year, driven by strong growth in the number of active buyers Q4 marketplace revenue per active buyer increased 4% year over year.

Q4 active buyers increased 36% year over year to 55000 and 458 with a net addition of 2991 active buyers.

We significantly reduced marketing spend in the U S and Europe in late Q4, as we balance strong growth against profitability targets.

The number of accounts with last 12 months spend of at least 50000 on our platform increased 30% year over year to 1331 in.

In Q4, the number of net new accounts with LTM spend of at least 50000 accelerated to 108 additions versus 64 in Q3.

Supplier services revenue declined 15% year over year in Q4, we discontinued the sales of tools and materials in the U S. In Q2, which negatively impacted supplier services revenue by approximately $2 million year over year in Q4.

The number of active paying suppliers in Q4 2023 was 7271 on a trailing 12 month basis, a decrease of 6% year over year.

Excluding the impact of the exit of the tools and materials business active paying suppliers is roughly flat year over year.

Active paying suppliers is the number of suppliers, who have purchased one or more of our supplier services, including digital marketing or financial services. During the last 12 months Q.

Q4, gross profit was $49 1 million, an increase of 39% year over year with gross margin of 38, 3% Q.

Q4 gross margin for marketplace was 31, 3% of 500 basis points year over year.

Q4 marketplace gross profit dollars increased 68% year over year, we are focused on driving marketplace gross profit dollar growth.

Q4 gross margin for supplier of services was 87, 3% driven by the high gross margin of Thomas marketing and advertising services and growing financial services supplier services gross margin increased 1130 basis points year over year due to the discontinuation.

Of the sales of tools and materials.

Which carry a significantly lower gross margin.

Moving onto Q4 operating costs Q4, total non-GAAP operating expenses increased 2% year over year to 52 million within our operating expenses sales and marketing is our largest component in Q4, non-GAAP sales and marketing expenses increased 2% to $22 nine.

As compared to $22 6 million in Q4 22.

The increase in non-GAAP sales and marketing expenses on a year over year basis was driven by the hiring of additional salespeople to support growth in our land and expand strategy as I mentioned previously Q4 advertising spend decreased 19% year over year, as we balance growth and profitability goals.

Q4, adjusted EBITDA loss was $2 9 million or two 2% of revenue compared with 15, 9% of revenue in Q4 2022.

Q4, adjusted EBITDA loss declined to $12 8 million year over year, reflecting strong growth in revenue and gross profit as well as cost savings and operating efficiency initiatives and improving profitability in our Thomas advertising and marketing services business.

Turning to segment reporting in Q4 revenue from our U S and international operating segments was $111 million and $17 6 million respectively.

Segment loss from our U S and international operating segments for Q4 was $5 9 million and $4 6 million respectively.

At the end of the fourth quarter cash and cash equivalents in marketable securities were $268 8 million.

Now moving onto guidance.

We expect Q1 2020 for revenue in the range of $118 million to $120 million representing year over year growth of 12% to 14%.

And 14% to 16%, excluding the discontinuation of the sale of tools and materials.

We expect Q1 marketplace growth to be in the range of 18% to 20% year over year.

As Randy mentioned Q1 started off slower as marketplace revenue growth was softer in January driven by a lower number of large orders.

We expect supplier of services to be down approximately 15% year over year, primarily due to the exit of tools and materials business in may of 'twenty three.

In Q1, we expect adjusted EBITDA loss to be in the range of seven to 9 million.

Compared to a loss of $11 8 million in Q1, 2023, driven by further marketplace operating leverage and improving profitability and supplier services on a year over year basis, partly offset by investments in international and enterprise.

In Q1, we expect stock based compensation expense to be approximately $5 million to $6 million, which we will exclude from adjusted EBITDA.

For 2024, we expect marketplace growth of at least 20% year over year and expect supplier services to be down approximately 10% year over year, driven by the discontinuation of the sales of tools and materials.

And the wind down of noncore services as Randy mentioned, our marketplace outlook assumes the Q1 trend persist throughout the year.

We expect to be adjusted EBITDA profitable in Q3 2024 for fiscal year 2024, we expect improved operating leverage partly offset by international and enterprise growth investments with that operator can you. Please open up the call for questions.

Thank you.

Ladies and gentlemen, as a reminder to ask a question. Please press star one on your telephone and then wait to hear your name announced.

To withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Ron Josey with Citi.

Your line is open.

