Xometry - Q2 2023

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Xometry Q2 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, press star 1 1 on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Shawn Milne, Vice President of Investor Relations. Shawn, please go ahead.

Shawn Milne (VP of Investor Relations)

Morning, thank you for joining us on Xometry's Q2 2023 Earnings cCll. 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 Second Quarter of 2023 and discuss our guidance for the Third 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 31st, 2022, and our Form 10-Q for the quarter ended June 30th, 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 that 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. 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.

Randy Altschuler (CEO)

Thanks, Shawn. Good morning, everyone, and thank you for joining us for our Q2 2023 earnings call. In Q2, we had the highest revenue and gross profit in Xometry's history, beating our previous highs from Q1 of this year. In addition, we continued to improve our operating leverage, reducing our adjusted EBITDA loss in Q2 from Q1 by 26% or $3.1 million. Let's start with revenue. We grew revenue 16% year-over-year, including stronger than expected 24% year-over-year growth in marketplace revenue. The underpinnings of this growth include 44% year-over-year growth in active buyers, as well as existing accounts, contributing 96% of the marketplace revenue in Q2. Q3 has started strong with continued momentum in marketplace growth. We expect marketplace growth of 30%-33% in 2023.

In addition to excellent order growth, we're seeing strength in large orders, including the largest multi-year production order in our history. Next is gross profit. We grew gross profit by 16% year-over-year, including strong 34% growth year-over-year in marketplace gross profit. Marketplace gross margins were 31.7%, an all-time high by 130 basis points and an increase of 290 basis points from Q1. Supplier Services gross margins were 79.8%, an all-time high by 50 basis points, and an increase of 240 basis points from Q1. In the second half of 2023, we expect the gross margins for both marketplace and Supplier Services to be higher than those in the first half of the year. Finally, is our adjusted EBITDA.

As I noted earlier, in Q2, we continued to improve our operating leverage, reducing our adjusted EBITDA loss from Q1 by 26% or $3.1 million. This is a result of higher revenue and gross profits and cuts that we've been making in our fixed costs. As our CFO, Jim Rallo, will discuss further in his remarks, in Q2, we reduced our workforce by approximately 4% and consolidated our office space. Combined with the reduction in force we had in Q1, our operating leverage is improving. In Q3, we expect to see further leverage as we continue to reduce fixed cost and shift more of our operating expenses to be commensurate with our revenue and gross profit.

Using AI and machine learning, Xometry is empowering our 48,000+ customers to build parts that are critical components in next generation industries, from satellites and rockets, to medical devices, to electric vehicles, to robotics. Equally important, our digital marketplace and suite of cloud-based solutions are enabling the long tail of the internet to finally reach thousands of small, medium-sized manufacturers in the United States and around the world. For our marketplace, our AI-powered algorithms generate instant prices and lead times and optimize the match between buyers and suppliers. Xometry helps buyers significantly reduce their time to market and strengthen their supply chains. Likewise, we help small and medium-sized manufacturers fill their capacity with work that can boost their growth and profitability. Over the past few years, we've been rapidly growing our network and expanded our marketplace globally.

At the same time, we've made significant investments in product development and technology infrastructure, and selective acquisitions. We now offer tools to digitize work for both buyers and suppliers, as well as provide software and information for customers to improve decision-making and increase efficiency. With our market-leading position and increasingly global footprint, and a total addressable market of $2 trillion, we expect to continue to grow rapidly for many years to come. In Q2, revenue increased 16% year over year to $111 million. Q2 marketplace revenue was $93.5 million, 24% year-over-year growth. We saw strong demand across many verticals, including general manufacturing, energy, aerospace, and robotics. Growth was strong across all key processes, in particular, injection molding.

Recent investments in technology, people, and processes have sharpened our injection molding offering, and we are beginning to reap the fruits of these efforts with increasing conversion rates and expanding pipeline of business. Supplier Services revenue was $17.5 million, down 13% year-over-year. In May, we exited the supplies part of our U.S. Supplier Services segment, which reduced revenue by $1.7 million on a year-over-year basis in Q2. This move enhances Supplier Services gross margin and improves our operating leverage going forward. Jim will outline in more detail the impact of this move later in the call. Within Supplier Services, our core marketing services revenue remains stable, we are expanding the advertising ecosystem on the platform. Gross profit increased 16% year-over-year to $43.6 million, driven by 34% growth in marketplace gross profit.

