Q4 2019 Earnings Call
Greetings and welcome to the expel incorporated fourth quarter 2019 earnings call.
This time all participants are in listen only mode. A question and answer session will follow a formal presentation. If anyone should require operator system. During the conference. Please press star zero on your telephone keypad I'll now turn the conference over to your own Jennifer Idell you may begin.
Good morning, and welcome to our conference call to discuss expels financial results for 29 team on the call today, Ryan paid excels, President and Chief Executive Officer, and very would expose chief financial Officer will provide an overview of the business operations and review the Companys financial result immediately after the prepared comments, we'll take questions from our call participants.
I'll take a moment now to read the Safe Harbor statement. During the course of this call will make certain forward looking statements regarding XL inc. and its business, which may include but are not limited to anticipated user proceeds from capital transactions expansion into new markets and execution of the company's growth strategy, often but not always forward looking statements can be identified by the used to the words such as planned.
As expected expects scheduled intense contemplates anticipates believes proposes or variations, including negative variations of such words in phases phrases or state that certain actions events or results may could would might or will be taken occur or be achieved such statements are based on the current expectations the management of XL.
Forward looking events and circumstances discussed in this call may not occur by certain specified date or at all and could differ materially as result of known and unknown risk factors and uncertainties affecting the company performance and acceptance of the company's products economic factors competition, the equity markets generally and many other factors beyond the control backstop.
EXL has attempted to identify important factors that could cause actual actions events or results could differ materially from those described in forward looking statements. There maybe other factors the cause actual events or results to differ from those anticipated estimated or intended no forward looking statement can be guaranteed except as required by applicable securities laws forward looking statements speak.
Only as of the date on which they're made an extra undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information future events, otherwise, but that's the way I'll turn the call over to Ryan.
Thanks, John and good morning, everyone. Welcome to our year end 2019 conference call. It 2019 was a transformational year for X Bell and we successfully executed in a lot of areas first as most of you know we completed our listing on NASDAQ, which was a huge an important achievement for not only our shareholders, but for our customers into the benefit of our.
Corporate identity. We also entered into an important partnership with team Penske they'll expand our brand and expose us to a large network or dealerships and other partners.
Product front, we introduced several new and important products like our fusion plus ceramic coding and our interior protection solution. These provide great opportunities for our customers to increase their revenue per vehicle I'm very proud of our financial performance in 2019, and it was another record year for us.
Revenue for the year grew 18.2% to 129 point Ninemillion Q4 revenue grew by 47% to 39.5 million, which again was a record quarter for us. So all in all really good topline results, especially in light of the headwinds we experienced during the first half of the you're in China, We continue to.
See strong growth in all of our regions in Q4 led by China, China grew almost a 93% in Q4 compared to the prior year quarter to $13.5 million in revenue and represented approximately 34% of our total Q4 revenue, which was by far a record quarter put region. As you may recall, we introduce new products new price.
Next in the marketing Q2, Q3 last year and we've seen a great response to those products.
From a timing perspective, we pulled forward approximately 2 million in sales to China. In Q4 19 from Q1 2020, just based on timing and logistics availability that comes at the expense of Q1, obviously, but ultimately it's a product availability in and logistics driving these decisions and not a desire to me.
Make make ourselves on nice quarterly boundaries.
Even with that benefit we really outperformed our expectations for Q4 with with China.
Obviously, the cobot 19 situation has taken an enormous toll on China in Q1, we expect to see our China revenue declined substantially in Q1 over 60% from our 2019 number including the impact to that 2 million dollar pull ahead no from Q4 February auto sales in China were down 80% due to the mitigation.
It's around the cobot 19 in China, there's also been substantial disruption and logistics, including port delays and other other congestion issues as I mentioned earlier, our new product launches in China had been quite successful as we saw in Q3 in Q4 last year and we had the next product launch originally planned for Q1. This has been delayed today.
Due to the news out of China. However is improved fairly consistently over the past several weeks.
Our current forecast for China into Q2 show substantial and significant growth over Q2, 2019, but it will be off the peak Q4 number we just posted even with the adjustment from the pull ahead sales.
