Xometry IPO: Manufacturing Capacity Marketplace Goes Public

Xometry Files for Initial Public Offering

Xometry, a company headquartered in Maryland, facilitates connections between businesses and manufacturers possessing available production resources globally. The company recently submitted an S-1 filing to the U.S. Securities and Exchange Commission, formally declaring its intention to transition into a publicly traded entity.

Increased Demand During Supply Chain Disruptions

The tightening of the global supply chain throughout 2020, coinciding with the pandemic, likely resulted in heightened demand for a service capable of identifying unused manufacturing capacity. Randy Altschuler, CEO and co-founder, articulated his company’s function to TechCrunch last September following a $75 million Series E funding announcement.

“An AI-powered marketplace has been developed by us, offering an e-commerce experience for both purchasers of bespoke manufacturing and suppliers providing those services,” Altschuler stated. According to Crunchbase data, Xometry secured approximately $200 million in funding during its private operation.

Digital Transformation of Custom Part Procurement

Xometry empowers companies seeking to create custom components with a streamlined, digital process. Instead of relying on traditional methods like phone calls or lengthy email exchanges, businesses can utilize the Xometry marketplace.

Through the platform, project specifications can be defined, and suitable, qualified manufacturers capable of completing the work at competitive pricing can be identified.

Extensive Network of Manufacturers and Customers

By September of last year, Xometry had established partnerships with 5,000 manufacturers worldwide. Simultaneously, the platform was being utilized by a customer base of 30,000 businesses.

Preparation for IPO

The involvement of T. Rowe Price as the lead investor in the funding round may have been indicative of future plans. Institutional investor participation in late-stage funding often signals a company’s readiness to explore an IPO.

Altschuler confirmed that an IPO was under consideration, and the appointment of a Chief Financial Officer (CFO) further suggested the company was preparing for this significant step.

Financial Overview

An examination of Xometry’s S-1 filing was undertaken to assess the company’s financial standing as it prepares for entry into the public markets.

The following details were gleaned from the S-1 document to provide insight into the company’s performance and outlook.

Financial Performance of Xometry

Xometry generates revenue through two primary avenues. The majority of its income stems from fees charged to buyers utilizing its platform. Additionally, the company earns revenue by providing services to sellers, encompassing financial support and other related offerings.

An increase in seller-related revenue, particularly if accompanied by improved gross margins, would positively impact Xometry’s financial stability and overall profitability.

Revenue Growth and Margins

Historically, Xometry has demonstrated substantial growth alongside modest profit margins and ongoing operating losses. Revenue increased significantly from $80.2 million in 2019 to $141.4 million in 2020, representing a growth rate of approximately 76%.

This upward trend continued, with revenue expanding by 64% in the first quarter of 2021, rising from $26.7 million to $43.9 million compared to the same period in the previous year.

Gross margins have also seen improvement over these periods. They rose from 18.4% in 2019 to 23.5% in 2020, and further to 20.1% to 22.4% from Q1 2020 to Q1 2021.

Expanding gross margins alongside rapid revenue growth suggests increasing gross profit. This, in turn, can signal progress towards controlling the company’s losses.

Losses and Revenue Quality

While Xometry has managed to reduce its net losses as a percentage of revenue in certain periods, the absolute dollar amount of those losses continues to increase. Consequently, the company is still experiencing a growing financial deficit, despite relative improvements in its loss ratio.

From a revenue quality perspective, Xometry doesn’t align with typical modern software businesses. This implies that valuation expectations should be more conservative compared to those commonly seen in the SaaS sector.

Lower gross margins translate to a lower valuation for Xometry’s revenue, as opposed to software startups that generally boast higher margins.

Valuation and IPO Considerations

According to PitchBook data, Xometry’s valuation stood at $557.6 million following its last private funding round. Based on its Q1 2021 revenue run rate, this equates to a valuation multiple of 3.2x.

Even acknowledging potential fluctuations in the private valuation, this multiple appears modest for a company exhibiting Xometry’s growth rate, although its gross margins offer potential for future enhancement.

It is anticipated that Xometry’s initial public offering (IPO) price will exceed its final private valuation. The extent of this increase remains a key consideration.

Capital Needs and IPO Impact

Xometry requires substantial capital to sustain its operations. Its S-1 filing indicates a limited cash runway, with operations consuming $9.9 million in cash during the first quarter of 2021.

The company intends to utilize the proceeds from its IPO to fund its business activities. This reliance on public investment grants investors significant influence over the company’s direction.

The IPO pricing will be crucial, as each additional dollar raised will directly bolster Xometry’s capacity for self-investment and future growth.

Further details will be available once the initial pricing range is announced.