XPEL - Earnings call transcript Q2 2020

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Operator

Greetings, and welcome to the XPEL Inc.

Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, John Nesbett of IMS Investor Relations. John. you, Thank

begin. You may

John Nesbett

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

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

intends, execution this by During the may Often, strategy. we'll course the limited proceeds new identified statements forward-looking always, of including regarding taken and based not not management but and transactions, believes, state may, current as be as the anticipates, events or be but might and of proposes to expects, statements use which could, words the statements call, Such achieved. business the such company's capital or can make use contemplates, on expectations of results would, variations words, be of scheduled of into from or or phrases certain of certain variations growth its anticipated of actions, will such forward-looking expected, occur be XPEL. that plans XPEL expansion are or negative include, markets

of beyond factors, competition, and markets acceptance affecting company and economic as the could factors XPEL. many result materially call occur a the of company's certain generally by differ or known materially uncertainties risk products, equity this all and not discussed may events control in and the circumstances known Forward-looking unknown other factors and or specified dates or of the at performance as results --

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

Okay. With Go call over way, ahead, the now out that of the to turn Ryan. Ryan. I'll

Ryan Pape

John. Good XXXX as morning Thanks, Appreciate it. quarter Welcome everyone call. to second well. the conference

turning many indicated in earnings our regions During talked I is right in May, April. revenue after the after decline signs pandemic of our were the QX about business we seeing the we XX% corner in call that the

was over XX% month ahead our XXXX to record revenue, well outstanding Revenue pleased context, And the an swing. quarter been grew I've June certainly with quarter fantastic certainly all by ramp-up a double comeback could of for almost COVID-XX a began Revenue been have topped QX, quite results from a April what certainly May XPEL. just While given our the revenue over in April, June monthly measures being We and for QX, acceleration which been ended up revenue $XX.X for million. and so us impact. was in for expectations.

will also our by performance review region. We

over in based the quarter, on entering last build regions, XXX% of the decline. among highest for QX regions quarter was across decline, similar just China for XXXX after a duration the the discussed. revenues the decline we grew the inconsistent been year. $XX strong prior is by momentum quarter. weak the Obviously, saw previously have million in China QX, things the that rebound. been April, we region Some to inventory second The an under continued saw to of had What's China was a easy a This pronounced the revenue as comp of and we which followed as previous $XX.X timing quarter, million

As just auto a we're were during a revenue on reminder, we of benefiting accelerated XXXX, based certainly into few XX% China sales that. shipments. timing up the over XXXX million QX, from in QX, so from QX,

world, something point, expecting Our to new quarter last consistent also being of QX, in in demand year-over-year for shutdowns during parts modest how saw and was obviously China first say forecast for much in as from XXXX. a translates China, strong. still of China closely. to is has increases there of then in Obviously, out demand kind by QX driven is growth normal? the been XXXX XXXX the there's Hard question other which China now is much and we're the we to which to sure sequential we're this which QX, significant QX watching in growth At compared how year,

our revenue in As XXXX loaded. was very China a reminder, back half

had country, this of it's the there. least market. us markets excludes APAC, performed very impact coming shutdown, the of severe visibility forecast So, China. volatile grew impact. hard a has which see most of very APAC part the to pretty for obviously, pleased Pandemic pleased we're APAC so severe quarter. impact spotty very out China the the during the I'm been probably been for with near-term is Outside in China, to how our very business very COVID X.X% about for so pandemic the us we

in wide. average in growth resuming questions around or continued have I It's we're That payments things U.S. pent-up satisfying also X.X% to down returned U.S. in in been demand XX% year-over-year great the growth Similar have have mentioned. have car whether strong normal process. dramatically distributor to which and the July. We orders, The U.S. a new to considering April in reopened. down year-over-year business selling quarter, timing which increased in cash we was comparisons. year-over-year for finished previously as the was for decline result only large the June. down May dropped subject we a on purchases reported as U.S. China, The are fairly

prioritization we the about seen the suggest result to of Canada in U.S. spend for declined the U.S. quarter. of that. early come a Canada, as roaring particularly changing impact, really So the this the to dollar compared very U.S. Quebec. it's a had have happy back, but pandemic for sure. strong revenue XX.X% too call lockdown that helps But

