Q4 2021 Xpel Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the <unk>, Inc, fourth quarter and year end 2021 earnings call.
At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host John Dan Smith Investor Relations for XL.
Sir the floor is yours.
Good morning, and welcome to accomplish call today to discuss <unk> financial results for 2021 on the call today, Ryan Pape, <unk>, President and Chief Executive Officer, and Barry would expose senior Vice President and Chief Financial Officer will provide an overview of the business operations and review the company's financial results immediately after the prepared comment.
We will take questions from our call participants take.
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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 expects scheduled intends contemplates anticipates believes proposes or variations.
Okay great.
Patients with such words and phrases.
Where 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 EXPAREL.
The forward looking events and circumstances discussed in 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 doctors competition the equity markets generally.
Many other factors beyond the control of Exco, although I suppose attempted to identify important.
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 could cause actions events or results to differ from those anticipated estimate are intended.
Forward looking statements can be guaranteed except as required by applicable securities laws forward looking statements speak only as of the dates in which their need next to launch takes no obligation to publicly update or revise any forward looking statements whether as a result of new information future events or otherwise, okay with that I'll now turn the call over Ryan go ahead Ron.
Thanks, John appreciate it good morning, everyone and like John said welcome to our 2021 year end conference call.
2021 was another outstanding year for the company I was very pleased with all that we were able to accomplish for the year revenue grew a little over 63% despite challenges with new vehicle availability, our organic growth was still very strong coming in at almost 53% for the year we.
We closed on an integrated the most acquisitions we've ever done in one year in terms of quantity and purchase price and we've made great progress on growing and expanding our product line.
All of these accomplishments have positioned us to have a great 2022 looking at the fourth quarter 2021 revenue grew 44, 3% to $70 1 million, which was a record quarter and the first time, we exceeded 70 million in our history Q4 organic revenue growth was 27%, which was solid in light of <unk>.
New car inventory constraints.
Particularly in the U S and in the U S. We had a great quarter revenue growing 69% and 37% on an organic basis in the U S again, great growth now in.
Q4 was.
Pretty poor in terms of U S. New car sales similar to what we saw in Q3, many domestic brands down double digits year over year, and our sales mix is becoming a bit more nuanced.
As our window film and dealership services business expands and we see more attachment across makes in a range of price points. Historically, we would have been we would have had even higher exposure to premium makes which generally held up better as Oems prioritize manufacturing those vehicles like Tesla, which did have a record quarter for <unk>.
<unk> in the fourth quarter.
As we talked about on the third quarter call.
Our biggest acquisitions last year were in the dealership services business businesses, which are high volume installation principally a window films at dealerships started with our acquisition in May of permit played films and then testing that in October and as we've discussed before that business is tied more to new car inventory than the rest of our business.
It is not skewed.
At all towards luxury vehicles.
We didn't see much change in the new car inventory situation in Q4 as we'd hoped in Q3 and in this line of business. We were only operating at 65% capacity during the fourth quarter and this translates into approximately $2 6 million in lost revenue for US just from the run rate.
These businesses were doing prior to acquisition and that doesn't include any growth that we would've expected in those businesses as we applied our sales team into that line of business.
Our labor costs in and in the dealership services business is variable so in a declining demand market, we would adjust the overall labor force to match demand. However in the current environment, which is obviously, a very tight labor market and an expected return in new car inventories, it's even more impaired.
It is to maintain and support our team and in this case with the variable pay model that requires supplemental pay.
To retain the team, which is temporarily impacting margins. So with our current structure. This is worth about $1 8 million in gross margin and pre tax income in the fourth quarter that we're staffed to earn but just missing the unit volume so for the quarter. This alone cost us approximately 250 basis points of gross.
Margin.
So there is little consensus on the new car inventory situation, but our view is that we should still see substantial recovery through Q2.
And we're operating under that premise and if that doesn't occur we would revisit our overall staffing level at that time.
We saw the impact from this dynamic in Q3, but then this was now magnified in Q4 as we completed our second acquisition in the space at the beginning of Q4, so as the dynamic changes we will still see the substantial EBIT contributions from this line of business we've talked about previously.
Outside the U S Q4 saw a bit more of a divergence in growth rates and we've seen lately, maybe due to varying responses of all mccraw and Canada grew around 30% UK, 21% Asia Pacific only 10% that was rather disappointing, but we've seen some outsized impacts there a continental Europe had a.
Strong quarter revenue growing 55%.
