XPEL - Earnings call transcript Q2 2018

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Operator

Greetings, and welcome to XPEL, Inc.

Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. pleasure your my with John now IMS. is to host, introduce Nesbett It you, Thank Mr. Nesbett.

begin. may You

John Nesbett

and morning, XPEL’s XXXX for discuss our financial the quarter. Good second to results welcome conference call to

President take will the results. the and I’ll Wood, On call Immediately moment Chief will business after of Officer take prepared to our read an Financial Ryan participants. the operations today, Pape, and XPEL’s Chief Officer; review questions and now call from Executive a safe Barry overview the we statement. harbor provide remarks, XPEL’s Company’s financial the

by factors known and factors, beyond factors other and XPEL. or at based may, strategy. During specified of of new acceptance words risk make use of proposes economic and anticipated forward-looking forward-looking not the of achieved. markets will or or or contemplates, Company’s regarding such Such and circumstances all certain can would, Company’s as the by scheduled, discussed Company markets not actions, certain course and identified the current its variations, is products, and the or of events or may always, of the including anticipates, equity be forward-looking Inc. occur to occur statements words control into dates this events competition, generally limited of call, call execution be taken, could, such of intends, proceeds the but we results, XPEL, expected, management and not include, unknown be result materially variations certain might could expects, uncertainties growth of will a phrases of from The are on business, expectations be capital XPEL. may use which plans, state affecting this that differ expansion in believes, the and the statements Often, but statements negative as and the transactions, performance

the can factors be to to those from forward-looking actual as could identify events in may to a results made applicable actions, only important securities obligation information, anticipated, XPEL result the to undertakes new actions, events cause date speak they factors described of has as forward-looking results cause or other or Except differ which laws, materially that that from statements be or statement estimated on of there required intended. statement, and revise forward-looking or No otherwise. those XPEL attempted differ or publicly Although statements, by as whether forward-looking guaranteed. are future events no any update

the Go that, will call turn Ryan. Okay. over ahead, With to now I Ryan.

Ryan Pape

good and Thanks, our to John, morning, call. everyone. Again, second welcome XXXX quarter

So, revenues you finishing was QX little $XX.X over QX probably million, XX% of know to represented last us, for year. record another which quarter a about compared at now, increase by

particular, in demand European than see continuing strong business regions. our we’re to year In quarter. versus doubled more So, our of all the prior

to That’s trend been there. consistent one continue we we’re very So, gain with. and pleased a pretty

And almost momentum the right really Canadian relative I size pleased with strong revenue We like expect which the the growth XX% for already, the of penetration execution. we’re quarter, continue grew the year. the relatively business country of our considering our Our now. see we’ll balance to level, very for and

year. the course about are of Our bit, the growth QX you rest of wondering know growth we to of over the impact particularly policy, our trade business bit a and I in moderate rate moderated expect the the to from a China. some rate on continue of

QX again from China, in XX% to our revenue, continue which see represented strong QX of around quarter. similar to We sales first

August. place our tariffs point, starting majority At after The been on there China negative were take there and know, tariffs you of this no to has through the have impact been retaliatory As July tariffs. in retaliatory the demand quarter-ended. from

of been certainly we ourselves a is this done consistent be gross have has successful Since mitigating into But It’s finished strong. through business but the the of and no XX.X% to don’t implementation through tactical the margin. of the few August. variety China those guarantee fluid the the There been with sort demand we removed On end closely, the import but situation, steps we’re quarter a tariffs. watch day. We are the and can products at plans a impact front. of margin developments the distributor, of for has still So, tariffs. we gross continue obviously, day-to-day very that from watch very

in we hold to made able steady the we’re from So, QX. improvements

the continues term. priority top longer And margin So, while continue forward. we’ll with that, with make pleased expect performance, this a terms us this gross as in of the I over for to gross margin in area improvements move we we’re to be enhancing

versus XX.X% We’re were total quarter prior expenses still SG&A seeing year of high versus growth the for but SG&A year. prior quarter, in XX.X% revenue the

which our leverage some this towards there, is of SG&A. seeing progress good goal XX% good. And we’re is So,

under that it quarter, around for of higher for were year. in rest a We to example. we’re While than bounce we the slightly this that the expect bit July, for

