Company Overview - XPEL Inc. has shown significant revenue growth, increasing from $159 million in 2020 to an estimated $420 million in 2024, while maintaining operating margins in the mid-double digit range of 14-17% [1] Stock Performance - Despite the strong revenue growth, XPEL Inc.'s stock price has declined approximately 45% over the past year [1]

Revenue Dependence and Risks - The company relies heavily on a single distributor in China, which poses a significant risk to its revenue stream [26] - A substantial portion of the company's revenue is generated from the Chinese market, which is associated with various risks [26] - The company is highly dependent on the automotive industry, and any prolonged contraction in automotive sales could adversely affect its financial condition [26] Operational and Financial Risks - The company faces operational risks related to fluctuations in the cost and availability of raw materials, labor, and transportation [26] - The company has not experienced significant effects from changes in interest rates, but a hypothetical 200 basis point increase could materially impact its financial statements [255] - The company does not currently hedge its exposure to foreign currency translation adjustments, which could affect its financial results [254] - The company is exposed to inflationary pressures that may not be fully offset by price increases, adversely affecting its financial condition [256] Dividend Policy and Financial Performance - The company has not paid any cash dividends in the past and has no plans to do so in the future, potentially affecting its stock value [29] - The company may incur material losses from product liability and warranty claims, which could harm its financial performance [29] - The company acknowledges that its revenue and operating results may fluctuate, making predictions difficult and potentially leading to results that fall short of expectations [26]

Financial Data and Key Metrics Changes - The company reported total revenue of $420.4 million for the year, reflecting just over 6% growth compared to 2023 [8] - Q4 revenue excluding China grew at 10.5%, with the US region growing 6.2% to $59.1 million [9] - Gross margin for the year was 42.2%, a 120 basis point improvement over 2023, while Q4 gross margin was 40.6% [29][30] - Net income for Q4 declined 25.7% to $8.9 million, with an EPS of $0.32 per share [65] Business Line Data and Key Metrics Changes - The dealership services business had revenue growth of around 9%, but this was lower than previous quarters due to inventory normalization [9][10] - OEM revenue in Q4 declined slightly due to package changes in the Rivian program, but excluding this impact, OEM business grew approximately 16% [19][20] - The total window film product line grew 32.9% in Q4, driven primarily by automotive sales [59] Market Data and Key Metrics Changes - The China region reported revenue of $9.2 million, down from $16.6 million in the same quarter last year, making for a tough comparison [21] - The US new vehicle supply was reported at about 1.5 million units in December, indicating a return to more normal inventory levels [12] Company Strategy and Development Direction - The company aims to expand its dealership sales organization and focus on driving business through various customer channels [15][18] - There is a strategic focus on developing services in the new car dealership space, with plans to refine and implement capital deployment strategies in 2025 [43][44] - The company completed distributor acquisitions in Japan, Thailand, and India, with expectations of accelerated revenue growth post-acquisition [25][26] Management Comments on Operating Environment and Future Outlook - Management noted that 2024 was a challenging year due to macro headwinds, particularly in the aftermarket, but expressed cautious optimism for 2025 [7][38] - The sentiment in the aftermarket appears to have improved, with management feeling more clarity and focus on key operational areas [38][39] - Concerns were raised about inflation, interest rates, and potential tariffs impacting the business environment [40][41] Other Important Information - SG&A expenses grew 17.4% to $31.4 million in Q4, with a focus on managing overhead costs [30][34] - The company completed five acquisitions during the year with an aggregate purchase price of $12.5 million [68] Q&A Session Summary Question: Insights on China sell-throughs and timing for direct business - Management indicated that the sell-in and sell-through dynamics in China have improved, with inventory days lower and products selling through more consistently [72][74] Question: Outlook on gross margin and operating expenses - Management expects gross margin to remain around 42%, with some pressure from the strong dollar but opportunities for growth [76][78] Question: Marketing spend and its future - The company plans to increase marketing spend to around 3.5% of revenue in 2025, focusing on dealership and aftermarket segments [94][95]

