Good day, and thank you for standing by. Welcome to Xometry Incorporated Q1 2023 Earnings Call. At this time, the participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advice that today’s conference is being record. I would now like to hand the conference over to your speaker today, Shawn Milne, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on Xometry’s Q1 2023 Earnings Call. Joining me are Randy Altschuler, our Chief Executive Officer; and Jim Rallo, our Chief Financial Officer. During today’s call, we will review our financial results for the first quarter of 2023 and discuss our guidance for the second quarter and full year 2023. During today’s call, we will make forward-looking statements, including statements related to the expected performance of our business, future financial results, strategy, long-term growth and overall future prospects. Such statements may be identified by terms such as believe, expect, intend and may. These statements are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed before the market opened today and in our filings with the U.S. Securities and Exchange Commission including our Form 10-K for the year ended December 31, 2022, and our Form 10-Q for the quarter ended March 31, 2023 that will be filed later today. We caution you not to place undue reliance on forward-looking statements and undertake no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in our expectations. We’d also like to point out on that 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 in the Investors section of our website at investors.xometry.com. A replay of today’s call will also be posted on our website. With that, I’d like to turn the call over to Randy.

Thanks, Shawn. Good morning, everyone, and thank you for joining us for our Q1 2023 earnings call. In Q1, we had the highest revenue in Xometry’s history. We grew revenue 26% year-over-year, including 35% year-over-year growth in marketplace revenue. We added a record number of active buyers as we continue to gain market share. We significantly increased gross margins and operating leverage reducing our adjusted EBITDA loss in Q1 from Q4 by 17% and by 23%, excluding non-recurring Sarbanes Oxley-Act implementation compliance costs. The continuing shift to digital is inevitable, and as the leading two-sided marketplace, Xometry’s asset light digital marketplace creates efficiencies and value for buyers and suppliers alike. Artificial intelligence is at the heart of Xometry, generating prices for buyers and suppliers across a range of on-demand manufacturing processes. We continue to develop our proprietary machine learning algorithms, adding support for additional features such as new materials and finishes, and training our models on an increasingly large data set of custom manufactured parts. Our technology helps buyers significantly reduce their time to market and strengthen their supply chains and enables small and medium-sized suppliers to fill their capacity with work that can boost their growth and profitability. With our market leading position and increasingly global footprint in a total addressable market of $2 trillion, we expect to continue to grow rapidly for many years to come. While there are no shortcuts, we are steadily and methodically executing on our vision of becoming the de facto digital rails for custom manufacturing. In Q1, revenue increased 26% year-over-year to $105.3 million. Q1 marketplace revenue was $86.7 million, representing 35% year-over-year growth. We saw strength across all processes and many verticals including electric vehicles, energy, industrial equipment, and robotics. Our value proposition continues to resonate strongly across all sizes of businesses,…

Thanks, Randy, and good morning, everyone. As Randy mentioned, we delivered strong marketplace growth in Q1 despite macro headwinds. Q1 revenue increased 26% year-over-year to $105.3 million, driven by marketplace growth. The stronger U.S. dollar negatively impacted revenue by $0.5 million on a year-over-year basis. Q1 marketplace revenue was $86.7 million and supplier services revenue was $18.6 million. Q1 marketplace revenue increased 35% year-over-year, driven by strong growth in the number of active buyers. Q1 active buyers increased 46% year-over-year to 44,716 with 4,052 new active buyers. In Q1, the percentage of revenue from existing accounts was 96%, underscoring the efficiency and transparency of our business model that leads to increasing account stickiness and spend over time. Once an account joins our platform, we aim to expand the relationship and increase engagement in spending activities from that account over time. The number of accounts with the last 12 months spend of at least 50,000 on our platform reached 1,109 at the end of Q1, up 40% year-over-year. Supplier services revenue declined approximately $600,000 or 3% year-over-year in Q1. As Randy mentioned in his remarks, part of our strategic plan for 2023 is to modernize the Thomas advertising platform and expand the self-service marketing products on thomasnet.com. We expect these efforts to grow the number of digital marketing customers and to reduce the sales costs associated with acquiring them. This quarter, we are introducing a new KPI for supplier services. The number of active paying suppliers for Q1 2023 was 7,621 on a trailing 12-month basis, an increase of 11% year-over-year. Active paying suppliers is the number of suppliers who have purchased one or more of our supplier services, including digital marketing services, data services, financial services or supplies during the last 12 months. We believe this KPI will help investors…

Thank you. [Operator Instructions] Our first question comes from the line of Rohan Joshi of Citi Bank. Your line is now open.