But we're certainly in the most optic optimistic position relative to China compared to the last few months.
Our U.S. business grew 21.5% in Q4 to 15 million. If he would 7 million, which was relatively flat sequentially from Q3. The U.S. is our largest region by far it around double China at around six times, Oh, UK plus Continental Europe, combined our Canadian business posted healthy 44% growth.
Rate in Q4, Canada is is one of the oldest and most mature markets one of those hardly penetrated yet it continues to post a great growth numbers due to increasing penetration rates in the region and our our continued focus on the market.
Our European business grew at almost 85% in Q4, while we're continuing to experience a great demand in the region. We were helped in Q4 by low comp as you may recall, our European revenue was impacted in Q4 2018, owing to a change in emission standards that impact a lot of the automotive sector and then pulled automotive sales forward.
It into Q3 2018 from from Q4, 28, Q4, 2018, but either way a really good really good performance in Europe, and we've seen that continue into 2020, our Asia Pacific business almost doubled in Q4 from Q4, 2018 and grew a little under 10% sequentially ours.
Success here just another example that supports our overarching strategy of get close to the customer clearly been aided by our office and our team in Taiwan, and and working with and assisting all of our distributors in the region. There was some negative impact to date in Q1.
2020, and APAC region from Cobot, 19, but not nearly to the same extent as we've seen in China.
So clearly we have great momentum going into the beginning of the year like every other company, we're assessing the potential impact from the the covert 19 outbreak, which is unprecedented and clearly hard to forecast in spite of the weakness in China through February our other regions have performed well and we're forecasting overall Q1 revenue.
Growth of 8% to 10% with China down over 60%. So so good performance in spite of that you're up to date has performed remarkably well in Q1. Despite the Kobin 19 impact starting earlier in Europe, we're really not in much position to fully assessed the impact of the cobot 19 in Europe or the U.S. say, we continue to monitor it day by day.
We made good progress on our gross margins in 2019 with overall gross margin, finishing at 33.5%. It was up 300 basis points over 2018, Q4 gross margin was a bit lower than our previous quarterly trend mainly due to the large acceleration in China in the quarter. After you would expect so while we expect variability in our gross margin.
Again due to that China mix continued margin expansion remains a top focus for us going forward.
That's DNA for the year represented 20.3% of total revenue, which was up slightly from 2018, two new experience. Good operating leverage we expect that to continue into 2020.
Clearly strong operating leverage was demonstrating our EBITDA and net income results for the year as boat show tremendous growth in.
EBITDA and net income margin so great improvement.
As we announced earlier this year, we closed on acquisition of Protex Sen in Montreal, Canada. A this protex was the largest franchisee in our Protex network and one of the largest wholesale focused installers. The paint protection film in the World. We expect acquisition will add over two and half million incremental Canadian revenue this year and that is now.
First of all the product that we would have already sold that customer and it further solidifies our footprint in Montreal and fits perfectly with our acquisition strategy.
In December last year, we announced our multiyear partnership with team Penske. Obviously, we're very excited about this is a great way to continue to expand our brand and build relationships with a with Penske and with that other partners a team Penske. So really excited about this for 2020 and beyond.
Also we're we're happy with our product expansion in 2019 as I mentioned earlier successful launched several new plot products, including our ceramic coating product fusion, plus which has been very well received and we also introduced our interior protection solution that applies film to protect interior surfaces in vehicles, such as a center console touch screens and then.
It is really to protect from damage from scratches from keys and rings and all the other damage that can happen inside the vehicle I think one of the great things about this product is not only is it applicable to new vehicles, but it opens us up the opportunities in the used car market as part of vehicle restoration a process for pre owned vehicles. So we'll certainly be working on that this year as well.
But these products are indicative of our mindset around the product development strategy. These products provide tremendous value for the end customer, which is critical but they really provide the opportunity for our direct customers are installers and dealers to increase their average ticket per vehicle, which is very valuable to them. So in that sense everybody wins.
2019 was obviously a great year I'm very proud of the results I'm very proud of our team.