or performance all-in-all. So, and leverage, million $X.XX of healthy margin XX.X% good EBITDA of and with a great income around share, strong revenue, of $X.X quarter SG&A $X.X net or so revenue gross million

week, acquisition this earlier front. announced active we’ve the been on we As

the for year. and Quebec So, we acquired three franchisees acquired Montreal Canada you And we of last City, remember, important markets Calgary Protex in Canada. Alberta, franchisor most us Protex in will in three as

that these are of of franchise franchisees so, group. And the three

of their our involved close their stage the end-customer next Company. customers expand. U.S. stage don’t And And is successful impact market sort with and indicated we’ve and are looking that’s for operators overall, of us next strategy on approach And career, worked to well these our a the for which the looking to consistent to with with facilitate remains in want the that continue the So, material businesses we of the with growth acquisitions model it’s in but everyone of with for consistent results our and they’re who the consistent get desire have our there, for businesses. to

strategy expand into that happy on really all So, and further bring to board Canada. folks those

the Health LLC, screens. announced currently surface a electronic assets for antimicrobial quantities We film. is which acquisition also protection small of supplier of a for sold surfaces business. of from and in BXB Products It’s E-Shields, variety E-Shields

So, this is not a product. retail-facing

stages it’s as but XXXX. around lot a on business, get So, we point, we Don’t about and gets into development our this go in a architectural where integrated very to consistent at into to the films our current the market business have say of ultimately, this. channels with do that this well. But it early more strategy of still and else

when based raise Finally, They something at to also to help wanted business us did they a Charlotte, general. fun really to help our just attention to approached in want for that call awareness Stoppers great Guinness and dealer And to event to for one won Sun year. of I us a set we World Carolina business window their our this them actually July conference for to last window they awareness tinting a in customers, was raise do. window local a Record and their And North in new tinting. film late and customer way it’s markets

July. in Charlotte So, record in set that we helped them

need about grow of sort customers how of businesses great help they to overall. video think we We awareness example and I website just And good on have support what do to it’s generate our really our a their it. a

So, you I to look that. at encourage all

quarter. So, overall, it was busy a

turn can We’ll pleased go busy We’re of the over and it a imagine. around work as And here, We’ve we’ll got over him Everybody look is with you continue the results. to very financials. results. lot Barry? deliver Barry to let that, to do. with forward

Barry Wood

our performance million. basis, which saw and And X.X% On versus grew revenues QX bottom Ryan growth XX%. protection film quarter, XXXX a revenues year-to-date Window grew as grew good film, Thanks, top total was everyone. the QX. grew QX and with XX.X% in morning, around our $XX.X $XX.X in by product we’re to Ryan, XX.X%. little revenue which across a over QX revenue, of pleased XX.X% higher quarter-over-quarter. Clearly, XX% all which paint million, categories mentioned, was led and was We strong than line

grew from quarter, European in the look at perspective. in you If segment Canada revenues more segment doubled. our it than our in Revenues while operating XX%

quarter. rest grew revenues XX% world of and approximately the U.S. for Our

So, margin market for team with mature a to the gross our and for as to prior for pleased ground increased us, investment quarter Gross be slightly is the we our carry be executing to continue on well year which expect Canada, $X.X sequentially a we Margin rest to performance, we mentioned. momentum And improved all-in-all, QX great Europe of the encouraged relatively the top-line have XX.X%, that continue is XX% performance increasing we’re XX.X% to grew through reason XXXX. and versus there in In quarter paying of million the our penetration year. see Ryan in and that us. off. And for versus that’s that to excited with percentage

