Q1 2024 Xometry Inc Earnings Call

Okay.

Operator: Good morning, my name is Dustin, and I will be your conference operator today. This time, I would like to welcome everyone to the Xometry Inc. Q1 2024 earnings call. All lines have been placed on mute to prevent any background noise.

Dustin: Good morning, My name is Dustin and that'll be a conference operator today at this time I would like to welcome everyone to the geometry, Inc. Q1, 2024 earnings call.

Speaker Change: All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star 1. Thank you. I'd like to introduce you to our CEO, Randy Altschuler, CFO, James Milne, and our VP of Investor Relations, Shawn Milne. Sir, you may begin the conference.

Speaker Change: After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

Matthew George Hedberg: The next question comes from the line of Matt Swanson of RBC.

If you'd like to withdraw your question again.

Speaker Change: The star one.

Speaker Change: I'd like to introduce our CEO, Randy Altshuler, CFO, James Mill, and our VP of Investor Relations Shawn <unk>, Sir you may begin the conference.

Randolph Brody Altschuler: Good morning, and thank you for joining us on geometries Q1, 2024 earnings call.

Shawn Christopher Milne: Good morning, and thank you for joining us on Xometry's Q1 2024 earnings call. Joining me are Randy Altschuler, our Chief Executive Officer, and James Milne, our Chief Financial Officer.

Matthew George Hedberg: Oh, great. Thank you so much for taking the time to answer my questions. Um, Jim, I know it's still early days for TeamSpace, but maybe thinking more so on the customer feedback side, could you discuss the ability of the solution to help you maybe become more pervasive or deeper into your customers, and then also kind of enhance that value proposition as a platform versus a tool? And then, at scale, are there any thoughts on how this might be able to help with revenue visibility?

Shawn Christopher Milne: During today's call, we will review our financial results for the first quarter and discuss our guidance for the second quarter and full year 2024. During today's call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth, and overall future prospects. Such statements may be identified by terms such as believe, expect, intend, and may.

Randolph Brody Altschuler: Yeah, this is Randy. I'll take, in particular, the first part of it.

Speaker Change: Joining me are Randy Altshuler, our Chief Executive Officer, and James Milner, Chief Financial Officer.

Speaker Change: During today's call, we will review our financial results for the first quarter and discuss our guidance for the second quarter and full year 2024.

Shawn Christopher Milne: These statements are subject to risks and uncertainties that could cause them to differ materially from our actual results. Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U.S. Securities and Exchange Commission, including our Form 10-Q for the quarter ended March 31st, 2024, that will be filed later today. We caution you not to place undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events, or changes in our expectations.

Speaker Change: 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.

Speaker Change: Such statements may be identified by terms such as believe expect intend and May. These statements are subject to risks and uncertainties, which could cause them to differ materially from our actual results.

Speaker Change: Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U S Securities and Exchange Commission, including our Form 10-Q for the quarter ended March 31, 2024 that will be filed later today.

Speaker Change: We caution you to not place undue reliance on forward looking statements and undertake no duty or obligation to update any forward looking statements as a result of new information future events or changes in our expectations.

Shawn Christopher Milne: We'd also like to point out that on today's call, we will report gap and non-gap 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.

Speaker Change: 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.

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

Shawn Christopher Milne: To see the reconciliation of these non-GAAP measures, please refer to our earnings press release distributed today and our investor presentation, both of which are available on the investors section of our website at investors.xometry.com. A replay of today's call will also be posted on our website. With that, I'd like to turn the call over to Randy.

Speaker Change: At investors Dod geometry dot com a replay of today's call will also be posted on our website with that I'd like to turn the call over to Randy. Thanks, Shawn Good morning, everyone and thank you for joining us for our Q1 2024 earnings call.

Randolph Brody Altschuler: So, you know, we are very pleased with the acceptance and adoption that we're seeing in TeamSpace. We have over 2,300 teams right now, which is a really nice increase since we last reported. We've also been making enhancements, so it can be not just, you know, to really enhance the platform and go deeper into our enterprise customers, in particular, as we talked about during the call. That includes linking in enhancements we're making with our injection molding offering and pool libraries and being able to share that and run that all through TeamSpace.

Randolph Brody Altschuler: Thanks, Shawn. Good morning, everyone, and thank you for joining us for our Q1 2024 earnings call. Powered by AI, our marketplace continues to gain significant market share as buyers and suppliers realize the value, convenience, and resiliency of our platform to strengthen their supply chains globally. In Q1, we grew revenue 16% year-over-year to $123 million, driven by our marketplace business. Q1 Marketplace revenue grew 24% year over year. We saw strength across many end markets, including semiconductors and industrial equipment, electronics, aerospace and defense, and automotive. Q1 Gross profit increased 22% year-over-year.

Randolph Brody Altschuler: As you can imagine, those are often, you know, group projects. And we also did talk about a large customer that we've been doing injection molding with. They started prototyping with us and have now gone to production, and that's being done in part because of their adoption of TeamSpace software. You know, our sales team is continuing to show that to customers, and we expect to get continued deeper penetration with our customers, particularly our enterprise customers using TeamSpace.

Randolph Brody Altschuler: Powered by AI, our marketplace continues to gain significant market share as buyers and suppliers realize the value convenience and resiliency of our platform to strengthen their supply chains globally.

Matthew George Hedberg: Yeah, that makes a ton of sense. And then maybe just as a follow-up on the guidance side of thinking about just kind of the macro implications. And then from macro indicators, PMIs improved a bit. Can you just give us a reminder on how you think about that in relation to your business, whether or not that's a good, you know, leading indicator? Yeah, thanks for that. So, as we talk about,

Randolph Brody Altschuler: In Q1, we grew revenue, 16% year over year to $123 million driven by a marketplace business.

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

Eric James Sheridan: Our next question comes from the line of Eric Sheridan of Goldman Sachs.

Randolph Brody Altschuler: Q1 marketplace revenue grew 24% year over year, we saw strength across many end markets, including semiconductors, and industrial equipment electronics, aerospace and defense and automotive.

Randolph Brody Altschuler: Q1, gross profit increased 22% year over year Q1 marketplace gross profit increased 37% year over year, driven by our AI powered marketplace and increasing network of active suppliers.

Randolph Brody Altschuler: Q1 Marketplace gross profit increased 37% year-over-year, driven by our AI-powered marketplace and increasing network of active suppliers. We expect to further expand marketplace gross margin and drive strong gross profit growth throughout 2024. On top of strong marketplace revenue and gross profit growth, we improved our adjusted EBITDA loss in Q1 by 37% on a year-over-year basis, driven by leverage in our core U.S. market.

Randolph Brody Altschuler: We expect to further expand marketplace gross margin and drive strong gross profit growth throughout 2024 on top of strong marketplace revenue and gross profit growth, we improved our adjusted EBITDA loss in Q1 by 37% on a year over year basis, driven by leveraging our core U S marketplace as our first quarter <unk>.