In U S dollar terms.
Which is highest quarter, we've ever had in that region.
In China in Q4, we grew just under 9% Q4 over 2020, which was up sequentially a little over 17% from Q3, so with China, we have the sell in versus sell through dynamic from one quarter to the next we expect China to be relatively flat the first half of the year as they build some inventory.
Tori and then accelerate mid year, our distribution distribution agreement and forecasts with our China distributor has strong growth for 2022 over 2021.
And we're confident that they'll meet that we have new products and a focus on both automotive and architectural films plus.
Plus a number of projects in the channel now working with the distributor in China for dealerships with known as known locally as forest shops, and that's a big focus for.
For 2022.
We continue to develop OEM relationships and work on OEM programs globally, which involved working with car manufacturers to install paint protection film around the time of manufacturer we have two new programs one in Europe and one in the United States.
<unk> that are now in a in a prelaunch.
Load, so they're not generating revenue yet although they are generating expenses, one should be our largest program to date and we hope to talk more about that in the coming months.
And then additionally, we've also received a request to double the output.
From an existing program and that would start that extra output would start in Q2, so great validation that the concept is well received and that we've been doing a good job.
OEM and dealership attachment are important to reaching more of the market for paint protection film beyond the enthusiast buyer. Our view is that a substantial 60% of new car buyers are open to paint protection film if presented with the product as.
As part of the new car buying experience or shortly around that this is in addition to the enthusiast buyer, it's already well represented and knows the product it seeks it out and as the recipient of most of our marketing and advertising.
As a part of why you see us investing so heavily in these areas because we know the opportunity size. In addition to the momentum we already have in the rest of the channel that this can open up for us long term.
And this OEM and dealership attachment is also good for the aftermarket it increases awareness of the product and it helps validate the product and we know that once someone buys P. P. F. Once they're very likely to buy it again, we know some dealership in OEM sales will absolutely translate into aftermarket customers in the future.
Further as the installed base for PPS grows so does the need for repair and service in the field both as it pertains to warranty service work out of the OEM business and repair to the installed fleet coming from the collision business. These are independently big drivers for the aftermarket going forward as well.
Earlier this month, we held our annual dealer conference.
We last held in 2020.
And this was our largest conference in the history, we had a little over 500 customers attending and for contacts at conference that we had in February 2020, we had approximately 300 customers attending so its amazing to see this level of turn out in any environment, even with more limited international attendance due to lingering trap.
Restrictions.
More than half of the customers attending had never been to one of our conferences before.
Which is incredible.
We'll have a recap of the event on our website and if you're at all interested in.
In the company you should watch it.
We use the conference to launch new additions to our vision architectural film line as well as announce a new paint protection film Ultimate fusion, which combines the benefits of our existing ultimate plus P. P F with.
With a hydrophobic properties from RSV fusion coding so really excited about this new product that will launch in April .
And that product line will also be accretive to our gross margin profile.
This was also the first time that we really had a dedicated architectural film dealers attending the conference who either are or are considering carrying our vision architectural film line and we want to be the same type of partner for these customers that we are for our automotive dealers.
And as we've said before we started the architectural film business within the set of our core customers that do automotive products as well that a large portion of the market our customers dedicated to these architectural film products and we want to be their number one partner so to see them attend the conference.
Some very well known people in the industry it was great to see.
We also use the conference to announce to our dealers our continuing investment in D. E. P. Our software platform greatly increased the size of our software engineering team in 2021 part of our SG&A structure now and are working diligently to turn D. E P into a platform to run our customers' businesses should they so choose this.
<unk> lead to quote to schedule to manage to cash on the backend and we think it's really important our customer base and the profile of that type of customer. The aftermarket remains very under software and we think we're well positioned to solve this for them and create a lot of value.
In fact, we know that this will be another huge value add on another great reason to be an external customer.
Overall gross margin for the quarter finished at 35, 2% compared to 32, 8% in Q4 2020 sequentially down slightly from Q3, which came in at 35, 7%. So we experienced some headwinds to gross margin during the quarter against this longer term backdrop of our.
Our improving gross margin profile. So first as I mentioned earlier and the increased cost to maintain our labor force in the dealership services business cost us about $1 8 million for the quarter in gross margin. This is that supplemental pay I mentioned for our team for work that for revenue that we didn't have.
So as we do this work.
