Q2 2021 Xpel Inc Earnings Call
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Please standby were about to begin.
Good day, ladies and gentlemen, and welcome to the ex Belt, Inc. Second quarter 2021 earnings call. After the presentation there'll be a question and answer session. If you should require assistance during the call. Please press star zero and an operator will assist you.
It's now my pleasure to turn the floor over to Mr. John Nesbit of IMS Investor Relations, Sir the floor is yours.
Good morning, and welcome to our conference call to discuss ex Palace financial results for the 2021 second quarter on.
On the call today, we have Ryan Pape ex Bell's President and Chief Executive Officer, and Barry Wood ex Bell Senior Vice President and Chief Financial Officer, who will provide an overview of the business operations and review the company's financial statement results immediately after the prepared comments, we'll take questions from our call participants on that.
I'll take a moment to read the safe Harbor statement.
During the course of this call we'll make certain forward looking statements regarding ex Bell, Inc. And its business, which may include but not be limited to anticipated use of 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 use of words such as plans is expected.
Specs scheduled intends contemplates anticipates believes proposes or variations, including negative variations of such words and 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 of the management of ex Bell the forward looking.
Events and circumstances discussed on this call may not occur by certain specified dates or at all and could differ materially as a 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 other factors beyond the control of ex pill, although I suppose attempted to.
To identify important factors that could cause actual actions events or results to differ materially from those described in forward looking statements. There may be other factors that cause actions events or results to differ from those anticipated estimated or intended no forward looking statements can be guaranteed except as required by applicable securities law forward looking statements speak only as of the date to which they are made.
Next Bill undertakes no obligation to public update or revise any forward looking statement, whether as a result of new information future events or otherwise, okay with that I'll now turn the call over to Ryan go ahead Ryan.
Great John Thank you and good morning, as well welcome to the second quarter 2021call I think obviously Q2 was an amazing quarter for us certainly exceeded our expectations going into the quarter revenue grew 92 per cent to a record $68.7 million sequentially. Our revenue grew 32.
5 per cent from our previous record revenue in the first quarter of this year year over year growth rate was impacted positively by the COVID-19 impacts of last year, but it was very strong by any measure on even independent of that.
As you may recall, the U S and most of our other regions other than China saw significant COVID-19 impacts from Q2 of last year, but again it was a strong across the board and strong across all of our regions, even even factoring that in.
Canada, we had a great quarter, posting a record of $8.9 million in revenue.
As we mentioned in Q1, there was about a million of quarterly sales into the dealership channel that were pushed from Q1 to Q2, but even with that great performance.
In Continental Europe, and U K also had record quarters Continental Europe grew.
80% of $5.2 million in the U S. Dollar terms in UK grew over 200 per cent year over year looking.
Looking at the impact from previous year's Lockdowns.
Really happy with this region.
Looking for ways to continue to invest both in Europe broadly and then in the U K organically and via acquisition.
Our Asia Pacific region, which excludes China.
Other good spot past 2 million quarterly revenue in U S. Dollar terms first time in history.
This is still an area that we're very much focused on investing in we think it's a very small region for us has a lot of opportunity going forward seeing some COVID-19 impact there if you're following the news so we watch that but still.
Still very pleased with what's happened there China had a very good quarter revenue, increasing $26.4 per cent to $12.6 million the second highest revenue quarter for the region.
If you recall, China largely recovered in Q2.2020 from the impacts of Covid.
China car sales are up up over 10% in Q2, So that's certainly helpful.
We brought in a million a million dollars or so of revenue into Q2 from Q3 based on timing of shipments. So we'll see that reverse in Q3.
But great numbers Nonetheless.
Pact of Covid travel restrictions has impacted some of our activities.
Plans for China over the past 18 months as you would expect so we're really anxiously awaiting further relaxing of those restrictions.
I would also note.
Increased prevalence of Covid and Lockdowns in China. So we will be watching this closely to see if that has any impact going forward, but clearly too soon to tell at this point.