Randolph Brody Altschuler: As our first quarter results clearly show, with our market-leading position and the size of the available opportunity, we can drive strong revenue and gross profit growth and improve operating leverage, regardless of the manufacturing background. Of course, we want to grow as much as possible, which will not only strengthen our competitive moat but also enable us to achieve our long-term profit margins faster. Here are the investments we've been making to accelerate our results. First, expanding our network of active buyers. In Q1, active buyers increased 32% year over year, with net additions growing 8% quarter over quarter.

Randolph Brody Altschuler: <unk> clearly show with our market, leading position and the size of the available opportunity. We can drive strong revenue and gross profit growth and improved operating leverage regardless of the manufacturing backdrop of course, we want to grow as much as possible, which will not only strengthen our competitive moat, but also enable us to achieve our long.

Randolph Brody Altschuler: Term profit margins faster here.

Randolph Brody Altschuler: Here are the investments we've been making to accelerate our results first expanding our network of active buyers and suppliers in Q1 active buyers increased 32% year over year with net additions growing 8% quarter over quarter for 2024, we expect our active buyer growth to remain healthy.

Randolph Brody Altschuler: For 2024, we expect our active buyer growth to remain healthy as there are millions of potential buyers and Xometry brand awareness continues to improve. We will also continue to expand our supplier base globally with 36% growth in 2023. In Q1, we expanded our domestic network and added new partners in India, China, and Turkey. For our suppliers, we continue to enhance WorkCenter, the digital operating system for manufacturing. We are improving the overall experience for suppliers, reducing the effort required to review jobs, track material purchases, and monitor fabrication progress.

Randolph Brody Altschuler: As there are millions of potential buyers and geometry brand awareness continues to improve.

Randolph Brody Altschuler: We also continue to expand our supplier place globally with 36% growth in 2023.

Randolph Brody Altschuler: In Q1, we expanded our domestic network and added new partners in India, China and Turkey.

Randolph Brody Altschuler: Our suppliers, we continue to enhance work center the digital operating system for manufacturers, we are improving the overall experience for suppliers, reducing the effort required to review jobs track material purchases and monitor fabrication progress.

Randolph Brody Altschuler: Second, expanding the marketplace. We want to be the go-to destination for our customers' manufacturing needs. To help accomplish that, we need to provide instant quoting for as many manufacturing processes and materials as possible.

Randolph Brody Altschuler: Expanding the marketplace menu.

Randolph Brody Altschuler: We want to be the go to destination for our customers' manufacturing needs to.

Randolph Brody Altschuler: To help accomplish that we need to provide instant quoting for as many manufacturing processes and materials as possible like.

Randolph Brody Altschuler: Like any other industry, the faster and easier you can make it for someone to buy, the more traction you will get. In Q1, we continue to make progress doing just that. For example, in Europe, we expanded the Instant Coating Engine to include vacuum casting, so customers can take advantage of low-cost, high-quality plastic production.

Randolph Brody Altschuler: Like any other industry, the faster and easier you can make it for someone to buy the more traction you will get.

Randolph Brody Altschuler: In Q1, we continued to make progress doing just that for example in Europe. We expanded the instant quoting engine to include vacuum casting for customers to take advantage of low cost high quality plastic production.

Randolph Brody Altschuler: To further expedite our deployment of new auto-quoted processes within Xometry's AI-powered instant quoting engine, in Q4 of 2023, we partnered with Google's Verdex AI team. Our progress has been encouraging, and in the third quarter of this year, we expect to test multiple new autoquoting models with our U.S. and then European customers. Third, driving deeper enterprise engagement. Some of our biggest customers are the largest companies in the world. While our growth within these accounts has been strong over the years, there's a terrific opportunity to significantly accelerate their adoption of Xometry. To make that happen, we have a two-pronged approach.

Randolph Brody Altschuler: Further expedite our deployment of new auto quarterly processes within <unk> AI powered instant quoting engine in Q4 of 2023, we partnered with Google's verdicts AI team.

Randolph Brody Altschuler: Our progress has been encouraging and then third quarter of this year, we expect to test multiple new auto quoting models with our U S and then European customers.

Randolph Brody Altschuler: Third driving deeper enterprise engagement.

Randolph Brody Altschuler: Some of our biggest customers are the largest companies in the world.

Randolph Brody Altschuler: Our growth within these accounts has been strong over the years, there's a terrific opportunity to significantly accelerate their adoption of geometry.

Randolph Brody Altschuler: First, we are leading with our technology. In addition to reducing friction for customers by integrating purchasing directly into the ERP systems, we have deployed and continue to enhance our Teams-based software. Teamspace moves the Xometry marketplace from a focus on individual buyers and parts to procurement teams managing programs. The feedback remains positive, with rapid adoption, including over 2,300 teams and strong engagement on the platform. This year, we've already integrated new features for our injection molding offering directly into Teams, which includes a tooling dashboard providing engineering review and fabrication status.

Randolph Brody Altschuler: To make that happen we have a two pronged approach first we are leading with our technology.

Randolph Brody Altschuler: In addition to reducing friction for customers by integrating purchasing directly into the ERP systems.

Randolph Brody Altschuler: We have deployed and continue to enhance our team stay software.

Randolph Brody Altschuler: <unk> space moves the geometry marketplace from a focus on individual buyers and parts to procurement teams managing programs. The feedback remains positive with rapid adoption, including over 2300 teams and strong engagement on the platform. This.

Randolph Brody Altschuler: This year, we've already integrated new features for our injection molding offering directly into teen space, which includes a tooling dashboard, providing engineering review and fabrication status.

Randolph Brody Altschuler: Second, we continue to invest in our enterprise sales effort, increasing our bench strength and ramping up our sales force to service and grow relationships with our largest customers. We are making progress with global companies as they look for a technology partner to help manage dispersed and complex supply chains. In the United States, a leading global medical device company chose Xometry for an injection molding production program after first prototyping with their platform.

Randolph Brody Altschuler: Second we continue to invest in our enterprise sales effort, increasing our bench strength and ramping our sales force to service and grow relationships with our largest customers. We are making progress with global companies as they look for a technology partner to help manage dispersed and complex supply chains.

Randolph Brody Altschuler: In the United States, a leading global medical device company chose <unk> for an injection molding production program at your first prototyping with our platform the.

Randolph Brody Altschuler: The company found value in our quality, time to deliver, and increasing ease of management with their new Teams-based software. We expect to see continued growth with this customer in the quarters ahead as they look to Xometry for additional injection molding services and other manufacturing processes that we bring to market. Also in Q1, we signed a multi-year agreement with a European customer in the vehicle and delivery space. Xometry was chosen due to the breadth of our market. Using the network of suppliers in the Xometry Marketplace, this customer doesn't need to build and manage their own supply chain for their critical product.

Randolph Brody Altschuler: The company found value in our quality time to deliver an increasing ease of management with our new team space software.

Randolph Brody Altschuler: We expect to see continued growth with this customer in the quarters ahead as they look to <unk> for additional injection molding services and other manufacturing processes that we bring to market.