Hey, guys. This is Jake on her on thanks.

Thanks for taking the question.

And thank you again for your partnership best of luck in all your future endeavors.

Hum.

A brief question.

First question on Tuesday, So now that now that Thats fully integrated could you talk to us more about the strength in adoption.

How how is that contributing to the growth in floor care and your traction with larger enterprises and winning those larger enterprises and then and then just second.

On the on the January being slightly weaker than expected could you share more about about what youre seeing and what you think is driving that decline in larger orders I know you mentioned, a softer macro but any color there would be super helpful. Thanks.

Yeah, Hey, Jason It's Randy So first on 19 space you know as we indicated we have over 500 teams.

It had been attitudes are launch that's up from 300 teams in Q3, we rolled out in Q4. So we're really happy about the growth of that we're seeing viral new user growth within teams and organizations. We're seeing good engagement engagement on our platform and team space overall plays.

An important role in our engagement on the enterprise level, so as were selling more and more deeper into enterprises seems basis is a great Oh.

Sorry for that.

In terms of in terms of Q4 and 800. When we saw you know we really could do what he talked about how January and we had those drop in in larger orders in January versus particularly from from Q4.

And it's really it's counting.

Partly from bigger companies I think people were holding back budget.

In the beginning of the year, we have seen an improvement in February but I mean in essence.

We saw in January.

Okay.

Thank you.

Please standby for our next question.

Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is open.

Thanks, so much for taking the question maybe a two parter on the active buyer trends you're seeing at first would love to get a little bit more color on how the cohorts of active buyers look today compared to maybe 12, 18 24 months ago, and how should we be thinking about the funnel for growth in active buyers as inform.

<unk> some of the confidence around the longer term growth 24 and beyond thanks, so much.

Eric. Thank you. So first if you look at the Investor deck that we provided on slide nine we actually updated our cohort analysis and so to your question Eric about how new cohorts of active buyers and behaving 2023 was actually we got a record amount of revenue from our new <unk>.

Cohort so over $50 million, so that was a nice step up from 42 and $26 million that we saw in year one of our 22 cohorts. So our as every year.

Our cohorts, our new cohorts are contributing more and more revenue in year. One and then also just as an aside on that and you can see that in 'twenty, two cohorts and a nice jump up in the second year I've been on the platform. We expect her to continue to be robust growth in our in our new active buyers.

And we believe that this market has a huge number of buyers you know millions of buyers in the marketplace. So as we think about our continued growth over the years, Eric that we're confident that that's one of the levers that we keep going and we're continuing to see robust adoption and Eric It's Sean just to kind of piggyback on that.

Talked a little bit about we did cut advertising spend in Q4 by 19%.

And so you can see that reflected in the net add we also talked about this morning, and we expect the net adds to improve in Q1 quarter over quarter.

Resumed a more normal marketing investments.

Yeah, I think from an underlying metrics, we've talked about before we don't see any change in the underlying metrics you know, particularly as a result, and as it relates to adding new active buyers.

Great. Thanks for the color and I appreciate I'll I'll also add that thanks to Jim and best of luck going forward Jim.

Okay. Thank you.

Please standby for our next question.

Our next question comes from the line of Brian Drab with William Blair. Your line is open.

Hey, good morning, Thanks for taking my question.

Just wanted to.

Talk a little bit more I'm trying to understand a little bit better what you're.

And what you saw in December.

At the end of the year and then into January and February.

And you.

You know over the over the last four years I was just looking at the model.

Revenue has increased 14% from fourth quarter to first quarter and now we're looking at a pretty significant step down. So just any color that you can give us what you're seeing in January and February and what you mean by large orders in and do you expect those larger orders to pick up at some point.

Yeah, I mean I.

Again, Brian I think we were taken aback by the drop in January which we hadn't expected that.

And so I don't want to give it is too big dollar amount, but the large orders you know are our important question. We saw a pretty strong drop in January we have said that did that ticked up in February.

But we're also trying to be prudent for the year I mean.

We had a weaker than expected in January we still have less than two months into the full year, but at this point, we just want to be prudent as we think about the guide for Q1 and beyond.

Hey, Brian Let me just follow up on that and Sean So again for the full year the marketplace growth of at least 20%.

We're assuming that the run rate does not improve.

So we're taking a prudent outlook for here and we've anchored that to the current trends of the business.

And just to be clear you you saw a little bit of a pickup in February relative to January, but you're saying, you're not incorporating that pick up you're not assuming that the pickup.