was the expect gains helps versus the continue to EBITDA $X.X growth was with margin quarter. million bit the As XX.X% in to in invest this, year-to-date been despite we leverage enhancement the we quarter. and was areas China, XX% Net grew million continually of for approximately warehouse lower continue continue to year improvement for than COGS year-to-date at finished net we like gross our distributor EBITDA only forward. prior consistency we our results. costs These of quarter scale and or also used in quarter versus basis, be the XXXX margin. a target finished triple XX.X% going On are a downward year. expenses to not continue fees SG&A the clearly and year-to-date forward, about overall increased these period-over-period from of puts rates $X.X as with priority this includes X.X% but drive EBITDA we in for Sequentially, increased revenue more continue million, product SG&A to we that on our basis, a And And $X.X our XX.X%. million, in relatively $XXX,XXX is versus X.X% make also up million such revenue talked to on top income to pressure as us. about related sell see cash costs, quarter you year-to-date But revenue comparative On improve flow $X.X for Furthermore, prior to we approximately prior credit in drive a expenses China aware, period. declined QX. move quarter basis, than the we��ve we’ll period. as income a the warranty, compared dynamic. and year increased previous costs, efficiency year to through And as to $X.X was that a which high able was prior made June as to to gross expect percent and prior see to area pleased bottom-line primarily versus or continue $X.X card XX.X% margin business Cash Gross on higher prior as things flow year-to-date to calls, margin into the of we basis in quarter. compared margin that. margin at COGS little $X.X in you’re and million to XXXX XX.X% And year-to-date establish impact in performance in year-to-date. continues operations other channel, in this year million we’re show but which given million $X.X with of XX.X% our for versus and quarter such a operations our the areas. an margins million master which $X.X production EBITDA

you building were in As mode this may last time recall, an during year. inventory we

improved coupled strong operating this significantly performance accounted that So, for our year with there. results

unsecured to able our acquisitions. favorable prior acquisition of our to our the debt debt QX pay were down that, sheet our our all off Parasol QX. very is on also to credit set in the revolving from zero and at facility bank as work We from balance resulting owner-financed, remaining rates, After remainder XXXX of are note

sheet execute we’re our on and strategy continues balance continue Our to very well-positioned as strengthen we to go to here. forward

quarter operator, with quarters. great over now working questions. we’re for was continue to for that call coming deliver And all-in-all, solid results the So, hard to us. we’ll turn And in a the it

Operator

of will Adam question-and-answer session. first comes private We investor. your Instructions] question. line from Our [Operator a be a conducting proceed with the now question Goldstein, Please

Unidentified Analyst

know I China Do your a on got rate question China? is tariff the tariffs. sales to what you on the

Ryan Pape

of rates absolutely, we you Adam, the they what what they to? all Hey, of to doing? know Yes, are sort were were how publish then and go

Unidentified Analyst

is? rate? is the you tariff that What Can what tell us

Ryan Pape

applied have that what’s you sort applied understanding not consistently. the is rate. rate, the are theoretical Well, is actual My of being on what things ground the so,

of think So, that. I to don’t I can first speak sort hand

XX% I would depending around have was there you what actions. and XX%. And in tariff, think historically, pre other hear see a on practice, to you increased any that what

Operator

question. Our next Erwin question Brock your line proceed with from the comes CleverInvesting. of Please

Brock Erwin

Good guys. morning,

think So, happy improvement past in you that you I’m is forward, to sequentially you margin distribution just morning for can drag. wondering, I it’s the like of we the you there that XX% my on go know lower Are said with this up. that sales you sales mix But, question is about wondering, margin margins. I’m just have the depends here? said almost or that gross that room going level barely a and of actual be do percentage about saw the extent still margins and sort now.

Ryan Pape

are variety part there are go that that’s lot say a higher, QX of mean, quarters. done and to the we at a that I priority versus ways. things top of change. XX% and mix is part I would not a But, no, it. would of to be it happy needs I drive prior is is of There we currency is improvements us that. a for things that it, to with happy lot say, we’re can number improve that of The part overall, made of

happens no, And pushing we than that. But be improvement higher should we’re low-XXs gross the that that into overnight. for think be say should to not margin and So, that, minimum. hard

Brock Erwin

Great.

Okay. other And then, question. just one

mentioned much how margins. You distribution that the you are? Can gross those quantify lower lower China are sales

Ryan Pape

safe I selling they whole talking are can’t about we’re of general, you. distribution where depends comparing China relative gross But number because margins it for our we’re to, that different sales Obviously, sort and we’re But of to have to mix our of XX% directly. on exist of it’s gross within round assume sort margin. different regions who specifically and XX% just business. lower between where the who XX% sort in XX% globally for region also to

Operator

question comes private Najem, your [Operator line the a Instructions] of next Our from question. with Please Investor. Salim proceed [ph]

UnidentifiedAnalyst

you supplier? account? account how large And Good they morning, guys. Fantastic won. a you quarter. give tinting of the window us Stopper One that follow-up why incumbent bit question on was background, move decide Can did this over Who Sun is to to XPEL?