Randolph Brody Altschuler: Also in Q1, we signed a multi year agreement with a European customer in the vehicle and delivery space Zamindari was chosen due to the breadth of our marketplace using the network of suppliers and as amatory marketplace. This customer doesn't need to build and manage their own supply chain for their critical product.

Randolph Brody Altschuler: 4th Growing International, In Q1, international revenue increased 69% year over year, driven by strong growth in Europe. In 2024, we continue to push deeper into our existing international market. In Q1, we added Czech as a language to our EU site.

Randolph Brody Altschuler: Fourth growing internationally in.

Randolph Brody Altschuler: In Q1 international revenue increased 69% year over year, driven by strong growth in Europe and.

Randolph Brody Altschuler: In 2024, we continue to push deeper in our existing international markets. In Q1, we added check is the language in our EU site.

Randolph Brody Altschuler: Through Xometry.eu, Xometry.uk, and Xometry.asia, we have leveraged Xometry's core technology to provide localized marketplaces in 15 different languages with networks of suppliers across Europe and Asia, as well as North America. In Q1, international revenue accounted for 18% of total marketplace revenue. We believe international online retail sales can reach the 30% to 40% level in the long term, as is the case with many other global online markets. Fifth, enhancing supplier services solutions.

Randolph Brody Altschuler: Through <unk> Dot EU, Dominic <unk> dot UK and damage that Asia, we have leveraged <unk> core technology to provide localized marketplaces in 15 different languages with networks of suppliers across Europe, and Asia as well as North America.

Randolph Brody Altschuler: In Q1 international revenue accounted for 18% of total marketplace revenue.

Randolph Brody Altschuler: We believe international can reach the 30% to 40% level in the long term as as with many other global online marketplaces.

Randolph Brody Altschuler: Fifth enhancing supplier services solutions in Q1, we continued to invest in important foundational work to modernize the Thomas advertising platform.

Randolph Brody Altschuler: In Q1, we continue to invest in important foundational work to modernize the Thomas Advertising Platform. We remain focused on restoring Thomas Advertising growth given the 85% plus gross margins and strong contribution opportunity of the platform. We are now beta testing new self-serve advertising campaign creation tools for suppliers.

Randolph Brody Altschuler: We remain focused on restoring Thomas advertising growth, given the 85% plus gross margins and strong contribution opportunity of the platform we.

Randolph Brody Altschuler: We are now beta testing, new self serve advertising campaign creation tools for our suppliers.

Randolph Brody Altschuler: While still early, we're seeing some positive signs of supplier engagement, including end-to-end self-serve campaign configuration. We expect returns on these investments to be. We've made similar bets in the past, and they've paid off. For example, in 2019, we invested in international expansion, launching in Europe in early 2020. We scaled the international business from $3 million in revenue in 2020 to over $60 million in fiscal year 2023. In addition, we continue to invest in our machine learning-based AI, which is fueling marketplace gross margin expansion.

Randolph Brody Altschuler: While still early we're seeing some positive signs in supplier engagement, including end to end self serve campaign configuration and check out we expect to returns on these investments to be strong we made similar bets in the past and they paid off for example in 2019, we invested in in international expansion launching in Europe.

Randolph Brody Altschuler: In early 2020, we scale the international business from $3 million in revenue in 2020 to over $60 million in fiscal year 2023.

Randolph Brody Altschuler: In addition, we continue to invest in our machine learning based AI, which is fueling marketplace gross margin expansion. When we went public in the middle of 2021, our marketplace gross margin was in the 24% range and we ended Q1 of this year at 32%.

Randolph Brody Altschuler: When we went public in the middle of 2021, our marketplace gross margin was in the 24% range, and we ended Q1 of this year at 32%. Improving our scale and revenue in gross profit dollars provides a clear path to profitability. Coupled with those investments, we remain committed to delivering improving operating leverage each quarter, which James will discuss in more detail. I'm proud of the collective efforts of our team worldwide. Our continued strong growth demonstrates the significant strides we're making to digitize manufacturing supply chains. I'll now turn the call over to James for a more detailed review of Q1 in our business. Thanks, Randy. And good morning, everyone.

Randolph Brody Altschuler: Improving our scale and revenue and gross profit dollars provides a clear path to profitability.

Randolph Brody Altschuler: Coupled with those investments, we remain committed to delivering improving operating leverage each quarter, which James will discuss in more detail.

Randolph Brody Altschuler: I'm proud of the collective efforts of our team worldwide. Our continued strong growth demonstrates the significant strides, we're making to digitize manufacturing supply chain I'll now turn the call over to James for a more detailed review of Q1, and our business outlook. Thanks, Randy and good morning, everyone.

James Milne: As Randy mentioned, Q1 revenue increased 16% year over year to 123 million, driven by strong marketplace growth. Q1 marketplace revenue was 107 million, and supplier services revenue was 15.5 million. Q1 marketplace revenue increased 24% year over year and was stronger than expected, as large order activity improved from the early soft start in January, which we discussed on our Q4 2023 earnings call. Q1 active buyers increased 32% year-over-year to 58,504, with a net addition of 3,179 active buyers.

Randolph Brody Altschuler: Thank you. Yeah, Eric, it's Randy. I'll jump in here, and James can jump in afterwards. So, you know

James Milne: Thanks, Randy. And good morning, everyone.

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

James: As Randy mentioned Q1 revenue increased 16% year over year to $123 million driven by strong marketplace growth Q1 marketplace revenue was $107 million and supply of services revenue was $15 5 million Q1 marketplace revenue increased 24% year over year and was stronger than expected as large.

Randolph Brody Altschuler: Eric, it's Randy. I'll jump in here, and James can jump in afterwards. So, you know, as I think we talked about particularly this year, we're really focused on going deeper in our existing geographies. So we, you know, we've set up the infrastructure there. We've got our site in 15 different languages. We've localized it.

Randolph Brody Altschuler: We've got sales teams that are there and have sort of built the infrastructure. So these are giant markets. While we're very proud of the growth that we've seen in international markets, we know that even within the existing markets, it's going to be a lot larger. So I think you should expect to see us gain some real leverage off those investments we've made in the existing markets. Aaron Heidman, are you still there?

Operator: Operator, did we need Eric to do that?

Operator: I'm assuming we lost him, but we'll be moving on. Thank you. Our next question comes from the line of Greg Palm on Craig Allen.

James: Order activity improved from the early soft start in January which we discussed on our Q4 2023 earnings call.

James: Q1 active buyers increased 32% year over year to 58500, <unk> four with a net addition of 3179 active buyers.

James Milne: Q1 Marketplace revenue per active buyer decreased 6% year-over-year, primarily due to the impact of a soft start for larger orders in the quarter. The number of accounts with a last 12 month spend of at least $50,000 on our platform increased 25% year over year to 1,381, with 50 net new accounts, as we continue to deepen our relationships with our customers across many end markets. Supplier services revenue declined 17% year over year in Q1, primarily driven by the discontinuation of the sales of tools and materials in the US.

