XPEL (XPEL) Q4 2024 Earnings Call February 26, 2025 11:00 AM ET Company Participants John Nesbett - IMS IRRyan Pape - Chairman, President & CEOBarry Wood - Senior VP & CFO Conference Call Participants Jeff Van Sinderen - Senior AnalystMatthew Raab - Equity Research Analyst Operator Greetings. Welcome to the XPEL Inc. Fourth Quarter and Year End twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please ...

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]

Core Insights - The article emphasizes the importance of long-term value investing in high-quality businesses at reasonable prices [1][2]. Group 1 - The author identifies as a self-taught long-term value investor focused on acquiring great growing businesses [1]. - There is a beneficial long position in the shares of XPEL, indicating confidence in the company's future performance [2]. - The article expresses personal opinions and does not provide investment recommendations or advice [2][3].

NEW YORK, Oct. 7, 2024 /PRNewswire/ -- The Gross Law Firm issues the following notice to shareholders of XPEL, Inc. (NASDAQ: XPEL). Shareholders who purchased shares of XPEL during the class period listed are encouraged to contact the firm regarding possible lead plaintiff appointment. Appointment as lead plaintiff is not required to partake in any recovery. CONTACT US HERE: https://securitiesclasslaw.com/securities/xpel-inc-loss-submission-form/?id=106638&from=4 CLASS PERIOD: November 8, 2023 to May 2, 202 ...