Our Latin America region grew over 100% still from a very small base.
This is a big area of focus for us like we've mentioned.
We're very active project to expand our direct sales capability in other parts of Latin America outside of Mexico, where we've had such great success with that.
<unk> grew over 300% huge quarter for us.
He did a $2.4 million, which is almost half of what we did in all of 2020. So that's been a focus area over the past 2 years I'm glad to see really good really good numbers there.
And last but not least takes us to the U S region. So revenue grew a 112, 8% compared to Q2 of last year.
$34.3 million highest revenue quarter ever for this region and it constituted nearly 50% of our total revenue.
This number is about $1.9 million in new net revenue related to draws on the plain film acquisition and this excludes revenue that we had selling to permit plates on prior to acquisition. So total permanently film revenue was over 2 million for the month, but in terms of net new revenue exclude our previous sales.
<unk>.
So most of the growth was organic.
Really great results, our U S continues to to to do really well in our home market here.
A significant portion of perfectly films business is providing labor included installation of window films to mid range car dealerships.
With a really high attach rate in terms of attach rate of product to new cars sold.
In large part that business is fairly distinct from our existing business, which doesn't index into the mid range dealerships as often as high line dealerships. So we really like that model in and of itself, but it also serves as a great platform to take our other products.
Yeah paint protection film and other future products into these dealerships.
Even though we're doing much of the labor ourselves.
In this current played film acquisition that doesn't need to be the case for all other products. For example, as we work to integrate paint protection film into dealerships that have never sold it before our independent Nextel dealers will be in a great position to do much of this work and it's a perfect fit for that.
So what youre seeing from US via this perfectly film acquisition and our other OEM activities is that in many cases, we have to be increasingly agnostic as to the how the product gets on the car we need the best solution for the ultimate customer and for US such that these products can grow and attach rates so their trade.
When we're doing labor higher gross margins, but increasing operational complexity complexity, but these are all on means to an end to see that the product lines grow.
And in many cases, where we're doing installation, we generate significantly more gross profit dollars per vehicle.
From a played films business is more correlated to a new car inventory and the arrival of vehicles that car dealerships rather than new car sales given the high attach rate.
On that model, so it's actually been impacted even more than the rest of our business from the low new car inventory situation were actually only operating today at about 75 per cent capacity in terms of our ability to install these products in volume in that business, so as new car inventories recover.
We may see the benefit of that first through this new line of business.
Overall, we expect Q3 revenue.
On to fall in a range between our Q2 revenue and a few million dollars less in Q2, it's not likely Q3 revenue will exceed Q2 revenue this year.
Q2 was exceptional I mean, it was red hot in so many ways. We have seen some evidence that customers are increasing stock ordering a slightly more product than the trend would suggest.
This we think is mostly due to concerns about future price increases or possible product shortages.
We've had tremendous planning on our team and we really had little if any product shortages across the board, but the same can't be said for the industry. Overall some of our competitors have been very tight situation. So we may have benefited a bit in Q2 from that fear and and.
That helped to really take Q2 just over the top.
Additionally, new car inventory being low is beginning to impact car sales in the U S. For July we saw new car sales down 8% from June based on lack of inventory aside from the permit played an OEM business lower inventory in and of itself is not a net negative.
For our business and I think the results of this year really shows that.
But to the extent low inventory translates into lower new car sales, that's where we'll see some impact or we could see some impact.
And we certainly we certainly talked about that but I think it's possible, we'll see that a bit in Q3, obviously all of that comes against the backdrop of a blockbuster quarter.
And a great year, so far so just like we speculated earlier in the year, a lower new car inventory environment that results in and some cap on sales of new cars really just serves to cap on growth, which still leaves us on a tremendous revenue run rate and overall performance beyond what we imagined it.
The end of 2020, so overall really pleased with the U S business. If we if we see a cool a little bit from the Red Hawk Q2 that leaves us still on AR and a tremendous spot on on a tremendous revenue run rate.