James: Q1 marketplace revenue per active buyer decreased 6% year over year.

James: D G to the impact of a soft start for larger orders in the quarter.

James: The number of accounts with last 12 month spend of at least $50000 on our platform increased 25% year over year to 1381 with 50 net new accounts as we continue to deepen our relationships with our customers across many end markets.

James: Supplier services revenue declined 17% year over year in Q1, primarily driven by the discontinuation of the sales of tools and materials in the U S.

James Milne: As Randy mentioned, we are modernizing the Thomas advertising platform and are now testing new self-serve advertising tools for suppliers. The number of active paying suppliers for Q1 2024 was 7,159 on a trailing 12 month basis, a decrease of 6% year over year. Excluding the impact of the exit of the tools and materials business, active paying suppliers were down approximately 2% year over year.

James: As Randy mentioned, we are modernizing the Thomas advertising platform and are now testing new self serve advertising tools for suppliers.

James: Of active paying suppliers for Q1 2024 was 7159 on a trailing 12 month basis, a decrease of 6% year over year.

James: Excluding the impact of the exit of the tools and materials business active paying suppliers was down approximately 2% year over year Q1, gross profit was $47 9 million an increase of 22% year over year with gross margin of 39 point Theyre, 8% Q1 gross margin for marketplace was a record 32 points area.

James Milne: Q1 gross profit was $47.9 million, an increase of 22% year over year, with a gross margin of 39.0%. Q1 gross margin for marketplace was a record 32.0%, up 320 basis points year over year. Q1 Marketplace gross profit dollars increased 37% year over year. We are focused on driving marketplace gross profit dollar growth through the combination of top line growth and gross margin expansion. Q1 Gross Margin for Supplier Services was 87.9%, driven by the high gross margin of Thomas Marketing and Advertising Services.

James: <unk> up 320 basis points year over year.

James: Q1 market place gross profit dollars increased 37% year over year.

James: We are focused on driving market place gross profit dollar growth to the combination of topline growth and gross margin expansion Q.

James Milne: Q1 gross margin for supply of services was 87, 9% driven by the high gross margin of Thomas marketing and advertising services.

James Milne: Supplier services gross margin increased more than 10 percentage points year-over-year due to the discontinuation of the sale of tools and materials, which carried a significantly lower gross margin. Q1 total non-GAAP operating expenses increased 9% year over year to $55.5 million.

James Milne: <unk> services gross margin increased more than 10 percentage points year over year due to the discontinuation of the set of tools and materials, which carried significantly lower gross margin moving onto Q1 operating costs.

James Milne: Q1, total non-GAAP operating expenses increased 9% year over year to $55 5 million.

James Milne: Within our operating expenses, sales and marketing is our largest component. In Q1, non-GAAP sales and marketing expenses increased 21% to $24.9 million, as compared to $20.6 million in Q1 2023. This increase was driven by the hiring of additional salespeople to support enterprise and international growth. Q1 advertising spend increased 2% year-over-year to $8.3 million, or 7.8% of marketplace revenue, down 160 basis points from 9.4% a year ago, as we maintain discipline on advertising efficiency.

James: Within our operating expenses sales and marketing is our largest component.

James Milne: In Q1, non-GAAP sales and marketing expenses increased 21% to $24 9 million as compared to $20 6 million in Q1 2023.

James Milne: This increase was driven by the hiring of additional salespeople to support enterprise and international growth.

James Milne: Q1 advertising spend increased 2% year over year to $8 3 million or seven 8% of marketplace revenue down 160 basis points from nine 4% a year ago as we maintained discipline on advertising efficiency.

James Milne: Q1 adjusted EBITDA loss was 7.5 million, or 6.1% of revenue, compared with 11.2% of revenue in Q1. Adjusted EBITDA loss improved 4.3 million year-over-year, or 37%, driven by growth in revenue and gross profit. At the end of the first quarter, cash and cash equivalents, and marketable securities were $254 million.

James Milne: Q1, adjusted EBITDA loss was $7 5 million or six 1% of revenue compared with 11, 2% of revenue in Q1 2023.

James Milne: Q1, adjusted EBITDA loss improved $4 3 million year over year, or 37% driven by growth in revenue and gross profit at the end of the first quarter cash and cash equivalence and marketable securities were $254 million before moving to our guidance I'd like to share my early thoughts on voluntary and our path to profitability.

James Milne: Before moving to our guidance, I'd like to share my early thoughts on Xometry and our path to profitability. Since joining Xometry two months ago, I have been able to dive deep into our business and discover some of the customer stories that drive our 58,000 plus buyers to transact on our leading global market. In a massive structural change for our industry, our AI-powered quoting engine provides real-time instant pricing and lead times for our buyers as it matches them with the optimal supplier.

Gregory William Palm: Yeah, thanks. Good morning, everyone.

Gregory William Palm: Since joining cemetery two months ago, I've been able to dive deep into our business and discover some of the customer stories that drive our 58000, plus buyers to transact on a leading global marketplace and.

Gregory William Palm: I wanted to dig in a little bit more on the investment side of things. And I guess my question is more or less, you know, why now? You know, if I think back to maybe the last year, I feel like it was more characterized by sort of operational discipline. And, you know, sort of targeting that, you know, sort of EBITDA profitability. And it sounds like you're changing that a little bit and ramping up investments now, which, you know, pushes out EBITDA profitability, by my math, I think, to next year, based on the implied guide for the second half. Maybe you can confirm that, but just a little bit more sort of color on, you know, exactly what you're doing, and the timing around it. And then, I guess, more importantly, at sort of what point will we see some of those benefits?

Gregory William Palm: And a massive structural change for our industry. Our AI powered quoting engine provides real time instant pricing and lead times for our bias as it matches them with the optimal supplier.

James Milne: As we scale our networks of buyers and suppliers, our machine learning AI gets smarter, delivering more efficient pricing and improving gross margin for Xometry. Our teams are dedicated and hardworking and passionate about the customers and markets we serve. The market opportunity is very large, reinforcing our goal of driving compounding growth for many years to come. As we work to realize our long-term potential, I'm going to leverage my prior finance and operating experience to apply stronger discipline and rigor to our capital and resource allocation across sales and marketing, operations, product development, and G&A.

Gregory William Palm: As we scale on networks of buyers and suppliers are machine learning AI gets smaller delivering more efficient pricing and improving gross margin to geometry.

James Milne: Our teams are dedicated and hardworking and passionate about the customers and markets we serve.

James Milne: The market opportunity is very large reinforcing our goal of driving compounding growth for many years to come.

James Milne: As we worked to realize our long term potential I am going to leverage my prior finance and operating experience to apply stronger discipline and rigor to our capital and resource allocation across sales and marketing operations product development and G&A as we continue to scale our revenue and gross profit. We believe that we can reach adjusted <unk>.

