Q3 2024 Xometry Inc Earnings Call

Operator: Good day and thank you for standing by.

Good day, and thank you for standing by.

Operator: Welcome to the Xometry Q3 2024 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded.

Welcome to the dollar tree Q3, 'twenty 'twenty four earnings call.

This time, all participants are in a listen only mode.

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

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

Then here an automated message advising that your hand is right.

To withdraw your question. Please press star one one again.

Please be advised that today's conference is being recorded.

Shawn Milne: I would now like to hand the conference over to your first speaker today, Shawn Milne, VP of Investor Relations. Good morning, and thank you for joining us on Xometry's Q3 2024 earnings call. Joining me are Randy Altschuler, our Chief Executive Officer, and James Milne, our Chief Financial Officer. During today's call, we will review our financial results for the third quarter and discuss our guidance for the fourth quarter and full year 2024. During today's call, we will make four looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth, and overall future prospects.

Speaker Change: I would now like to hand, the conference over to your first speaker today, Shawn Milne VP of Investor Relations.

Shawn Milne: Good morning, and thank you for joining us on Zama trees Q3, 'twenty 'twenty four earnings call. Joining me are Randy I'll Chiller, our Chief Executive Officer, and James Miller, Our Chief Financial Officer.

During today's call, we will review our financial results for the third quarter and discuss our guidance for the fourth quarter and full year 'twenty 'twenty four.

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.

Shawn Milne: 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 our filings with the U.S. Securities and Exchange Commission, including our Form 10-Q for the quarter ended September 30, 2024. 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.

Such statements maybe 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 our filings with the U S Securities and Exchange Commission, including our Form 10-Q for the quarter ended September 30th 'twenty 'twenty four.

We caution you to not 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.

Shawn Milne: We'd also like to point out 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 website at investors.xometry.com.

We'd also like to point out 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 website at investors that zama tree Dot com.

Operator: A replay of today's call will also be posted on our website.

A replay of today's call will also be posted on our website.

Randy Altschuler: With that, I'd like to turn the call over to Randy. Thanks, Shawn. Good morning, everyone, and thank you for joining our Q3 2024 earnings call. Q3 was a strong quarter for Xometry across many fronts. Our AI-powered marketplace delivered record revenue, record gross profit, and record marketplace gross margin. And at Q4, we expect to be slightly adjusted EBITDA profitable, which is another important milestone in our mission to digitize the multi-trillion dollar global custom manufacturing industry. We expect strong secular growth and continued operating leverage as we scale to $1 billion and beyond driven by our key growth initiative.

Speaker Change: I'd like to turn the call over to Randy.

Randy: Thanks, Shawn good morning, everyone and thank you for joining our Q3 2024 earnings call.

Randy: Q3 was a strong quarter predominantly across many fronts. Our AI powered marketplace delivered record revenue record gross profit and record marketplace gross margin in Q4, we expect to be slightly adjusted EBITDA profitable, which is another important milestone in our mission to digitize the multi trillion dollar global custom.

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Randy: We expect strong secular growth and continued operating leverage as we scale to $1 billion and beyond driven by our key growth initiatives.

Randy Altschuler: Powered by AI, our manufacturing marketplace continues to gain significant market share globally as buyers and suppliers realize the value, convenience, and resiliency of our platform. Xometry is increasingly embedded in our customer supply chain. Digitizing inefficient and cumbersome processes and delivering value and reliability for buyers. We've made great progress in Q3 and are focused on driving further penetration in this massive market. In Q3, we expanded within strategic accounts, deepening our relationships across their buyer base. For example, one of the largest global technology companies is leveraging the Xometry marketplace as a source for 3D printing, machining, and assembly for their consumer technology products.

Randy: Powered by AI, our manufacturing marketplace continues to gain significant market share globally as buyers and suppliers realize the value convenience and resiliency of our platform.

Randy: <unk> is increasingly embedded in our customers' supply chains.

Randy: Digitizing inefficient and cumbersome processes and delivering value and reliability for buyers.

Randy: We made great progress in Q3 and are focused on driving further penetration in this massive market.

Randy: In Q3, we expanded within strategic accounts deepening our relationships across your buyer base. For example, one of the largest global technology companies is leveraging the geometry marketplace as a source for three D printing machining and assembly for their consumer technology products. This move reduces the burden and risk of maintaining their broad.

Randy Altschuler: This move reduces the burden and risk of maintaining their broader supplier network. Similarly, suppliers use Xometry's platform to digitally monetize their manufacturing capacity, improve their profitability, and access global demand at minimal cost. In Q3, active suppliers surpassed 4,200, growing nearly three-fold since the beginning of 2021. Our network spans all 50 states and three continents, enabling our marketplace to react quickly to changing customer demand. Our supplier network is a key differentiator and further expands our competitive moat, providing buyers with resilient supply chain solutions and geographic flexibility. Our network has a broad range of expanding capabilities, including CNC, injection molding, sheet metal, urethane casting, additive manufacturing, and the recently released tube bending and cutting.

Randy: Our supplier network.

Randy: Similarly suppliers use <unk> platform to digitally monetize their manufacturing capacity improve their profitability and access global demand and minimal cost in Q3 active suppliers surpassed 4200 growing nearly threefold since the beginning of 2021.

Randy: Our network spans all 50 states and three continents, enabling our marketplace to react quickly to changing customer demands.

Randy: Our supplier network is a key differentiator and further expands our competitive moat, providing buyers with resilient supply chain solutions and geographic flexibility. Our network has a broad range of expanding capabilities, including CNC and injection molding sheet metal urethane casting additive manufacturing and the recently released.

Randy: Two bending and cutting.

Randy Altschuler: In Q3, we delivered strong growth with revenue increasing 19% year over year to a record $142 million, driven by our Marketplace business. Q3 marketplace revenue grew 24% year-over-year and a robust 8% quarter-over-quarter. We saw strength across many end markets, including engineering, aerospace, consumer, and robotics. Q3 gross profit increased 21% year-over-year to a record $55.8 million. Q3 Marketplace gross profit increased 34% year over year, driven by our AI-powered marketplace and increasing network of active suppliers. As we scale our data, our machine learning AI model gets better at pricing and matching, which in turn fuels gross profit dollar growth.

Speaker Change: In Q3, we delivered strong growth with revenue, increasing 19% year over year to a record $142 million driven by a marketplace business Q3 marketplace revenue grew 24% year over year, and a robust 8% quarter over quarter, we saw strength across many end markets, including engineering.

Randy: Aerospace consumer and robotics Q.

Randy: Q3, gross profit increased 21% year over year to a record $55 $8 million Q3 marketplace gross profit increased 34% year over year, driven by our AI powered marketplace and increasing network back to suppliers as we scale, our data or machine learning AI model gets better at pricing and matching which in turn.

Randy: Fuel gross profit dollar growth.

Randy Altschuler: Q3 Marketplace Gross Margin expanded 250 basis points year-over-year to a record 33.6%. In the past three years, we expanded our Marketplace Gross Margin from 23.5% to 33.6%, underscoring the power of our AI-driven model. Strong marketplace revenue and marketplace gross profit growth drove an 85% improvement in our adjusted EBITDA loss to a record low of approximately $600,000. We deliver strong leverage in our U.S. marketplace while making investments to drive international growth and scale.

Randy: Q3 marketplace gross margin expanded 250 basis points year over year to a record 33, 6% in the past three years, we expanded our marketplace gross margin from 23, an app at 33, 6% underscoring the power of our AI driven model.

Randy: Strong marketplace revenue and marketplace gross profit growth drove an 85% improvement in our adjusted EBITDA loss to a record low of approximately $600000. We delivered strong leverage in our U S marketplace, while making investments to drive international growth and scale.

Randy Altschuler: In order to drive sustained market share gains, we are focused on these growth initiatives. First, expanding our network of active buyers and suppliers. In Q3, active buyers increased 24% year-over-year with net additions of over 3,300. We expect our active buyer growth to remain healthy as there are millions of potential buyers and Xometry's brand awareness is growing but still low. We continue to increase the breadth and depth of our supplier network, which, as I mentioned earlier, reached over 4,200 in Q3. In Q3, we expanded our supplier base in the U.S. with a focus on adding new suppliers with key quality certifications to serve the production needs of our larger customers.

Randy: In order to drive sustained market share gains we are focused on these growth initiatives first expanding our network of active buyers and suppliers in Q3 active buyers increased 24% year over year with net additions of Barbara 3300, we.

Randy: We expect your active buyer growth to remain healthy as there are millions of potential buyers and <unk> brand awareness is growing but still low we continue to increase the breadth and depth of our supplier network, which as I mentioned earlier reached over 4200 in Q3.

Randy: In Q3, we extended our supplier base in the U S with a focus on adding new suppliers with key quality certifications to serve the production needs of our larger customers.

Randy Altschuler: We're also growing our supplier reach in new instant coating categories, including tube cutting, tube bending, and other tooling based processes to support anticipated areas of growth.