And and we see volumes increase that incremental revenue really will almost entirely to the bottom line up to that total capacity that we have so that dynamic existed in Q3, and we talked about it then but it really has grown in Q4 of <unk>.
Due to Q3 outperforming Q4 in some ways and the fact that we added more to this line of business by completing another acquisition in Q4, So we added.
Another 30%, 40% to that overall line of business with that second acquisition a.
Secondly.
Our requirement to remain fully operational during a facility move in the fourth quarter created some logistical challenges during the period of the move which required us to substitute a more expensive product for a less expensive product into a lower margin region.
This cost us approximately.
$800000 gross profit in the quarter, but really this is a timing issue and as we use the inventory we didn't use for that it'll reverse and flushed through in in 2022.
Together those two things represent approximately $2 6 million of gross profit dollars for Q4. So if we adjust for that roughly gross margin would have been 38, 9% and that's in a number we'd be much happier with where we expect things to be going forward.
These negated early the positive impact from some of our pricing changes in circuit certain markets in Q4 that we talked about before that we made but we will see them in the benefit of them in 2022. So given all of this are forecast to be.
Close to 40% gross margin. This year remains unchanged still have confidence will be approaching that 40% approaching or at that 40% gross margin by middle of the year.
As you've seen our inventory increased for year end and we've been using cash on inventory, we have been and remain concerned about supply chain disruption, particularly in CPU resin market, which has been severely constrained globally and remains so this year and additionally, our new ultimate infusion product is net new additional products.
So that requires inventory to launch.
The inventory growth we have we.
We expect or that we will have we expect inventory to continue to grow in the first half of the year, peaking in early Q2, and then reducing after that point and at that point, we will have the confidence that we've built sufficient stock to whether any of these disruptions or we'll learn that the need to build such stock was unnecessary.
So either way, we're ensuring no disruption to our customers at the expense of temporarily reduced cash flow and higher than normal inventory levels, but we see no other prudent choice.
So to recap and looking forward to 2022, we see solid double digit revenue growth in the 20% to 30% range for the year higher growth rates in the second half of the year than the first due to the expected timing of China growth as they work through some inventory and the rebuilding of new car inventory as it impacts our dealerships.
Services business that we expect to see in the first half of the year as well as phase in of revenue for our new and expanding OEM projects, which I mentioned earlier that are in various stages of launch our expansion.
We remain committed and confident we will see gross margin at 40, 40% during the year and we see that assuming we see the expected increase of new car inventory, which will certainly help with our labor cost of goods component.
This with our evolving product mix channel mix and our focus on supply chain optimization is coming from our acquisitions will allow this to happen.
Our SG&A cost structure is elevated due to amortization of intangibles against lower than expected revenue from dealership services acquisitions, and then lingering expenses related to acquisition integration. So SG&A as a percent of revenue will remain elevated for Q1 in part due to timing of marketing expenses disproportionately hitting in the.
First quarter of this year some of our racing events and then more importantly significant cost from the dealer conference that I mentioned, which cost us more and more customers attend.
But theres no money better well spent than that.
And as well as startup costs from these OEM programs I mentioned, so that said, assuming we achieve the revenue growth, we expect and we'll get the gross margin profile that we know we can achieve we expect to be at a 20% or greater EBITDA margin run rate by the end of the year.
So all in all I'm extremely pleased with our performance this year or like to express.
My sincere appreciation to the entire XL team Giftable team really doubled in 2021 every team member in the company.
Has has unyielding commitment to serve our customers and I know that wake up every day with that in mind.
It was a challenging and operationally complex year, managing inventory concerns about supply chain facility moves are completing and integrating acquisitions, along with just scaling the business to meet the man Auditor change Sox compliance you know many many things that the team that I can't think of any.
Now.
And they stayed true to one of our favorite mottos in that is that there is no tomorrow I can't thank them enough.
So with that I'll turn it over to Barry and then we'll take some questions. Barry go ahead.
Thanks, Ryan and good morning, everyone Orion already covered the overall revenue growth metrics, so I'll I'll move directly to the revenue components.
<unk> revenue grew 34.9% to approximately 56 point million in the quarter, 59.5% to approximately $217 3 million for the year.
And in this product revenue category paint protection film grew 31.2% to 45.6 million in the quarter and 53.3% to $169 9 million for the year.
Our window film product line had another solid quarter growing 55, 6% to $8 7 million and for the year window film grew 83.1% to $38 4 million and represented a 14.8% of our total revenue. So it's just a great overall performance for those product line.