Continues through the year or no.

I think we just want to be prudent yeah I mean.

Again January was unexpected for us.

Things that were picked up in February, but we just we're less than two months of the year, we want to be prudent.

We're anchoring ourselves to at least 20%, but at this point, that's where we're going to we're going to keep it.

And.

Just to dig a little deeper on the large quarters is this maybe harder for you to get.

Our handle on in terms of forecasting because youre building up these.

<unk> with customers and gaining these large orders and getting integrated into their opt.

Operations, but it's kind of new territory.

It's not clear how it can be found borderlands.

No. It was really Brian that people held back budgets in January its not related to its not uncommon I mean, we look at our historical trends.

And you know as we look at Q4, and we were and where we were going last year.

Those were were stronger for us, but in January people held back.

It's again it was abnormal for the trend and we.

Continue to enlarge our our enterprise efforts that will enhance this more but this is not about that this is just about people rolling back in January and.

No.

Yes.

If that happens in one month or the quarter.

Hey, Brian.

On the call that you know all of the remaining you know the marketplace metrics remain healthy.

We've resumed our marketing efforts the top of the funnel is healthy we expect active buyers to be up quarter over quarter. So the marketplace remains healthy we saw larger customers.

Was some of their spend and so you know if that frees up that would change, but we're expecting right now we've run rate.

That current trends for the full a full year, we're just being prudent.

Yeah, I think a lot of people are seeing customers such as you know in the end markets that you participate.

Spending more slowly than expected to start the year. So that that's not a huge surprise can I just ask that.

Yeah, you pushed out the profitability target. So that's a combination of expectation.

The expectation for maybe lower revenue.

Combined with an increased marketing or can you just articulate that one more time for us.

It's really related to the revenue we still plan to continue to improve our margins were.

We're gonna still be will be tight on spend I mean, we're going to make investments, but Brian it is driven by the revenue.

Yeah, Yeah, Okay alright.

Great Yeah based on Randy's comment there you know we've anchored to at least 20% marketplace growth. We'd also talked about expanding marketplace gross margin and 24, so you're going to see very healthy marketplace gross profit dollar growth yeah, I mean, our gross profit will grow faster.

And our revenue.

Got it okay, alright, thank you very much.

Thank you.

Please standby for annex question.

Yeah.

Our next question comes from the line of Nick Jones with citizens JMP. Your line is open.

Hi, Thanks for taking the questions I guess, just on kind of the inputs the marketplace revenue active buyers in marketplace revenue per active buyer I think the expectation was active buyers in the marketplace, you're going to go through kind of converge to the same growth rate, but it sounds like theres some volatility now in marketplace.

Revenue per active customer kind of implied in the <unk> guide like sounds like that's probably going to step down is that the right way to think about it and.

Will that be kind of volatile throughout the year or do you expect it to kind of stabilize them.

Place revenue per active buyer.

Like post <unk>.

Yeah. So.

Good morning, and Great question, Yes, so are.

We because of these larger orders you are seeing the revenue per buyer is going to naturally going to be we're anticipating will be lower in Q1.

And so we still think we'll have robust growth in those active buyers, but because we had that that funky.

<unk> January we've had we've just sort of being prudent and pushed at that.

That number out through the rest of the year. So still expect active robust growth in active buyers, but at this point, we're just being smart tough January we're baking that into the full year number in terms of of what we're going to see on a revenue per buyer basis.

Got it and then on just kind of following up on the gross profit margins in the marketplace business I think prior by second half of 'twenty for the target was kind of 35% to 40% of that that target is still good or maybe kind of the new revenue expectations.

Yeah, we don't we don't see any change in our in our outlook in terms of margins and good growth of our marketplace margins you know supplier service margins are strong.

Again, the only thing that sort of changed here is that in January.

We saw a drop in those large orders that impacted our revenue per buyer and were less than two months of the year and we got to be prudent here wrangling ourselves to at least 20%, but at that point you know that's that's what we're thinking right now just to be prudent.

Great. Thanks for taking my questions.

Thank you.

Please standby for our next question.

Our next question comes from a line of Cory Carpenter with Jpmorgan. Your line is open.

Hey, good morning.

I just wanted to ask for for February is it is that back to kind of levels, where it was in for Q or still kind of softer maybe somewhere in the middle and then and then secondly could.

