Business Overview and History
Xometry, Inc. (XMTR) is a global artificial intelligence (AI)-powered online marketplace that connects enterprise buyers with suppliers of manufacturing services, driving the digital transformation of one of the largest industries in the world. The company's proprietary technology and expansive network of suppliers have positioned it as a leading player in the rapidly evolving manufacturing landscape.
Xometry was incorporated in the State of Delaware in May 2013 with the mission of leveraging AI and machine learning to digitize the fragmented and opaque custom manufacturing industry. The company's founders developed an AI-powered technology platform powered by proprietary machine learning algorithms and datasets, creating a sophisticated two-sided marketplace that allowed buyers to efficiently source custom-manufactured parts and assemblies, while empowering suppliers to grow their businesses.
In its early years, Xometry focused on building out its network of buyers and suppliers, utilizing its AI-driven platform to match manufacturing demand with available capacity. The company made significant investments to expand the types of manufacturing processes offered on its marketplace, including CNC manufacturing, sheet metal forming, 3D printing, injection molding, and more. This strategic expansion allowed Xometry to serve a diverse set of industries, ranging from aerospace to consumer goods.
A major milestone in Xometry's growth came in 2021 when the company went public on the Nasdaq stock exchange, raising capital to further invest in its technology and growth initiatives. That same year, Xometry acquired Thomas Publishing Company and its subsidiaries, expanding its suite of supplier services to include advertising, marketing, and manufacturing execution software. This acquisition not only added Thomasnet, a leading industrial sourcing platform in North America, to Xometry's portfolio but also strengthened its position as a one-stop-shop for manufacturing solutions.
Throughout its development, Xometry has faced challenges common to fast-growing technology companies, such as managing rapid headcount growth, optimizing its sales and marketing strategies, and maintaining operational efficiency. However, the company has successfully navigated these obstacles, continually enhancing its platform and expanding its global footprint.
Xometry's AI-powered technology platform remains the backbone of its marketplace, enabling it to quickly match buyers with qualified suppliers based on their specific manufacturing requirements. The platform's sophisticated algorithms continuously analyze a vast trove of data, including order histories, supplier capabilities, and market trends, to optimize pricing and delivery times for both buyers and suppliers.
Business Segments
Xometry operates through two main business segments: Marketplace and Supplier Services.
The Marketplace segment is the primary driver of Xometry's revenue growth. It primarily generates revenue from the sale of custom-manufactured parts and assemblies to customers through its online platform. This platform connects buyers, including engineers, product designers, procurement and supply chain personnel, inventors, entrepreneurs, and business owners, with a global network of suppliers offering diverse manufacturing capabilities. These capabilities encompass computer numerical control (CNC) manufacturing, sheet metal forming, sheet cutting, 3D printing, die casting, stamping, injection molding, urethane casting, tube cutting, tube bending, finishing services, rapid prototyping, and high-volume production.
Xometry's AI-enabled technology platform and proprietary algorithms allow buyers to quickly receive pricing, expected lead times, and manufacturability feedback, and place orders on the platform. The Marketplace segment has shown strong growth, with revenue increasing 24% year-over-year for both the three months and nine months ended September 30, 2024.
The Supplier Services segment offers a range of services to Xometry's network of suppliers. This includes digital advertising and marketing services through the Thomasnet platform, financial service products to stabilize and enhance cash flow, and a cloud-based manufacturing execution system (Workcenter) to help suppliers optimize their productivity. However, this segment has seen a decline in revenue, with a 10% year-over-year decrease for the three months ended September 30, 2024, and a 13% decrease for the nine months ended September 30, 2024. This decline is primarily attributed to the exit from the company's tools and materials business and a decrease in non-core services from the Thomas business.
Financial Performance and Ratios
Xometry has demonstrated impressive financial growth in recent years, with annual revenue increasing from $141.4 million in 2020 to $463.4 million in 2023, representing a compound annual growth rate (CAGR) of 48.6%. However, the company has yet to achieve profitability, reporting a net loss of $67.5 million in 2023.
