Xometry, a Maryland-based service that connects companies with manufacturers with excess production capacity around the world, filed an S-1 form with the U.S. Securities and Exchange Commission announcing its intent to become a public company.
Growth aside, it’s clear that Xometry is no modern software business, at least from a revenue-quality profile.
As the global supply chain tightened during the pandemic in 2020, a company that helped find excess manufacturing capacity was likely in high demand. CEO and co-founder Randy Altschuler described his company to TechCrunch this way last September upon the announcement of a $75 million Series E investment:
“We’ve created a marketplace using artificial intelligence to power it, and provide an e-commerce experience for buyers of custom manufacturing and for suppliers to deliver that manufacturing,” Altschuler said at the time. Xometry raised nearly $200 million while private, per Crunchbase data.
With Xometry, companies looking to build custom parts now have the ability to do so in a digital way. Rather than working the phones or starting an email chain, they can go into the Xometery marketplace, define parameters for their project and find a qualified manufacturer who can handle the job at the best price.
As of last September, the company had built relationships with 5,000 manufacturers around the world and had 30,000 customers using the platform.
At the time of that funding round, perhaps it wasn’t a coincidence that the company’s lead investor was T. Rowe Price. When an institutional investor is involved in a late-stage round, it’s usually a sign that the company is ready to start thinking about an IPO. Altschuler said it was definitely something the company was considering and had brought on a CFO, too, another sign that a company is ready to take that next step.
So what do Xometry’s financials look like as it heads to the public markets? We took a look at the S-1 to find out.
The numbers
Xometry makes money in two ways. The first comes from one part of its marketplace, with the company generating “substantially all of [its] revenue” from charging “buyers on its platform.” The other way that Xometry engenders top line is seller-related services, including financial work. The company notes that seller-generated revenues were just 5% of its 2020 total, though it does expect that figure to rise.
If Xometry can boost its seller-related incomes, and that mix shift includes stronger gross-margin revenues than its current average, it would help the business balance its books.
Turning to its numbers, Xometry has a history of rapid growth, modest margins, and operating and net losses. From $80.2 million in 2019 revenue to $141.4 million in 2020, Xometry grew by around 76%. Xometry’s revenue expanded by 64% in its most recent quarter, from $26.7 million in Q1 2020 to $43.9 million in Q1 2021.
The company has also expanded its gross margins over the same periods, from 18.4% in 2019 to 23.5% in 2020, for example, and 20.1% to 22.4% from Q1 2020 to Q1 2021. Seeing a quickly growing company also expanding its gross margins implies rapidly rising gross profit. In turn, accelerating gross profit results can indicate that a company is getting its losses under control. Is that the case with Xometry?
Yes and no. Yes, the company has successfully lowered its net losses as a percentage of its total revenues in certain periods, but those deficits are still rising in gross-dollar terms. So, the company is still losing more money as time passes, even if compared to its revenues the figure has lost some of its sting.
Growth aside, it’s clear that Xometry is no modern software business, at least from a revenue-quality profile. That means that when we ask what the company is worth, we will expect smaller multiples than what we tend to see in the SaaS world. (It has lesser gross margins, so its revenues are simply worth less than those we see from software startups, which tend to have very strong gross margins.)
PitchBook data puts Xometry’s valuation at $557.6 million after its final private round. At the company’s Q1 2021 run rate, that price works out to a 3.2x multiple. Regardless of how flexible that private valuation marker is, the resulting valuation multiple is modest for a company growing as quickly as Xometry is, even if the company’s gross margins leave room for future improvements.
When we consider where Xometry may price its debut, it seems reasonable to presume that it will surpass its final private price. By how much is the key question.
Pricing for Xometry is not merely a parlor game. It needs capital. Per its S-1 filing (Bolding: TechCrunch):
We have financed our operations primarily through sales of our equity securities and borrowings under our term loan facility. As of March 31, 2021, our cash and cash equivalents totaled $49.5 million, compared with $59.9 million as of December 31, 2020. We believe our existing cash and cash equivalents will be sufficient to support our working capital and capital expenditure requirements for at least the next twelve months.
Twelve months, yes, but not much more. Xometry’s operations consumed $9.9 million in cash in the first quarter of 2021. That means that it intends to use its IPO proceeds to finance its business. And that means that public investors will have more leverage on the company than it may like.
Its IPO pricing run won’t merely be a valuation game; every dollar that it can add to its debut price will directly influence Xometry’s ability to invest in itself.
More when we get a first pricing range.