James Milne: As we continue to scale our revenue and gross profit, we believe that we can reach adjusted EBITDA break-even as we surpass an approximately $600 million annual revenue run rate. At that level, targeting a gross margin of 38% to 40%, we believe that there is room for growth investments while improving our operating expense efficiency. As we scale the business above the $600 million level, we would expect a healthy flow-through of incremental margin. Entering 2024, we continue to invest in our sales team and international growth. Coupled with the inflationary impact on overall costs, operating expenses increased by approximately $3.6 million quarter over quarter.

James Milne: EBITDA breakeven as we surpassed an approximately $600 million annual revenue run rate at that level targeting a gross margin of 38% to 40%. We believe that there is room for growth investments, while improving our operating expense efficiencies as we scaled the business above the $600 million level right.

Randolph Brody Altschuler: Sir, this is Randy. Look, when we brought in James as our new CFO, I asked him to work with me and the rest of our team to refine and then really validate the healthiest past profitability into our long-term operating margin, and this included having operating expenses a little higher than expected. So as a result, we feel that, and this is just right to your question, a $600 million run rate, so about $150 million per quarter, is the appropriate level for break even. Underlying marketplace metrics are healthy across buyers, pricing, margins, and suppliers, despite an uncertain macro, and we're going to continue to execute on a strong roadmap of growth initiatives.

James Milne: Yeah, Greg, this is James. So just building on, you know, Randy saying that, so I think it's a first quarter results clearly show that with our market-leading position and the size of the opportunity, we can drive strong revenue and gross profit growth and improve leverage. So with marketplace growth up 24 percent, and marketplace gross profit dollar growth at 37. And as Randy said, we've been working on what's the healthiest path to profitability so that we can continue to invest responsibly in our long-term growth initiatives. At the same time, 1QFX did come in a little more than expected.

James Milne: We would expect to healthy flow through of incremental margin entering 2024, we continue to invest in our sales team and international growth coupled with the inflationary impact on overall costs operating expenses increased approximately $3 6 million quarter over quarter.

James Milne: We believe that we can drive a healthy return from these investments and have also identified efficiency opportunities. For example, in supplier services, we expect an approximately $1 million a quarter improvement in the second half of 2024 from the first half of 2024, driven by further optimization of operating costs. Now, moving on to guidance.

James Milne: Behind the investments that we're making, as well as some inflationary impact on overall expenses that we've seen across areas like employee benefits, software costs, and others. So as we refine and validate that path forward, we believe that we can reach our targets to do so even as we surpass this approximately 600 million annual revenue run rate. At 424, we do expect to see continued leverage. As you can see, you know, we've given you guidance overall on annual revenue. I think we'll update you as we go, you know, in future quarters.

James Milne: We believe that we can drive a healthy return from these investments and have also identified efficiency opportunities.

James Milne: For example, and supplier services, we expect an approximately $1 million a quarter improvement in the second half of 2024 from the first half of 2024, driven by further optimization of operating cost.

James Milne: We expect Q2 2024 revenue in the range of $127 to $129 million, representing year-over-year growth of 14 to 16%, or 15 to 17% adjusting for the discontinuation of the sale of tools and materials. We expect Q2 marketplace growth to be approximately 20% year over year. We remain focused on our growth initiatives despite an uncertain manufacturing environment. We expect Q2 supply services to be down approximately 15% year-over-year, primarily due to the exit of the tools and materials business in May 2020.

Gregory William Palm: Yep, okay, that makes sense. And I just want to dig in a little bit more to Q1 specifically. Yeah, you were very clear, you initially guided Q1 based on what you saw in January, and you outperformed above the previous range. So can you just give us some sense of what you saw in February and in March? And then to be clear, can you give us a little bit of color on what you're seeing April?

James Milne: Now moving onto guidance, we expect Q2 2024 revenue in the range of $127 million to $129 million representing year over year growth of 14% to 16%.

Gregory William Palm: <unk>, 15% to 17% adjusting for the discontinuation of the set of tools and materials, we expect qt marketplace growth to be approximately 20% year over year.

Gregory William Palm: And is the Q2 guide similar to how you guided last quarter, where it's based on what you're seeing in April? Or is it more based on kind of what you've seen year to date and making some assumptions on, you know, sort of how May and June trends might play out?

James Milne: Yeah, thank you, Greg. It's James.

Gregory William Palm: We remain focused on our growth initiatives. Despite an uncertain manufacturing environment, we expect Q2 supply services to be down approximately 15% year over year, primarily due to the exit of the tools and materials business in May 2023.

James Milne: So yeah, as we said, really pleased with the 24% year-over-year growth. It was better than expected as that large order activity improved from the early soft start that we talked about on the Q4 2023 earnings call. I think it really demonstrates our ability to execute. However, it remains an uncertain manufacturing environment. So as we look at our trends, as we look at Q2, as well as taking into account the risks, uncertainties, and opportunities in this environment, we built that into the guidance range for Q2.

Gregory William Palm: Okay, and any color on what you saw in April versus maybe February, March, and Q1 in general?

James Milne: In Q2, we expect adjusted EBITDA losses to be in the range of 6 to 8 million and adjusted EBITDA margin of negative 4.7 to negative 6.2%, improving from a loss of $8.7 million and 7.8% of revenue in Q2 2020. In Q2, we expect stock-based compensation expense to be approximately 7 to 8 million, or approximately 5 to 6% of revenue.

Gregory William Palm: In Q2, we expect adjusted EBITDA loss to be in the range of $6 million to $8 million and adjusted EBITDA margin of negative $4 seven to negative six 2% improved.

James Milne: Improving from our losses, $8 7 million and seven 8% of revenue in Q2 2023.

James Milne: In Q2, we expect stock based compensation expense to be approximately $7 million to $8 million or approximately 5% to 6% of revenue for.

James Milne: For 2024, we continue to expect marketplace growth of at least 20% year over year and expect supply services to be down approximately 10% year over year. We expect to continue to improve our year-over-year profitability through 2024, driven by operating levels. Since underlying marketplace metrics are healthy, we're going to continue to execute on our strong roadmap of initiatives outlined earlier by Randy. With that, operator, can you please open up the call for questions?

James Milne: For 2024, we continue to expect marketplace growth of at least 20% year over year and expect supply services to be down approximately 10% year over year, we expect.

James Milne: To continue to improve our year over year profitability through 2024, driven by operating leverage.

James Milne: Since underlying marketplace metrics are healthy we're going to continue to execute on our strong roadmap of initiatives outlined earlier by Randy.

James Milne: We're not going to provide any more color on Matthew on what Okay. All right. Fair enough. All right. Thanks and best of luck.

James Milne: That operator can you. Please open up the call for questions.

Speaker Change: Thank you.

Gregory William Palm: Thank you.

Operator: Thank you. At this time, I'd like to remind everyone that in order to ask a question, press the star and the number one on your telephone keypad. Your first question comes from the line of Nick Jones, JNP.

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

Speaker Change: This time I'd like to remind everyone that in order to ask a question press star and the number one either telephone keypad.