Could you give us an update on the Google Cloud partnership and just how you expect that to roll out and how quickly you can get some of those empty quoting capabilities out in 2024. Thank you.

Yeah. So as we said we haven't even more significant we said February is stronger than January.

So I'm just going to leave it at that.

And then in terms of a Google.

You know that there's a lot of hard work going on there we've got some.

Some exciting things, we're doing with them I think when we announced the partnership we said it would be a number of months before we'll see those models, where we're still on target for that so don't want to throw in an exact date, yet, but certainly the expectation in releasing those new.

New instant quoting of additional processes and <unk>.

Equally important.

Enabling us to deploy even more even faster that's still on target, but we havent nailed nasty Jake Dania.

Okay, Great and just a quick follow up.

You mentioned, a new supplier searches winding down I think some other stuff potentially besides tools materials is that is that correct and if so just curious without it.

It's minor it just is.

It's not significant at all and just some ancillary services.

The town is offering that arent profitable EMCORE, but it's not significant the drop the forecasted drop in in suppliers, who are in this series is really driven just by the discontinuation of our historic suppliers.

Great. Thank you.

Thank you.

Please standby for around next question.

Our next question comes from the line of Matt Hedberg with RBC. Your line is open.

Oh, Hey, Great Hey, great. Thanks for taking my question guys, Randy just kind of philosophically speaking.

Are there things that can be done and maybe its just a scale factor, though are there things that could be done to reduce some of the volatility in marketplace revenue and maybe as a follow up.

What are some of the assumptions around teen space that you guys are baking into 'twenty four expectations.

Yeah. So look in terms of recent volatility I think you're right as we gain scale.

And as our efforts continue to embed ourselves on an enterprise basis that that will provide.

Some will provide some some shelter against that that volatility. So I think that just we continue to grow and again as we embed ourselves further and further into the deeper into the supply chain that that should help us a lot.

In terms of team stays in its impact I think we think about it as part of the broader enterprise effort again, we expect this year to have robust growth in active buyers.

Active buyers and we are pushing hard in enterprise, we've been making those investments.

But it's part of the broader the broader effort both from a technology and a sales perspective.

Got it thanks, and then for.

Jim.

Are you pushing out some of the EBITDA targets a little bit here.

On some of the revenue weakness I'm wondering though could you help us think about what that means for free cash flow I know, it's lagging EBITDA, but but any sense for.

Timeline for getting to free cash flow breakeven.

Yes, so I think the free cash flow was obviously going to come after we get to adjusted EBITDA positive. So I think that's going to push that out a little further we never really gave a date on that to begin with.

So, but I would expect that to follow shortly afterward, adjusted EBITDA positive, but that's going to be.

Quarter, two problem with you after that.

Got it thanks, a lot guys.

Thank you.

Please standby for our next question.

Yeah.

Our next question comes from Greg Palm with Craig Hallum. Your line is open.

Yeah. Good morning, Thanks for taking the questions I just wanted to go back to the implied outlook for Q1 in terms of.

Active buyers versus revenue per buyer.

The implied lower revenue per buyer that you talked about I just want to make sure. We're clear is that solely due to a lower number of larger orders and not a broader moderation in pricing overall and then for the full year guide does that take into account.

Sort of a flat or stable revenue per buyer that is implied in Q1 or does it assume some improvement in that metric throughout the year.

So to be clear we are not at this point with our guidance we are not baking in an improvement.

Again, where we're less than two months of the year, we're trying to be prudent here are.

We are being through year end. So we just wanted to set that expectation. So it doesn't bake in an improvement in that we also asked and February better than January but January was certainly not where we wanted it to be particularly because those larger orders in that and that impact I would tell you we did not a broader trade down and we're not seeing it.

Deflationary prices et cetera, it really is about the larger orders, but we've been growing our number of accounts. We had a record number of additions of accounts more than $50000 spend in Q4. We added I think 103 accounts, which is a 108, which was a record for us. So those accounts are.

Becoming a bigger percentage of our of our revenue in and those are those are significant so.

We're excited about that and long term, that's going to help fuel growth and profitability, but in January and people how back on their on their budgets debtors.

Yep, Okay, and then if I could just compare the Q1 outlook to your Q3 'twenty three numbers I mean, you're guiding revenue basically flat or same levels as Q3, 'twenty three but EBITDA loss.

Almost.

Almost twice as worse.