Revenue Performance - Revenue increased 1.9% to $107.5 million in Q4 2024, with a 10.5% increase excluding impacts from China[3] - Total revenue for 2024 was $420.4 million, a 6.1% increase compared to the prior year[3] - Total revenue for Q4 2024 was $107.527 million, a 1.9% increase from $105.538 million in Q4 2023[20] - US revenue increased 6.2% YoY, while revenue from China decreased 44.3% YoY[5] - Total installation revenue grew 16.1% YoY, with organic growth of 8.0% YoY[7] - The company expects Q1 2025 revenue to be approximately $97 - $99 million[15] Profitability Metrics - Gross margin was 40.6% in Q4 2024, up from 38.8% in Q4 2023[15] - Net income decreased 25.7% to $8.9 million, or $0.32 per share, compared to $12.0 million, or $0.43 per share in Q4 2023[3] - EBITDA decreased 19.3% to $14.3 million, representing 13.3% of revenue, down from 16.7% in Q4 2023[3] - Net income for Q4 2024 was $8.898 million, down from $11.970 million in Q4 2023, resulting in earnings per share of $0.32 compared to $0.43[20] - EBITDA for Q4 2024 was $14.250 million, down from $17.654 million in Q4 2023, reflecting the impact of increased operating expenses[29] Operating Expenses - Operating expenses increased 17.4% YoY, with sales and marketing expenses rising 24.6% YoY[15] - Operating expenses rose to $31.358 million in Q4 2024, up from $26.708 million in Q4 2023, primarily due to increased sales and marketing expenses[20] Cash and Assets - Cash and cash equivalents increased to $22.087 million as of December 31, 2024, from $11.609 million at the end of 2023[22] - Total assets grew to $285.607 million in 2024, up from $252.041 million in 2023, driven by increases in cash and inventory[22] Liabilities and Financial Stability - Total liabilities decreased to $60.152 million in 2024 from $72.052 million in 2023, indicating improved financial stability[22] Workforce and Cost Savings - A workforce reduction is expected to yield approximately $2 million in annual run rate savings[15] Revenue Breakdown - Product revenue decreased slightly to $81.847 million in Q4 2024 from $82.067 million in Q4 2023, while service revenue increased to $25.680 million from $23.471 million[20]

Group 1 - XPEL stock has decreased over 50% from its peak in July 2021 and has dropped more than 15% in 2024, indicating a potential buying opportunity [1] - The article suggests that the significant decline in stock price may warrant consideration for adding shares [1] Group 2 - The author of the article is a Senior Vice President at Stout, a global investment bank specializing in corporate finance and valuation [1] - The author holds a beneficial long position in XPEL shares through various means [1]

Group 1: Market Overview - The article discusses three underperforming stocks: XPEL, ACM Research, and Monday.com, which have strong fundamentals and Zacks Ranks, presenting potential investment opportunities for 2025 [3][4][13] - The "turn-of-the-year" effect may lead to a rally for these stocks, despite their current underperformance [4][14] Group 2: XPEL - XPEL is a leader in automotive protection products, known for paint protection films and window tinting, and has seen a 25% decline this year [6] - The stock is trading at a historically discounted valuation of 23.2x forward earnings compared to a five-year median of 37.5x, making it attractive for value investors [7] - XPEL has delivered an impressive 40% annualized return since 2019, indicating strong long-term growth potential [6][7] Group 3: Monday.com - Monday.com is a leading work management platform that has performed well but still lags behind the broader market, providing an entry point for growth investors [8] - The stock has a Zacks Rank 1 (Strong Buy) and is projected to see EPS growth of 42.5% annually over the next three to five years [9] - Concerns regarding automation's impact on software companies appear overblown for established platforms like Monday.com [9] Group 4: ACM Research - ACM Research specializes in advanced cleaning solutions for the semiconductor industry, generating most of its revenue in China, which exposes it to geopolitical risks [10] - The stock's forward P/E of 14x is significantly below its five-year median of 28.1x, indicating a historically discounted valuation [11] - With a Zacks Rank 1 (Strong Buy), ACMR is diversifying its geographical sales base to mitigate risks and capitalize on growth opportunities [11]