Overall gross margin for the quarter finished at 36, 7% compared to 32.8 per cent in the second quarter of 2020 as we've talked about previously we expect to break out of that kind of historical gross margin range, we've been in a 32% to 35% starting in the second half of the year.
And so we are seeing us start to do that here even in a in the second quarter. We're in a challenging environment with respect to costs I think everyones keenly aware of that on their professional and personal lives.
But to the extent, we have cost increases we expect to we.
We expect to be able to pass those along.
Where we need to so.
So Q3, Q4 will be choppy and that way with respect to gross margin, but our guidance of increasing gross margin above our historical range. As we exit 2021 is still very much intact. We're benefiting from our product planning that's been a long time in the making.
In terms of initiatives to improve improved risk gross margin and also a mix of revenue in terms of product and geography that is trending towards higher gross margins.
With recent quarters, we continue to drive tremendous operating leverage EBITDA margin finished at 19.8 per cent for the quarter net.
Net income margin finished at 14, 8%.
And finally I'd add debt, we have a robust plan with respect to acquisitions are on channel and product very much consistent with everything we've done in the past and what we've been talking about so this will probably take us into a small net debt position.
For a short period of time as we execute on this plan over the next.
6.912 months, but we're seeing great things that fit our business.
Maybe a little bit of pressure on pricing, but overall, we still think we're able to do these acquisitions on very good terms from the business.
And in a very accretive way so with that.
Absolutely great quarter really excited firing on all cylinders around the world.
Great Great performance for our team by our team.
And I'll turn it over to Barry and then we'll take some questions. Barry go ahead.
Thanks, Ryan and good morning, everyone. Obviously Q2 was just an outstanding quarter by almost any measure just starting even with our revenue growth of 92% to $68.7 million, which was a record.
And as Ryan alluded to we had a relatively easy comp due to the impacts of Covid last year and as you may recall, we saw revenue declines in several of our regions, including the U S. In Q2 last year due to COVID-19, but even with that our Q2 performance still exceeded our expectations and most of this growth was organic there's approximately 2.
$2.2 million of acquisition related new net revenue in the quarter from our recent acquisitions, including from a place. So it was just a great grassroots performance for the company and on a year to date basis, our revenue grew 87, 9%.
Product revenue grew $89.5 per cent to approximately $58.7 million in the quarter and 89, 4% to $103.6 million for the first half of the year and in this category paint protection film grew 86, 6% to $45.2 million in the quarter and grew 84.1 person.
For the first half of the year.
And our window film product continues to outperform growing 86, 1% to $11.1 million in the quarter and doubling to $18.2 million for the first half of the year.
We also saw a record quarter in our other revenue category, which consists of our fusion product line plotter sales on tools and accessories to support film installation. So this growth makes sense given the performance on the film lines.
<unk> to 2021 service revenue more than doubled for the quarter on grew 79, 3% for the first half of the year.
Total installation revenue from our company owned installation centers on our OEM segment grew 124.0, I'm sorry, 124% represented 9.3% of our total revenue for the quarter and on a year to date basis total installation revenue grew 92% once again, all installation businesses posted strong performance on the.
Quarter.
Gross margin for the quarter grew 115.1% to $25.2 million and our gross margin percentage finished at 36, 7% compared with 32.8 per cent in Q2.2020.
The gross margin in Q2, 2020 was heavily impacted by lower direct sales due to COVID-19, but still we're very pleased with our margin performance on the quarter and absent any extenuating macro factors, we expect to continue to improve our margin performance in the coming quarters. Our gross margin grew 97, 6% during the first half of the year to $43.5.
And our first half gross margin percentage finished at $36.1 per son.
Our Q2, 2021 SG&A expense grew 96% versus Q2.2020 to $12.6 million and represented 18, 3% of total revenue for the first half of the year total SG&A expenses were up 54, 8% represented 18, 5% of revenue.