Randy: We're also growing our supplier, reaching new instant quoting categories, including to cutting to bending and other tooling based processes to support anticipated areas of growth.

Randy Altschuler: Second, expanding the Marketplace menu. Our goal is to be the primary destination for our customers' manufacturing and supply chain needs. To help accomplish that, we need to provide instant quoting for as many manufacturing processes and materials as possible. In Q3, we made progress doing just that, driven by our continued investments in next-gen AI and our partnership with Google Vertex. We launched laser tube cutting and tube bending instant quoting, which is a differentiator for these large processes. We are seeing early customer interest for these processes, including production orders from a strategic aerospace.

Randy: Second expanding the marketplace menu.

Randy: Our goal is to be the primary destination for our customers' manufacturing and supply chain needs to help accomplish that we need to provide instant quoting for as many manufacturing processes and materials as possible in Q3, we made progress doing just that driven by our continued investments in nexgen AI and our partnership with Google Verdicts.

Randy: We launched laser to cutting in to banning instant quoting which is a differentiator for these large processes.

Randy: We are seeing early customer interest for these processes, including production orders from our strategic aerospace customer.

Randy Altschuler: Third, driving deeper enterprise engagement. Some of our biggest customers are the largest companies in the world. In Q3, we made strong progress with our land and expand efforts as the number of marketplace accounts with last 12 months spend of at least $50,000 increased 23% year over year to 1,506. While our growth with 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 of technology and enterprise solutions. Technology features include Xometry's Teamspace and integrating directly into our customers' ERP.

Randy: Third driving deeper enterprise engagements.

Randy: Some of our biggest customers are the largest companies in the world in Q3, we made strong progress with our land and expand efforts as a number of marketplace accounts with last 12 months stand up at least $50000 increased 23% year over year to 1506, while our growth with these accounts has been strong over the years there's a.

Randy: <unk> opportunity to significantly accelerate their adoption of zama tree to make that happen. We have a two pronged approach of technology and enterprise solutions.

Randy: Technology features include Zama treats team space and integrating directly into a customer's erp's.

Randy Altschuler: Fourth, Growing International. In Q3, international revenue grew 55% year-over-year, driven by strong growth in Europe. It is now approaching a $100 million annual run rate. Currently 19% of total marketplace revenue. We believe international can represent 30 to 40% of marketplace revenue, consistent with many other global online market. XometryEU expanded its marketplace with the addition of a suite of collaboration tools. These tools enable engineers, procurement professionals and project managers to collaborate and manage higher volume complex orders. In Q3, a French design and manufacturing company specializing in unmanned vehicles and robotics leveraged Xometry's manufacturing solutions to strengthen their supply chain and reduce operating costs by streamlining procurement.

Randy: Fourth growing internationally.

Randy: In Q3 International revenue grew 55% year over year, driven by strong growth in Europe. It is now approaching $100 million annual run rate.

Randy: COVID-19% of total marketplace revenue, we believe international can represent 30% to 40% of marketplace revenue consistent with many other global online marketplaces.

Randy: Dmitry EU expanded its marketplace with the addition of a suite of collaboration tools.

Randy: These tools enable engineers procurement professionals and project managers to collaborate and manage higher volume complex orders.

Randy: Q3, a French design and manufacturing company specializing in unmanned vehicles in robotics leveraged geometries manufacturing solutions to strengthen their supply chain and reduce operating costs by streamlining procurement.

Randy Altschuler: XometryAsia continues to expand, including the recent launch of an English site in APAC. This is already bearing fruit, with a small consumer product company in Australia choosing Xometry's marketplace to move from prototype to production for an entire assembly, including CNC and 3D processes. This production order is our first seven-figure order in APAC and will deliver over a number of quarters. Through XometryEU, XometryUK, and XometryAsia, we've leveraged Xometry's core technology to provide localized marketplaces in 16 different languages with networks of suppliers across Europe and Asia, as well as North America.

Randy: Summitry Asia continues to expand including the recent launch of an English site in APAC.

Randy: This is already bearing fruit with a small consumer product company in Australia, choosing zama cheese marketplace to move from prototyping to production for an entire assembly, including CNC and three D. Processes. This production order is our first seven figure order in APAC and will deliver over a number of quarters.

Randy: Through geometry, EU geometry, U K and damage free Asia, we've leveraged <unk> core technology to provide localized marketplaces in 16 different languages with networks and suppliers across Europe, and Asia as well as North America.

Randy Altschuler: Fifth, enhancing supplier services solution. In Q3, we continue to invest in important foundational work to modernize the Thomas Advertising platform. We are focused on restoring Thomas Advertising growth given the 85% plus gross margin and strong contribution margin opportunity. By improving the underlying platform technology, we will enhance the experience for both users and advertisers, providing opportunities for growth and engagement. One of our top goals is to drive increasing advertiser penetration on the platform, which is approximately 1% today out of the roughly 500,000 suppliers listed on Thomas. In Q3, we enhanced self-serve advertising capabilities on the Thomas platform.

Randy: Fifth enhancing supplier services solutions in Q3, we continued to invest in important foundational work to modernize the Thomas advertising platform we.

Randy: We are focused on restoring Thomas advertising growth, given the 85% plus gross margin and strong contribution margin opportunity.

Randy: By improving the underlying platform technology, we will enhance the experience for both users and advertisers providing opportunities for growth and engagement.

Randy: Of our top goals is to drive increasing advertiser penetration on the platform, which is approximately 1% today and of the roughly 500000 suppliers western on Thomas.

Randy: In Q3, we enhanced self serve advertising capabilities on the Thomas platform.

Randy Altschuler: With these enhanced tools, businesses of all sizes can leverage the platform to instantly define and enable custom campaigns to reach targeted audiences. Modernizing Thomas' technology will enable us to grow its profitable advertising services and further realize synergies between our supplier services and marketplace businesses. These include, but are not limited to, our efforts to be the one-stop destination for our customers' custom manufacturing needs and leveraging the Thomas Supplier Network to aid in expanding our marketplace menu. For example, we jump-started the launch of tube cutting and tube bending processes with many Thomas Suppliers.

Randy: With these enhanced tools businesses of all sizes can leverage the platform to instantly define and enable custom campaigns to reach targeted audiences.

Randy: <unk> Thomas as technology will enable us to grow its profitable advertising services and further realized synergies between our supplier services and marketplace businesses. These include but are not limited to our efforts to be the one stop destination for our customers' custom manufacturing needs and leveraging the Thomas supplier network to aid in expanding our.

Randy: Market place menu for example, we jumpstarted the launch of tube cutting in to bending processes with many Thomas suppliers.

Randy Altschuler: Driven by our growth initiatives, we expect to deliver marketplace growth in the range of 22 to 23% for the full year 2024, ahead of a prior outlook of at least 20%. We believe these initiatives can drive at least 20% marketplace growth in 2025 given the large fragmented market opportunity and secular shift to the digital. In addition, we expect overall revenue growth in 2025 to exceed that of 2024.

Randy: Driven by our growth initiatives, we expect to deliver a marketplace growth in the range of 22% to 23% for the full year 2024 head of our prior outlook of at least 20%.

Randy: We believe these initiatives can drive at least 20% marketplace growth in 2025, given the large fragmented market opportunity and secular shift to the digital.

Randy: In addition, we expect overall revenue growth in 2025 to exceed that of 2024.

Randy Altschuler: I'm proud of the collective efforts of our global team. Our continued strong execution and growth demonstrates the significant strides we're making to digitize supply chains. Our momentum demonstrates the trust buyers and suppliers place in Xometry. The combination of our extensible technology platform, expanding data lake, and rapidly growing networks of buyers and suppliers will continue to fuel strong growth and margin expansion. Our competitive moat is expanding each day.

Randy: I'm proud of the collective efforts of our global team.

Randy: Our continued strong execution and growth demonstrates the significant strides, we're making to digitize supply chains.

Randy: Mentum demonstrates the trust buyers and suppliers place and geometry.

Randy: The combination of our extensive volt technology platform, expanding data lake and rapidly growing networks of buyers and suppliers will continue to fuel strong growth and margin expansion our competitive moat is expanding each day.

James Milne: I'll now turn the call over to James for a more detailed review of Q3, and our business out. Thanks, Randy, and good morning, everyone. As Randy mentioned, Q3 was a record quarter for Xometry across many fronts. Q3 revenue increased 19% year-over-year to $142 million, driven by strong marketplace growth. Q3 marketplace revenue was $127 million and supplier services revenue was $14.7 million. Q3 marketplace revenue increased 24% year over year, driven by strong execution, growth with larger accounts, and accelerated international growth as we continue to capture significant market share. Q3 active buyers increased 24% year-over-year to 64,851 with a net addition of 3,321 active buyers, our highest net additions this year.

Speaker Change: I'll now turn the call over to James for a more detailed review of Q3 and our business outlook.

James Miller: Thanks, Randy and good morning, everyone as Randy mentioned Q3 was a record quarter for dollar tree across many fronts Q.