Operator: Your first question comes from the line of Nick Jones JMP.

Nicholas Freeman Jones: Your line is okay. Thanks, Kurt.

Nicholas Freeman Jones: Thanks. Thanks for taking the questions.

Nicholas Freeman Jones: Thanks, Thanks for taking the questions.

Nicholas Freeman Jones: As we think about kind of <unk> guidance and you know.

Nicholas Freeman Jones: If you think about kind of QQ Guidance and, and, you know, when you provided 1Q guidance, I think you pegged it to kind of trends in January. Can you kind of elaborate on kind of what's informing the 2Q guidance? Is it kind of quarter of the day trends where you're really pegging to kind of what you're seeing here or what level of conservatism is baked in? Or, I guess, can you try to provide a little more color as to kind of what informed the top line guidance for 2Q? And then I have a follow-up.

Nicholas Freeman Jones: When you provided <unk> guidance I think you pegged it to kind of.

Nicholas Freeman Jones: And trends in January can you guys elaborate on kind of what's informing that your guidance is it kind of quarter to date trends.

Nicholas Freeman Jones: When you really dig into kind of what youre seeing here or what level of conservatism is baked in or I guess can you try to provide a little more color as to kind of what form the.

Nicholas Freeman Jones: The topline guidance for <unk>, and then I have a follow up.

Speaker Change: Hey, guys. Thanks, Jay Thanks for the question.

James Milne: Hey Nick, it's James. Thanks for the question. We're really pleased with our Q1 performance across the board, including 24% marketplace revenue growth and 37% gross profit growth. As Randy mentioned earlier, we saw some strength across many end markets, and it's becoming more important for our largest customers, and we're really clearly taking share powered by an AI-driven marketplace. As we look into Q2, you know, we look at the trends that we're seeing in our business and the healthy marketplace trends, as well as take into account the opportunities and risks that we see ahead given the uncertain manufacturing environment, and that's built into the guidance range that we've given for the quarter.

Operator: Please wait; the conference will begin shortly.

James Milne: We are really pleased with our Q1 performance across the board, including 24% marketplace revenue growth in the 37% gross profit growth.

Operator: As Randy mentioned earlier, we saw some strength across many end markets that are becoming more important for our largest customers.

Operator: We're clearly taking share powered by AI driven marketplace.

Operator: As we look into Q2, we look at the trends that we're seeing in our business and healthy marketplace trends as well as taking into account the opportunities and risks that we see ahead, given the uncertain manufacturing environment.

Operator: And that's built into the guidance range that we've given for the quarter.

Operator: Great and then.

Nicholas Freeman Jones: Great. And then, you know, there's some volatility and revenue per active buyer. I think you called out larger orders, kind of thinking about the year so far. Can you speak to kind of just overall order volume or demand for orders? I mean, are orders or conversions pretty consistent, and it's really just kind of squishiness in pricing or how much people are willing to spend? Any additional color there would be great. James will come again.

Nicholas Freeman Jones: Is there some.

Nicholas Freeman Jones: And revenue per active buyer.

Nicholas Freeman Jones: I think you called out larger orders.

James Milne: Got it got it.

Nicholas Freeman Jones: Sorry to hear so far can you speak to kind of just overall order volume.

Nicholas Freeman Jones: Our demand for orders I mean, our kind of orders or conversions pretty consistent and it's really just kind of a squishing us and pricing.

Nicholas Freeman Jones: Or how much people are willing to spend any additional color there would be great.

James Milne: Hey, Nick.

James Milne: Hey Nick. Yeah, James again.

Nicholas Freeman Jones: Yes, James again, so really pleased that active buyer growth in the quarter up 32%.

James Milne: So, you know, really pleased with our active buyer growth in the quarter, up 32% year over year, adding 3,179 buyers. And that was up 8% quarter on quarter. As we said, the revenue buyer in the quarter was somewhat impacted by the mix of larger orders. But as we look across the marketplace, you know, pricing and conversion and active buyers and suppliers, we're pleased with what we're seeing there. A lot of consistent trends with what we've seen in the past few quarters. And then as we look at that again, that's reflected in our guidance going forward.

James Milne: Year over year, adding 3179, so that was up 8% quarter on quarter.

James Milne: We said that.

James Milne: <unk> in the quarter with somewhat impacted by the mix.

James Milne: Mix of larger orders as we look across the marketplace.

James Milne: <unk> and conversion in active buyers and suppliers.

James Milne: We're pleased with what we're seeing that consistent trends with what we've seen in the past few quarters.

James Milne: And then as we look at that again, that's reflected in our guidance going forward.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

James Milne: Your next question comes from the line of Jake <unk> of Citibank.

Jake Howe: Your next question comes from the line of Jake Howe of Citibank.

Jake Howe: Your line is open.

Jake Howe: Hey, guys. Thanks for taking the question.

Jake Howe: Hey guys, thanks for taking the question. James, I just would love to hear more about where you see the most opportunities on the advertising side. Maybe you could elaborate a little bit more in terms of certain enhanced search as well as things potentially we should be aware of or keeping in mind on the roadmap where you see the biggest opportunities given your prior relevant experience there. Thanks so much.

Jake Howe: So I just would love to hear more about.

Jake Howe: Where you see the most opportunities on the advertising side, maybe you could elaborate a little bit more in terms of.

Jake Howe: Search and search as well.

Jake Howe: Things potentially we should be aware of or keeping in mind on the roadmap, where you see the biggest opportunity given your higher relevant experience there. Thanks so much.

Jake Howe: Hey, Jason Thank you and I assume you're talking about Thomas Thomas net supply services.

Jake Howe: Hey, Jake. Thank you. And I assume you're talking about Thomas and the Thomas Net Supplier Services?

Jake Howe: Yeah, Yeah I mean.

Jake Howe: Yeah, yeah, I mean, partly what you see. In terms of self-service capabilities, we've seen some announcements there, and we're beta testing some things, but, you know, we'd really love to hear what we should expect for the product on the product side this year.

Jake Howe: Aren't we.

Jake Howe: Partly what what you see.

Jake Howe: In terms of self service capabilities and you've seen some announcements.

Jake Howe: Beta testing some things.

Walter: Hello, Walter here.

Jake Howe: What we should expect from a product on the product side.

Jake Howe: And this year thanks.

Randolph Brody Altschuler: Yeah, and thanks for the question. This is Randy jumping in.

Jake Howe: And thanks for the question this is Randy jumping in so.

Randy: We're enhancing that.

Randolph Brody Altschuler: So, you know, we're enhancing, as we've talked about now, we've been investing in enhancing the ThomasNet platform and the journey for both the searchers and for the advertisers. So on the searching side, we are making enhancements to the accuracy of the search. We're looking at different ways to display that search, you know, sort of modernize it from the search end of it. And then on the supplier side, you know, the advertising side, we talked about moving to a pay-per-performance model, and we've been beta testing that as well.