Protex Our expectations. It installation to growth the of Europe that in a In beyond in businesses XX%. with February little Canada are U.S. had it's but before performed unfortunate exiting hours quarter the square acquisition we're posting almost well so just dollar timing well. meet with our shutdown our certainly a to Continental extremely performing added just trend Centre fully in the working overall COVID, Canada. was very extra demand bit great unable We've

the As are in do saw as In early timing out And we that lockdowns the which talked were out, different strong not does performing sense and best. performance highlight COVID. countries days. but relative fairly we in in about to in the EU the we it we of in some looked markets, of universal in May, markets particularly the how

shutdowns. yielded previously we and As not were mentioned, in results by have projects impacted OEM overly they Europe the good we us for have that

to lockdown saw U.K. earlier, Our result of America steep U.K. back except And the had to open month probably their contrast it comprehensive for May U.S. is XX% not U.K. in in during mentioned one decline revenue and but a for owing lockdown Latin operate the of returned effective declined quarter. to the X.X%. the In as revenue to growth timing up we we surprising. the so in China. last was all the the of which declined the regions regions most I we June.

Our represented last have Mexico has continued and to window countries to locked that we one business, substantially exposure still impacted notable of XX.X% enter which be revenue. continues lockdown XX.X% the grow for is Mexico the total film to is revenue is being of as grew today. Mexico down. QX and however, quarter,

So result, on revenue an broad. is obviously, the basis. a And this is there great percent really of all-time growth a high

global one to So the growth just us. automotive any is segment. coming The region. attributable It's truly for not it's from

still part a the small Our commercial product overall of continues XX.X%. to line and residential grow

in Although, there a we sales July. lot that had in for and we're and again product record June seeing of line momentum months then

talking again Likewise FUSION in record coating and about our and ceramic products hit we'll great be in sales July forward. more then we increased as that's So that June going also adoption. obviously see

for planned We that be soon. here line FUSION extensions product will have released

XX% that U.S. downward China good and at of in you pressure gross XXXX. That that being which some some deploy during to the the by in was we so QX about we've did the further Overall, strategy XX% the only QX -- also And into in position which XX.X% more in many whereas revenue margin we in throughout a We're a suspend temporarily that it our That States quarter. COVID. and in are primarily revenue down growth our the future. rest about be had as and we'll was cash for gross decline talking as slight in XXXX. margin quarter intend beyond. growth of China From represented aware at XX.X% COVID-XX mentioned of well said, in those the strategies beginning XXX% mix from finished both cash year United from of standpoint and programs, the of related on from also acquisition QX reinitiated to we driven the May, like was

also businesses installation COGS. hits our from labor installation Our

During operate. only we margin, to is we continued knew an would but that way shutdown, impact we the the Obviously, team. to our pay gross have would

impact. We kind activities will of intention pandemic. this quarter the at year really rate. add spend the spend the of our increase sales given to some see. May fully suspend expenses also an to really in We saw were of once close nice revenue. the decision additional during mitigating saw we an meeting the of the We of marketing related of additional at to solid other QX performance COVID It's headwinds for the to QX on began this finished basis marketing April year also and that shipping regions XX.X% marketing our made basis balance shipping XXXX. events exposure of we the unlikely, marketing last and off run various the with incurred XX onset was XX%. quarter our end It's expense many AR demand All then in surge impact expect and some target as to during around And we June. the costs the costs planned and up announced income to opening although EBITDA we year sales saw temporarily internal net for the marketing SG&A previously to the canceled of to points resulted great leverage number, which related beginning strategies quarter We in for to during the annualized the which

QX obviously momentum footing from seems the so of to into While reprioritizing their we're QX the consumers the of be been on has China obviously we I so firm the corner. said as but spending. I've there's play continue quite certainly at impact of These still turned bit to encouraging Like COVID future far. pent-up to a uncertainty far fallout say has continued business seeing U.S. to point. this out, benefit and what or would will it's extent demand question COVID. trends

compared we're compared business we QX our the we're on beyond last expecting the in that and QX. China U.S. the XXXX QX what based in in rest year, ramped QX year of over XXXX of to significantly high growth the look As recognizing teens to in seeing