James Miller: Q3 revenue increased 19% year over year to $142 million driven by strong marketplace growth.

Randy: Q3 marketplace revenue was $127 million and supplier services revenue was $14 7 million.

Randy: Q3 marketplace revenue increased 24% year over year, driven by strong execution growth with larger accounts and accelerated international growth as we continue to capture significant market share.

Randy: Q3 active buyers increased 24% year over year to 64851 with a net addition of 3321 active buyers.

Randy: Highest net additions this year.

James Milne: Q3 Marketplace revenue per active buyer was flat year over year, and grew 3% quarter over quarter as our larger accounts increased their spend with us. The number of accounts with last 12 months spend of at least $50,000 on our platform increased 23% year over year to 1,506. with 70 net new accounts. our highest net new accounts this year. We continue to grow WalletShare with accounts across many end markets. Supplier services revenue declined 10% year-over-year in Q3, primarily driven by the wind-down of non-core services and, to a lesser extent, Thomas advertising and marketing services. As Randy mentioned, we are focused on improving engagement on the platform, which remains a leader in industrial sourcing, supplier selection, and digital marketing solutions.

Randy: Q3 marketplace revenue per active buyer was flat year over year.

Randy: And grew 3% quarter over quarter.

Randy: Larger accounts increase that spend with us.

Randy: The number of accounts with last 12 months spend of at least $50000 on our platform increased 23% year over year to 1506 with.

Randy: With 17, net new accounts, our highest net new accounts this year.

Randy: We continue to grow wallet share with accounts across many end markets.

Randy: Supply of services revenue declined 10% year over year in Q3.

Randy: Primarily driven by the wind down of noncore services and to a lesser extent Thomas advertising and marketing services.

Speaker Change: As Randy mentioned, we are focused on improving engagement on the platform, which remains a leader in industrial sourcing supplier selection and digital marketing solutions.

James Milne: The number of active paying suppliers in our supplier services segment was 6,762 for Q3 on a trading 12-month basis, a decrease of 9% year-over-year. Q3 gross profit was $55.8 million, an increase of 21% year-over-year, with a gross margin of 39.4%. Q3 Gross Margin for Marketplace was a record 33.6%, up 250 basis points year over year. Q3 Marketplace Gross Margin Expansion underscores the success of our machine learning AI-powered economic model, which optimizes pricing with more data and improves matching with an expanding supplier network. Q3 marketplace gross profit dollars increased 34% year over year. We are focused on driving marketplace gross profit dollar growth through the combination of top line growth and gross margin expansion.

Speaker Change: The number of active paying suppliers in our supply of services segment was 6762 for Q3 on a trailing 12 month basis, a decrease of 9% year over year.

Speaker Change: Q3, gross profit was $55 8 million, an increase of 21% year over year with gross margin of 39, 4%.

Randy: Q3 gross margin for marketplace was a record 33, 6% up 250 basis points year over year.

Randy: Q3 market place gross margin expansion underscores the success of our machine learning AI powered economic model.

Randy: [noise] optimizes pricing with more data and improved matching with an expanding supply of networks.

Randy: Q3 marketplace gross profit dollars increased 34% year over year.

Randy: We are focused on driving marketplace gross profit dollar growth through the combination of topline growth.

Randy: Gross margin expansion.

James Milne: Q3 Gross Margin for Supplier Services was a record 89.6% driven by our increasing focus on the higher gross margin Thomas Advertising and Marketing Services.

Randy: Q3 gross margin for supply of services was a record 89, 6% driven by our increasing focus on the higher gross margin Thomas advertising and marketing services.

James Milne: Moving on to Q3, Operating Costs. Q3 total non-GAAP operating expenses increased 12% year-over-year to $56.6 million, well below revenue growth. We are applying strong discipline and rigor to our capital and resource allocation across teams. In Q3 2024, this resulted in non-GAAP operating expenses growing less than 2% quarter over quarter, driving strong leverage across sales and marketing and other operating expenses. Marketplace advertising spend increased 9% year-over-year, and was 6.3% of marketplace revenue, which is down 80 basis points year-over-year as we balance growth and profitability. Q3 adjusted EBITDA loss was $0.6 million, or 0.4% of revenue, compared with a loss of $4.2 million, or 3.5% of revenue, in Q3 2023.

Randy: Moving onto Q3 operating costs.

Randy: Q3, titled non-GAAP, operating expenses increased 12% year over year to $56 6 million well below revenue growth.

Randy: We're applying strong discipline and rigor to our capital and resource allocation across teams.

Randy: In Q3 2024. This resulted in non-GAAP operating expenses growing less than 2% quarter over quarter, driving strong leverage across sales and marketing and other operating expenses.

Randy: Marketplace advertising spend increased 9% year over year and was six 3% of marketplace revenue, which is down 80 basis points year over year, as we balance growth and profitability.

Randy: Q3, adjusted EBITDA loss was <unk> 6 million or <unk>, 4% of revenue compared with a loss of $4 2 million or three 5% of revenue in Q3 2023.

James Milne: Q3 adjusted EBITDA loss improved 85% year-over-year driven by growth in revenue, gross profit and operating efficiencies. At the end of the third quarter, cash and cash equivalents and marketable securities were $234 million. We are focused on improving working capital efficiency and free cash flow conversion given our asset-light model and limited capital spending. Q3 demonstrates the ability of our AI-powered marketplace to deliver strong gross margin expansion and gross profit growth. We remain focused on our operating expense discipline while investing in our growth initiatives. In prior years, we delivered 20% plus incremental adjusted EBITDA margin year over year.

Randy: Q3, adjusted EBITDA loss improved 85% year over year, driven by growth in revenue gross profit and operating efficiencies.

Randy: At the end of the third quarter cash and cash equivalence and marketable securities were $234 million. We are focused on improving working capital efficiency and free cash flow conversion, given our asset light model and limited capital spending.

Randy: Q3 demonstrates the ability of our AI powered market place to deliver strong gross margin expansion and gross profit growth.

Randy: We remain focused on our operating expense discipline, while investing in our growth initiatives.

Randy: In prior years, we delivered 20% plus incremental adjusted EBITDA margin year over year.

James Milne: In the first nine months of 2024, we have delivered 23% year-over-year incremental adjusted EBITDA margins. As we scale towards $1 billion of revenue, we expect continued 20% plus incremental adjusted EBITDA leverage. Given our large market opportunity and low penetration rates, we will continue to balance investing in the future with driving operating leverage.

Randy: And the first nine months of 2024, we have delivered 23% year over year incremental adjusted EBITDA margin.

Randy: As we scale towards 1 billion of revenue, we expect continued 20% plus incremental adjusted EBITDA leverage.

Randy: Given our large market opportunity and low penetration rates, we will continue to balance investing in the future with driving operating leverage.

James Milne: Now, moving on to guidance. For the fourth quarter, we expect revenue in the range of $145 to $147 million. We expect Q4 marketplace growth to be approximately 16-18% year over year. As a reminder, Q4 2023 was a strong marketplace growth comparison, up 42% year over year. We expect Q4 Marketplace Gross Profit to grow faster than marketplace revenue. We expect Q4 supplier services to be down approximately 10% year over year. In Q4, we expect to be slightly adjusted even though profitable while continuing to invest in our growth initiative. improving from a loss of $2.9 million in Q4 of 2023.

Randy: Now moving onto guidance.

Randy: For the fourth quarter, we expect revenue in the range of $145 million to $147 million.

Randy: We expect Q4 marketplace growth to be approximately 16% to 18% year over year.

Randy: As a reminder, Q4 2023 with a strong marketplace growth comparison up 42% year over year.

Randy: We expect Q4 marketplace gross profit to grow faster than marketplace revenue.

Randy: We expect key for supply services to be down approximately 10% year over year.

Randy: In Q4, we expect to be slightly adjusted EBITDA profitable, while continuing to invest in our growth initiatives improving from a loss of $2 $9 million in Q4 of 2023.

James Milne: We're tracking slightly ahead of our previous target of reaching adjusted EBITDA profitability at an approximate $600 million revenue run rate. In Q4, we expect stock-based compensation expenses, including related payroll taxes, to be approximately $7 to $8 million. or approximately 5% of revenue. For the full year 2024, we expect to deliver marketplace growth in the range of 22 to 23 percent, ahead of our prior outlook of at least 20 percent. As Randy mentioned, we believe that our growth initiatives can continue to drive at least 20% marketplace growth in 2025, given the large fragmented market opportunity, initiatives to expand wallet share with strategic accounts, and further international expansion.

Randy: We are tracking slightly ahead of our previous target of reaching adjusted EBITDA profitability at an approximate 600 million revenue run rate.

Randy: In Q4, we expect stock based compensation expenses, including related payroll taxes to be approximately $7 million to $8 million.

Randy: Approximately 5% of revenue.

Randy: For the full year 2024, we expect to deliver marketplace growth in the range of 22% to 23%.

Randy: Head of our prior outlook of at least 20%.