We we saw just absolutely tremendous performance from our entire team for the for the year I just couldn't have been better.
So I can't I cant state that enough.
With that I'll turn it over to Barry to run through the numbers and then we'll we'll take some questions Barry.
Thanks, Ryan and good morning, everyone as Ryan mentioned overall 2019 revenue grew 18.2% for the year and 47.4% for the quarter.
Breaking revenue down and that's components product revenue grew 17.5 per cent for the year to 112.2 billion and Q4 product revenue grew 51.6% to 34.9 billion in the product revenue category paint protection film grew 13.9% for the year to 97.3 million and Q4.
Hey protection revenue grew 49.8% the 31.2 billion with strong growth and all of our regions led by China.
Window film was a great growth story for US this year window film revenue for the year grew 55.7% to 11.4 million representing 8.8% total revenue.
Q4 window film revenue grew 73.5% 2.9 billion and represent a 7.2% of revenue, which is still a large percentage given the record revenue quarter that we had.
Total service revenue for the year grew 23.2% to 17.7 million Q4 service revenue grew 21.8% to 4.6 million in those categories software revenue for the year grew 27.1% to 3.3 million in Q4 software revenue grew 29.9% to point 9 billion.
Installation labor revenue, which is the revenue from a labor component over as total installation revenue for company owned distillation centers grew 27% to 6.6 million for the year and in Q4 grew 34.8% the 1.8 million.
I'll also note here that overall installation revenue, which combines product on labor grew 27% for the year and 34.8% in Q4.
And as Ryan mentioned and I'll quit Echo his comments, we're very pleased with our gross margin performance in 2019, and and we look forward to continue to improve on their performance as we roll into 2020.
On the yesterday front, our 2019 <unk> expenses grew 22.1% versus 2018 and represented 20.3% total revenue in Q4 US DNA expenses grew 28.2% versus Q4, 2018 and represented 18.9% of revenue.
Sales and marketing expenses for the year grew 11.5% some point Sixmillion and Q4 sales and marketing expenses grew 13.3% the 2.1 million.
We previously talked about increasing our marketing budget for 2020 with our Indycar sponsorship with Penske just being one part of that.
2019 general and administrative expenses grew 27% to 18.8 million and Q4 general administrative expenses grew 35.2% the 5.4 million.
And part of that higher growth rate, we had some incremental occupancy costs. So that we incurred as the second half of the year, they're kind of influence that growth rate, but still really good performance in really good leverage there we've talked before that we target our restaurant expenses to be around 18% of revenue and we're going to oscillate around that.
Quarter to quarter, but that's still remains our target and we think that strikes the right balance between controlling expenses and investing in the business and while we continually look for ways to drive down expenses were pleased to see the significant operating leverage realized during the year.
On the income tax front, our effective tax rate for the year was 17.4% and was 8.9% for Q4. During Q4, we recorded a onetime true up tax adjustment.
And to the tune of around a half a million dollars related to tax reform Act, which lowered our effective rate for the quarter, we expect our future effect a rate to be around 21% as we move forward into 2020.
2019, EBITDA grew 43.9% 18.7 million and our EBITDA margin finished at 14.4%, which was up from 11.9% in 2018.
Q4, 2019, EBITDA grew 91.7% to 5.6 million, reflecting EBITDA margin of 14.1%.
2019, net income grew 60.5% the 14 million, reflecting done income margin of 10.8%, while our Q4 2019 net income grew 143% to 4.6 million, reflecting net income margin of 11.7%.
And we did have a little bit a tax help on the Q4 net income, but even with that as the overall performance and our net income a line item was was it was really good in Q4.
Yes was 51 cents per share for the year and 17 cents per share for Q4.
2019 cash flow from ops grew 61.3% to 11 million and we ended the year with 11.5 million up cash on the balance sheet.
The debt we carried on our balance sheet is unsecured debt with very favorable interest rates held and it's held by the sellers are the businesses in which we purchase so.
Our balance sheet overalls. This is really strong as we've mentioned in the past, we anticipate using our excess cash primarily on acquisitions in 2020, as we continue to execute our strategy.
