Xometry Inc – October 6, 2022

Manufacturing is one of the largest industries in the world. Yet buyers looking to source manufacturing processes are faced with a highly fragmented and regionalized base of sellers that are prone to supply chain disruptions, and are difficult to efficiently manage. While sellers of specialized manufacturing services are faced with limited ability to source customers, inconsistent demand, volatile operating costs, and resource constraints that put their businesses under significant financial pressure. Consequently, the sector is in the midst of a move towards digitization.

Xometry is leading this trend, transforming the industry landscape with its AI-enabled marketplace for on-demand manufacturing. It covers an enormous range of products and services including CNC machining, milling and turning services, laser, waterjet, and plasma cutting services, along with 3D printing services, smoothing, finishing, and assembly services, among many others.

Xometry uses its proprietary technology to create a marketplace that enables buyers to efficiently source parts and assemblies, whilst empowering sellers of manufacturing services to grow their businesses.

Historically, the industry has had to endure opaque pricing structures, long lead times, and a lack of quality controls contribute to procurement processes that are inefficient, unpredictable, and unreliable. Now, buyers can procure the products they want on demand and sellers can source new manufacturing opportunities that match their specific processes and capacity.

Interactions on Xometry’s platform also provide rich data insights that allow it to continuously improve its AI models and innovate new products and services. Creating a virtuous cycle of improving scale, which is seeing the company achieve immense growth in recent years.

Xometry was founded by Randy Altschuler and Laurence Zuriff in 2013 to make it easier for engineers and designers to source custom parts, while at the same time helping small manufacturers. Previously individual machine shops were heavily reliant on local customers, as a result, Xometry created a platform that would allow people from across the country to easily find the manufacturers they need.

Over the years, Xometry has built its capabilities and expanded its offerings with several acquisitions including the manufacturing platform, MakeTime, and the on-demand manufacturing marketplace, Shift, which is now known as Xometry Europe. While the company also began to offer cutting tools, metal, and other supplies for manufacturers when it snapped up Tennessee-based, Machine Tool & Supply.

In June 2021, Xometry shares began trading on the Nasdaq Global Select Market after it successfully raised over $300 million.

Shortly after in December 2021, the company acquired Thomas Publishing Company, a leading platform for product sourcing, supplier selection, and digital marketing solutions for the manufacturing industry. The purchase brought with it more than 1.4 million registered users and more than 500,000 commercial and industrial sellers, significantly enhancing Xometry’s global digital marketplace. Whilst also opening the potential to leverage Thomas’ marketing and data services to deliver a suite of end-to-end services for sellers including additional financial services and digital marketing products.

Co-founders Randy Altschuler and Laurence Zuriff still lead Xometry in the roles of chief executive and chief strategy officers, respectively. And have rapidly grown the company’s footprint and top line in the last three years.

Before co-founding Xometry, Altschuler co-founded and was executive chairman of CloudBlue, a leading provider of recycling services for electronic equipment, until it was acquired by Ingram Micro in 2013. While before CloudBlue, the Princeton and Harvard graduate was the co-founder and chief executive officer of OfficeTiger, a global BPO company, which was also acquired by RR Donnelley in 2006. While for Zuriff, prior to co-founding Xometry, he was the managing partner at Granite Capital International Group, as well as a managing director and technology analyst at Weiss, Peck & Greer.

The co-founders are joined by chief financial officer, James Rallo, who as the president and CFO of Liquidity Services and led the company through its IPO and nine acquisitions. This followed a stint as CFO for Sleep Services of America where he managed the merger and acquisition functions including the integration of several acquisitions.

Xometry enables buyers across industries to source a broad array of manufacturing processes to meet their needs. Currently, the company generates substantially all of its revenue from the prices it charges buyers on the platform.

Buyers begin by uploading an engineering schematic that contains 3D design specifications, typically a computer-aided design file. The platform provides instant access to a wide range of materials, finishes, and certifications, with transparent pricing and lead-time information from the massive, global network of sellers. Then, Xometry price transactions through its proprietary, AI-enabled instant quoting engine based on factors such as volume, manufacturing process, material, and location.

In addition, and in line with growing demand from customers, Xometry incorporates elements of environmental, social and governance (ESG) practices into the marketplace by offering buyers the ability to purchase carbon credits to offset the carbon used to make their parts.

The convenience and transparency of the model have led to increasing buyer stickiness and spending over time. As the platform not only makes it easy for buyers to transact on the marketplace, but the AI technology learns buyer needs and preferences, making it more precise and efficient, leading to better pricing and matching which in turn drives greater buyer engagement on the platform.

Xometry also allows buyers to purchase any number of parts and services. From one part to millions, buyers have access to several manufacturing processes for rapid prototyping, product development, or high-volume production. Given this ability to provide tailored and scaled solutions, buyers typically expand their use of the marketplace, sourcing a greater number of parts and processes over time.

While for sellers, Xometry helps them to grow their manufacturing businesses and expand machine uptime by providing access to an international base of buyers, along with supporting products and services designed to meet sellers’ unique needs. These include financial services that enable sellers to stabilize and enhance their cash flows, provide discounts on tools and materials that make it possible to lower operating costs, as well as giving access to resource management tools that can help optimize the sellers’ businesses. The acquisition of TPC also added digital marketing and other data solutions to help sellers optimize their productivity.