I Finally, team thank far customers. our teams perspective. team a all to obviously the pandemic. It's the unwavering And day-out customers service even our to up show operations our provide during to really been thank of challenging our I an very exceptional want to want really thus to and day-in, from for serve up. operational year their continue to stepped commitment again

we aren't incredibly about from challenging highest pivoted footing expense where an that's done of in our end in to home. on If XX-day best one you in into from every to to ever Obviously, span. March June. these we're way that That's it, make where April we looking at we're can be minimize the jobs environment think operationally. revenue meet been a And to have month all sure

them on So we really to team. have of a gratitude the debt

we looked of that and before workforce that. every effort these did commitment said is in And the any I team result have times. what proud as very on which early reductions a made of would the far uncertain the even that level I'm this sets during of really I've can apart. honor on early area when Very not we of more really As our on our we at things organization proud every XPEL

take that, with it away. to So, over Barry I'll it Barry. turn

Barry Wood

new had out QX Clearly, for about was morning Included $X.X the China the XX.X% And $XX.X to Thanks, quarter approximately our product dealer XXXX of total million conference sales good million. related revenues year of the included million revenue acquisition to also the of in our $X.X normalize would half those Ryan and highest Protection performance the XX% grown growing And approximately during in second us category, XX.X%. to in that of $XX was QX to XX.X% $XX.X in our million. first history. grew of grew was And related in mainly with this revenue solid $XX.X million to quarter. we to Centre items, you is XX.X% in in period. to very Protex if net revenue Product Film quarter quarter which revenue a for And February XXXX this for revenue in the due approximately Montreal. million have everyone. grew Paint strong

half cutbank of for half the pointed revenue mainly first and Window this we've to up revenue year was Ryan discussed And high. of year. Cutbank film for service quarter the for category a and as quarter XXXX X.X% DAP our year. ended for X.X% product due the the grew which first in increases line overperform. X.X% first the for to for grew XX.X% X.X% the XX.X% revenue subscribers. quarter declined record software window being of And the XX.X% revenue for half again prevalent. less As mainly square footage first XX.X% continued Installation when film. therefore and the And the past out out buy credits revenue. less effectively in QX the film of product the labor Canada program our the in cutbank resulted XX.X% revenue. the this obviously revenue value assigned of And the footage is they the revenue and cutbank assigned product in where and cutbank less revenue just the for cutbank cutbank-affiliated to square declines more to a U.S. means is this decline revenue quarter to our customers' And of is product added grew revenue the year. from and in reclass half

total the And mainly revenue. Our right OEM our total this from attributable and primarily installation the combining in And for of increased and our Protex total projects labor revenue XX.X% in if you over XX.X% exclude growth acquisition, grew and installation at product represented related quarter. to is impact that's X% demand Centre to services the revenue increase for installed Europe there.

installed in business which that which XX.X% the similar program depending X business XX.X% can mentioned In Canadian substantially gross the improvement ramp XX.X% and mix, Centre first million. of grew on year. as was installed XXXX. represented a gross distributor our quarter sales our and months declined to resumed period impacts. grew direct quarter customer the XX.X% XX.X% flat but And U.S. at Gross Gross COVID-XX finished for last percentage obviously same quarter, second margin from due And versus vary us. of quarter-to-quarter margin QX, for our priority to for all Protex was up half while the top margin remains during to continues Ryan gross margin for training the Our $XX.X to our the here. excluding margin

to represented QX XX.X% and And June QX travel expense sales about and in SG&A six essentially was revenue. in in our total $X.X initiatives XXXX expenses and response Our XX.X% were in management SG&A versus and of and in ended primarily savings pandemic total XXXX XXXX the of reductions up these expense the flat marketing. QX were months for realized revenue. million XX, we XX.X% represented Overall from

events. of with some suspension and marketing And the this cancellation travel came of naturally of certain

also during we quarter. We the defer offset. of of government And another we jurisdictions programs paying in operate. this the as quarter, expense up we also we to which the where did And salaries members team took million back advantage we management yielded end last from all elected where $X.X approximately of mentioned could

And general for increase notice our also were June XX, down of in did XX.X%. interest of out that same and back think and as months March, six million X.X% early And point during costs in that to rate cost-saving line the $X.X X% to reflected Sales for in the on and marketing QX, XXXX the lines And loss marketing compared credit of QX experience you by also we to as increases recall from as and would some in I'll over year. initiatives and period number a in about related April this in you'll the And and half expecting which were rolled XXXX. is and SG&A that last our QX back in So administrative marketing item. and we out other travel expenses expenses for drew may basis these all QX the And year-to-date late of in XX.X% if grew last XXXX slight that to period an And run sales have for QX interest administrative in normalize quarter, response foreign is increase costs resume. the COVID. sales we initiatives expenses in QX on year-to-date conference the And late ended XXXX versus year. lines general we're up June. you grown about XX.X%. on are we QX pay the and dealer currency QX declined did the first quarter. grew