By almost every measure 2019 was an outstanding year for X Bell as Ryan mentioned, we're well positioned operationally and financially to face whatever challenges to cope with 19 situation brings us in spite debt and we look forward to continue deliver value for shareholders and most importantly, our customers in 2020 and beyond.
And with that operator, we'll now open the call up for questions.
At this time will be conducting a question and answer session. If he would like to ask your question. Please press star one on your telephone keypad, a confirmation tolling will indicate your line is in the question Q you May press star to if he would like to remove your question from the Q participated using speaker equipment, and maybe necessary to pick up your handset before.
And this darkie.
After all participate asking a question to limit themselves to only one question and one follow up question. Thank you and one moment. Please while the poll for questions.
Our first question is from Steve Dyer from Craig Hallum.
Please proceed with your question.
Thanks, Good morning, guys. Thanks for taking the question.
Just a question I guess I'm, maybe what you're seeing.
You know I guess real time.
In other words Hoas train a trend that I guess the last couple of months.
Have you ever. So you don't have you seen anything sort of Oh Pos perspective. This that leads you to believe you have you seen anything in the last week or so.
Sure Steve Yeah, no relative to China, I think you know the news through a few weeks ago was was pretty negative, but since then kind of as we talked about I think the the senses that were definitely moving in the right direction in in China, and that's you know.
Based on all the feedback we get on the ground and so I think we're at this point, we're expecting a to see substantially better conditions.
In China, as we move into April and beyond.
Got it and maybe talk a little bit about I'm sort of how you feel like their inventory is positions there as well as domestically here I know a lot of it is fairly just in time less so maybe in China, but are you feeling sort of inventory in the channel as things truly do sort of shut down for a period of.
Weeks or a month.
I think that you know relative to China, you know clearly through the end of the year and then into Q1 on depressed sales the distribution channel in China has built some inventory and that's why we see even as as we anticipate further recovery in China into April you know that's going to reduce our sell in.
And from what we had thought last year, but even at current forecast that's still a would represent substantial growth year over year in Q2, just because our Q2 last year was so depressed. So I think that you know you you have built some inventory and that's going to push things out a little bit further in China as.
As they begin to recover.
But based on what were the information we're getting now it it we expect to have a a relatively decent Q2 in China.
That's great color and then you know I know you.
Or giving specific Q2 guidance and things are changing a lot on a daily if not hourly basis, but I think you're generally with what you're hearing from dealers locally or where you're on the U.S. as well as China.
Would you anticipate you can grow year over year in Q2 are just too early to say at this point.
I think it's too early to say you know you're trying to a combined sort of anecdotes with with what we actually see and certainly through you know most of last week everything's firing on all cylinders and and while that hasn't changed I think you've seen sentiment change overall more negative and what what.
That translates to in any impact or not you know relative to say the U.S. business I think it's too early to say I mean, we've we've seen really good performance in Europe.
You know through through through today and that's in spite of you know perhaps more impact in Europe earlier I don't know if that's a that will continue or not or if that's directly translatable to the U.S. market or not.
But you know if that's that's what we've seen so far.
Great. Thanks, and then last one for me just as it relates to your supply chain are you feeling pretty good about things there any any bottlenecks or potential issues.
No we feel really good on supply chain. So we don't have any you know direct exposure to China, a relative to supply chain and even going down several levels into different components that make up our products.
There's no direct China exposure and we've worked that as far as we can throughout the supply chain even to suppliers of suppliers sub suppliers, just to try and understand that impact and and as of now we're not anticipating any any supply chain impact and we have ample inventory.
No across all the product lines based on where we sit today.
Got it congratulations on the good execution, thanks for taking my questions.
Thanks, Steve.
And once again, if you have a question you May press star one any telephone keypad and please also limit to one question and one follow up question.
Our next question is from Jeff Van Sinderen from B. Riley. Please proceed with your question.
Hi, Good morning, everyone I'm, just circling back to the Chinese segment anything you can tell us about what's happening with a car sales trends in the last couple of weeks. There. We haven't seen that data just wondering how closely that metric is tracking to why your distributors are seeing.