Randy: Now we've been investing in enhancing the commerce platform and the journey for both the searchers and for the advertisers. So on the <unk> side, we are putting enhancements to the accuracy of our search we're looking at different ways to display that surge modernize it from the search and debates.

Randolph Brody Altschuler: And then on the on the.

Randolph Brody Altschuler: <unk> side or the advertising side, we talked about moving to a pay per performance model.

Randolph Brody Altschuler: So that will help guarantee better search results for the searchers and a better ROI for the advertisers. And we've been, you know, working on this for a number of quarters. And as we said this quarter, we started beta testing it, or in Q1, we started beta testing it, and early results are positive.

James Milne: Yeah, and Jay, I just, you know, like looking, I think that ThomasNet gives us an exciting opportunity, you know, that really complements the marketplace, and that, you know, as Randy mentioned, there are a lot of opportunities to prove the performance there and the experience for our customers and suppliers. So I'm looking forward to working with the team on improving that as we go forward.

Jake Howe: Thanks, that's helpful. And just a quick follow-up. In terms of investment priorities, Randy, really great to hear you lay those out and provide some clarity there. Could you speak to any plans for headcount increases this year, tying it back to those various areas? Thanks.

Speaker Change: Could you speak to any plans for headcount increases this year tying it back to those various areas.

Randy: You know, we don't really comment about specifically you know head count I think in general you know, where we are trying to be rational with our cost as we wish we'd push you nose to the profitability. So we're gonna be balancing that and we'll make those head count selectively Marriott that the lineup with our initiatives.

Randolph Brody Altschuler: You know, we don't really comment about specifically, you know, headcount. I think, in general, we're trying to be rational with our costs as we push for profitability. So we're going to be balanced in that, and we'll make those headcounts selectively in areas that line up with our agenda. And I think, in particular, we did call out, you know, on the enterprise sales. We've been increasing our event strength here, and that's, and investing in that. So that's why you saw some uptick in the sales expense quarter.

Randolph Brody Altschuler: And I think in particular, we didn't call out you know on the enterprise sales, we've been increasing our bench strength here and that's and investing in that so that's why you saw some uptick in the and the sale of expense quarter over quarter.

Speaker Change: Okay. Thanks, so much.

Jake Howe: Okay, thanks so much.

Speaker Change: Thank you.

Brian Paul Drab: Thank you. Our next question comes from the line of Brian Drab of William Blair. The line is open.

Jake Howe: Our next question comes from the line of Brian Drab of William Blair.

Brian Paul Drab: Your line is open.

Brian Paul Drab: Hey, guys. This is Tyler on for Brian I appreciate you taking my questions.

Tyler: Hey guys, this is Tyler on for Brian. I appreciate you taking my question. Just to start off with, can you explain the sequential improvement in Marketplace gross margin? Obviously, Marketplace revenue was down sequentially, and you... Can you just explain what actually happened there, so it was just finding suppliers for jobs at lower prices? Thank you.

Tyler: Just to start off with can you explain the sequential improvement and marketplace gross margin, obviously marketplace revenue was down sequentially and you.

Speaker Change: So can you.

Tyler: Just explain what actually happened there. So it was just finding suppliers for jobs at lower prices. Thank you and then I have a follow up.

Tyler: Okay.

Tyler: You cut out a little bit there, but I think you're asking about our gross margin performance in the quarter and the improvement year-over-year and sequentially. We were very pleased with this performance. As I mentioned on the call, Q1 marketplace gross margin was a record at 32.0%, up 320 basis points year-over-year and up 70 basis points quarter-over-quarter. This drives our gross profit, which we saw gross profit growth of 3

Speaker Change: Cut out a little bit bad, but I think youre asking about our gross margin performance in the quarter an improvement.

Tyler: Year over year and sequentially.

Tyler: We are very pleased with this performance as I mentioned on the call Q1 marketplace gross margin was a record at 32.0% up 320 basis points year over year, and up 70 basis points quarter over quarter.

Tyler: This drives our gross profit.

Tyler: Gross profit growth of 37%.

James Milne: Yeah, one thing I do want to add, Ms. Randy, just to be clear, and you were cutting out a little bit, but we are seeing consistent pricing trends across the marketplace, consistent with what we saw in the first quarter and last year as well. As James talked about, we're seeing gross margin improvement as we get more data that empowers our algorithms and as we grow our number of suppliers. But overall, pricing trends are very consistent over the last first quarter, currently since the first quarter and also last.

Speaker Change: Yeah, one thing I do want to add and as Randy.

James Milne: Just to be clear and you sort of you were cutting out a little bit but we.

James Milne: So we are seeing consistent pricing trends across the marketplace.

James Milne: This is what we saw in the first quarter and last year as well so.

James Milne: You know as James talked about and you.

James Milne: We're seeing gross margin improvement as we get more data and that empowers, our our algorithms and as we grow our number of our suppliers, but but overall you know frankly trends are very consistent over the lack of finished first quarter currently since first quarter and also last year as well.

James Milne: Okay.

Randolph Brody Altschuler: Okay, sounds good. And I apologize for cutting out. Let me know if it's really coming in choppy.

Randolph Brody Altschuler: Okay. It sounds good and I apologize for coming out let me know if it's really coming in choppy, but my follow up is with your Google Cloud partnership is that going to impact. How you currently auto quote or is this just for bringing on new services. Like for example, if someone went to go quote our CNC service right now that new partnership hasn't.

Tyler: But my follow-up question is, with your Google Cloud partnership, is that going to impact how you currently auto-quote? Or is this just for bringing on new services? Like, for example, if someone went to go quote a CNC service right now, that new partnership hasn't changed how that algorithm is working.

Tyler: Changed how that algorithm is working thank you.

Tyler: The algorithm is intended to.

Tyler: Shorten the time that.

Tyler: Yeah, we can launch new auto quota processes and as we mentioned in the script, we expect in the third quarter to.

Tyler: To start testing multiple new processes in the third quarter first here in the United States with U S customers and in Europe. That's the focus of the partnership Yeah. Tao. There's nothing you know from the Google partnership that's influenced the algorithms here in the first quarter.

Speaker Change: Alright, Thank you guys I'll pass it along.

Speaker Change: Thank you.

Tyler: Thank you.

Tyler: The next question comes from the line of Matt Swanson with RBC.

Speaker Change: Your line is open.

Speaker Change: Oh, great. Thank you so much for taking my questions.

Tyler: Jim I know, it's still early days for team space, but maybe thinking more so unlike the customer feedback side could you just discuss the ability of the solution to help you maybe become more pervasive or deeper into your customers and then also kind of enhance that value proposition as a platform versus the tool and then at scale.

Tyler: Is there any thoughts on how this might be able to help with revenue visibility.

Tyler: Yeah.

Tyler: Yeah. This is Randy I'm, not a particularly the first part of it. So we are very pleased with the acceptance and adoption that we're seeing a team stays we have over 2300 odd teams right now which is at a really nice increase since.