Q2 marketplace growth profit increased 19% quarter-over-quarter. AI is at the heart of our operations, allowing our marketplace to learn from every interaction. Our machine learning algorithms gives us unique insight into 3D design data and other important variables that are critical to providing accurate and instant quotes for an ever-expansive universe of parts, processes, and finishes, as well as particularly complicated multi-part jobs. Additionally, we continue to rapidly expand our supplier base, enabling our AI to provide the optimal match for both our buyers and suppliers. These are the critical drivers of our marketplace gross profit growth. Active buyers increased 44% year-over-year to 48,294. We are delivering strong active buyer growth both in the U.S. and internationally. Since Q1, we've increased our marketing efficiency in part because of our strong growth in organic search.

We are balancing our advertising advancements against profitability goals. Active paying suppliers grew 5% year-over-year in Q2 2023 to 7,553, as we continue to build out the Thomas Marketing ecosystem, including growth in self-serve customers. Exiting the business of selling tools and materials impacted year-over-year growth of active paying suppliers by approximately 300 basis points. International revenue grew 96% year-over-year, driven almost entirely by the growth in our European business. International revenue grew 36% quarter-over-quarter, driven by strong growth in existing European markets and early progress we are making in the U.K. At the same time, we continue to invest in our China and Turkish platforms. In Q2, we made significant progress on our five-point strategic plan that we outlined in early 2023.

As a result, we again delivered strong sequential growth in marketplace revenue, marketplace gross margins, and reduced our adjusted EBITDA losses. For the second half of 2023, we expect to remain in strong growth mode and deliver a healthy marketplace revenue, marketplace gross profit growth, and improving operating leverage. Here's a brief update on our five-point strategic plan. One, we refocused sales efforts on our top 200 accounts, which represented approximately 50% of 2022 U.S. marketplace revenue. The collective spend of these 200 accounts on manufacturing far exceeds Xometry's current marketplace revenue. In early 2023, we redirected salespeople and customer support to them. Given the higher spend we have with these accounts and the potential to grow that spend significantly in the years to come, we are pushing deeper and wider into them.

Accounts are increasingly engaging us to support their production business and to manage their tail spend. While the sales cycle for these efforts are longer, the potential spend from these transactions is significant. In late Q2, we expanded the functionality of the Xometry platform with Team Center. Team Center allows teams of engineers and procurement professionals within an organization to collaborate and manage manufacturing supply chain projects on Xometry's marketplace. Team Center moves the Xometry marketplace from a focus on individual buyers and individual parts to teams managing supply chain projects. Team Center provides a suite of tools that enables customers to increase productivity and efficiency by providing real-time order status and other data across the organization. In early Q3, we began beta testing with some large enterprise customers.

The early feedback is positive. We expect to enable this functionality across our top 200 premium accounts in coming months. For Xometry, Teamspace provides the opportunity to improve cross-selling and engagement with our top accounts. Weston Norris has joined Xometry as our Senior Vice President of Enterprise Sales. Wes has strong enterprise sales experience, most recently as the Head of Strategic and Enterprise Sales at ZoomInfo. Additionally, Wes spent several years at Salesforce, including leading the large enterprise business in industrial technology, where he built out the Salesforce practice in the manufacturing sector. Two, in Q2, we made further progress expanding our marketplace menu. As we grow the number of processes, materials, and finishes we can offer our customers, we are increasingly able to serve as their one-stop destination.

In Q2, we expanded the AI-powered Xometry Instant Quoting Engine to include instant quoting of inserts, multi-part assemblies, and expanded sheet cutting processes. The enhanced features allow buyers to instantly get pricing and lead times on CNC, sheet metal, and sheet cut parts with standard inserts, while also analyzing multi-part assemblies, further accelerating Xometry's assembly production work. This expansion also delivers expanded sheet cutting options to include a wide array of metal, composite, and rubber materials. Xometry's sheet cutting service can cut a variety of materials using the latest laser and waterjet cutting technologies. Three, we continue to expand aggressively internationally. We delivered strong growth across Europe with increasing brand awareness. Additionally, customers and orders are ramping at a solid pace in recently launched markets in the UK and Turkey.