Speaker Change: As Randy mentioned, we believe that our growth initiatives can continue to drive at least 20% marketplace growth in 2025, given the large fragmented market opportunity.

Randy: These steps to expand wallet share with strategic accounts and further international expansion.

James Milne: We expect marketplace gross profit to grow faster than revenue. In addition, we expect overall revenue growth in 2025 to exceed that in 2024. Lastly, we expect to be adjusted Ibidal positive for the full year 2020.

Randy: We expect marketplace gross profit to grow faster than revenue and.

Randy: In addition, we expect overall revenue growth in 2025 to exceed that in 2024.

Randy: Lastly, we expect to be adjusted EBITDA positive for the full year 2025.

James Milne: Finally, I'd like to thank our Xometry colleagues worldwide. Their dedication to our buyers and suppliers is helping us digitize manufacturing and strengthen supply chains around the world.

Randy: Finally, I'd like to thank Osmometry colleagues worldwide that dedication to our buyers and suppliers is helping us digitize manufacturing and strengthened supply chains around the world.

Operator: With that, operator, can you please open up the call for questions? Thank you. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. One moment. Our first question comes from Nick Jones from Citizens JMP Securities.

Randy: With that operator can you. Please open up the call for questions.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

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

Speaker Change: One moment.

Speaker Change: Our first question comes from Nick Jones from citizens JMP Securities. Your line is open.

Nicholas Jones: Your line is open.

Randy Altschuler: Great, thanks for taking the questions, I guess. First, can you speak more to or elaborate more on kind of one of the key inputs to driving growth higher in 25 versus 24? Is it expectations around spend per buyer, growth in buyers, any kind of additional clarity would be helpful?

Nick Jones: Great. Thanks for taking the questions I guess.

Nick Jones: First can you speak more to elaborate more on what are the key inputs to driving our.

Randy: Growth higher at $25 24 as it.

Nick Jones: Expectations around spend per buyer growth in buyers.

Randy Altschuler: And then I have a follow-up.

Randy: Any kind of additional clarity would be helpful. And then I have a follow up thanks.

Nick Jones: Thank you, James. Thanks for the question. You know, we're really pleased with seeing the performance that we're delivering this year in 2024 with marketplace growth now projected at 22 to 23%. As we look at that performance this year, it's really driven by great execution across the team, across all of our initiatives, growing the buyer and supplier network. continuing to develop the marketplace menu, making progress in international and enterprise. So, as we look towards 2025, we see those same themes playing a role in being able to drive at least 20% growth in the year ahead, and I think that those initiatives can help us grow both buyers and revenue providers.

Speaker Change: Jay Thanks for the question.

Jay: We're really pleased with seeing the performance that we're delivering this year in 2024 with marketplace growth now projected at 22, 23%.

Randy: As we look.

Randy: That performance this year, it's really driven by great execution across the team across all of our initiatives.

Randy: Growing the buyer and supplier network.

Randy: Continuing to develop the marketplace menu, making progress in international and enterprise.

Randy: So as we as we look towards 2025, we see those same things playing a role in being able to drive at least 20% growth in the year ahead.

Randy: And I think that those initiatives can help us grow both buyers and revenue per buy.

Randy Altschuler: Yeah, and just Nick, this is Randy, just to, you know, also emphasize, you know, we've been making these investments in these key initiatives for a while now. So we're, we're seeing them pay out, you know, the dividends increasing from them. And so we accept, you know, expect that to continue in 25. And as we said, result in overall, higher revenue growth in the year, based on the investments we've been making, including in the supplier services, as we're modernizing that the Thomas advertising platform.

Randy: Yes, Nick this is Randy just to.

Randy: I also emphasize we've been making these investments in these key initiatives for a while now so where we're seeing payout dividends increasing from them and so we expect that to continue in 'twenty five and as we said, resulting in overall higher revenue growth in the year based on the investments, we've been making including in the supplier services as a reminder.

Randy: Thomas.

Randy: Advertising platform.

Nick Jones: Great. Thanks, Randy.

James Milne: And I guess that leads into the follow-up question I had around supplier services. So it sounds like next year we should expect to see that maybe flip to growth more meaningfully. Does that kind of indicate maybe some of the investments are going to start getting rolled out on self-serve advertising and things like that? Any color I guess on specifically supplier services would be helpful. Thanks.

Speaker Change: Great. Thanks, Randy.

Thomas: The follow up question I had around supplier services.

Speaker Change: Sounds like next year, we should expect to see that maybe.

Speaker Change: Flip.

Speaker Change: <unk> growth.

Randy: More meaningfully.

Randy: That kind of indicate maybe some of the investments are going to start getting rolled out self serve advertising and things like that any color kind of I guess I'll specific supplier services.

Speaker Change: Helpful. Thanks.

James Milne: Hi, Nick. Yeah, it's James again. So, you know, we're working well on supply services of improving the foundations of the Thomas advertising marketing model there. I think as you see for Q4, we still have that projected to decline year-over-year in Q4, but really looking to stabilize that and flatten that out on a Q-over-Q basis as we move into 2025.

Speaker Change: Hi, Nick Yes, it seems again and so we're working well on slide services.

Speaker Change: Improving the foundations of the Thomas advertising and marketing model that.

Speaker Change: You see for Q4, we still have that projected to decline year over year in Q4.

Speaker Change: But really looking to stabilize that and flatten that out on a Q over Q basis, as we move into 2025.

Nick Jones: And the initiatives that the team are driving here is really about getting that very highly profitable business at a gross margin level back into quarter-over-quarter growth at 25%. Great. Thanks, Randy. Thanks, James. Thank you. One moment, please.

Speaker Change: The initiatives that the team.

Speaker Change: Driving here is really about getting that very highly profitable business growth.

Speaker Change: Gross margin level back into quarter over quarter growth.

Speaker Change: Yes, 25 plays out.

Speaker Change: Great. Thanks, Randy Thanks, guys.

Speaker Change: Thank you.

Speaker Change: One moment please.

Ron Josey: Our next question comes from Ron Josey with Citibank. Your line is open. Great, thanks for taking a question. I have two, please.

Speaker Change: Our next question comes from Ron Josey with Citibank Your line is open.

Ron Josey: Great. Thanks for taking the question I have two please Randy really quickly just on given the benefits of expanding the marketplace menu I wanted to understand how maybe instant quoting now.

Ron Josey: Randy, really quickly, just given the benefits of expanding the Marketplace menu, I wanted to understand how maybe instant quoting, now that it's available more often in more places, how has that driven just improved conversion rates overall now that you have active suppliers in all 50 states, continents, etc.? That's point number one.

Speaker Change: It's available more often in more places.

Speaker Change: How has that driven just improved conversion rates overall and how it yes. After suppliers in all 50 states comments et cetera. That's point number one and then James on gross margin specifically I think in the past we talked about exiting four Q of this year getting to around that 35% ish Mark wanted to hear sort of your thoughts there.

Ron Josey: And then, James, on gross margins specifically, I think in the past, we talked about, you know, exiting 4Q of this year, getting to around that 35%-ish mark. Wanted to hear sort of your thoughts there and overall gross margins for the Marketplace business going forward. Thank you.

Speaker Change: Overall gross margins for the marketplace business going forward. Thank you.

Randy Altschuler: Ron, thanks so much. Yeah, just, you know, as we're expanding the menu of what we can instantly quote, that's helping us accomplish a couple things. One is, you know, you talked about conversion rates. You know, we had for 2024, our highest number of net new ads this quarter with over 3,300. So, you know, as we're getting more and more buyers, it's just helpful attracting those and converting those as they're coming to our platform. And then the second thing is, as we're not only attracting new buyers, improving conversion, we're also going deeper as we expand our processes into existing customers.

Speaker Change: Brian Thanks, so much yes.

Brian Thanks: As were expanding the menu of what we can instantly quote that is helping us accomplish couple of things. One is you talked about conversion rates. We had for 2024, our highest number of net new adds this quarter with over 3300, so as we're getting more and more buyers. It is helpful. Attracting those in converting those as they are coming to our platform.

Speaker Change: And then the second thing is as we're not only attracting new buyers improving conversion. We're also going deeper as we expand our processes into our existing customers you saw really nice pickup in the number of accounts with more than that with more than $50000 and that was the annual standard LTM basis in Q3, we added 70.

Randy Altschuler: So, you saw a really nice pickup in the number of accounts with more than $50,000, and that was of annual spend on an LTM basis. In Q3, we added 70. Again, that's the highest for this year. So, two high marks for this year in both net ads overall and then accounts more than $50,000, and certainly expanding the menu is helping to contribute to those trends.

Speaker Change: Again, that's the highest for this year. So two two a high mark for this year and both net adds overall and then account for more than 50000, and certainly expanding the menu is helping to contribute to those trends.

James Milne: And Ron, James, on the gross margin question. So AI is the main driver of our gross margin expansion. That's based on continual improvements in our AI price prediction accuracy, the machine learning, as we have more quotes, more transactions, more data, and expanding the supplier network. We passed an important milestone getting the supply network over 4,200 that Randy mentioned in the prepared remarks here. That was 3,500 at the end of 2023. So the combination of those things really helps drive the economic model here. And so we're super pleased with the Q3 performance. Margin was a record 33.6%.