James Milne: The algorithm is intended to, you know, shorten the time that we can launch new auto-coded processes. And as we mentioned in the script, we expect in the third quarter to start testing multiple new processes in the first year in the United States with U.S. customers and then Europe; that's the focus of the partnership.

James Milne: Since we last reported we've also been making enhancements. So it can be not just you'd pointed you know did it really enhance the platform and go deeper in your enterprise customers in particular, because we talked about during the call that includes linking in enhancements, we're making with our injection molding offering and cool libraries and being able to ship.

James Milne: It and run it all through the routine space because as you can imagine those are often a group projects and we also did talk about a large customer that we've been doing injection molding Whitney started prototyping listen now into production.

James Milne: And that's been done in part because of their adoption of other teams based software.

James Milne: Our sales team is continuing to to show that to customers and we expect to get continued deeper penetration with your customers get bigger enterprise customers are using team space.

Speaker Change: Yeah that makes a ton of sense and then maybe.

James Milne: Maybe just as a follow up on the guidance side of thinking about just kind of the macro implications and then from a macro indicators pmi's improved a bit can you just give US a reminder, on how you think about that in relation to your business, whether or not that's a good leading indicator.

Speaker Change: Yeah, Thanks, Matt so.

James Milne: As we talked about we're really excited about Q1 performance.

James Milne: Please along the trends that we're seeing.

James Milne: Across our bias.

James Milne: The conversion margin suppliers.

James Milne: We look at that because we look at the guidance to add but we did take into account the uncertainty in the macro environment. The various indicators out there I think it. So we look at the aggregate of those as well as what we're seeing internally there is some choppiness out there.

James Milne: And so we're taking that into account.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Eric Sheridan Golar.

James Milne: Goldman Sachs.

Speaker Change: Line is open.

Speaker Change: Thanks, So much maybe two parter on international and thanks for all the detail in the prepared remarks, when you look out at the contribution potential for international on a multi year view, maybe can you break it into two pieces of how much of it is down to sort of execution on what's already been put in place versus elements, where we are the company still needs to do.

James Milne: Incremental investments broadly in the international opportunity just trying to understand the mix of growth and margin and how you think that sets up for contribution in the years ahead. Thank you.

James Milne: Yeah, Eric as Randy I'll I'll jump in here and James can jump in afterwards, so you know as anything we talked about particularly this year, we're really focused on going deeper in our existing geographies. So we you know we set up the infrastructure. There we've got our sites in 15 different languages. We've localized it we've got a sales team that are there.

James Milne: And to rebuild the infrastructure. So these are giant markets.

James Milne: While we're very proud of it of the growth that we've seen in international we know even within existing markets can be a lot larger. So I think you should expect to see us to gain some real leverage off those investments we made in the existing markets.

James Milne: Okay.

James Milne: So here.

James Milne: Operator that we can be very clear.

Speaker Change: I'm, assuming the Lawson that we'll be moving on thank you.

James Milne: Our next question comes from the line of Greg Palm of Craig Hallum.

Speaker Change: The line is open.

Speaker Change: Yeah. Thanks morning, everyone I wanted to dig in a little bit more on the investment side of things and I guess, Mike. My question is more or less do you know what why now you know if I think back to maybe the last year I feel like it was more characterized characterized around sort of operational.

James Milne: Discipline.

James Milne: And you know sort of targeting that you know sort of EBITA profitability and it sounds like you're changing that a little bit in ramping up investments now, which pushes out EBITDA profitability by my math I think to next year based on the implied guide for the second half maybe you can confirm that but just a little bit more sort of color on.

James Milne: You know exactly what you're doing there the timing around it and then I guess more importantly at what point will we see some of those benefits.

Speaker Change: Sure So as Randy look when when we brought in James as our new CFO I asked him to work with me and the rest of our team to refine and then really validate the healthiest plant path profitability into our long term operating margins.

James Milne: And this included having expense arrangement, a little higher than expected. So as a result, we feel that and just Greg to your question is a $600 million run rates of about $150 million per quarter is the appropriate level for breakeven.

James Milne: Underlying marketplace at metrics are healthy across buyers pricing margin suppliers, despite an uncertain macro.

James Milne: And we're going to continue to execute on restaurant roadmap of our growth initiatives. Yeah. Greg. This is James So just building on Earth.

James Milne: And he's saying that so I think as our first quarter results clearly show.

James Milne: With our market, leading position and the size of the opportunity. We can drive strong revenue and gross profit growth and improved leverage there with marketplace growth up 24% marketplace gross profit dollar growth gross profit dollar very good 37.

James Milne: As Randy said, we've been working on that was the healthiest path to profitability. So that we can continue to invest responsibly in our long term growth initiatives.

James Milne: At the same time.

James Milne: <unk> Opex did come in a little more than expected.

James Milne: Behind the investments that we're making at <unk>, some inflationary impact on a broad expenses that we've seen across areas like employee benefit software costs and others.

James Milne: As we refine them validate that path forward, we believe that we can reach adjusted EBITDA breakeven as we surpassed its approximately 600 million annual revenue run rate.

James Milne: At 424, we do expect to see continued leverage.

James Milne: As you can see we've given you guidance.

James Milne: Well on the on the on the annual revenue I think we'll update you as we go.

James Milne: And in the future quarters.

Speaker Change: Yep, Okay that makes sense and I just wanted to dig in a little bit more to Q1, specifically you were very clear you you guided initially Q1 based on what you saw in January and you outperformed above the previous range. So can you just give us some <unk>.

James Milne: On what you saw in February and March and then to be clear on can you give us a little bit color on what you see in April and is is the Q2 guide.

James Milne: Similar to how you guided last quarter, where where it's based on what you're seeing in April or is it more based on kind of what you've seen year to date and making some assumptions on.

James Milne: Sort of how may and June trends might play out.

James Milne: Yes, Thank you Greg its Jay.

James Milne: Yeah, as we said really placed the 24% year over year growth.

James Milne: It was a better than expected as that large order activity in April.

James Milne: Ali I'll start that we talked about on the Q4 of 2023 earnings call I think it really demonstrates our ability to execute it remains uncertain our manufacturing environment. So as we look at up trends.

James Milne: As we as we look at Q2 as well as taking into account the risks and uncertainties and opportunities in the in this environment.

James Milne: We built that into the guidance range.

James Milne: Q2.

Speaker Change: Okay and any any color on on what you saw in April versus maybe February March Q1 in general.

James Milne: Yes, we're not going to provide more color on the Murphy, our moxie trial.

Speaker Change: Okay, Alright fair enough alright, thanks, and best of luck.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: This now concludes the meeting.

Speaker Change: You for joining and have a pleasant day.

Speaker Change: Please wait the conference will begin shortly.

James Milne: Yeah, there's nothing, you know, from the Google partnership that's influenced the algorithms here in the first place. All right, thank you.

Tyler: All right. Thank you, guys. I'll pass it along.

Tyler: [music].

Tyler: Yeah.

Tyler: [music].