In Q2, Xometry Asia, in collaboration with Alibaba Group's 1688.com, launched our instant quoting technology on 1688's B2B wholesale marketplace. Xometry's AI-powered Instant Quoting Engine is the sole provider of real-time pricing and lead times for custom parts on 1688.com. Product development efforts continue to further embed the Xometry technology into the customer journey, including the widely used 1688 mobile app. Through xometry.eu, xometry.uk, and xometry.asia, we have leveraged Xometry's core technology to provide localized marketplaces in 13 different languages, with networks of suppliers across Europe and Asia, as well as North America. Four, in Q2, we introduced, enhanced, and continued to drive adoption of new products, including the Team Center, Workcenter, and Industrial Buying Engine platforms, increasing our footprint with both buyers and suppliers and enabling us to scale cost effectively.

For our suppliers, we continue to enhance Workcenter, the SaaS-like operating system that is the digital foundation for manufacturers. In Q2, we roll out support for custom production workflows and improved notification experience. In Q3, we will continue to expand Workcenter capabilities, including job scheduling and accounting integrations. We are also focusing on improving the overall experience for suppliers, reducing the effort required to accomplish their daily tasks. For partners doing work on behalf of the Xometry marketplace, we are investing in features that provide Xometry with better insight into the status of ordered parts. For buyers, we continue to improve the Industrial Buying Engine. The Industrial Buying Engine digitizes the cumbersome and time-consuming request for quote process, taking what was once off-platform and integrating it into the heart of thomasnet.com.

In Q2, we further streamlined the IBE experience, making it even easier for buyers and suppliers to communicate and transact using IBE. Suppliers can now send quotes and transact with buyers using IBE, regardless of whether the buyer discovered the supplier on Thomasnet. While the revenue from the Industrial Buying Engine transaction fees in thomasnet.com are not yet a significant revenue stream, as we more tightly integrate with our instant quoting engine, we can increase our buyer share of wallet and be their one-stop shop. We continue to modernize the advertising products and expand self-serve options on the thomasnet.com platform, making it easier for suppliers to start their advertising journey. In Q2, we expanded our self-serve offerings to include advertising subscription packages bundled with video. In the second half of 2023, we're making further investments to move to a pay-for-performance advertising model on thomasnet.com.

In addition, we continue to improve the relevancy and match quality of search results. As we upgrade our search capability, we expect to see a higher level of buyer engagement, enhancing the opportunity for search monetization. This will help drive growth of our higher-margin Supplier Services, as well as boost use of the Industrial Buying Engine. In Q2, Kassandra Webb-Galarza joined us as the new VP of Supplier Services Sales. Cass is an accomplished sales executive with extensive experience with online marketplaces, including Vacasa and HomeAdvisor. Cass spent 16 years at HomeAdvisor and held key sales leadership roles. five, we are continuing to increase efficiency and reduce expenses across our organization. In Q2, we reduced our adjusted EBITDA loss by $3.1 million from Q1, driven by strong growth in marketplace gross profit and improved operating leverage.

As I previously mentioned, we exited the supplies business in the U.S. in May, which will improve Supplier Services gross margin and lower operating expenses. We also consolidated office space and made an additional targeted reduction in our workforce in Q2. We are finding additional savings, including fixed costs, to continue our progress throughout the year to help Xometry become adjusted EBITDA positive in Q4 of 2023. Jim will provide more context to these changes later in the call. For Q3, we expect our momentum to continue and to remain in strong growth mode as we accelerate market share gains. The continuing shift in custom manufacturing to digital is inevitable. Xometry, as a leading provider of vertical technology solutions from our two-sided global marketplace to software, information, marketing, and analytics products, is well positioned to drive and benefit from this massive shift.