Sequentially SG&A expenses were up approximately 29% net.
And about <unk> 8 million of our Q2 SG&A expenses were associated with the plain film acquisition. So clearly we're continuing to gain operating leverage in our core business.
And as a reminder, we will continue integrating permit played felt throughout this year to be on our targeted EBITDA run rate of approximately 6 million towards you're in and we're making great progress on that.
Q2, 2021 EBITDA increased almost 140 per cent quarter over quarter.
Approximately $13.6 million, reflecting an EBITDA margin of 19, 8% and this was another record quarter for us from an EBITDA perspective.
On a year to date basis EBITDA grew 176, 1% represented 18, 9% of revenue.
Q2, 2021 net income increased to 156, 3% versus Q2.2020 to $10.2 million, reflecting net income margin of 14, 8% and EPS for the quarter was 37 cents per share on a year to date basis net income grew 205%, reflecting net income margin of 14.1.
Per cent and our year to date EPS is 62 cents per share.
Cash flow from ops was solid for the quarter coming in at $10.1 million and our Capex for the quarter was higher than normal for us primarily due to costs associated with the build out of our new warehouse facility in San Antonio and.
And as Ryan mentioned, our permit played film acquisition during the quarter was by far our largest acquisition we've done in our history and we were able to utilize all cash for that acquisition.
We remain very active on our acquisition pipeline and given our new $57 million credit facility and our ability to generate cash.
We're well positioned financially to execute on this pipeline. So obviously very pleased with the quarter and we're excited about the rest of the year and with that operator, we'll now open the call up for questions.
Thank you, Sir and ladies and gentlemen that if you'd like to ask a question at this time. It is star 1 on your Touchtone telephone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again Thats star 1 at this time, if you'd like to ask a question.
And we'll take our first question from Steve Dyer with Craig Hallum.
Thanks, Good morning, guys. Thanks for taking the question.
Wondering you know obviously, new car sales pinch point, given given inventory, but does not seem to be slowing you guys down in the lease do you feel or do you have any evidence that the take rates are increasing.
On the on the vehicles being sold on a greater percentage of square feet or square inches on the vehicles.
Yeah, Steve Thanks, Yeah, I think that the macro trend for us for a long time, there's been no take greater attach rates on new car sold has gone up in terms of.
Number of units attached certainly in most all the markets that we're in on.
And then you know within that trend over time has been certainly on paint protection film more.
Coverage more material per car. So those are those are the 2 too.
Biggest factors that have had US you know sort of disconnected from the overall cycle for a long time.
I think that you know like were talking about seeing a July sales down sequentially from June and I think we've probably hit the point, where we feel on our in our dealers feel it a little bit the pressure from inventory thought maybe we'd see that.
Last quarter, some but you didn't see it at all so maybe we're seeing a little of that now, but that's still with a box a backstop of more cars getting some on it on more film per car. So so we see that a little bit, but it's certainly not a driving factor for our business.
The inventory pinch.
Got it thanks and then.
You talked a little bit about maybe some pre buying or some inventory bill just.
I guess peering or trying to get in front of a price increase.
Have you talked about on thought about taking a price increase on the back half of the year.
Doesn't seem like your Cogs are impacted at all but everything else seems to be going up on price. So.
I think I lost the last part of your question, Steve, but yeah, we're gonna be we'll be looking at pricing in the second half of the year, we were seeing a different cost increase since everyone is from product to logistics to everything in between so it certainly.
It hasn't had a significant impact.
In Q2 and to the extent there is impact we plan to mitigate that through increases in the channel as necessary. So no pricing is certainly a factor across everything that I think everyone's doing.
But it's not 1 day, we expect to have a detrimental impact to the.
Margin or operating performance of the business at this point.
That's 1 from me and then I'll hand, it over you talked about continuing to be active on the M&A from criminal players I think was on the larger side of what you've done as you look at your funnel.
