Xometry, Inc. (XMTR) Earnings Call Transcript & Summary

Happy to have to share the stage, be on stage with Xometry's CEO and Founder, Randy Altschuler; and then CFO, James Miln. So I think we all know about Xometry. We've been public for a few years now, and so we can sort of get to the questions. But I was talking to a few guys today, and we know Xometry is a marketplace for manufacturing or whatever. But also, I thought the buzzword supply chain platform is a good way of saying what Xometry is. So throwing out that comment because I like the way that sounds, and I think that makes a lot of sense. So with that said, let's jump into it.

So let's see, Randy, we -- I want to -- you're coming off a pretty good 2Q, right? And just rattling off numbers, 2Q results, we saw a 21.5% growth in annual buyers. You saw 26% marketplace revenue growth. You saw gross margins in marketplaces expand. Just talk to us about just what the drivers of this momentum here. I think you mentioned smarter quoting, dynamic pricing, workflows, sourcing. We'll get into the products at maybe a higher level. Paint the picture for us on where we are.

Sure. So as you described, a good second quarter. Year-to-date growth has accelerated from last year, both overall revenue and our marketplace revenue growth, record high gross margin for marketplace and overall record gross margin of over 40%. So a lot of momentum there. What's driving that? A couple of different factors. So first, our AI continues to get smarter and smarter, as we ingest more data from more and more transactions and as we grow our networks and buyers and suppliers. So the key to our marketplace and driving this, both the pricing and the matching between the buyers and the suppliers is the successful ingestion of that data and utilization of it. So that's been going well. There's increasing adoption of Xometry for, as you talked about, supply chain solutions. So as you think about our larger customers, they're looking at better, more efficient ways to manage their supply chain, often which are still with tens of hundreds of small manufacturers, the Xometry marketplace is a very efficient way to do that. We integrate directly into their procurement systems. We help them with their -- we integrate into their CAD design systems. So all sorts of ways. So we're just providing more efficiency and reducing friction. And then we just continue to invest in the buyer experience. So you're talking about better pricing, faster speed, better selection. These are the things that are going to drive customers and grow our share of wallet, not only with more customers, but with each of those customers, they're going to be spending more with us as well.

Sure. I think that's a really good way of saying it, better pricing, faster speed, better selection. It sounds like a company in Amazon, but -- I think Amazon up in Seattle, but it does eliminate a lot of the friction out there. And so I want to dig into that a little bit more because this past quarter, we talked a little bit more about few products, Instant Quoting, Teamspace, ERP integrations. So let's dive into Instant Quoting. And specifically, I would love for you to help us better understand the complexity that's involved with Instant Quoting. So I think we're always adding new materials. And so just help us understand the benefits, the complexity and what goes into this Instant Quoting product?

Yes. So those who are still a little less familiar with Xometry, one of the unique things is when you're talking about custom manufacturing, you're not traditional retail purchasing, where you're buying a SKU off the shelf where the price is well known. And if you went to two or three different suppliers, the price would vary by 1% or 2% or 5% maybe. In this instance, it's custom. And so there's a lot of price inconsistency. You can go to two or three suppliers and somebody could charge 100% more than somebody else or take twice as long. And just to get that price and lead time can take hours, days or even weeks. And a lot of that has been done historically offline. So using AI, we're able to instantly provide customers with pricing and with those lead times, and that's getting smarter and smarter as we ingest more and more data. Also, we're finding new applications for AI. So one of the requirements in Xometry quoting is to have a 3D CAD file. Our technology reads that file and helps generate a price. But a lot of customers, in fact, the majority of manufacturing, when you think about the giant TAM that's available to us, historically, there hadn't been 3D CAD. There had been drawings, technical drawings or prints, they got different names, literally like a physical representation of it. Now we're using -- beginning to use AI to read and extract information directly from those files. So the customer, particularly when you think about legacy parts or service parts, sustainment parts where there isn't a 3D CAD file, now the customer drawing data directly from that, that's making a better experience for the customer. It's speeding up the entire process, and it's just continuing to allow us to serve a greater audience and a bigger share of what that audience is wanting to buy.

And how do you merchandise Instant Quoting? So for example, you can imagine just the amount of variability in product that's being ordered. And so not every product, I think, is Instant Quoting eligible. Please correct me if I'm wrong.

Absolutely.

And so how do you ensure that if a client or someone is asking for whatever product that, look, you may not have this in quoting, but this is here or to get that repeat usage going?

Yes. And so we are constantly expanding what we can instant quote. And so we're adding more and more, whether it's manufacturing technologies, it's materials, post-processing, all sorts of different configurations. We're also adding the suppliers. So we're building those supplier networks. And that's one of the very unique assets that we have. Not only do we have all these buyers and all this data, but we've got this wonderful supplier network, which has grown over 40% since 2019 on a compound annual basis. And so as we're adding more processes, we're adding more and more supplier networks that can fulfill those. And again, it's just such a -- when you think about well-functioning or highly functioning marketplaces that are widely adopted, just being able to get everything you need in a very convenient, reliable way is so powerful. We're able to achieve that as we're expanding more and more what is in that menu.