As the co-founder and CEO of Xometry, I've never been more optimistic about the future of our company. We are steadily and methodically executing on our vision of becoming the de facto digital rails for custom manufacturing. The opportunity is giant, and we are confident we will be one of the winners. With that, I'll turn the call over to our CFO, Jim Rallo, for a closer look at second-quarter financial results and business outlook.

Jim Rallo (CFO)

Thanks, Randy, and good morning, everyone. As Randy mentioned, Q2 was a record revenue and gross profit quarter for Xometry. Q2 revenue increased 16% year-over-year to $111 million, driven by strong marketplace growth. Q2 marketplace revenue was $93.5 million, and Supplier Services revenue was $17.5 million, reflecting the discontinuation of the sale of supplies in the quarter. On our Q1 call, we indicated that given the significantly low gross margin of selling tools and materials to our manufacturing partners, we were not going to proactively offer this service. In Q2, we discontinued the sale of them altogether and made staffing changes accordingly, which will result in better profitability for Xometry.

Q2 marketplace revenue increased 24% year-over-year, driven by a strong growth in the number of active buyers, partly offset by lower average revenue per buyer on a year-over-year basis. Our active buyer and order growth were much stronger than reported revenue growth in Q2. Q2 active buyers increased 44% year-over-year to 48,294, with 3,578 new active buyers. In Q2, 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 and spending activities from the account over time.

The number of accounts with last 12 months spend of at least $50,000 on our platform reached 1,159 at the end of Q2, up 30% year-over-year. Supplier Services revenue declined 13% year-over-year in Q2. We discontinued the sale of supplies in the U.S. in the middle of Q2, which negatively impacted Supplier Services revenue by approximately $1.7 million. Our core Thomas Marketing Services revenue remained stable in Q2. Part of our strategic plan for 2023 is to modernize the Thomasnet.com advertising platform and expand the self-serve marketing products on it. We expect these efforts to grow the number of digital marketing customers and to reduce the sales costs associated with acquiring them, providing additional operating leverage of our sales and marketing spend.

The number of active paying suppliers for Q2 2023 was 7,553 on a trailing twelve-month basis, an increase of 5% year-over-year. The exit of the supplies business impacted year-over-year growth by approximately 300 basis points. Active paying suppliers is the number of suppliers who have purchased one or more of our Supplier Services, including digital marketing services, data services, supplies, or financial services, during the last twelve months. We believe this KPI will help investors to better understand how we operate the Supplier Services segment and track its performance. Q2 gross profit was $43.6 million, an increase of 16% year-over-year. Total gross profit margin was 39.2%.

Q2 gross margin for Marketplace was 31.7%, up 250 basis points year-over-year and 290 basis points quarter-over-quarter. Q2 marketplace gross profit increased 34% year-over-year. We are focused on driving marketplace gross profit dollar growth. Q2 gross margin for Supplier Services was an all-time high of 79.8%, driven by the high gross margin of Thomas Marketing Services and growing financial services. Supplier Services gross margin increased 240 basis points quarter-over-quarter due to the discontinuation of the sale of supplies, which carried a significantly lower gross margin. Moving on to Q2 operating costs, Q2 total non-GAAP operating expenses increased 14% year-over-year to $52.5 million, driven by continued investments in the business and public company costs.

In Q2, we took further actions to reduce operating expenses with a 4% reduction in workforce on top of the 6% previously announced in Q1. Additionally, we consolidated office space, lowering our office lease expense by $2.7 million on an annual basis. These actions will further aid in our path to profitability in the second half of 2023. We are balancing these fixed cost reductions with important investments in our international and enterprise sales teams. Within our operating expenses, sales and marketing is our largest component. In Q2, non-GAAP sales and marketing expenses were $20.5 million, excluding stock-based compensation and amortization and restructuring charge. Non-GAAP sales and marketing expenses increased 14% as compared to $18 million in Q2 2022.