Speaker Change: And Ron James on the gross margin question. So.

Speaker Change: AI is the main driver of our gross margin expansion.

Speaker Change: Based on continued improvements in our AI price prediction accuracy. The machine learning as we have more time more quite small transactions more data and expanding the supplier network. We passed an important milestone getting the supply network over 4200 that Randy mentioned in the prepared remarks here.

Speaker Change: 3500 at the end of 2023, so the combination of those things.

Speaker Change: Really helps drive the economic model here is that we're super pleased with the Q3 performance margin was a record 33, 6%.

James Milne: That's up 250 basis points year over year. So really making great strides. It was relatively flat up 10 basis points quarter over quarter. And as we said before, this won't always be linear each quarter, but we believe that the work we're doing, the more data the supply network drives us. And as we look towards the end of the year here, we still have a target of approaching that 35% level as we exit the year. As we look to the long term, we still believe that 35 to 40 is the right range here to think about for the long term marketplace.

Speaker Change: Up to 150 basis points year over year, so really making great strides.

Speaker Change: It was relatively flat up 10 basis points quarter over quarter.

Speaker Change: And we as we said before this won't always be linear each.

Speaker Change: Each quarter.

Speaker Change: We believe that the work we're doing the most out of this client network drives us and as we look towards the end of the year, we still.

Speaker Change: <unk> target of approaching that 35% level.

Speaker Change: Exit the year.

Speaker Change: As we look to the long term, we still believe that 35 to 40 is the right range here to think about for the long term marketplace margins.

Ron Josey: That's great. Thanks, Randy. Thanks, James. Thank you.

Speaker Change: That's great. Thanks, Randy Thanks James.

Speaker Change: Thank you.

Brian Drab: Our next question comes from Brian Drab with William Blair. Your line is open. Good morning. Thanks for taking my questions.

Speaker Change: Our next question comes from Brian Drab with William Blair. Your line is open.

Brian Drab: Good morning, Thanks for taking my questions.

James Milne: Can you just talk a little bit more about the international business and You know, and I'm curious, you know, is. Do you have visibility toward when that business can reach profitability, given it looks like you're going to be... I guess if the overall business is slightly profitable in the fourth quarter, the U.S. business is going to be quite profitable, and I'm just wondering on the timing and visibility you have for that international business getting to that scale.

Brian Drab: Can you just talk a little bit more about the international business and.

Speaker Change: And I'm curious.

Speaker Change: Is.

Speaker Change: Do you have visibility toward when that.

Speaker Change: That business can can reach profitability.

Speaker Change: Given it looks like youre going to be.

Speaker Change: I guess, if the overall business was slightly profitable in the fourth quarter. The U S business is going to be.

Speaker Change: Quite profitable and I'm, just wondering on the timing and visibility you have for that international business getting to that scale.

James Milne: Hey Brian, I'll kick it off and then maybe Randy can add on some of the longer term initiatives here on International. I think I'm really pleased with the growth in the quarter of 55% accelerating from Q2. The team are executing very well. We continue to roll out improvements to the products as we've talked about in the prepared remarks, as well as continue to expand our footprint of languages. It was nice to see some good highlights there in terms of big deals, good production deals in France and with Asia-Pac that we talked about on the call.

Speaker Change: Hey, Brian.

Speaker Change: I'll.

Speaker Change: I'll kick it off and then maybe Randy can add on some of the longer term initiatives here on international I think.

Speaker Change: Really pleased with the growth in the quarter up 55% accelerating from Q2.

Speaker Change: And the team are executing very well, we continue to roll out improvements to the product as we've talked about in the prepared remarks.

Speaker Change: As well as continue to expand our footprint of languages.

Speaker Change: It was nice to see some good highlights there in terms of.

Speaker Change: Uh huh.

Speaker Change: Big deals good production deals with.

Speaker Change: In France in Asia Pac that we talked about on the call.

Randy Altschuler: We're still early in International, so I think that it's an area of investment for us and I think we're seeing a great return there. I think we'll continue to be smart about the investments we're doing in sales and marketing to drive that, as well as in operations and product development. And I think it will be an important part of our growth and profitability over the next year.

Speaker Change: We're still early in international so I think that.

Speaker Change: It's an area of investment for Us and I think it will I think that we're seeing a great return on that and I think we'll continue to be smart about.

Speaker Change: The investments, we're doing in sales and marketing to drive that as well as in operations and product development.

Speaker Change: And I think it will be an important part of our growth and profitability.

Speaker Change: Over the next few years, yes, Brian This is Randy just to add.

Randy Altschuler: Yeah, Brian, this is Randy. Just to add to what James just said, a couple of things. You know, I think as we see, you know, growth in Europe and international, but particularly in EMEA right now in Europe, we talked about in the script about some technology tools that we've been launching there to facilitate larger orders. We're also adding more automation on the back end from an operations perspective. So these technology investments in Europe are really paying off in terms of helping us grow that business. You know, that growth has primarily been in Europe. But as we noted, you know, we've got a first seven figure deal in Asia Pac.

Randy: Just had a couple of things I think as we see growth in Europe.

Speaker Change: In international, but it's particularly in EMEA right now in Europe.

Speaker Change: We talked about in the script about some technology tools that we've been launching there.

Speaker Change: Facilitate larger orders, we're also adding more automation on the backend from an operations perspective. So these technology investments in Europe are really paying off in terms of helping us grow that business.

Speaker Change: That growth has primarily been in Europe, but as we noted.

Speaker Change: Our first seven figure deal in Asia Pac So as you think about getting the profitability overall in the international segment, we've been investing in Asia Pac, It's really been Europe had been driving the growth. There now we're seeing that beginning to come on and that's going to help us get to overall profitability. There just just as you described and so.

Brian Drab: So if you think about getting the profitability overall in the international segment, you know, we've been investing in Asia Pac. It's really been Europe that's been driving the growth there. Now we're seeing that beginning to come on. And that's going to help us get to overall profitability there, just as you described. And so, you know, we've been we've been growth has been great there. So we hope to get to that milestone sooner rather than later. Okay, thanks.

Speaker Change: We've been we've been growth has been great. There. So we hope to get to that milestone sooner rather than later.

Brian Drab: And then just one more question for now, if I can. The operating environment, I think, by everyone's account, is not great and hasn't been for a long time, but you're still putting up these great growth numbers. And the one that I'm looking at at the moment is the number of buyers that you added in the quarter. I keep on thinking that maybe large numbers is going to catch up with you at some point, and that number of buyers added in the quarter is going to start to tick down a little bit. But 3,300 in the quarter is really impressive.

Speaker Change: Okay. Thanks, and then.

Speaker Change: Just one more question for now if I can.

Speaker Change: The operating environment I think.

Speaker Change: By everyone's account is not great and hasn't been for a long time, but you are still.

Speaker Change: Putting up great growth numbers and the one the one that.

Speaker Change: I'm looking at at the moment is the number of buyers that you added in the quarter.

Speaker Change: I keep on thinking that may be law of large numbers is going to catch up with you.

Speaker Change: At some point in that.

Speaker Change: That does that.

Speaker Change: Number of buyers added in the quarter is going to.

Speaker Change: Start to tick down a little bit, but you know 3300 in the quarter.

Randy Altschuler: I'm just wondering, Randy, if you can comment on where do you think you're going to serve something like 70,000 buyers probably this year? Where does that number go, and do you have any expectation for that to start to potentially decelerate?

Speaker Change: It's really impressive I'm just wondering Randy if you can comment on.

Speaker Change: Where do you think.

Speaker Change: Youre going to serve something like 70000 buyers, probably this year like where does that number.

Speaker Change: And do you have any expectation for that to start to potentially decelerate or.

Randy Altschuler: Where do you envision that number of active buyers a few years from now, and how does that maybe accelerate if the environment improves? Yeah, Brian, thanks for that. So look, we've talked about there are millions of buyers out there. And while we're certainly proud of the results we're producing, you know, we'd love to continue to do better and better. So we think there's a lot of opportunity to do that. So when I think about, you know, where the buyers are coming from now, and how we could grow that buyer count even more, there's a couple different parts of that.

Speaker Change: Whats the.

Speaker Change: Where do you envision that number of active buyers a few years from now.

Speaker Change: And.

Speaker Change: How does that may be accelerated if the environment improves.

Speaker Change: Yes, Brian Thanks for that so look we've talked about there are millions of buyers out there and while we're certainly proud of the results we're producing.

Speaker Change: We'd love to continue to do better and better. So we think theres a lot of opportunity to do that so when I think about.

Speaker Change: Where the buyers are coming from now and how we can grow that by our count even more there are a couple of different.

Speaker Change: Parts of that one of our larger customers, we've been investing from particularly from a technology perspective with things like teens base to embed ourselves deeper into our larger customers are land and expand strategy with our enterprise sales teams. Those are huge company, we've talked about some of the largest companies in the world with many many buyers and so.