Any change in attach rate there just I guess anymore color you could give us there in terms of what you're hearing from distributors.
No not I can't I can't speak Jeff specifically to kind of March to date I think when you looked at a at the the FEP February numbers, a down 80% I mean that that's certainly matched at the time. The anecdotal feedback we were getting which was that you know most things were just shut down so the the feedback.
We have now is that you know more and more of our customers are back to work in and incrementally that continues and so I think that you know to a certain extent that'll kind of match with with what we see in car sales, but we don't have anymore, a hard data than that.
Okay fair enough.
And then just relevant to do you and the U.S. How are you thinking about potentially closing down your company owned units and then I guess, you know the not own dealer potential closings around covered.
Yeah, I think I mean from from the standpoint of our own operations, we're gonna do anything necessary to protect the safety of our employees or communities. The the for the most part you know our operations and our customer operations. They just don't have that many people in them. So they tend not to be subject to some of the mandatory.
Distancing and whatnot so.
So we're taking that location by location relative to our own operations I'd expect many of our customers would do the same for the rest of our operation you know Weve just out of abundance of caution Oh, we have obviously many more people working remote that that can just to just to help with the situation and we'll continue to adjust that.
But we have no no specific plans for the entire organization just manage it location by location that we have.
Okay, and if I could squeeze in one more any change in here thinking relative to valuation on acquisitions, you might make this year or any change in strategy given.
I guess, maybe some of the dealers out there could become strives to those closures or that sort of thing.
Yeah, I think we we have to reevaluate all of that I think from that standpoint, you know the first thing that we're doing is just just taking a breather on that so so we're we've kind of just pause to all of that give it give it 30 days and then and then reevaluate, but I think we would absolutely sort of reevaluate our approach based on.
And that if if more information comes to light, but I think right now we just need to give it a little time.
Okay. Thanks for taking my questions and best of luck for the rest of the quarter.
Thanks, Jeff.
And our next question is from Sean Russell from <unk> asset management. Please proceed with your question.
Hey, they for taking the I think the question just a quick follow up relating to your supply agreement with.
With your primary wildly via the company enter attack any news on the renewal that contract I'm, an increment incremental information there. Thanks.
Sure Sean know that automatically renews next week and there's there are no changes and that will renew automatically next week no changes to that relationship.
Perfect, Thanks, and congratulations on there.
Thank you.
And once again it is star one.
Asset quality telephone keypad for one question any one follow up question only.
Our next question is from Jason Hirschmann from Hudson to 15 capital. Please proceed with your question.
Hey, Ryan Highbury, how you guys doing.
Jason Great how are you.
Very good very good.
Was wondering if you can just comment you mentioned that you were season, particularly strong growth in Europe.
Year to date until this Colgate 19, Vicki much stronger past, maybe recur. So when I also maybe you can comment on on fusion Clos and how you're seeing that developing its sort of the attachment rate.
Ah that you're seeing in both United States in Europe, and perhaps even in Asia.
Sure Yeah, no relative to Europe, we've seen a really strong start to the year and add I I'm not at this point, even implying that that's not continuing a really to date. It's been strong. So I think there's clearly uncertainty going forward with the impact from cobot 19, but Europe's been very strong really across the board both in our.
Continental Europe segment, and then and then in the UK segment as well so that's been been very encouraging.
Oh relative to a fusion plus we've seen continued adoption there and obviously, we're pushing our network and our installer base, saying Hey, we if you were previously using other ceramic coating products, we'd really like the wind your business and that's been successful and our customers realize that the more that they buy from us other more weaken some.
Fourth down in their local markets and the more business. We can drive to them. We're also planning some enhancements to that product. So some other fusion plus related products for other applications and other automotive applications and some non automotive applications, even with that same technology and that'll be rolling out.
Out and the next quarter so.
Okay, great. Thank you very much.
Thanks, Jason.
And we have reached the end of the question and answer session and I will now turn the call over to Brian pay for closing remarks.
I'd like to thank everybody for making time today and we look forward to speaking with you next quarter. Thank you very much.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
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