Sure. So maybe switching to another product that I think we've seen for a couple of years now, but has really turned on is Teamspace. So this past quarter, we launched in Europe, U.K., Turkey. I believe we now have 7,000 teams on it if I am...

I think we have over 8,500.

Over 8,500. And so it feels like a tipping point to a certain extent with Teamspace and particularly, it's helping Xometry's EU operations. So help us understand a little bit more about Teamspace. And I know it's been out there, but maybe for all of us. And then the ability to expand into newer markets, the impact there.

Yes. So Teamspace is the ability for groups of buyers at our customers, and it could be a combination of engineers of procurement people, strategic sourcing people altogether who are buying not only just one-off products, but entire assemblies and products. And so that communication and collaboration is really important. All of that can happen within Teamspace. It's also a great way for us to grow organically within our customers. We've seen, as James just said, over 8,500 teams have been adopted. That's helped us across the board. In the U.S., in particular, it's helped us with our enterprise customers as they're doing larger and larger projects with us, outsourcing effectively more of their supply chain, Teamspace is helping them with that coordination effort. We did launch Teamspace in EMEA in July. The initial results we're very happy with. And that will allow us -- we're less mature and that market grew 31% international last quarter. So it's growing rapidly, but it's a few years behind the United States and historically has not been as focused on the enterprise customers. As we now have launched Teamspace there, we'll now gain more traction in those enterprise customers. In the U.S., those enterprise customers, we talk about our top 100 customers grew over 40% in 2024. And these are customers that are spending more than $500,000 with us and which we think have $10 million plus each potential. We've got some really exciting opportunities in Europe and Asia as well to do similar things.

And if I can just add, I think with Teamspace, as you said at the beginning, Ron, in terms of being a solution for our buyers, especially in enterprise, as this helps them aggregate up like all of the transactions that they do with Xometry, and it moves it to that level from individual transactions with individual buyers, engineers or supply chain managers to more of that strategic partnership that they can see evolving on Teamspace through with Xometry. I think it gives our teams, again, a sort of a platform from which to have the more strategic conversation over time to get to $10 million-plus and maybe even larger.

I want to get into the $10 million in a second here, but sticking with the product side, Randy, you talked about procurement and CAD systems before. ERP integrations was something that was highlighted quite a bit this past quarter. And so talk to us about the importance here of just how that's minimizing the friction.

Yes. So as much as possible, we want to integrate within the procurement systems of our customers. That's very important for a number of reasons. First of all, it's just easier for them to procure. They don't have to come to our website. They don't have to e-mail us a PO. They can do that directly from the procurement systems. Communication is happening directly between system from system. It's more efficient. Sands are touching everything. It's just a better experience. It also creates a virtual storefront for Xometry within these companies. So we're very proud about our growth in our enterprise customers. But as we just talked about, we could do a heck of a lot more. Part of the issue is just getting awareness out and making sure that these large corporations, some of which are the largest corporations in the world, where gets out by being embedded in the procurement system and having that storefront, suddenly lots more engineers, procurement people, purchasing people can now access and buy from Xometry. And a lot of times in these larger companies, being in those systems is the key to winning. Nobody is price insensitive. Price always matters, but factors like that are very important to those customers, and that's why we're seeing so much success.

Sure. So one of the things that I think was fascinating, and James, you just talked about, Randy, you just talked about it, the potential for multiple customers. Maybe 100, I think I just heard. Please correct me if I'm wrong, get to $10 million from a revenue perspective. And what I wanted to understand is we've been talking over the past couple of years the land and expand strategy. We've been talking the, call it, basically rebuilding the sales force to that land and expand strategy. I think we've had a few key hires as well with Sanjeev. So what I'd love to hear is your thoughts on the progress of land and expand. And how does the company go from whatever it is, $100,000, $500,000 is a big number, $10 million. That's a pretty big leap. And so any insights there would be very helpful.

Sure. I'll start and then James, feel free to jump in. So it starts with the technology. It starts with Teamspace as we talked about. It talks about the integrations in those ERP systems. It talks about having the integrations with their CAD program. So you're catching the customer at all different levels of the life cycle from just creation of the actual product to the procurement of the product and just reducing friction. So that's very powerful. Then you marry that together with a go-to-market. We brought on board last year from Google, a new Head of Sales. And so that enterprise motion and the team that can deliver that when we're giving them the technology to do it, when we're expanding the breadth of what we can quote, that's just allowing them to be very successful. So that combination, I think you're seeing that as growth this year has accelerated. And we -- as we announced our Q2 earnings, we talked about Q3 has started strong as well. So you're beginning to see the payoff from those investments that we were making last year and in that enterprise, both on the technology side and on the sales side.