This increase in non-GAAP sales and marketing expenses on a year-over-year basis was driven by continued investment to expand our network of buyers and suppliers, and hiring of additional salespeople to support strong growth in our land and expand strategy. We delivered strong growth in new active buyers in Q2, leveraging increasing brand awareness and efficient marketing spend, as advertising spend declined approximately 4% year-over-year. Q2 adjusted EBITDA loss was $8.7 million, or 7.8% of revenue, compared with 8.7% of revenue in Q2 2022. Q2 adjusted EBITDA excludes $8.7 million of lease abandonment costs as we consolidated office space in Q2. Additionally, Q2 adjusted EBITDA excludes restructuring costs of $0.7 million for the reduction in workforce and $0.6 million associated with the exit of supplies.

These moves are part of our strategic focus to improve operating leverage and path to profitability. Turning to segment reporting. In Q2, revenue from our U.S. and international operating segments was $95.4 million and $15.6 million, respectively. Segment loss from our U.S. and international operating segments for Q2 was $22.9 million and $3.6 million, respectively. We continue to invest in our international business, which grew revenue 96% year-over-year in Q2. At the end of the second quarter, cash and cash equivalents and marketable securities were $286.1 million. Moving on to guidance. We expect Q3 2023 revenue in the range of $119 million-$121 million, representing year-over-year growth of 15%-17%. We expect marketplace revenue growth to remain strong in Q3 2023.

We expect the exit of supplies to impact Q3 2023 revenue by approximately $2 million. Year-over-year growth, excluding supplies, is expected to be 17%-19%. We expect Supplier Services gross margins to improve in Q3 quarter-over-quarter, reflecting the higher margin Thomas Marketing Services and FinTech revenue, and the discontinuation of the sales of supplies. In Q3, we expect adjusted EBITDA loss to be in the range of $5.5 million-$6.5 million, a significant 25%-36% improvement quarter-over-quarter. Q3 adjusted EBITDA loss will be lower quarter-over-quarter, driven by sequential growth in marketplace revenue, improving marketplace gross profit, and further measures to tighten operating expenses, particularly fixed costs. In Q3, we expect stock-based compensation expense to be approximately $5 million-$6 million, which we will exclude from adjusted EBITDA.

As Randy mentioned, we expect robust marketplace growth and gross profit growth in 2023. We expect marketplace revenue growth of 30%-33% for the full year 2023. We are adjusting 2023 revenue guidance to $464-474 million, from $470-480 million, to reflect the discontinuation of the sale of supplies in the U.S., which will impact revenue by approximately $6 million on a full year basis. We do not expect this to have a material impact on gross profit dollars. We expect to be profitable on an adjusted EBITDA basis in Q4 2023. We expect significantly improved operating leverage in the second half of 2023, driven by strong marketplace revenue growth and higher gross profit margins on both marketplace and Supplier Services on a year-over-year basis.

We expect significant leverage over fixed and semi-fixed costs, such as our public company costs. At the same time, we have reduced operating expenses not directly related to generating revenue or gross profit, setting the stage for stronger operating leverage through 2023 and into 2024. With that, operator, can you please open up the call for questions?

Operator (participant)

Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the roster. Our first question comes from Eric Sheridan, from Goldman Sachs.

Eric Sheridan (Managing Director and Senior Research Analyst)

Thank you so much for taking the questions. Maybe two, if I could. First, just away from some of the growth initiatives you laid out, how would you characterize the broader macro environment that you're seeing, whether you want to characterize it by certain geographies or industry verticals? Curious what's happening in the environment broadly away from some of the growth initiatives that you sort of had laid out. And then coming back to the strategy laid out, how should we be thinking about the implementation of that strategy around timeline of implementation and what you're most excited about in terms of inflecting either buyer growth or spend per buyer? Thanks so much.

Randy Altschuler (CEO)

Yeah, good morning, and thanks for the question. you know, as we talked about, you know, Q3 is off to a strong start, and Marketplace momentum is continuing, continuing. you know, as we talked about in Q2, we're seeing, seeing strength across industries and across our manufacturing technology as well, particularly in die casting and molding. you know, we've been making, as, as you know, investments as part of a five-point plan, and we're increasing the breadth of what we can offer on our platform. you know, while I can't speak to the overall macro, and we're not baking in any improvement in the macro on our numbers, you know, we're seeing some, some strong momentum, not only in Q2, but, you know, Q3 is also off to a strong start.