of and And in move this to capital, cash far working operating to strong cash through the XXXX income costs. levels a EBITDA for XX.X% the and which total contributed to EBITDA by than half in being $X.X our XXXX So levels. trading an with to for was basis, XX.X%. study total to net increased the nice was performance targeted in per operational on versus second strong $X record XX.X% continue $XX.X year-to-date approximately this see we income for EBITDA inventory some quarter also back lower net our year-to-date reductions was strong reflecting reflected performance. we certainly X.X% represented we inventory by highest total lower our XX.X% that very our nice QX and of grew in our changes that margin million generation we performance. we share. possibility flow dealt quarter primarily we net income of year. as $X.XX And building the And at quarter the of for maybe QX EBITDA That revenue, and managing and from EPS EBITDA said, latter And as XX% revenue. the million We flow job cash quarter levels as inventory quarter-over-quarter we flow related of buoyed XX.X% XXXX came QX the and higher rest at million our exited during we the so history. of EBITDA QX, $X.X operations basis, up demand increase a in in with did the did a increased for in quarter anticipate us. the rapid leverage represented a On levels quarter, inventory revenue. inventory grew the million like, represented and

million balance total, we lines The that as on quarter. In Antonio at of under facility close did may we move with $X acquisitions, so our million done great really to we you forward. there, looking debt call, to And serving great flexibility the and anticipate operations I term our be on especially comments that a have last providing our pay customers and also COVID-XX any as cash the manage Ryan's will and in San we finally, work I back job just credit to through did during on serving while a $XX future We've earlier, echo future And uncertainty. Bank front. fund May. in also from continue we recall of mentioned we'll on So front team, And sheet the our regarding that the our us pandemic lines want team.

So positive and as rest us, we'll the open move through continue with we obviously, the hopeful operator, for quarter these a of call And up trends questions. we're for that, year. great the

Operator

Thank you.

[Operator of We Dyer line Craig-Hallum. will with comes your Please conducting now with session. Our Instructions] question. first from the question be a Steve proceed question-and-answer

Steve Dyer

Thanks. you. Good the appreciate morning, guys. detail always, so Really thank

like inflect look a Just of sort couple quarter. the film in began for it me, window really to

So, of a there. I two-part guess, kind

get you number you in relatively a of that there just As catch-up through of some would And as like, I feel you categories there to can categories, rates the small and number deviation QX half different a given, similar is growth is sort guess at expect QX, the of? you of that speaking or look off does a look forward, number, high-teens for think grow you to it's or there's that still there?

Ryan Pape

No, good question. Steve. Yeah,

of look would on when window think we is, I trajectory say relative or out-of-period that nothing that quarter business. film sort the the this at to there's in abnormal we

So alongside continue forward. we to rest the that to I business the expect think of going grow

So, quarter for I any expect other lines. present product catch-up reason any say in window film on that the would was wasn't there that, for not

there product. seeing this the And And you're to the the architectural adoption takes and customers. now product just world. develop. to the more of a more really takes time we're to good and is what time think the of it seeing It I win that the them is, really automotive across just that fruits both show continue

Steve Dyer

And interesting meaningful a mix, quite architectural an or be of starting still a… bit more that of make piece point. a you is it to Is

Ryan Pape

it the and small, see it's product sort new evaluate of number and mentioned, things new have to sales expect of investments about and architectural to did we does build other it's we that in with more then to customers, June, And – becoming But and allow take of but win them then for record on No that's another meaningful. it, what any still its we that. because time we more Yeah. talk planned. And sort it's record expect, in – really like a July.

in So, film opposed all a that see automotive we'll our to I as portfolio say continue not all got. to then surprising that been me window think really I it's product similar film see think years several grow with has it. at now for while we now, to business thing the launched the And the we've winning initially we products when architectural and other the

Steve Dyer

then That's helpful. towards quarter, how QX granularity. should China this the good next QX? look about we you gave you very mix relative And just but margin as as And to maybe gross I missed relates in think it to

Ryan Pape

QX Yes, QX, other. I similar, way the to one is mix think don't our or sense big expect be going slightly in the China a we very maybe less substantial but that is than swing

So, less slightly probably or overall it's comparable percent. as

Steve Dyer

One for more over. turn and it then Got me it. I'll

M&A, of smaller all? to centers As sort look do which same about as any you Would of talked a bigger? there Any you is is strategy deviation? little bit there installation change your you extensions? sort product at as go plans or that about of to the you Would look think

Ryan Pape

to Well, to find. bigger a I bit in our bigger. think But harder is space we're open

to prospects we now Product portfolio line down got there. always aren't this that on. and expansion of need there really But a is double So, products a we've lot of possibility. expand great

was So, built would it be probably doing. related if already product we're around it more something

to -- operate in us in leads countries then of distribution of and country bread-and-butter sort is directly. in other sort that we channel likely than which more which want strategy installation our to think I So,

Steve Dyer

it. Thanks. done Nicely Got okay. guys.