The vast network of buyers gives sellers access to manufacturing opportunities from a large, geographically and industry-diverse buyer base, allowing them to gain new customers without increasing their sales and marketing spend. And as Xometry’s AI technology improves, its ability to generate new business for sellers increases, while the model is also designed to lower customer acquisition costs and improve seller margins over time.

Furthermore, in knowing that there is a reliable way to find extra work gives sellers the confidence they need to invest in new equipment or personnel, or the ability to accept larger jobs, as they can rely on the Xometry platform to fill in available capacity. The convenience of this automated process drives a virtuous cycle of greater order fulfillment and increased utilization across the network.

The highly fragmented and regionalized nature of the manufacturing industry has created an enormous need for solutions to drive efficiency. While global thematic shifts, including rising demand for production, new manufacturing technologies, and shifting value chains, are driving increased digitization.

Furthermore, with the industry largely composed of small- to medium-sized manufacturers that have significant barriers to entry and must compete with scaled, better-resourced manufacturers, even the most sophisticated buyers and sellers are seeking ways to make their sourcing and procurement process less complex, uncertain, costly, and time-consuming. These labor-intensive sourcing processes have presented Xometry with a significant opportunity as buyers and sellers look for more efficient ways to source demand and facilitate production.

Multiple catalysts have led to an inflection point for increased efficiency and resilience. The covid pandemic and geopolitical instability have highlighted the urgent need for resilient and localized supply chains. As a result, there is a growing importance and a significant opportunity to help companies around the world improve their supply chain diversification, access just-in-time production, and build supply chain resilience.

This is joined by an increasing focus by both companies and investors in the manufacturing industry to address ESG issues, where a lack of transparency in the supply chain makes it more difficult for companies to track and address their carbon emissions.

While future expected labor shortages, in combination with the proliferation of new technologies, are necessitating digital solutions that increase productivity, improve financial performance, and allow industry participants to compete sustainably.

Supporting this, Xometry’s platform interactions generate millions of data inputs that are reinvested to continue improving the technology, machine learning, and data analytics models. Leveraging this growing data set, the platform continues to improve sourcing, pricing, and lead time quotes for buyers and sellers, while making it more efficient and offerings become more tailored. These custom offerings contribute differentiated processes that facilitate further intelligent matches between buyers and sellers, reduce the time to market for new offerings, and create a powerful network effect that is driving rapid scalability.

As a result, Xometry continues to deepen and expand its seller partnerships which are attracting new buyers and growing wallet share with existing buyers, leveraging traditional paid sales and marketing techniques as well as its strong organic referral network to drive awareness. It plans on offering its supplies service across the enormous Thomasnet platform, whilst also taking advantage of the significant opportunity in the global manufacturing ecosystem by dedicating resources to develop the marketplace in other regions.

In its first year since going public, Xometry has continued to deliver accelerated marketplace growth, robust expansion in gross margins, and significant operating leverage quarter-over-quarter. Total revenue for the second quarter of 2022 was $95.6 million, representing an increase of 89% year-over-year, as the company introduced important new products and integrated solutions for its buyers and suppliers.

The impressive margin improvements saw total gross profit for the period surge again to $37.7 million with an increase of 217% year-over-year. Investors also responded well to the EPS result of -$0.18, which smashed consensus estimates of -$0.32 as the company focuses heavily on growth rather than profitability.

The momentum appears to show little signs of waning as the marketplace’s Active Buyers increased 40% from 23,942 to 33,491 as of June 30 2022 compared to 2021. Whilst the number of marketplace accounts with Last-Twelve-Months Spend of at least $50,000 increased 76% to 894 as of June 30, 2022.

Looking ahead, management raised the bottom end of its revenue guidance to close the full year with expected revenue of $392 million to $400 million, in line with consensus estimates, for more than 82% growth over 2021. While full-year earnings per share estimates for 2022 are forecasted to significantly improve at -$0.98 per share, up from a loss of $2.12 in 2021.

With the highly fragmented nature of the manufacturing market, Xometry competes for buyers with a wide variety of manufacturers including Port Labs, Stratasys, 3D Systems, independent machine shops, and 3D printing service bureaus. However, these companies are in no way as diversified in their manufacturing capabilities.

Advancements in competitor technologies and capabilities may always provide alternatives to the Xometry platform or marketplace. However, the company continues to expend resources to develop new technologies, processes, and capabilities to maintain its leadership position.

As Xometry relies on continued and unimpeded access to postal services and shipping carriers to deliver manufactured parts reliably and timely to buyers, disruptions to supply chains can have far-reaching effects on seller pricing and buyers’ experiences that ultimately result in lost trust and other detrimental impacts on Xometry’s platform.

With its unique AI-driven market and e-commerce platform, Xometry is currently all-in on growth as it expands its already broad network and builds top-line revenue. In addition to supporting thousands of small-to-medium-sized businesses, the company’s focus on facilitating ESG practices appears to be solidifying its position as a market leader in the manufacturing industry.