Q4, 2021 service revenue grew 104, 2% for the quarter and 85.2% for the year.
As you know this revenue category contains software cutbank credits in training and installation labor in this install labor component does not only from our company owned facilities, but also from our newly acquired sublet labor businesses and OEM operations. So if you factor out for the acquisition service revenue grew <unk>.
<unk>, 25% for the quarter and approximately 36% for the year.
Our total installation revenue grew 177% and represented 15, 3% of our total revenue for the quarter and if you exclude acquisition related growth total installation revenue grew 24, 4% for the quarter.
For the year total installation revenue grew 122% and again, excluding acquisition impacts total installation revenue grew 36.4% year over year.
And again, we like we talk about our toll escalation revenue in our company owned facilities, because we believe it's a the nice surrogate for what many of our customers are experiencing.
Bryan also spent some time on gross margin. So I'll just move straight on to SG&A here are.
Our Q4 2021 SG&A expense grew 87, 3% versus Q4 2020 to $16 2 million and represented 23% of total revenue for the year SG&A grew 71%.
If you look at our cost structure from a high level, we continue to invest in the business and multiple areas. As you would expect but we're also incurring additional costs that will have to earn through over 2022 and beyond.
This year, we became a large accelerated filer with the SEC and as a consequence, we went through our first integrated audit in 2021, meaning the effectiveness of our internal controls. In addition to our financial state once raw data and like most companies in their first year of Sox, we incurred significant internal and external.
All cost to do all of this some of which were larger in 2021 and since it was our first year and some will continue going forward.
And as of year end, we are still incurring costs related to our 2000 2021 acquisitions that really haven't been fully removed from our cost structure such as facilities.
T overlapping employee benefits and other admin type costs and that work will be complete in Q1 of 2022.
And why it also alluded to this but we're incurring SG&A costs for some of our OEM projects in 2021 that are continuing.
And we'll certainly hope to see and will see revenue gains from that of those projects beginning in this year in 2022 and these costs include things like personnel facility I T and and some other costs in that.
These are all things that are a right thing for the business that will begin to earn through in 2022 and with that being said we remain disciplined in our approach in terms of how we allocate our resources and we expect to continue to see ever increasing leverage from these investments in 2022 and beyond.
Obviously, our Q4 acquisitions are driving a lot of the Q4 increase in SG&A quarter over quarter, including approximately $1 million per quarter related to amortization on intangibles.
With our southern acquisitions, and Lyne mentioned that.
And most of those acquisitions do that we did in 2021 relates to our sublet businesses.
And as Ryan mentioned, the dealership services businesses are operating at less than 65% capacity clear.
Clearly operating at a reduced capacity creates a bit of a drag on operating margins given the gross margin impact Ryan referenced as well that acquisition related amortization and the associated fixed costs.
But as inventories come back, we'll see ever increasing leverage from these and to Ryan's point earlier.
And as we discussed when talking about post integration EBITDA profile for these businesses when we acquired.
And until then we expect higher SG&A as a percent of revenue to trend in a 20% to 22% range.
Q4, 2021 EBITDA increased almost 23.7% quarter over quarter to approximately $9 9 million, reflecting an EBITDA margin of 14, 2% for the year EBITDA grew 74% 74, 5%, reflecting an EBITDA margin of 17%.
Q4, 2021, net income increased 1.9% versus Q4, 2020 to $6 2 million, reflecting the net income margin of eight 8% and EPS for the quarter was 22 cents per share and for the year net income grew 72, 3%, reflecting net income margin of 12, 2%.
And our 2021 EPS finished at $1 14 per share.
Cash flow used in ops and operations in the fourth quarter was approximately 1.9 million as our increased inventory levels offset cash generated in the business.
And during the quarter, we increased our revolving line of credit capacity from 57 million to 75 million and as of 12 31, our line of credit balance sits at $25 million.
And we feel like and we certainly are and we remain financially well positioned to execute on our 2022 initiatives and with that operator, we'll go ahead and open up the call for questions.
Thank you ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time to join the queue. If you wish to withdraw from the queue you May press star two.
But if you are listening via speakerphone. Please pick up your handset for optimum sound quality. So once again, if you have any questions or comments. Please press star one on your phone now.
Our first question today is coming from Steve Dyer Craig Hallum. Your line is live you may begin.
Thank you good morning, guys and thanks for taking my question.