Revenue Performance - Total revenue for the three months ended September 30, 2024, was $112.85 million, an increase of 9.9% compared to $102.68 million for the same period in 2023[40] - Revenue from paint protection film for the three months ended September 30, 2024, was $60.55 million, up 2.7% from $58.98 million in the same period last year[40] - Revenue from installation labor for the three months ended September 30, 2024, was $18.93 million, an increase of 27.5% from $14.85 million in the same period last year[40] - The company generated $64.57 million in revenue from the United States for the three months ended September 30, 2024, compared to $59.00 million in the same period in 2023[41] - The unaudited pro forma revenue for the nine months ended September 30, 2024, was $316,671,000, compared to $297,444,000 for the same period in 2023[66] Financial Position - Total property and equipment, net, increased to $17.85 million as of September 30, 2024, from $16.98 million as of December 31, 2023[42] - As of September 30, 2024, intangible assets net totaled $33,601,000, a decrease from $34,905,000 as of December 31, 2023[44] - Goodwill increased to $43,347,000 as of September 30, 2024, up from $37,461,000 at the end of 2023, reflecting additions and purchase price allocation adjustments[45] - Total inventory as of September 30, 2024, was $101,592,000, a slight decrease from $106,509,000 at December 31, 2023, with finished goods increasing to $88,527,000[47] - The company had no outstanding balance under its $125 million revolving credit facility as of September 30, 2024, compared to an outstanding balance of $19 million at December 31, 2023[48] Income and Expenses - The company reported net income of $14,892,000 for the three months ended September 30, 2024, compared to $13,656,000 for the same period in 2023, resulting in a basic earnings per share of $0.54[62] - Depreciation expense for the three months ended September 30, 2024, was $1.5 million, compared to $1.2 million for the same period in 2023[42] - Amortization expense for the three months ended September 30, 2024, was $1,500,000, compared to $1,300,000 for the same period in 2023[44] Liabilities and Compliance - Warranty liability increased to $0.7 million as of September 30, 2024, compared to $0.4 million as of December 31, 2023[26] - Total warranty liabilities for the nine months ended September 30, 2024, were $678,000, reflecting an increase from $422,000 for the year ended December 31, 2023[27] - The company was in compliance with all debt covenants as of September 30, 2024[52] - Contingent liabilities measured at fair value increased to $1,091,000 as of September 30, 2024, from $815,000 at December 31, 2023[60] Business Expansion and Future Outlook - During 2024, the company acquired certain businesses for an aggregate purchase price of $8,000,000 to expand its geographical footprint and product offerings[63] - The company anticipates no material impact from the implementation of new accounting standards effective January 1, 2024, and January 1, 2025[29][30] - The company may face significant inflationary pressures on costs, which could adversely affect its business and financial condition if not offset by price increases[141]

Financial Data and Key Metrics Changes - Revenue grew 9.9% to $112.9 million, a record high, with total revenue excluding China growing 12.3% [5][22] - EBITDA increased 10% to $21.7 million, reflecting an EBITDA margin of 19.2% [25] - Net income rose 9.1% to $14.9 million, with an EPS of $0.54 per share [25] - Gross margin for the quarter was 42.5%, down 100 basis points from Q2 [16] Business Line Data and Key Metrics Changes - U.S. business revenue grew 9.4% to $64.6 million, marking one of the highest revenue quarters in history [5][6] - Canada revenue increased by 25.7% [7] - Window film product line revenue grew 20.6% quarter-over-quarter to $22.6 million, representing 20.1% of total revenue [22] - Total installation revenue grew 27.4%, accounting for approximately 20% of total revenue [22] Market Data and Key Metrics Changes - Revenue in China was $9.1 million, a decline of just under 12% quarter-over-quarter [9] - Latin America and Asia Pacific (excluding China) continued to show strong growth, primarily through indirect distribution channels [7] - European and U.K. markets experienced slower growth due to macroeconomic headwinds [9] Company Strategy and Development Direction - The company is focusing on a more direct model in international markets, particularly in India and Japan, following recent distributor acquisitions [8] - A strategic review of the go-to-market strategy in China is underway to optimize operations and improve competitiveness [13] - The company plans to expand its OEM and dealership opportunities in China, with recent small contracts won [12] Management's Comments on Operating Environment and Future Outlook - Management noted challenges in consumer discretionary spending but expressed optimism for continued growth in the U.S. market [6] - The company expects Q4 revenue to be in the range of $105 million to $107 million, with lower sales in China due to strategic changes [15] - Management highlighted the importance of managing inventory and cash flow to drive free cash flow [14] Other Important Information - The company launched a new Windshield Protection Film product, which is expected to serve as a gateway product to attract new customers [17] - A solid cash flow quarter generated $19.6 million, with plans for capital deployment focused on expanding services and products for the dealership space [20] - The company is hosting an Investor Day and facility tours on December 5 [21] Q&A Session Summary Question: Strategy shift in China - Management clarified that the strategy shift aims to align product offerings with market demand and optimize operations for growth [28][29] Question: Competition from domestic brands in China - Management acknowledged the changing dynamics in the Chinese market but emphasized that the company is adapting to remain competitive [31] Question: Future acquisitions - Management indicated a focus on distributor acquisitions as a core strategy while exploring larger opportunities that complement existing services [32] Question: Opportunities in Japan - Management expressed confidence in the potential for higher margins and growth following the acquisition of distribution in Japan [33] Question: Windshield protection product strategy - Management highlighted the cost-effectiveness of windshield protection and its potential to attract new customers [35] Question: Expansion of Tesla referral program - Management noted plans to grow the referral program with Tesla and explore similar opportunities with other OEMs [36]

