XPEL, Inc. Q3 FY2024 earnings call

• Revenue grew 9.9% to a record $112.9 million, with EBITDA growing slightly faster than revenue. - U.S. business had strong quarters, Canada grew 25.7%, Latin America/Asia Pacific (excl China) showed strong growth through indirect channels. - Acquired distributors in India and Japan, with accretive acquisitions at attractive multiples (3x to 4x EBITDA). - In China, working on streamlining processes, supply chain, and inventory management with a current run rate of ~$8-9M per quarter. - Launched Windshield Protection Film at SEMA, with color change films to soft launch in Q1 2025. - OEM referral program with Tesla working well, driving sales. - Generated $19.6 million cash flow, paid down credit facility, with $21 million cash on balance sheet.

Revenue for the quarter was $112.9 million, growing 9.9%. Excluding China, total revenue grew 12.3%. U.S. business had revenue of $64.6 million, growing 9.4%, with Q2 and Q3 as the highest U.S. revenue quarters in history. Canada grew 25.7%. Latin America and Asia Pacific (excluding China and Middle East) showed strong growth through indirect/distribution channels. Europe and U.K. had slower growth due to macro headwinds. China had revenue of $9.1 million, a QoQ decline of ~12%, but working on streamlining processes with a current run rate of approximately $8 million to $9 million per quarter. Window film product line revenue grew 20.6% QoQ to $22.6 million (20.1% of total revenue). OEM services revenue grew 9.8% (3.2% of total revenue). Total installation revenue (product + service) grew 27.4% (~20% of total revenue).

• Q4 revenue expected to be in the range of $105 million to $107 million, assuming continued U.S. growth and lower China sales due to strategy changes. - Expect SG&A leverage to continue in Q4. - Anticipate a downward trend in inventory days on hand in Q4, with Q4 inventory expected to be less than Q3 in absolute dollars.

• Macro headwinds impacting Europe and U.K. growth. - Consumer discretionary spending challenges affecting business. - Need to effectively manage China's supply chain and go-to-market strategy. - Ensuring smooth integration of acquired distributors in India and Japan to drive growth as expected.

Q: Steve Dyer asked about strategy shift in China beyond sell-in/sell-through.

A: Focus on aligning product portfolio, ensuring distribution partner access to products, modifying product line to be simpler, and pursuing OEM/dealership opportunities to increase percent of wallet.

Q: Jeff Van Sinderen asked about acquisitions and leverage.

A: Continuing to look for larger complementary acquisitions, not opposed to leverage on the balance sheet.

Q: Jeff Van Sinderen asked about Japan acquisition and OEM services.

A: Owning distribution in Japan allows for higher margins and growth, and OEM services expand value to partners by enabling presence in more places and offering services.

Q: Jeff Van Sinderen asked about windshield product and ancillary areas.

A: Windshield protection is a gateway product appealing to those not interested in core products; marine and architectural have organic growth but focus is on core now.

Q: Jeff Van Sinderen asked about Tesla referral program expansion.

A: Discussing expanding the referral program with other OEMs and channels to reach a broader pool of new car buyers.