Randy Altschuler: One is our larger customers, you know, we've been investing from particularly from a technology perspective with things like TeamSpace, to embed ourselves deeper, into our larger customers or land and expand strategy with our enterprise sales teams. Those are huge companies, we've talked about some of the largest companies in the world, with many, many buyers. And so, again, even though we're proud of our growth with them, there's a long way to go there and lots of buyers for us to capture from those larger customers. Second, as we're broadening our menu, you know, we added instant pricing for tube bending and cutting.

Speaker Change: Again, even though we're proud of our growth with them Theres, a long way to go there and lots of buyers for us to capture from those larger customers.

Speaker Change: As we are broadening our menu we added instant pricing for two bending and cutting that will also continue to attract new buyers to our platform and then third the international growth as we're continuing to expand within Europe. As we are getting traction in Asia Pac that will also be additive to that buyer.

Randy Altschuler: That will also continue to attract new buyers to our platform. And then third, the international growth, you know, as we're continuing to expand within Europe, as we're getting traction in Asia-Pac, that will also be additive to that buyer cap.

Shawn Milne: And, Brian, it's Shawn. And just, you know, to kind of double click on that a little bit, you talked about the operating environment. So, we delivered a record, or sorry, the highest net as in the year this quarter. And as you'll see in the deck, you can look at the advertising spend that was well controlled. And market and advertising and percent of marketplace revenue dropped 80 basis points down to 6.3%. So we're being very disciplined at the same time and balancing growth and profitability in this environment. We just, as Randy said, many times, there are millions of buyers out there for.

Speaker Change: Yes.

Speaker Change: Brian It's Sean.

Speaker Change: Double click on that a little bit.

Brian: You talked about the operating environment. So we delivered a record or sorry, the highest net adds in the year this quarter.

Speaker Change: Youll see in the deck you can look at the advertising spend that was well controlled and.

Speaker Change: And marketplace advertising as a percent of marketplace revenue dropped 80 basis points down to six 3%. So we're being very disciplined at the same time and balancing growth and profitability in this environment. We just as Randy said many times there are millions of buyers out there for us.

Brian Drab: Yeah, okay, thanks very much.

Speaker Change: Yes, okay. Thanks very much.

Speaker Change: Yes.

Operator: Thank you.

Speaker Change: Yes.

Eric Sheridan: Our next question comes from Eric Sheridan with Goldman Sachs. Your line is open. Thanks so much for taking the questions. Maybe two, if I could. First, just coming back to the comments on the AI product set and how the platform is going to evolve. As you look towards 2025, I want to know if we go just a little bit deeper in some of the areas of incremental investments you see as pretty critical to sort of maintaining and possibly accelerating the growth rate tied to the AI theme broadly for the platform, not only just one year ahead, but on a multi-year timeframe.

Speaker Change: Our next question comes.

Speaker Change: From Eric Sheridan with Goldman Sachs. Your line is open.

Eric Sheridan: Thanks, so much for taking the questions maybe two if I could first just coming back to the comments on the AI product set and how the platform is going to evolve as you look towards 25 I don't know if we go just a little bit deeper in some of the areas of incremental investments you see is pretty critical to sort of maintaining and possibly accelerating the growth rate.

Speaker Change: Tied to the AIC broadly for the platform not only just wanted your head, but on a multi year timeframe and I think a couple of folks have already asked about gross margin, but I guess.

Eric Sheridan: I think a couple of folks have already asked about gross margin, but I guess broadening that out a little bit. Now that you guys are at the level of breakeven for adjusted EBITDA ahead or slightly ahead of that target on the revenue base, how do we think about variable margins from here or incremental margins from here as you continue to build additional levels of revenue scale? Is it a different formula than maybe what we had thought about in the more recent past? And how do we think about balancing investments versus increased leverage in the model in the coming years?

Speaker Change: <unk> that out a little bit.

Speaker Change: Guys are at the level of breakeven for adjusted EBITDA.

Speaker Change: We're slightly ahead of that target on the revenue base, how do we think about variable margins from here or incremental margins from here as you continue to build additional levels of revenue scale is is it a different formula than maybe what we had thought about in the more recent past and how do we think about balancing investments versus.

Speaker Change: Increased leverage in the model in the coming years. Thanks, so much.

Randy Altschuler: Thanks so much.

Randy Altschuler: I'll take the AI portion of it and then hand it over to James for the financial elements of it. So, you know, I think there are a couple, you know, so investing, just to take a step back, as you know, AI is essentially what Xometry has done almost from its inception. And so we've been investing in these proprietary algorithms and building our data sets and our networks of buyers and suppliers for many years now. And we've had, since we went public in Q2 of 2021, just to remind people at that point, we had 23.5% gross margins, and we just reported 33.6%, even as we're, you know, we're growing very nicely.

Speaker Change: Yeah, I'll take the AI portion of it and then hand it over to James for the financial highlights of it. So I think there are a couple so investing.

Speaker Change: Let's take a step back.

Speaker Change: And central to what <unk> done.

Speaker Change: From its inception, and so we've been investing in these proprietary algorithms and building our datasets in our networks of buyers and suppliers for many years now and we've had since we went public in Q2 of 2021 just to remind people at that point, we had 23, 5% gross margins and we just reported 33, 6%.

Speaker Change: Even as we're growing very nicely. So we're really proud of that I think next year and beyond youre going to continue to see us to invest in those algorithms. We've got that partnership with Google where its AI that we've talked about and there are a few different dimensions on that investment. So one is launching more infill.

Randy Altschuler: So we're really proud of that. I think next year and beyond, you're going to continue to see us to invest in those algorithms. We've got that partnership with Google for AI that we've talked about. And there are two different dimensions of that investment. So one is launching more instantly quoted processes. That's going to help us go deeper within our existing customers and also attract new buyers to our network. So constantly expanding that menu, it's almost, there's many, many opportunities for us. This is a large addressable market and manufacturing has lots of different slices to it.

Speaker Change: Instantly quoted processes, that's going to help us go deeper within our existing customers and also attract new buyers to our network so constantly expanding that menu.

Speaker Change: Almost there is many many opportunities for us this is a a large addressed.

Speaker Change: The addressable market and manufacturing has lots of different slices to it so we're going to continually add new processes there.

Randy Altschuler: So we're going to continually add new processes there. Second, you know, and this also goes a little bit to your question about margins, making sure our pricing is smarter for both our buyers and our suppliers. So as we get to know our buyers better, understanding what are the right prices to convert and just understanding their behavior better. And then also on the supplier's side, making sure, you know, part of our algorithms are also the matching algorithms, figuring out who is the right supplier for a given job. And in this very inefficient, opaque market, we have the ability with our AI to find the best supplier, both from a delivery and a quality perspective, but also the one that has the optimal cost structure for a particular order from a customer.

Speaker Change: Yes.

Speaker Change: This also goes a little bit to your question about margins, making sure our pricing is smarter for both our buyers and our suppliers. So as we get to know our buyers better understanding what are the right prices to convert.

Speaker Change: And just understanding their behavior better and then also on the supplier side, making sure in a part of our algorithms are also the matching algorithms figuring out who is the right supplier for giving job.

Speaker Change: And in this very inefficient opaque market, we have the ability with our AI to find the best supplier both from a delivering a quality perspective, but also the one that has the optimal cost structure for a particular.

Speaker Change: For our particular.

Randy Altschuler: So as we get to know those suppliers better, as we gain more and more data, as we enhance those matching algorithms, that gives the opportunity to both make our suppliers happy, but also for that to be a more profitable transaction for Zama.

Speaker Change: Order from a customer so as we get to know those suppliers better as we gain more and more data as we enhance those matching algorithms that gives the opportunity to make our suppliers happy but also for that to be a more profitable transaction predominantly.

James Milne: And Eric, on the longer-term profitability question, first of all, I think we're excited about this very important milestone for Xometry that we're coming up to in getting to Adjusted EBITDA, passing that break-even slightly ahead. Now, as we look at the trends we've had on the business, we've been delivering about approximately 20% incremental Adjusted EBITDA over the last two years. Year-to-date this year, it's around the 23% range. And that has been reflective of the strong progress we've made on the marketplace gross margin, as well as working closely with the team on our op-eds and discipline around the investments we're making.

Speaker Change: And Eric on the on the longer term profitability question.

Speaker Change: First of all I think.

Speaker Change: We're excited about this very important milestone for us I'm afraid that we're coming up to.

Speaker Change: And getting to adjusted EBITDA.

Speaker Change: Passing that breakeven slightly ahead now as we look at the trends that we've had on the business.

Speaker Change: Delivering about approximately 20% incremental adjusted EBITDA over the last two years.

Speaker Change: Year to date this year, it's around the 23% range.

Speaker Change: That has been reflective of the strong progress we've made on the marketplace gross margin as well as working closely with the team on our Opex and <unk>.

Speaker Change: Discipline around.

Speaker Change: The investments we're making.