Core Insights - XPEL, Inc. reported quarterly earnings of $0.54 per share, exceeding the Zacks Consensus Estimate of $0.53 per share, but down from $0.56 per share a year ago, representing an earnings surprise of 1.89% [1] - The company posted revenues of $112.85 million for the quarter ended September 2024, slightly missing the Zacks Consensus Estimate by 0.10%, but up from $102.68 million year-over-year [2] - XPEL shares have declined approximately 22.5% year-to-date, contrasting with the S&P 500's gain of 24.3% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.52 on revenues of $116.92 million, and for the current fiscal year, it is $1.65 on revenues of $424.99 million [7] - The estimate revisions trend for XPEL is mixed, leading to a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] Industry Context - XPEL operates within the Automotive - Original Equipment industry, which is currently ranked in the bottom 31% of over 250 Zacks industries, suggesting potential challenges ahead [8] - The performance of XPEL's stock may be influenced by the overall outlook for the industry, as historical data shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8]

Revenue Performance - Revenue increased 9.9% to $112.9 million in Q3 2024 compared to Q3 2023[1] - Revenue for the first nine months of 2024 increased 7.6% to $312.9 million[3] - US revenue grew 9.4% year-over-year in Q3 2024, contributing 57.2% of total revenue[5] - Total product revenue increased 7.2% year-over-year, with window film revenue up 20.6%[7] - Total installation revenue grew 27.4% year-over-year, representing 20.0% of total revenue[8] - Fourth quarter revenue is estimated to be between $105 million and $107 million, with expected US growth of approximately 10%[10] - Total revenue for Q3 2024 reached $112,852,000, a 9.9% increase from $102,677,000 in Q3 2023[18] Profitability Metrics - Net income grew 9.1% to $14.9 million, or $0.54 per share, in Q3 2024[2] - Operating income for Q3 2024 was $18,387,000, a slight increase from $17,629,000 in Q3 2023[18] - Net income for Q3 2024 was $14,892,000, compared to $13,656,000 in Q3 2023, reflecting a growth of 9.1%[18] - Year-to-date net income for 2024 reached $36,591,000, down from $40,830,000 in the same period of 2023, indicating a decrease of 10.9%[23] EBITDA and Margins - EBITDA increased 10.0% to $21.7 million, representing 19.2% of revenue in Q3 2024[2] - EBITDA for Q3 2024 was $21,698,000, up from $19,718,000 in Q3 2023, reflecting a growth of 10.0%[23] - Year-to-date EBITDA for 2024 was $55,221,000, compared to $59,218,000 in 2023, showing a decline of 6.7%[23] - Gross margin improved to 42.5% in Q3 2024 from 40.4% in Q3 2023[4] - Gross margin improved to $47,916,000, representing a 15.5% increase compared to $41,529,000 in the same quarter last year[18] Expenses and Liabilities - Operating expenses increased 23.6% year-over-year, driven by enhanced marketing efforts[9] - Interest expenses increased to $97,000 in Q3 2024 from $85,000 in Q3 2023, a rise of 14.1%[23] - Taxes for Q3 2024 were $3,730,000, compared to $3,490,000 in Q3 2023, marking an increase of 6.9%[23] - Depreciation expenses rose to $1,504,000 in Q3 2024 from $1,199,000 in Q3 2023, an increase of 25.4%[23] - Amortization expenses increased to $1,475,000 in Q3 2024 from $1,288,000 in Q3 2023, reflecting a growth of 14.5%[23] - Total liabilities decreased to $54,314,000 from $72,052,000, a reduction of 24.6%[19] Cash and Assets - Cash and cash equivalents increased to $20,986,000 as of September 30, 2024, up from $11,609,000 at the end of 2023[19] - Total assets grew to $273,041,000 from $252,041,000 at the end of 2023, indicating a 8.3% increase[19] - The company reported a net cash provided by operating activities of $19,559,000 for Q3 2024, compared to $11,128,000 in Q3 2023[20]