XPEL, Inc. Q1 FY2025 earnings call

• Revenue growth of 15.2% in Q1. - U.S. region performing well, Canada facing challenges but worst likely behind. - China operations on track with plans to evolve to more direct business model. - Europe and Middle East showing strong performance. - Q2 revenue expected $117 million to $119 million. - Gross margin 42.3%, SG&A growth moderated with $400k restructuring costs in Q1, another $300k in Q2. - EBITDA grew 23.2% to $14.4 million, net income up 28.8%, EPS $0.31 per share. - $50 million share repurchase plan authorized. - Focus on SG&A investment where it drives future revenue, while conservatively managing overhead. - Monitoring tariff situation, no significant product impact from tariffs, working on direct business model in China.

Revenue grew 15.2% to $103.8 million. U.S. Region grew 11.6% to $58.1 million (56% of total revenue), with aftermarket independent channel sales up over 10%. Canada region revenue declined 14.9% to $9.4 million (adjusted for timing differences, decline ~10%). China revenue was $8.1 million (in line with expectations). Europe had second-highest quarter in history revenue-wise, Middle East had record revenue. Total window film product line grew 28.1% in the quarter, with automotive window tint up 16.2% and architectural window film up 9.6%; sequentially, total window film revenue was flat to Q4.

• Q2 revenue expected $117 million to $119 million. - No full-year guidance due to tariff uncertainty. - Gross margin near 42.3% run rate, midterm upside opportunity but muted expectations for year.

• Tariff noise and potential impacts on new car business and trickle-down to XPEL's business. - Uncertainty in Canada's market sentiment recovery. - Potential inventory constraints and impact on dealership inventory if production cuts occur.

Q: Good morning, everyone, and congrats on the strong metrics in the quarter. Wanted to see if you could give us any more color on kind of what you're seeing and hearing from a U.S. Dealer network in terms of velocity of business, pull forward there, just given the overall general macro uncertainty out there?

A: Yes, Jeff, thanks for the question. I mean, we I think if you look at the data, if you look at the March SAR as an example, I think it suggests some amount of pull ahead. I think as you talk to dealerships, you get maybe more of a mixed answer. Some definitely think they saw that, some not so much. So, I think it sort of stands to reason that we probably see some of that. And then I think the question there is, if the age of the fleet is continued to grow, obviously there's pent-up demand. If we pull ahead now, are we going to pay for that later or will that just be sort of a permanent pull ahead to help fill some of the deficit of what hasn't been sold? But I think there's definitely some of that that's occurring.

Q: Okay. And then, if we could shift to China for a minute, just wondering any more color you can provide on what we might expect there. Obviously, business was up a lot year over year in the quarter. I'm just wondering any more thoughts you can share there?

A: I think what you're seeing, Jeff, is our work paying off to make the entire supply chain more efficient and in the sell in, sell through match. And so, you're not seeing these oscillations in revenue quarter to quarter like we had. And obviously, that was painful by comparison in Q4 and positive by comparison in Q1, but it is going to be much more normalized going forward. And then I think our approach, current issues notwithstanding, is that, we very much want to pursue a more direct business model in China like we have in other markets. And that's something we're still very actively working on, and we'll continue over this quarter.

Q: Okay, great. And then just one more, if I could squeeze it in on the tariff situation, realize that's really fluid and kind of a tough question. But tariff impact on the China business, how do we think about that?

A: Yes, no, it's a great question. I mean, I think that the conventional view on China as it impacts tariffs is from the perspective of a Chinese supply base supplying into The U.S. Market. And obviously there's massive tariff load on that. For us, that's a non-factor because we just don't trade in that way. There isn't meaningful flow of goods for us from China to The U.S. So, then the second impact is really from retaliatory tariffs being the flow of U.S. Goods into China now. And for us, there is historically more exposure there, but with the diversification of our manufacturing locations, product being made, the paint protection film products being made in three countries globally, we're able to supply the portion of that China demand that formerly came out of The U.S. From elsewhere. So, we're really, I think in a good position to weather that as we said, there's the supply chain, not everything is always in the right place at every exact second. So, as you have to react to these, you're incurring logistics expense and probably inflation of working capital a little bit and maybe there's some tariffs paid on a very transitory basis to get things in the right place. But to the heart of your question, the China tariffs and then retaliatory tariff impact for us is really a non-factor.

Q: Hey, thanks. This is Matthew Raab on for Steve. I want to ask a question on pull forward of demand, but I'll ask it in a little different way. On the take rate for and film, mostly in The U.S, have you seen any meaningful change there from what is kind of a typical steady state versus the last few weeks of Q1 and thus far into Q2? I guess, I would have thought that a buyer that's rushing out to get a car probably wouldn't add film, but just curious on that?

A: Yes. I think your hypothesis is certainly one that we've been asking ourselves to is if you are a if there is a pull forward customer, and you are one of those, how does that impact your take rate? And I think our instinct is that that's probably not our core buyer necessarily. So, I think we're not really of the mindset that we've sort of benefited from that in some outsized way that the pull forward is actually bringing demand forward for us. I think our view on that is probably that it's not. But I think in the metrics we have, there's really nothing that stands out to highlight the answer to your question. I think it's seen everything seems pretty stable from our perspective.

Q: Okay. And then on preloading in the dealership channel, noted it was pretty close to a steady state last quarter. Given dealer inventory is turning a little bit lower and that probably continues in the near term, has that or will that be a headwind for you guys? And then are there any strategies that you can take to offset?

A: I think the biggest headwind for us was the shift from the majority of dealerships or a plurality of dealerships building inventory and moving to that sort of steady state inventory environment that maybe we transitioned to in more of the second half of last year. That was really the onset of that headwind. So now it's sort of stable in that sense. If inventory contracts, certainly we saw that at the onset of COVID or the aftermath of COVID and the supply chain shortages, inventory contracting is a near-term negative for that. But I think it's probably too early to really see that that's going to happen here. I think that's certainly a risk if there's production cuts and production cuts combined with pull forward of demand or something that would be a negative for that. But right now, I don't I think it's too early to really call that out as an actual risk for us.

Q: Okay. Yes. And then just sort of curious, has there been any headwind from Audi and Porsche vehicles being held at port, at least that's what our checks have said, starting maybe late in Q1, but probably more impactful in Q2. Have you guys seen that? Is that any impact on the business near term?

A: Yes, we've not seen that. I mean, we're sort of watching all of the talk track around what folks are doing with logistics and whether they're holding shipments or not. So, I think we've not seen that. I mean that end market has been pretty good for us. So, I think that will be kind of a wait-and-see.