Ryan Pape

they the Well, of account And end-user our won’t also like of account film U.S. say an press. as customer, in deference I the will to to how large say don’t But, I I a competitor’s window for are. are market. they large an any give very

still months plus is, I maybe So, minus that And business, with we’ve everything was or same special think video idea, have immediately. the his you provide working type encourage it not deal years done we been I he’s is, I act to in in that the a that’s have they does people marketing operator can think agree that’s from. fact video the when great says, that on XX received And people we six years. gentleman business in have with a XX needed took but incumbent many so where than But, to about that we course value in an from nine [indiscernible] really from that supplier that industry, came idea together that what and comes scale for in that That of that the that our on marketing able this him watch have our I he he but thing. in people and There’s who’s the budget, do came so or of wasn’t great it. why plan, event more everyone at think customer up who we in our seconds it about we of to real. team, wasn’t from been to quote where this a for

won think that why of And of together to speak account. sort all so, we I things those

who a manager is account perfect to great a customer that that and for hard incredibly together. have story. event with hard We put This incredibly region really worked that really,

Unidentified Analyst

in also protection? they paint Are

Ryan Pape

They window compared business. relatively business their that’s are, of to film but part a small

Operator

Our with line from proceed next Please Andy Partners. Edgebrook your the with question of comes Preikschat question.

Andy Preikschat

Yes. share I was film if wondering could you the as how of more growing. is window a percentage about and business that sales

Ryan Pape

Yes.

Barry, quarter, I for the called the So, And Andy, out believe, at have X.X%. growth think was I were rate XX%. may we

but the hit of growth. business that are film, spite that’s we of some in percent So, down Obviously, with went those results. plus I protection that think -- the window then XX% slightly a film sale over of on strong paint in acceleration

So, we’re that. pleased with

this We’re making every that’s progress And automotive on at day. really entirely that point.

is that our not architecture, vision Our even line to contributing really yet.

overall. So, we’re pleased that with

Andy Preikschat

Okay, great. tuck-in months? could Could accelerate like your XX you deals in pipeline, what I over focused mean, currently more is about these the -- share on? are acquisition about you plans, regions the what next

Ryan Pape

Sure. Yes.

when think of to customer. close I focused, core I we with have where want our at So, principle sort mean, we’re you get the strategy the all we driving to of look

Europe’s international operate directly, we things distributors directly, And if know footprint, that we’re now was means that example where the of first means we of that. because Canada two to expand example It so, principally. that; expand that; we acquiring our cannot example Mexico’s perform. operating

strategy, help closer even get implementation of that to market. these that’s some slightly other, closer really And then, one our penetration business, that in the the is the local which installers customers, reasons, of it’s of in some all in of and the market of that customer, consistent different to increase acquisition products the the getting designed with the and focus. though is So, sort for half of same

we part on to the been first that’s U.S. principally global we to U.S. dependent obviously of in do that one second of side, the mainly globally. want or scope. to the as obviously take and It’s has and on much market operators, how in then, But -- that Canada strategy in expertise sort and much manage of we’ve don’t installation But we that with with that risk the quality strategy just market. think we how So, international, distributors that. operating Canada now have added and

I gaining that a And but as do, your final not and to this us, huge to operationally, opportunistically. lots doesn’t want open And is, that or operationally what We’d science, just good we’re And constrains targets, we that as of of I good program. priority answer for that’s in to we that. be us, for So, Europe well, candidates make question guess of gating this really impact. operationally a have are And think think more than there to open for sure trying factor elsewhere. we’re that we’re more have point to heavy on I business. the capital to your down component a of

doing story. sort and rate going it methodically what be run prove, do to a to would very ultimately wouldn’t these. forward. important up of expect an But, And on But, month. if that the But, I can think we step better of it it we’re bit what be comes successful we continue getting gating continue historical of part our to will going from or dominate dwarf we better to we’re that’s the every factor strategy. that probably that, We’re with I

Operator

questions further comments. back for the are to to in I’d queue. hand the closing like There no management call

Ryan Pape

we’ll lot. to I’d time quarter. participating Thanks and thank for just next a for forward speaking like you their with today. everybody look And to

Operator

you Ladies your Thank does and for this gentlemen, participation. teleconference. today’s conclude

and disconnect have at wonderful may a lines your day. time You this

XPEL (XPEL) 29 Aug 182018 Q2 Earnings call transcript