Yes. So in our investor presentation, we have a slide with a few case studies. So in 2024, we already have customers who have got to the high single-digit millions. And when you look at a customer that did $9 million in 2024, it's -- again, thinking about it from their point of view, Xometry is solving a multitude of work in custom parts, in end-use parts that goes to small- and medium-sized manufacturers. And those -- that has complexity to manage that Xometry, not only are you getting that best price, but the lead time, the quality and the trust that that's building with being able to funnel that work through Xometry as a platform and as a solution. And so as we see that scale, it's not about -- we sometimes get this question of prototype to production. It's not that linear prototype to production. What it is, is it's a multitude of these end use cases, custom parts that are required, whether it's service, replacement, R&D, production, a combination of things for maybe one assembly or maybe it's across several within different divisions. And that's why we see this path. We see the performance that we've had in prior cohorts, and we see that project forward with a path where $10 million-plus seems very achievable. And that's even at still a level that's somewhat transactional. I think as we get deeper and more integrated through the solutions Randy outlined, there's potential for well over $10 million.

Yes. And I just want to double-click on something that James said. And customers, when they use the Xometry marketplace, they're not just trying to buy a part or buy an assembly or buy a product. They also have to solve the problem of the complexity, as James alluded to, of the entire procurement acquisition process, receiving the parts, documentation, all that. That is just -- and even the status of what's going on with my work. So things in the B2C world that are like table stakes, where is my job? Is the pizza out of the oven or not? Where is the package and things like that? In the manufacturing world, it's light years behind that. So the largest companies in the world, when they're trying to find out the status of their critical parts, they're sending e-mails, they're making phone calls. And that -- those are often the only touch points they have with their manufacturers. They do not have real-time insight into what's going on and when delivery is. One of the wonderful things that we offer our customers, among other things, is we've got Workcenter, which is the software that all of our suppliers. So if you're a partner, supplier in this two-sided marketplace, you have to manage your orders and deliver using Workcenter. That gives insight into the status of the order, what's going on that customers don't have today and even try to get would be a very manual and arduous process. We're using technology to solve that problem. We're using technology to enable them. When you're building something where there are multiple parts, that collaboration and finding out where one part is versus the other, again, historically, that's been done via e-mails to people within a company or things like that. That's all happening on Teamspace. So as you think about our technology, making that process easier, reducing friction, ensuring successful delivery and success of the project, that's worth a lot for our customers. And they just can't get that from a small and medium-sized manufacturers. Those manufacturers are awesome at manufacturing, but their digital storefront or footprints or systems, they just don't have those.

Is Workspace available to everybody or that's part of...

Yes. So Teamspace is available to everybody. And Workcenter, every one of our suppliers has it, and we've made it available for them to use for all of their customers. So not just for Xometry, but for them to use it for all their customers. And we're a two-sided marketplace. We want to help our suppliers excel. We're very -- our algorithms not only help the customer get a price and to buy, but the algorithms also help ensure that our suppliers are getting jobs that best match their capabilities. Why do we care about that? Well, for a couple of reasons. One is those are jobs that are going to more successfully deliver, right? Everybody is good at particular things. They always say, go with your strengths, not try to fix your weaknesses. And also, it's financially better for the supplier. So it's quite unique in some marketplaces, it's just about driving down the supplier. In our instance, we're giving the suppliers the most profitable work because we're giving them the choice of jobs from all around the country and all around the world. For these small or medium-sized manufacturers, usually, historically, they've only been able to service local customers. So if I'm in Houston, Texas, I'm oil and gas. Oil and gas isn't doing well, I'm out of luck. Or if I'm outside Detroit, I'm worried about automotive. Now we're opening up that they can get work from everywhere, so they can choose what is best for them. And that is really powerful for these small and medium-sized businesses.

That's super interesting. One of the things I heard -- I thought I heard last quarter, please correct me if I'm wrong, that Xometry is increasingly being used for both quick turn and long-term production planning. Did I hear that correctly?

That is. So we're doing more and more longer-term projects and production as well as quick turn. And as sort of James said, it's an evolution where our customers are thinking about Xometry as a solution to a problem and not just an immediate problem like this one part or this one production order, but hey, I think about the grand scope of all the things that I need to produce my supply chain, which portion of that supply chain is best suited for the Xometry marketplace, the Xometry platform. And that's -- and so that ends up being a combination of both large production orders, smaller orders, quick turn, longer term, a wide range of different materials, processes. That's why, again, expanding the menu is increasingly powerful. They're doing more and more of their shopping at Xometry same way you could buy more and more from Amazon, and that's a very compelling value prop for them.

And it's an evolution of how Xometry has sort of gone through this. And so maybe 2.5 years, we were on stage talking about land and expand and talking about the broader macro and here we are.