Shawn Milne (VP of Investor Relations)

Eric, It's Shawn. I would just add, too, and we talked a lot about international. Very pleased with, you know, growth in Europe. We were up 96% year-over-year. As you know, we launched a couple new markets early in the year in the U.K .and Turkey. you know, we're pleased with the, with the early ramp there. Expect to see, you know, strong growth in international continue.

Randy Altschuler (CEO)

Then Eric, I know your, your question, your second question about, you know, our spend per buyer. You know, one of the things we talked about, in, in the call earlier, was we're expanding what we can offer our customers. You know, we've been broadening the things that are offered in the Xometry Marketplace. Likewise, you know, we talk about this new initiative, new product, we've got able to work with teams of, of engineers and procurement professionals on projects. Xometry has historically been much more focused on individuals. This new initiative, working with teams, and we're successfully piloting that with a number of large organizations, and we expect to expand that, to our 200 largest accounts in the coming months.

We think that will not only help us go deeper with our customers, but also, we'll be able to expand the number of, of users within those organizations as well.

Eric Sheridan (Managing Director and Senior Research Analyst)

Thank you.

Operator (participant)

Please stand by for your next question. Our next question comes from William-- from Brian Drab from William Blair. Go ahead, Brian.

Brian Drab (Partner and Senior Equity Research Analyst)

Can you hear me?

Operator (participant)

Brian from William Blair?

Brian Drab (Partner and Senior Equity Research Analyst)

Can you hear me? Brian, we can't hear you.

Shawn Milne (VP of Investor Relations)

Why don't we try the next question, operator?

Randy Altschuler (CEO)

We put Brian back in the queue. We'll just try the next question, please. Operator, can we go to the next question, please?

Operator (participant)

Our next question comes from Ron Josey from Citi.

Ron Josey (Managing Director and Senior Internet Analyst)

Great. Thanks for taking the question, guys. I had two. Maybe, Randy, as a follow-up to the active buyer, the spend for active buyer trends, I wanted to ask specifically just about the growth of new active buyers. I understand 96% of revenue is from existing accounts, but just talk to us about the ramp of newer active buyers. Are you seeing similar trends as in the past? Given the growth we've seen in the expansion of new buyers coming to the market, any insights on cohorts, et cetera, would be helpful. Then just on gross margins, you know, obviously, it's great that we've seen that expand since really quarter-to-quarter since 4Q. Do we still expect the same guidance for 2024, mid 30+% gross margins for Marketplace? Thank you.

Shawn Milne (VP of Investor Relations)

Yeah, Ron, I'll, I'll just take the buyer growth. I mean, we continue to see very strong growth in new active buyers. The one thing we did call out this quarter, you know, we were balancing some of our marketing investments. As Jim said in the script, our advertising spend was actually down 4% year-over-year. Our marketing is becoming more efficient. We're seeing strong growth in our organic search, so very healthy across the active buyer front. Again, we were balancing our ad spend this quarter a bit.

Randy Altschuler (CEO)

Yeah, and I think just to add to that, Ron, when you look at the, you know, some of the new cohorts, you know, we're very excited about the new accounts that we've been bringing on board. You know, we've got a slide in the deck where we talk about our cohort analysis, and as you've seen, the year one revenue from our new cohorts every year has been growing. That's, that's always very exciting for us. In terms of growth margins, you know, we had our, our highest, we went up to 31.7% growth margins for Marketplace, you know, a huge jump from Q1. There's no change in our guidance next year, where we expect that, you know, that to, you know, by the end of the year, be at 35%-40%.

Shawn Milne (VP of Investor Relations)

Yeah, Ron, I would say when you look at margins, that the second half of the year margins will be higher than the first half of the year. That would apply both to Marketplace as well as Supplier Services. You'll see Supplier Services margin jump up as we exited the supplies business. That business obviously carried a much lower margin. With that exit, again, we'll have a, we'll have a better margin in Supplier Services.

Ron Josey (Managing Director and Senior Internet Analyst)

Great. Thank you, guys.

Randy Altschuler (CEO)

Thanks, Ron.

Operator (participant)

Our next question comes from Nick Jones, from JMP Securities.