And so what do you think about sort of that bridge is is the majority or most of that or maybe entirely due to higher opex and within that is it a lot of it more on the advertising side or maybe you can help tie that out.

Yeah, if you go back to.

Q3, and you look to where we are in Q1 I mean, there was a couple it really is on the operating expense line. One we've made investments in our sales team we talked about that on the call. We continue to add to that team to fuel our enterprise efforts.

And then secondly, we continue to invest internationally.

Very strong growth towards the end of the year internationally, we want to continue to fuel that.

That should be really strong growth for US next couple of years and then the third thing Greg is just like all public companies, we see a bit of a step up from late Q4 into Q1, and then in terms of people costs and payroll taxes and benefits and things like that which is which is somewhat material given the size of the business right now.

Yes, I understand okay, I will leave it there thanks.

Thank you Lee.

Please standby for our next question.

Yeah.

Our next question comes from the line of Kunal metal car with UBS. Your line is open.

Alright. Thanks, a lot. This is Jason on for Qunar from UBS I've got.

Question, So the personal line.

Looks like your 2024 marketplace guidance could you. Please unpack your at least 20% growth outlook for marketplace revenue and help US understand why you guys are assuming in terms of customer growth and pricing also could you comment on how much of the 'twenty 'twenty four revenue guidance is from the new verticals you guys recently added leveraging tomlin send it up a level.

Okay.

Oh, well, it's Sean.

Randy talked about we expect our active buyer growth.

Okay.

In 2024.

We expect the active buyer of the net add number two improved from Q4 into Q1.

We resumed our marketing investments so you should expect goods.

Good strong growth in active buyers and then as we talked about after a weak January which does impact your revenue per buyer.

That's what we're baking in for the rest of the year or is that kind of lower lower rate. There. So I think that's a those are sort of the building blocks for that 20% anchor that we talked about.

And that was your follow up question.

Yeah.

Uh huh.

How much of a 'twenty 'twenty four revenues from the new verticals leveraging time span.

Yeah look I mean, we have a lot of initiatives in place to expand the marketplace menu.

As you talked about continuing trying to add new categories to Thomas we of course have the new partnership with Google.

As Randy mentioned were deep and work with Google now and we expect that to expand into accelerated deployment of new categories. Later in the year. Those are efforts to you know to drive revenue per buyer, but the you know as.

As we stand here today.

You know our forecast for the year is based on that you know the trends we saw through through January and early February.

Got it.

The second question. So regarding your comment on soft softer January orders I was curious if you could help.

Help us understand which specific sub verticals that drove the decline in large orders. Thank you.

Yes, it really wasn't.

And any specific vertical or geography was more widespread it was as Randy talked about.

Larger customers.

Who typically place larger orders there was more of a pause and we think that there you know they've held back on their budgets, but we felt it was prudent today to to to not bake in an improvement and that's where we're at.

Thank you.

I'm showing no further questions in the queue.

Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.

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[music].

Hello, and thank you for standing by welcome to <unk> Q4, and full year 2023 earnings conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone.

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To withdraw your question. Please press star one again.

I would now like to hand, the conference over to your Speaker, Sean Neil you may begin.

Good morning, and thank you for joining us on <unk> Q4, and full year 2023 earnings call.

Joining me are Randy I'll, Ciulla, our Chief Executive Officer, and Jim Rallo, Our Chief Financial Officer.

During today's call, we will review our financial results for the fourth quarter and full year 2023, and discuss our guidance for the first quarter and full year 2024.

During today's call, we will make forward looking statements, including statements related to the expected performance of our business future financial results strategy long term growth and overall future prospects.

Such statements may be identified by terms such as believe expect intend and may.

These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results.

Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U S Securities and Exchange Commission.

<unk> our Form 10-K for the year ended December 31, 2023 that will be filed later today with.

We caution you not to place undue reliance on forward looking statements and undertakes no duty or obligation to update any forward looking statements as a result of new information future events or changes in our expectations. We'd also like to point out that on today's call. We will report GAAP and non-GAAP results. We use these non-GAAP financial.

Measures internally for financial and operating decision, making purposes and as a means to evaluate period to period comparisons.

non-GAAP financial measures are presented in addition to and not as a substitute or superior to measures of financial performance prepared in accordance with U S. GAAP to see the reconciliation of these non-GAAP measures. Please refer to our earnings press release distributed today and our Investor presentation, both of which are available on the investors section of our web.

Site at investors <unk> 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 and full year 2023 earnings call.