Great. Thanks for taking the questions. I’ve got two please. Randy, I guess, coming out of last year, we talked a little bit about supplier behavior. And just wondering if you can talk to us about supplier behavior are turning to more normalized trends, in terms of taking jobs and overall pricing. That would be helpful on number one. And the second key point on gross profit. Jim, you talked about margins expanding in the back half of the year, but we also saw margins expand at 1Q. So talk to us a little bit more about what’s driving that overall gross margin, particularly in the marketplace side. Thank you guys.

Yes, and good morning. And Rohan, good to speak with you. So just going back to the change from Q4 to Q1, we saw marketplace revenue growing stronger even then we expected and we saw strong – strength in active buyer growth and strong growth in orders. And suppliers continue to react well and participate well in the marketplace. So I think we’re – we saw strength across all processes and many verticals. And as we saw with our record add of net active buyers in the quarter, we also saw our competitive position continue to strengthen as well. Just on your question about gross margins going up, we did talk about how in Q4, we’ve been doing experimentation, testing the price elasticity of customers. We ended that at the end of January. So you saw a nice rebound gross margins from Q4 to Q1 of 28 – of 170 basis points to almost 29%. And as we’ve also mentioned in this call, we’ve guided to increased gross margins for marketplace and supplier services in Q2 as well.

Yes. Rohan, and it’s Shawn. I just want – for the year, we also talked about gross margin being for the marketplace, 30% plus.

Thank you.

Thank you. [Operator Instructions] Our next question comes from the line of Nick Jones of JMP Securities. Your line is now open.

Great. Thanks for taking the questions. Two, if I can. I guess, first kind of high level, how much is some of these industry trends and metrics we’re seeing reported impacting the overall businesses. Is that a kind of a factor we’re seeing or is Xometry still kind of able to grow through some of these macroeconomic pressures?

Yes. Look, I think with our investments in technology, investments in international, and you received in Q1 that we’ve been gaining market share by adding a record number of active buyers. So – and we saw strength, they could across all processes and across many verticals. So I think we – as we gain market share and as our investments continue to pay off, we’re excited to continue to grow.

Great. And then maybe just as we think about the back half and the full year guide, revenue have to kind of accelerate to hit those. Can you kind of speak to what gives you confidence in the full year number? Are you seeing kind of similar behavior in active buyer kind LTV to CAC or cohort curves that gives you confidence in kind of that performance and this kind of uptick and active buyers you’ve had?

Yes. Look, again, I think in the second half, we expect our investments that we’ve been talking about to continue to bear fruit, including continued strong active buyer growth, order growth and international growth. And we think those combined will enable us to reach that guidance that we provided.

Great. Thanks, Randy.

Thank you. [Operator Instructions] Our next question comes from the line of Brian Drab of William Blair. Your line is now open.

Good morning. Thanks for taking the questions. I was wondering if you could talk first a little bit more about the Alibaba 1688 opportunity. Just some more detail there would be helpful. I mean, the big question is, what’s the revenue opportunity there longer term? And can you talk about how that agreement and how the business model is structured and have they ever tried providing custom parts in the past? Thanks.

Yes, and Brian, good morning and thank you for the question. So we’ve not baked in, just to be clear in our guidance here anything related to 1688, as we talked about during our prepared remarks, notwithstanding 1688, our China marketplace has been growing very strongly. So we’re very happy about that. We expect it to be a revenue contributor this year and even a stronger revenue contributor in the year that follows. We are excited. That said, we are very excited about the 1688 opportunity. It will be fully operational later this quarter and it will actually be – there 1688 is using our technology to provide the instant quoting for custom parts, and we’re the exclusive provider of that. And then Xometry Asia will be the fulfillment for that. I actually don’t know Brian if they’ve ever offered it before. I don’t think so, but – and I believe the answer is they’ve never offered it before, but I couldn’t tell you a 100%, but I strongly they’ve never offered it before.

Yes. And Brian, it’s Shawn. And just on the agreement, there’s not a revenue share, so when it’ll – in terms of when it gets rolling, it’ll run through our marketplace revenue and KPI.

Are they just – I know we’ve discussed this, but I still am not perfectly clear on that. Does that just mean that they’re basically directing you leads in the revenue and margin opportunity for Xometry? Is the same as it is in your legacy marketplace or is it different? Like, is this going to be revenue at similar marketplace margin?

Yes, it will be. No, I mean, again, our margins, particularly in – as we’re standing up, we’ve talked about this, we’re staying at geographies don’t necessarily reflect, don’t necessarily mirror the margins exactly in our mature markets. But yes, it will – in terms of the way it functions, it will be similar to the way it functions in Europe or in the United States or North America. So very, very similar.