Nick Jones (Managing Director, Internet and Digital Media Equity Research)

Great. Good morning. wanting to kind of the, the breadth of offerings. you know, you continue to increase the number of processes or the breadth of offerings on the site. how, how much is that a factor in increasing spend, and how much are you hearing from, I guess, buyers looking for processes or manufacturing processes that are not on the site today?

Randy Altschuler (CEO)

Yeah, as, as we continue, this also, you know, goes into some of the new functionality we have working with teams of, of not only engineers, but procurement professionals. Those procurement professionals have multiple kinds of spend underneath them, so they're buying in multiple manufacturing categories. Our ability to expand the menu of what we can offer makes it easier for them. You know, we're seeing increasing, you know, numbers of procurement people who are trying to consolidate spend, and if Xometry can offer more of that, we can be more and more of their one-stop shop, that's very attractive to them. We're noticing, you know, as you talk about what we're adding to our menu, that is based on feedback that we're getting from our customers.

We have various ways, some of it built into our UIs, that then tell us what are they looking for that they're not seeing right now. We get that feedback, and then we're actively then adding it to our, to our marketplace.

Jim Rallo (CFO)

You know, I, I would just add to that too, that, you know, our ability to do that really continues to be strong because of the suppliers that we have in the Thomas Network. We've got a lot of suppliers in the Thomas Network that bring capabilities that we haven't had historically in the Xometry network. Again, just, just taking advantage of some of the synergies from that acquisition.

Randy Altschuler (CEO)

Yeah, and then just to add on, you said also, you know, when you look at our use of AI, you know, our technology, that also helps us, you know, very extensible and helps us scale what we can offer as well.

Nick Jones (Managing Director, Internet and Digital Media Equity Research)

Great. Maybe, maybe a follow-up on that. I mean, from here, I mean, how should we think about increasing the breadth of the offering? I mean, can you double it? I mean, I guess how much wood to chop is there, from here, kind of over time?

Randy Altschuler (CEO)

There's a tremendous amount of wood, and, and we're looking at ways to accelerate the number of, of new processes and the technologies that we can offer. You know, as Jim alluded to, leveraging the tremendous supplier base on Thomasnet, and the data that we're getting from transactions they've done with their customers, is helpful for us as we're going to be expanding the menu. Lots to come.

Nick Jones (Managing Director, Internet and Digital Media Equity Research)

Great. Thank you.

Operator (participant)

Our next question comes from Brian Drab from William Blair.

Brian Drab (Partner and Senior Equity Research Analyst)

All right. Good, good morning. I'm trying a different phone now. I'm on, like, three conference calls at once, so I guess I found a phone that doesn't work. Can you talk a little bit about what you've learned over the last couple of quarters in terms of the speed with, with which orders are being received by the supplier base? You know, what, what you've learned about how the macro impacts that speed to acceptance, and maybe what happens when the macro improves and capacity begins to tighten a little bit across the supplier base?

Shawn Milne (VP of Investor Relations)

Yeah. Hey, Brian, it's Shawn. I mean, you know, we, as, as Randy talked about, really, really no change consistent. I mean, we're trying to really drive faster order growth. Obviously, Jim said in his prepared remarks, I mean, our order growth and buyer growth, as you know, are much stronger than our revenue growth. You know, we, we put forth our plan to really execute in our business and, and drive strong order growth no matter what's happening in the macro. We're seeing, if you look at the ARPU quarter-over-quarter, it's, it's stable. That's kind of where we sit right now. You know, our plan is to execute under, you know, different environments, that's what we're working on.

Brian Drab (Partner and Senior Equity Research Analyst)

Okay. Early on, you talked about, you showed us some information regarding profitability for the company, domestically versus in the international business. I know the international business is doing really well in terms of quarter-on-quarter growth, more than 30%, again, this quarter. You know, can you comment at all about, you know, are we actually at, like, EBITDA profitable in the U.S., and it's the international piece that is catching up with scale? Or, you know, any comment along those lines?