Wanted to just a couple of points of clarification. Ryan you had talked about the first half of the year, China being a relatively flat just to make sure are you talking about sort of absolute revenue numbers kind of quarter over quarter or are you talking about year over year.
Yeah, when we're talking about China, being flat, where saying more year over year compared to 2021 for the first half of the year that's correct.
Okay. So I have I mean, because it took a pretty big step up in the back half of the year I have them only at like seven unchanged $7 6 million in the first half that's sort of the number ish. We should think about yeah, that's where that will be there or slightly higher but it's definitely going to be.
Gonna be at that lower level on the lower range of those two.
Okay.
And you usually sort of guide for for Q1, and you had given some commentary in a few moving parts you talked about faster revenue growth in the back half of the year, but you have a fair amount of acquired revenue in the first quarter such that my guess is that might actually be one of the fastest overall quarters. When you consider that or are you.
Talking organic or you expect it or am I missing something there just want to make sure I get the the revenue cadence right.
Yeah, No I think I think you're thinking about it the right way I mean, we've usually see in Q1, we've seen it from year to year Q1 is the weakest quarter seasonally and we've seen no revenue.
Down Q1 from Q4, and a number of years and then and then occasionally we've seen it up and we're not looking right now for Q1 really based on that impact from from just China on a year over year basis, we're not looking for a big step up in Q1 from Q4 like we've seen so where we're looking.
For that to be closer to Q4, and then continue to accelerate Q2 and beyond both as we see the impact from.
The China business and then also just as we see the impact from dealership services because we're at a we're.
We're at a reduced level with those even from where they were in Q1 and Q2 2021 .
Got it that's that's very helpful.
I guess sort of 30000 foot type question.
Much of your product line.
P. P F et cetera has been around for some period of time and you give some sort of grown.
[noise] nicely throughout N and added some products and so forth, but things sort of went parabolic this year in a really challenged year for for vehicles and I guess as you take a step back what do you attribute that to is it up you know attach rate or or what sort of finally clicked a number of things sort of finally clicked that this year.
It was sort of the year just given the difficulty that that really took off sir yes.
Yes, I think you have you have a lot of different dynamics that are coming to play that that as we see it. So you know paint protection film overall, we really have just continued to see increasing adoption and increasing awareness and I think going into 2021 and we really got the <unk>.
<unk> of that which had been building over years and you saw that throughout the first half of the year for sure and then and then into Q3 and I think that really speaks to the strength of the brand. It speaks to the strength of paint protection film and I think an indicator of that just like we mentioned with the dealer conference I mean 500.
<unk> versus 300 versus a very little international that speaks to the overall momentum and that was happening in the first half of the year are really even as that inventory was declining in the channel and we were really I would say immune to that and then what you saw.
With the second half is as inventory was more constrained you started to feel that and that I think that's why you saw things a little bit.
Some of that momentum a little bit slower in the second half of the year entering into Q1, because it finally is that inventories depleted and it impacts sales you know it does become that much harder for our customers and for us to grow at that same rate when the cars just aren't there.
But I think that as you saw that coming into the year.
Really the.
Culmination of a lot of the things, we've been doing and really strength of the market and the recognition that the P. P. F is a is a great product.
Yep Yep makes sense helpful last one for me and I'll pass it along just with respect to acquisitions. It was you noted a very active year, most active and in the company's history.
As you look to 2022 should we anticipate this is a bit more of a digestion year or are you guys still looking for for additive pieces to this sure it's definitely a.
Digestive process here the first half of the year I mean, we did a lot last year.
Pushed the team really hard and you know theres a number of pieces that just getting out to the beginning of the year that we're finalizing integrating.
And still costs, we're trying to take out and so we've got a little bit of work to do there over the first first quarter to finalize that we've also committed a lot of cash to two inventory and expect to do more of that just looking at our overall worldview of where things are.
But then as we as we get through that.
And as we see what we expect to see with the new car inventories return and how that will impact our cash flow as well as peaking with inventory and then releasing some of that from the balance sheet as cash then as we get into the second half of the year.
We'd look to resume.
Zoom that acquisition cadence.
That's great helpful. As always thanks, guys. Good luck.
Thanks, Steve.
Thank you once again, ladies and gentlemen, if you have any questions or comments. Please press star one on your phone now.
Our next question today is coming from Jeff Van <unk>.
Your line is live you may begin.
Good morning, I know, it's early in the year, but any more color you can give us on kind of the latest you're hearing and seeing regarding.