Yes. And just to recall, I know you said direct leads, but again, just so for one on the call, I mean, our instant quote technology is embedded within their marketplace, so it’s not as if a customer is being redirected to a different platform. So it’s embedding that technology on their marketplace in a seamless experience.

So if you’re on 1688 and they now will be able to offer for people on 1688, the ability to instant quote their parts, they’re using our technology to do that. And that is part now being built into what 1688 can offer. So we’re pretty excited about it.

Yes, I guess I’ve used the wrong word, but I’m just thinking of it’s generating leads for you. You’re basically stepping into this massive flow of 30 million users annually. And when you say there’s not revenue share, it means you’re not sharing – Xometry is not sharing revenue with them. Is that what you’re…

Yes, we’re not sharing revenue with 1688. So it’s Ali’s 1688 makes fees by handling transactions for people, et cetera. They’re not getting a piece of this transaction, Brian.

Yes. They make money on the float, Brian, so the checkout will be through their process and that’s how they make their money.

Can you elaborate on that, Jim? Just define what you mean by float in this context? I think I’ve just got a lot of questions on this. It’d be a good time to clear it up.

Yes. Brian, so just that when people – one of the things that happens in 1688, and it’s just different. There is people will pay that will be then held by 1688, and then once the system – the order is shipped in our case, then they would release the funds. So that’s similar on Alibaba and other platforms. So they are the – they’re holding the funds from the buyer and then they release them when the seller delivers,

Right. So for – in the interim, when they’re holding those funds, they can invest them or generate some interest on that and make some money off of this. But in terms of the transactional revenue and margin that goes to Xometry. Is that…

It’s not any different, Brian. It’s the same as we’ve got everywhere.

Yes. Okay. All right. Thank you for that. And then just quickly, the supplier services down – revenue down 3% year-over-year. It sounds like said you’re pulling back some marketing expense there and maybe not – just not focusing and selling the services as aggressively going forward. Is that just an ROI type of decision? And how big a drag on revenue for 2023? Is this just a million or two?

Brian and yes, so there is a specific service that we offer, which is selling supplies – supplier services, the bulk of our supplier services is marketing, marketing services that we’ve got with Thomasnet. But as you know, historically Xometry has sold supplies to suppliers, whether it’s materials and tools. So that is a segment of supplier services that we’re pulling back from. It’s got significantly lower gross margins. And so we are not actively – as actively marketing it to the suppliers. So that’s why we talked about in Q2, that’s going to – you’re going to see year-over-year revenue from suppliers just go down, because we’re not actively marketing that to our suppliers. Ultimately, that’s a more profitable, it’s going to help our margins. So it’s a proactive thing that we’re doing. But of course, the other marketing services and supplier services, we are investing in the technologies we’ve talked about and building our sales and marketing capabilities around those so.

Okay, I got it. Thanks a lot.

Thanks, Brian.

Thank you. [Operator Instructions] Our final question comes from the line of Greg Palm from Craig-Hallum. Your line is now open.

Yes, good morning. Thanks for taking the questions here. I wanted to start with active buyers, because it was a nice pickup, again, in terms of net ads for the quarter. And I guess, my first question is, are you seeing a different sort of mix in some of the new net ads this quarter last quarter versus maybe historical levels? And I guess, your comment about going deeper into the top 200, should we assume that a big portion of these net ads are just that it’s increasing wallet share within a certain company or enterprise? Or are you actually seeing good net ads in different or separate enterprises as well?

Yes, great question. So we are seeing – we’ve got a big funnel and we are seeing really nice addition of new logos. People say new accounts and the behavior of these accounts in Q4 aren’t – are the makeup or the demographic of it is similar to accounts that we’ve added in previous quarters. We’re just – we’re getting more efficient with our marketing spend. We’ve got more organic growth. And so we’re just adding more active buyers each quarter. And yes, we are certainly – we talked about in five-point strategic plan going deeper and wider into the top 100accounts. So we are adding more buyers there, but the funnel of new logos is very strong.

And Greg, as Randy mentioned Q1, but the other thing you’re seeing is broad-based strength in active buyer growth, but not only in the U.S. but remember Europe is growing at a very fast rate. So we’re seeing good buyer growth over there as well.

And in terms of the assumptions behind the Q2 revenue guide, does it assume another sequential increase in net ads or maybe a similar level of what you saw between Q4 and Q1?

Yes. I mean, we don’t guide specifically to that metric, but you should expect healthy net ads going forward. And Greg, as you play that out, this is something we were talked about the last few calls, as you play that out through 2023 that drives good strong growth year-over-year in active buyers.

Understood. Okay. I’ll leave it there. Thanks.

Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.