Is there anything sort of bigger yet or would you anticipate continuing to be sort of tuck ins and you know.
Sort of more easily.
Easily integrated acquisitions share so yeah in the and what we're working on in the next 6 to 9 months.
Nothing in there individually, that's it's larger than that permanently film acquisition. So a lot of tuck ins, maybe still larger for us than our historical average, but between that and the size of <unk>.
That's really kind of where we're focused right now.
Great. Thanks, guys.
Thanks, Steve.
And once again, ladies and gentlemen, if you would like to ask a question. It is star 1 on your Touchtone telephone Star 1 at this time. Please to ask a question. We will go next to Jeff Van syndrome with B Riley.
Hi, Good morning, everyone. Just wondering if you could give us a little more color on what you're seeing in China and the near term outlook there.
Well I think our our view is China has been very strong.
The car business in China has been strong we've been doing exceptionally well. So I think from that standpoint things have been going been going great in China I think what we're watching is just a.
More locked down pressure with increased Covid prevalence there there's been a lot of talk about that and I think that creates some maybe near term uncertainty that we didn't have before but that's really purely speculation at this point.
I think aside from that we.
We've had a great results on the overall dynamics there have been quite positive.
Okay. Good and then anything new to add on the integration plan I know you touched on on a bit but just wondering if there's anything you've found there.
So far that was either a positive or negative.
That was maybe I don't know, it's a positive surprise negative surprise and then any thoughts on how.
I guess, if your strategy has evolved at all based on what you've seen so far.
No I think you know operationally.
It's the largest acquisition we've done but also on largest acquisition by far in terms of number of people.
So where we were pretty well advanced on our plans to integrate or those operational and financial integration, which is really.
<unk> gone exceptionally well.
Is largely complete in many ways and now we've got the task of just integrating our sales teams.
All in the U S. So that we've got the coverage that we need to take our product into all of these potential customers and make use of the whole team that we have now and thats really ongoing and will be throughout the rest of the year I think it's it's demonstrated that our team.
<unk>.
Quite capable of handling what was a larger acquisition for us. So I think that certainly gives us confidence going forward as we look at other opportunities even if we get to the ones that are at that size or larger.
It was a it was really good from that standpoint, I think it is.
Related business, but it is different in many ways.
Going in and selling on high volume service to a lot of mid range car dealerships, that's not something that we've done a lot of but we very much think it's.
An important part of the of the strategy and an important important part of our.
On a multichannel approach to how we go to market. So the team has been great a lot of really really good people on board. So I think we've been very pleased with how that's going.
Okay terrific and then if I could just squeeze in 1 more just wondering.
I guess, how youre thinking about architectural over the next couple of quarters.
Yeah, we didn't talk about that a whole lot today, but we've been going through a whole process of integration. This first half of the year with evolute share acquisition.
Got a significant enhancements to the product line product line has grown quite quite a lot and that's in the process of being rolled out and then some are added.
Added elements on how we go to market. There obviously, we've got the channel of installers and on the backbone of our business debt.
Many are familiar with but that line of business adds other go to market in terms of how we sell the product other potential referral sources other potential influencers to drive that business and so adding those into our 2 our plan where that's different from what we've done historically, that's been a key area for.
For us this year. So you know were still seeing that.
Net revenue double double upon doubled.
And hit records every month, so I think very pleased with with that on our path to where we're going with it.
Great to hear.
Thanks, and best of luck in Q3.
Thanks, Jeff.
And there appear to be no further questions at this time I'd like to turn the call back over to management for closing remarks.
I'd like to thank everybody for making time today and thanks to our team has done an amazing job this quarter.
It has to be said that when you increase your revenue year over year the way we have.
That's a lot of work and a lot of things that have to be done and done well every day to make that possible. So very much thanks to them and look forward to speaking to everyone next quarter. Thank you.
Ladies and gentlemen that does conclude today's conference. We appreciate your participation you may disconnect at this time and have a great day.
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