Key financial ratios paint a mixed picture of Xometry's financial health. The company's current ratio of 4.59 and quick ratio of 4.55 suggest strong liquidity, but its debt-to-equity ratio of 0.92 indicates a relatively high level of leverage. Additionally, Xometry's return on assets and return on equity, at -7.53% and -15.95% respectively, highlight the need for improved operational efficiency.
For the fiscal year 2023, Xometry reported: - Revenue: $463.41 million - Net income: -$67.47 million - Operating Cash Flow (OCF): -$29.88 million - Free Cash Flow (FCF): -$48.36 million
Quarterly Performance and Outlook
In the latest reported quarter (Q3 2024), Xometry delivered a 19% year-over-year increase in revenue to $141.70 million, driven by a 24% surge in marketplace revenue. Gross profit also rose 21% year-over-year to $55.8 million, with marketplace gross margin expanding 250 basis points to a record 33.6%. The supplier services segment gross margin improved to 89.6%, up from 87.2% in the prior year period.
Other key metrics for Q3 2024 include: - Net income: -$10.20 million - Operating Cash Flow (OCF): -$3.65 million - Free Cash Flow (FCF): -$8.46 million
For the fourth quarter of 2024, Xometry expects revenue in the range of $145 million to $147 million, with marketplace growth of approximately 16% to 18% year-over-year. The company anticipates marketplace gross profit to grow faster than marketplace revenue, while supplier services revenue is expected to be down approximately 10% year-over-year. Xometry also expects to reach adjusted EBITDA profitability in Q4, a significant milestone in its journey towards sustainable profitability.
Looking ahead to 2025, Xometry believes its growth initiatives can deliver at least 20% marketplace growth, with overall revenue growth in 2025 expected to exceed that of 2024. The company anticipates being adjusted EBITDA positive for the full year 2025. Xometry's international expansion, particularly in Europe and Asia-Pacific, is also expected to be a key driver of future growth, with the international segment (primarily Europe) currently contributing approximately 16% of total revenue.
Liquidity and Capital Resources
As of the most recent reporting period, Xometry's financial position shows: - Cash and cash equivalents: $17.43 million - Marketable securities: $216.60 million - Debt/Equity ratio: 0.9193 - Current ratio: 4.594 - Quick ratio: 4.545
The company has $287.50 million in convertible senior notes due 2027. These notes bear interest at 1.0% per annum and are convertible into cash, shares of Class A common stock, or a combination of cash and shares at the company's election.
Risks and Challenges
Xometry operates in a highly competitive and rapidly evolving industry, facing challenges from both traditional manufacturing service providers and emerging digital platforms. The company's ability to maintain its technological edge and continue attracting new buyers and suppliers will be critical to its long-term success.
Additionally, Xometry's heavy reliance on a small number of large customers, as well as its ongoing losses, pose risks to its financial stability. Macroeconomic factors, such as fluctuations in inflation, geopolitical tensions, and the impact of the Russia-Ukraine war, could also adversely affect the company's performance.
Conclusion
Xometry's AI-powered marketplace has positioned the company as a pioneer in the digital transformation of the global manufacturing industry. While the company's financial results have been mixed, its growth initiatives, innovative technology, and expanding supplier network suggest significant potential for future success. The company's strong performance in its marketplace segment, coupled with its improving gross margins and guidance for future growth, indicate positive momentum. However, the decline in the supplier services segment and ongoing profitability challenges underscore the need for continued strategic focus.
As Xometry continues to navigate the challenges of its rapidly evolving industry, investors will closely watch the company's ability to achieve sustained profitability and capitalize on the vast opportunities in the custom manufacturing market. The company's journey towards adjusted EBITDA profitability and its ambitious growth targets for 2025 will be key indicators of its long-term viability and success in revolutionizing the manufacturing industry.