James Milne: As we look ahead to scaling this business, we think that's the right framework to think about as we've moved from here to a billion, thinking about a 20% incremental adjusted EBITDA coming through with that revenue. As we think about it, contribution margin-wise, you know, we think about the overall gross margin being in that 39 to 40% range and driving continued efficiency on our variable ad spend as well as on variable sales and ops support. And an important enabler is going to be continuing to make the right investments in our technology platform. I think we see success in continuing to be technology-led as a global marketplace, and that'll drive scale and differentiation for us with, you know, increasing network of buyers and suppliers.

Speaker Change: As we look ahead to scaling this business. We think that's the right framework to think about as we move from here to a $1 billion.

Speaker Change: Thinking about a 20% incremental adjusted EBITDA coming through with that revenue as we think about it contribution margin wise.

Speaker Change: Think about the overall gross margin being in that 39% to 40% range.

Speaker Change: And driving continued efficiency on a variable ad spend as well as on <unk>.

Speaker Change: Favorable sales and support.

Speaker Change: An important enabler is going to be continuing to rank the right investments in our technology platform I think we see success in.

Speaker Change: Continuing to be technology led as a global marketplace.

Speaker Change: And that will drive scale and differentiation for us.

Speaker Change: With increasing network of buyers and suppliers.

James Milne: It's an exciting time for us right now as we pass this milestone, but also plan for the year and years ahead.

Speaker Change: It's exciting time for US right now as we processed milestone, but also plan for the year and years ahead.

James Milne: And I think we'll be able to come back to you in February to look at the 25 guidance in more detail in terms of the pace of that as. you go through the course.

Speaker Change: And I think we'll be able to come back to you in February as we look at the 25 guidance in more detail in terms of the pace of that.

Speaker Change: As.

Speaker Change: As we go through the quarters next year.

James Milne: Thank you.

Speaker Change: Thank you.

Matthew Swanson: Our next question is from Matt Swanson with RBC. Your line is open. Great. Thanks for taking my question.

Speaker Change: Our next question is from Matt Swanson with RBC. Your line is open.

Matt Swanson: Great. Thanks for taking my question.

Matthew Swanson: Maybe building a little bit on the expanded wallet share opportunity next year, but I wanted to click specifically on TeamSpace. Could you just talk a little bit about early adoption and how you're seeing people use the product and maybe if it's been enough time to see any kind of ramping or expanded usage and how that goes?

Matt Swanson: Maybe building a little bit on the expanded wallet share opportunity next year, but I wanted to click specifically on team space could you just talk a little bit about early adoption and how youre seeing people use the product and maybe.

Speaker Change: If it's bad enough time to see any kind of ramping our expanded usage and how that goes.

Randy Altschuler: Yeah, thanks, you know, this is Randy. So TeamSpace was particularly suited to larger customers and larger opportunities. When you think about customers who have an entire assembly or entire product that has multiple parts that are associated with it, ordering those parts, making sure logistically they can keep track of what's arriving, putting those parts all together into the assembly is very important for the customer. And so TeamSpace enables customers to work together based on a particular project or product. And we've been seeing really great adoption of that. And, you know, we continue to have more and more teams created.

Speaker Change: Yeah. Thanks. This is ran.

Speaker Change: So teen space.

Speaker Change: He is particularly suited to larger customers and larger opportunities when you think about.

Speaker Change: Customers have an entire assembly our entire product that multiple parts that are associated with it ordering those parts, making sure logistically. They can keep track of what's arriving putting those parts altogether into the assembly.

Speaker Change: It's very important for the customer and so teams space enables customers to work together based on a particular project or products.

Speaker Change: And we've been seeing really great adoption of that and we continue to have more and more teams created.

Randy Altschuler: You know, I think if you look at something like the growth in accounts of more than $50,000 spent in the LTM basis, you know, we had a high watermark this year of adding 70 this prior quarter. That just is part of a testament of the success of TeamSpace and these larger companies adopting it for its use. We're going to continue to enhance TeamSpace, add more and more functionality to it. But this should help us grow within these larger customers and other customers, too, who want to bring us a larger order slash production. Yeah.

Speaker Change: I think if you look at something like the growth in accounts with more than $50000 spend an LTM basis, we had a high watermark. This year of adding 70. This prior quarter that just as part of a testament of Hey, the success of teams based in these larger companies adopting it for its use we're going to continue to enhance game space to add more and more functionality to it but this should.

Speaker Change: Us grow.

Speaker Change: Within these larger customers and other customers, who want to bring us a large orders last reduction.

Shawn Milne: Hey, Matt, it's Sean, too. Thanks for the question. And, you know, as Randy talked about, we continue to see good growth on TeamSpace. We passed through the 4,000 teams created this quarter, continue to see very good viral growth. So we're happy with that product.

Shawn Milne: Hey, Matt it's Sean to thanks for the question.

Speaker Change: As Randy talked about continuing to see good growth in teen space. We pass through the 4000 teams created this quarter continued to see very good viral growth. So we're happy with that product and we have a roadmap again to improve the features and functionality going forward.

Shawn Milne: And we have a roadmap, again, to improve the features and functionality going forward.

Matthew Swanson: That's great.

Speaker Change: That's great.

Randy Altschuler: And maybe one more, kind of the topic du jour on every call has to be a little bit of gen AI. So we've talked about the AI within your platform. Are you seeing anything from a generative side, from the buyer standpoint, of just some of these new models that allow designs to be created, whether it be faster iterations or expanding the potential buyer set to users who maybe weren't able to create designs like that?

Speaker Change: And maybe maybe one more.

Speaker Change: The topic to shore on every call I have to be a little bit of jet AI. So we've talked about the AI within your platform are you seeing anything from regenerative side from a buyer standpoint.

Speaker Change: Some of these new models that allow designs to be created whether it would be.

Speaker Change: <unk> durations or expanding the potential buyer.

Speaker Change: Users, who maybe weren't able to create designs like that previously.

Randy Altschuler: You know, there isn't anything we want to talk about now. We're certainly invested in AI. We're continuing to invest in AI, and we're looking at it from all angles. So I think we're deep into it, and, you know, as we have more news, we'll talk about it.

Speaker Change: There isn't anything we wanted to talk about now we're certainly investing in AI or continue to invest in AI and we're looking at it from all angles. So I think we're we're deep into it and.

Speaker Change: As we have more news, we'll talk about it.

Operator: Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Cory Carpenter: Our next question comes from Cory Carpenter with J.P. Morgan. Your line is open. Morning. Thanks for the questions.

Speaker Change: Our next question comes from Cory Carpenter with Jpmorgan. Your line is open.

Cory Carpenter: Good morning, Thanks for the questions Randy I wanted to ask you with the elections today, just how youre thinking about the future.

Cory Carpenter: Randy, I wanted to ask you, with the elections today, just how you're thinking about the potential impact at a high level from potential policy changes around tariffs or trade policies. Perhaps you could remind us how this impacted Xometry, if at all, during the last administrative change. And James, the 4Q guide implies marketplace growth of 4% sequentially. It was 8% to 9% the last two quarters. So just hoping we could talk about the drivers of the difference there and perhaps remind us of any seasonality. Thank you. Yeah, great. I'll take the first question. I'll let James handle the second one.

Cory Carpenter: Potential impact at a high level from a potential policy changes around tariffs or trade policies, you, perhaps you could remind us how this impacted geometry, if at all during the last administration administrative change in James <unk> Guide and plan.

Speaker Change: <unk> marketplace growth of 4% sequentially. It was 89% the last two quarters. So just hoping you could talk about the drivers of the difference there and perhaps remind us of any seasonality. Thank you.

Speaker Change: Yes, great.

Speaker Change: I'll take the first question I will let John handle the second one so.

Randy Altschuler: So, if there's only one thing that both parties agree on, it's the importance of the strength of manufacturing, and particularly here in the United States, strengthening American manufacturing. So, we really don't see any change, regardless of who wins, and we haven't seen any change in prior elections as well. You know, I think, frankly, if there's a big push for reshoring, that could be beneficial to our marketplace model. And remember, we have these marketplaces in 16 different locations around the world. So, that could be a global phenomenon. You know, I'd say the other thing, too, is that in periods of instability or uncertainty, you know, customers, particularly larger customers, like the fact that we're a public company.

Speaker Change: If there is only one thing that both parties agree on is the importance of the strength in manufacturing and particularly here in the United States strengthening.

Speaker Change: American manufacturing, so we really don't see any change regardless of who wins and we haven't seen any.

Speaker Change: Change in prior elections as well.

Speaker Change: I think frankly, if there is a big push for re shoring that could be beneficial to our marketplace model and remember we have these marketplaces in 16 different locations around the world that could be a global phenomenon.

Speaker Change: No I'd say the other thing too is that in periods of unskilled instability or uncertainty.

Speaker Change: The customers, particularly larger customers like the fact that we're a public company remember traditional supply chain for them is going to be small manufacturers with dominick <unk>. They are able to access a very a vast network of small manufacturers, but they get that certainty reliability.