Ryan Pape

Thanks Steve.

Operator

Thank you.

Sinderen come is Riley. question next of proceed Our the line of B. Jeff your Please from question. Van with

Jeff Van Sinderen

everyone. morning good Hi,

your all my of think the on me metrics color congratulations on forward strong you comments, rebound a what I how touched that guess how any more how is but much about at to experienced this bit pent-up on you're that? you're in know growth the you else the being there QX. And thinking you've Let for sustainable is add rate demand equal? prepared determine I looking going

Ryan Pape

relatively demand -- inventory to countries inventory kind has from looking solely of of two how we're sort at it durable of DAP than And then at trying film I it at customers that alluded operate? in the pandemic. Well, our performing ways. automotive in trend we We're purchasing and during think and lower look given is long-lasting And But ours And destock that well business been? numbers which as the to how the our of say following that very now is months where with I say looking a lesser had was month then up. we're had higher we negligible. to customers. good mean you you've sales opposed good there extent have I may one QX China really pent-up usage for customers how seeing that a pretty happened. suggesting I bit in guess for of it's saw fact a it are little most We to opening seen our our we carry where many think

this that that feel rebound we're pent-up I demand. to at seeing something we think point, isn't satisfy just So, strong a that pretty

are car the of in anecdotal, and lot a things I today, lot of lot think factors of think I the would ultimately there help -- in the are our driving a ownership that we're there but factors, them while many business. of are world that driving a

in So, that's been we'd been at particularly levels concerns that If of results Would Didn't would if -- new we but we really We business? impact of inventory see it the that's sort really thought so see all one good the as dealerships well. car maybe the low. U.S. really really -- that that July. in the know. has have in July

we of month things a or were encouraged feel not pretty know can limits shut two satisfying the we that knowing down. for what So, of just when we're demand

Jeff Van Sinderen

or are improving sensing to I are environment? around of But you then are the just And acquisitions how mentioned that acquisition you targets. hear. opportunities seeing about Okay. current you're -- you maybe thinking given know kind Good wondering

Ryan Pape

I would say so.

acquisitions I we a and the been you're look of or think people. it think look that when weaknesses. vulnerabilities us whether made to point I at, I this process your think that And exposes acutely has profile of the someone and our lot you in type at industry

process. of that was kind our deals hard this. us closing that earlier think criteria into some I that thought the does So, valuation we that not in talked the we just time of help at, had We meeting we coming because looking a had were

be we're the that bit right a open that. if rest the up. little that's will really year, I we're going So, out But about us of over optimistic help to think that proven

Jeff Van Sinderen

squeeze second your one plans for for Okay. could half? it then, if marketing I me, Good. think How about more we just And in. should

Ryan Pape

number to at our Well, relative we're the a component we of pretty things as marketing, of big which proactively lot a then, cut of pandemic a activities event of marketing. our And canceled companies did. a subject also to is onset lot

we decided had and us. were of we curtailed that to kind things just on curtail So then things

of second the think many the that the year, would events half I in we're -- at have of been we canceled. look

not So to those have. that are probably we're going expenses

and either the have those things On or flip definitely may upon curtailed, some of that resumed side we that digital those. we’re though, expand the will have and marketing do resume other other we

really meet expanded basis think the run the the So, we're it year, spend. definitely rate going for to total kind I we'll in first last we probably will see year. But think the specifically amount to an increase talked run XX of rate. that or don't meet about I wanting QX don't increase half more from that points drive

ways spend the we we literally the money, can't. in Just really, many just because of

Jeff Van Sinderen

Got and success. continued it. my taking questions Thanks for

Ryan Pape

Jeff. Thanks,

Operator

back time. over at for I further to remarks. turn There management floor no any like to closing would are questions this the

Ryan Pape

your forward thank time, I'd look for everybody with joining next speaking like quarter. us. Thank to for you to you we and

Operator

conclude conference. today's does This

you this at your may day. have your lines Thank a participation great for You time. and disconnect

XPEL (XPEL) 12 Aug 202020 Q2 Earnings call transcript