Jim Rallo (CFO)

Yeah, I'll, I'll take that, Brian. It's Jim. I think, you know, look, in the US, we are certainly not adjusted EBITDA profitable at this point in time. As we've said, we anticipate that'll happen in Q4. You know, look, there's, there's some good dynamics going on right now. If you, if you think about it, so we did have, obviously, a consolidation of our real estate. We discussed that. We also discussed a smaller RIF in the last quarter. You know, those things, we didn't really get the benefit of those things, a little bit of benefit in the last quarter, but not very much. That's gonna carry on through the second half of the year.

You know, we expect our margins the second half of the year to be stronger, both on marketplace and Supplier Services. So I think the increased margin in the second half of the year, the continued growth from both U.S. and international, as well as the cost-saving initiatives that we've laid out, we should be, we should be able to get there by Q4.

Brian Drab (Partner and Senior Equity Research Analyst)

Okay. Can I ask one more? I, I, again, I'm kind of split between a couple calls, but I did hear you mention Alibaba, and I think you said there's, you know, some software work being done. As you've explored that opportunity, learned more about that opportunity, can you or have you made any comment around sizing that for us? It just feels like this nebulous, incredible, potentially huge opportunity, but I just have no idea how to size this, and neither does any investor that's called me. Anything, like, expectations for 2024, and what kind of revenue you could potentially see from that business?

Randy Altschuler (CEO)

... Yeah, and Brian, it's Randy again. Two things. One is, on the call, you know, in our, in our remarks, we talked about, we're continuing to expand our integration with Alibaba, in particular on their mobile app. A lot of people are using the mobile app, so that integration is very important, and and we're working actively together with Alibaba to put it into the mobile app. In terms of this year, you know, we expect to have continued robust international growth in the second half of the year. We're not baking in that, that's gonna be coming from, from the Alibaba relationship. You know, it's really driven right now by Europe and and the strong growth that we're seeing there.

I think right now, it's still too early for us to give it a readout other than our international segment will remain super strong, you know, at this point, really because of Europe, but we'll see how that can play out. It's, it's, it's great potential, but we still don't know yet. Okay. All right. Thanks very much.

Operator (participant)

Our next question comes from Matt Hedberg, from William, from RBC.

Matt Hedberg (Managing Director, Software Equity Research)

Hey, great, guys. Thanks for taking my questions. Randy, I, I think you started out the call or near the top, talking about, you know, sort of large customer, strength in large customer, or in fact, I think you had one of your largest, kind of production runs. I wanted to maybe drill in a little bit on that, maybe some more specifics there. How do you think about the pipeline of some of these larger, larger customers?

Randy Altschuler (CEO)

Yeah, and just on that, in, in my remarks, you know, I mentioned that we had our largest multiyear commitment from a customer in our history. You know, we're, we're definitely seeing more, more and more larger orders, and those can be multiple years, you know, as we saw in that example. That, that does provide a nice pipeline. I think also in recognition of that, we've been making, we've been making changes in, you know, some of our products, our technology products. We talked about this ability that we've got to integrate with teams of engineers and procurement professionals. Those often, as you can imagine, and we're still in beta testing there, but as you can imagine, those often revolve around around production projects. Sometimes those are gonna be, you know, for extended periods of times.

Finally, when we talk about strength and injection molding, and those are typically, those can typically be more on the production side, and those tools can be used for multiple years. That certainly provides a nice outlook on a longer period of time for us.

Matt Hedberg (Managing Director, Software Equity Research)

Got it. With, with bringing Wes in, sounds like a good background for you guys. Any sorts of... I mean, how do you, how do you think about him, you know, perhaps impacting enterprise sales or any sort of changes or just any, any, any additional details on that would be helpful?

Randy Altschuler (CEO)

Yeah, you know, we're, we're more and more in, to go back to a question earlier in the call, we're, we're working with, with, you know, with organizations about committed spend, and involving multiple categories. You know, folks who come from an enterprise background, whether it's software enterprise or, or others, you know, have deep experience in that. You know, we're, we're developing that, investing in that, and, and we think Wes will be a, a, a great leader for, for, for our effort, for those efforts.

Matt Hedberg (Managing Director, Software Equity Research)

Thanks, Randy.

Operator (participant)

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