In Q4, we had the highest revenue and gross profit in <unk> history, beating our previous highs from Q3 of 2023.

We grew revenue, 31% year over year to $128 million, driven by accelerating 42% year over year growth in marketplace revenue.

Q4 marketplace gross profit increased 68% year over year, driven by our AI powered marketplace Q.

Q4 marketplace gross margin improved 500 basis points year over year.

Overall in 2023, we delivered 30% marketplace growth and stronger active buyer in order growth. Despite an ongoing contraction in U S manufacturing, we are gaining significant market share.

On top of strong marketplace revenue and gross profit growth, we improved our operating leverage reducing our adjusted EBITDA loss in Q4 by 32% from Q3 to $2 $9 million as we continued to balance growth and profitability goals on a year over year basis Q4, adjusted EBITDA improved by $12 8 million.

Driven by significant leverage in our core U S marketplace, partly offset by investments internationally.

Over the past few years, we have rapidly grown our networks and expanded our marketplace globally further strengthening our competitive moat.

At the same time, we made significant investments in product development and technology infrastructure and selected acquisitions.

We now offer tools to digitize work for both buyers and suppliers as well as provide software and information for our customers to improve decision, making and increase efficiency.

In 2023, we significantly expanded our networks of buyers and suppliers. We added over 14000 net new active buyers in 2023.

The 18% increase over the 2022 period, even as we spend 6% less on advertising.

Active suppliers increased 36% year over year to 3429 there.

There is strong demand to join a rapidly growing platform.

Our increased focus on top customers and investment in our sales team drove progress in our enterprise strategy in.

In Q4 accounts with last 12 months spend at least $50000 grew 30% year over year to 1331.

We added an all time high 108 quarterly net additions in Q4.

In 2023, we significantly expanded our marketplace menu, including new processes materials finishes and certifications, enabling us to increasingly serve as our customers one stop destination.

We saw a strong growth in production work, including a revamped quick turn injection molding offering we expanded the marketplace to include instant quoting of inserts multi part assemblies and expanded sheet cutting processes.

We made significant progress across product development, and technology, including new products and services, such as teen space and important foundational work on the Thomas advertising platform.

After a successful pilot with several large customers in Q3 and Q4, we integrated team space into the dominant platform for all of our buyers to use teams space moves the geometry marketplace from a focus on individual buyers and parts procurement teams managing assemblies and products. The early feedback remains positive with rapid adoption.

Including over 1500 teams created since launch.

We continue to expand aggressively internationally in Q4, we launched solid works CAD software plug ins for customers in the EU UK and Turkey.

We ended 2023 with accelerating growth. However January was much weaker than we anticipated, particularly as the number of large orders declined significantly while revenue trends improved from January to February we expect Q1 year over year marketplace growth will be slower than that in Q4.

Since we are still so early in the year and we want to be prudent we are providing a full year outlook assumes a similar trend as Q1 for the remainder of the year. This equates to at least 20% growth in marketplace and adjusted EBITDA profitability, beginning in Q3 and onwards.

Since underlying marketplace metrics are healthy we're going to continue to execute on our roadmap. We will of course tightly control operating expenses as well as make strategic investments in technology and growth to help us achieve our long term growth and operating margin goals.

In 2024. These include first expanding our network of active buyers and suppliers.

Driving deeper enterprise engagements.

Third expanding the marketplace menu for growing internationally and five enhancing supplier services solutions.

We expect to focus on these growth initiatives and on further operating efficiency to drive profitability and improve margins over time.

In 2024, we expect our active buyer growth remained strong in Q4 active buyers grew 36% year over year, even as we balanced advertising investments against profitability goals and.

In Q1, we expect there to be higher quarter over quarter net buyer adds.

We will continue to improve marketplace functionality and expand the marketplace menu, including our new partnership with Google Verdicts AI Zama.

<unk> and Google are deeply engaged working together to accelerate deployment of new auto quoting models within <unk> AI powered instinct quoting engine.

In 2024, we will push deeper into our existing international markets versus entering new geographies.

<unk> EU geometry that UK and <unk> Dot Asia, we've leveraged <unk> core technology to provide localized marketplaces in 14 different languages with networks of suppliers across Europe, and Asia as well as North America.

Finally, we are enhancing supplier services, including modernizing the Thomas advertising platform we.

We are focused on making it easier for suppliers.

Q4 2023 Xometry Inc Earnings Call

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