James Milne: Remember, traditional supply chain for them is going to be small manufacturers. With Xometry, they're able to access a very vast network of small manufacturers, but they get the certainty, reliability of a public company. So, that becomes even more attractive in difficult times. Yeah, Corey, to just remember, we give the buyers the option to either choose to have it, you know, made in the U.S., or we can flex them up and down to where they, you know, can choose their shipping and where the product's coming from. So, it's the flexibility of the marketplace is well suited.

Speaker Change: As a public company, so that becomes even more attractive in difficult times, yes, Cory to just remember we give the buyers the option.

Speaker Change: Either choose to have it made in the U S or we can flex them up and down.

Speaker Change: Where they can choose their shipping and where the products coming out. So it's the flexibility of the marketplace is well suited and thats something that any individual manufacturer couldnt provide so that's very helpful. But everybody loves manufacturing in both parties can stop talking about itself.

James Milne: And that's something that any individual manufacturer couldn't provide. So, that's very helpful. But everybody loves manufacturing, and both parties can't stop talking about it.

James Milne: And Cory, this is James. So as we look at Q4, I think it's worth just taking a look at how we performed in Q3 and for the year here, we're clearly very pleased with how the team has been performing in an uncertain environment. We all know that the industrial readings have continued to be soft, but we've been focused on our growth initiatives and growing the marketplace again, 24% in the quarter in Q3 was great to see. A highlight there being, you know, the trading 12 months, 50,000 accounts increasing, 23%, the highest net ad for the year at 70.

Speaker Change: And Kurt.

Speaker Change: This is James.

Speaker Change: As we look at Q4, I think it's worth taking a look at how we performed in Q3 and for the year here.

Speaker Change: We're clearly very pleased with how the team has been performing in an uncertain environment.

Speaker Change: We all know the industrial readings have continued to be soft.

Speaker Change: But we can focus our growth initiatives.

Speaker Change: And growing the marketplace again, 24% in the quarter in Q3.

Speaker Change: It was great to see.

Speaker Change: The trailing 12 months 50000 accounts increasing 23%.

Speaker Change: Our highest net adds for the year at <unk>.

James Milne: You know, this does talk about the board-based execution that we're seeing despite that environment. So as we look at the full year here, including Q4, you know, we're growing 22 to 23% on marketplace. That's against our prior outlook of at least 20. And as we look at Q4 specifically, you know, I think we're in line with overall where we would expect to be for the year considering the environment that we're operating in. Remind people on a year-over-year basis that the type of comp with where we were a year ago with a strong Q4-23 growth. And we're really pleased with the great profit-dollar growth that we're driving.

Speaker Change: Does talk about the broad based execution that we're seeing despite that environment. So as we look at the full year, including Q4.

Speaker Change: During 2023% a marketplace that's against our prior outlook of at least 20.

Speaker Change: And as we look at Q4, specifically I think we're in line with overall, where we would expect to be for the year considering the environment that we're operating in.

Speaker Change: Remind people on a year over year basis is a tougher comp with where we were a year ago with a strong Q4 'twenty three growth.

Speaker Change: And we're really pleased with the gross profit dollar growth that we're driving.

James Milne: And so when it comes to Q4, I think we're just mindful of the uncertain macro, as well as, you know, the holiday calendar that we have at this time of year, and we've taken that into account into our guidance. But the trends here are great to see on Marketplace for 24, and as we've shared, we've got good expectations for 25.

Speaker Change: And so when it comes to Q4, I think which is mindful of the uncertain macro.

Speaker Change: As well as the.

Speaker Change: Holiday calendar that we have at this time of year and we've taken that into account into our guidance.

Speaker Change: The trends here, great to see on marketplace for 24.

Speaker Change: As we've said we've got good expectations of 25.

James Milne: Very helpful. Thank you.

Speaker Change: Very helpful. Thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

Greg Palm: Our next question comes from Greg Palm with Craig Hollum. Your line is open. Yeah, thanks.

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

Greg Palm: Maybe a two parter on this one on the global supplier base. So it sounds like that's continued to grow this year. Do you think you're at all benefiting from this current software manufacturing environment, meaning you're adding more suppliers because they have, you know, open capacity in their own business. So just want to get kind of your thoughts around the sustainability of continued growth there.

Greg Palm: Yeah. Thanks, maybe a two parter on on this one on the global supplier base. So it sounds like that's continued to grow this year do you think you're at all benefiting from this current softer manufacturing environment, and you're adding more suppliers because they have open capacity in their own.

Greg Palm: So just wanted to get kind of your thoughts around the sustainability of continued growth there and then the release specifically talks about adding new suppliers with maybe different capabilities or certifications to serve some of your larger customers. So hoping you can expand on that a little bit as well.

Randy Altschuler: And then the release specifically talks about adding new suppliers, with maybe different capabilities or certifications to serve some of your larger customers. So hoping you can expand on that a little bit as well.

Randy Altschuler: Thanks for the question.

Speaker Change: Yes, thanks for the question I think.

Randy Altschuler: I think as Xometry awareness, we're very excited about our growth, but we think one of our opportunities is to drive higher awareness in this giant market. And that's true both on the buyer and on the supplier side. So as more and more suppliers are aware of us, they're attracted to what we can offer on the platform. With our AI, we're giving them access to jobs that they wouldn't have access to before. And we're also using that AI to give them jobs that are, we're hoping, the most profitable and best jobs for them. So really finding the sweet spot of their manufacturing capabilities.

Speaker Change: I think as Zama tree awareness, we're very excited about our growth, but we think one of our opportunities is to drive higher awareness in this giant market and that is true.

Greg Palm: On the buyer and on the supplier side, so as more and more suppliers are aware of us. They are attracted to what we can offer on that platform. We can with our AI, we're giving them access to job that they wouldn't have access to before and we're also using that AI to give them jobs that are we're hoping they're most profitable and best job for them, So really finding the sweet spot.

Greg Palm: Their manufacturing capabilities, plus we've given them work center, which is a free manufacturing execution system. So I think as you look at the task as you look at the growth of our supplier network I wouldn't lean on that its a soft macro I would actually say, it's more and more suppliers recognizing the value of the geometry, driving and it makes sense for them and there's really there's no other opera.

Randy Altschuler: Plus we've given them WorkCenter, which is a pre-manufacturing execution system. So I think as you look at the test, as you look at the growth of our supplier network, I wouldn't lean on that it's a soft macro. I would actually say it's more and more suppliers recognizing the value that Xometry is driving, and it makes sense for them. And there's really, there's no other opportunity out there. I like to have Xometry and recognizing that and adopting.

Greg Palm: Surely out there I would like to have <unk> and they are recognizing that and adopting it.

Randy Altschuler: And what about the, you know, sort of new capabilities or certifications?

Speaker Change: And what about the.

Speaker Change: Sort of new capabilities or certifications I guess I'm, just asking in light of.

Randy Altschuler: I guess I'm just asking in light of, you know, broader sort of scope and service offering. Maybe that's kind of what that's intended to do. Yeah, absolutely. So, as you know, we're doing, you know, we're adding new processes like tube bending, tube cutting, and as we're expanding our production capabilities, we're adding more and more suppliers with those certifications, with those capabilities.

Speaker Change: Broader sort of scope and service offerings, maybe that's kind of what that's intended to do.

Speaker Change: Yeah, absolutely so as we are doing.

Speaker Change: We're adding new processes like to burning through cutting edge.

Speaker Change: And as we're expanding our production capabilities, we're adding more and more suppliers with those certifications where those capabilities. One more thing just to add to that as well Thomas and that's been a huge out to that so Thomas nets I've got this tremendous directory.

Randy Altschuler: One more thing just to add to that as well, ThomasNet's been a huge help to that. So, we've, you know, ThomasNet's got this tremendous directory of tens of thousands, hundreds of thousands of manufacturers. So, as we're entering these new markets, whether it's additional production capabilities or it's new manufacturing capabilities like tube bending, tube cutting, ThomasNet is a great place for us to find those suppliers. Understood.

Speaker Change: Tens of thousands hundreds of thousands of manufacturers. So as we're entering these new markets, whether it's additional production capabilities or its new manufacturing capabilities like <unk> cutting comments and that is a great place for us to find those suppliers.

Greg Palm: Okay, thank you. Thank you very much.

Speaker Change: Understood. Okay. Thank you.

Speaker Change: Thank you very much.

Operator: I am showing no further questions at this time.

Speaker Change: I am showing no further questions at this time.

Operator: Thank you for your participation in today's conference.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.

Operator: This does conclude the program, and you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].

Greg Palm: Okay.

Greg Palm: Okay.

Greg Palm: Yes.

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Greg Palm: Okay.

Greg Palm: Uh huh.

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Greg Palm: Sure.

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Greg Palm: Yes.

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Greg Palm: Okay.

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Greg Palm: Yeah.

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Greg Palm: Okay.

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Greg Palm: So.

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Greg Palm: Okay.

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Greg Palm: Okay.