What the ramp up might look like in dealer inventory.
Yeah, Jeff I mean, I you have kind of two core data points on that you've got you know big picture what is the industry, saying in terms of their production estimates and then you have what do we see on the ground in the particular markets. In particular makes that were most exposed to and I'll I'll tell you it's been really.
The challenging to square those two feeds of information even over the past quarter.
Our our view is that overall the.
Sentiments of what's going to happen is has turned more positive.
Big Picture and then we've seen pockets of the of some of our dealer ship customers getting inventory at levels that they hadn't individually received in a year.
But you know that's been very scattered and so from that alone it's difficult to extrapolate, but when you start to see that on a one off basis, and then you see sort of the the guidance from the toyotas in the Gms on production numbers that that's what gives us the position that.
We think that there is that substantial improvement, but I can't I can't tell you you know January and February that you've seen a massive change with that thus far I don't think we've seen that but we've seen more individually positive data points.
And then we've had and so hopefully those aggregate together to be meaningful like we expect them to be.
Okay.
And then I guess I'll preface. This question by saying understand if you want to hold off on commenting but.
They are working on a.
Sort of a revised agreement with engine tack and I guess, just wondering if theres any progress that you can speak to or you want to speak to there anything you can say about.
What the terms of that might look like.
And how that could impact I guess.
So your supply and your margins going forward.
Sure. So I guess first just to speak to margins overall, so one of the reasons that we're really confident in this gross margin profile is that the dealership services business is going to be a very very accretive to us from a gross margin perspective.
Once that new car inventory comes back we're able to take a lot of cost out of that in terms of cost of goods that those businesses had prior to being acquired so that helps us like we mentioned.
Our overall product mix has moved in a direction that is accretive to gross margin. So both the mix some of our new products are higher gross margin than older products like the and our ultimate fusion paint protection film will be accretive to gross margin and then channel mix has been.
<unk>, where you see.
U S growth.
Really growing the fastest.
And some of our other direct markets. These are higher margin markets. Overall, so you know.
From a gross margin standpoint, all of those things help now from a supply chain standpoint.
Your tech has been a great partner of ours for a long time a fully.
Fully expect that we will have another agreement in place there just the that particular form of agreement that we've had for many years is due to be updated.
Certainly there are plenty of commercial things anybody wants in an agreement and.
That would include.
Things around pricing and other business terms that we would seek to seek to obtain there but expect that that.
The new agreement will be in place and we've also added a lot of supply over the past the ability. We have also added the ability over the past year or two get substantial supply for paint protection film from from other manufacturers as needed and we remain committed to at this point to an asset light.
Model for manufacturing think that that works well for us.
We want to continue to focus to put the majority of our cash flow to work in the channel.
And sort of current issues with the dealership services business notwithstanding we definitely think that that's that's the way to do it so.
You know Theres no theres no risk to the supply chain as a result of renegotiating our contract with <unk> do you expect to arrive at another agreement with them and you put all of those things together, which I mentioned in and that's what should set us up for a healthy gross margin profile going into 2020.
Two which is what we expect.
Okay great.
Then just one more if I could squeeze it in.
I understand that the dealer services.
Segment is a little bit in transition I guess or whatever you want to call at this point, but.
If you kind of look at that core part before you really had a the size of dealer services business that you have now I guess kind of more of the legacy debt as Nash.
What are kind of the underlying trends that you're seeing there how are those developing or.
The window 10 area and then also for a profit motive and then also if you can maybe just touch on architectural for sure.
Sure I mean, if you if you.
Surveyed our dealer base in the aftermarket and you would find that.
Pretty much every customer is is coming off one of their best years in history and I think that's represented in our in our results.
Now you might you're depending on who they are and where they are you may hear some comments even from our dealers about the inventory situation just as it impact sales I mean, that's if the cars not there you can't can't put product on it if the car can be sold but I think you would hear that they had the best year you would here.
<unk> cases of dealers.
Dealers being scheduled out.
Our installers being scheduled out potentially days, sometimes weeks are not something that we like but it is a a success.
Success indicator of where we are in terms of paint protection and where the demand has been so I think from that standpoint. The state of the industry has been very strong and I think you would've seen to the earlier question from Steve Dyer I think you would've seen it really that momentum that we saw in the first half of the year really continue and accelerate further in.
Second half even outside of the dealership channel just if the inventory situation was even better even even being down 20%.
Our 30% sales on some mixed I mean, youre going to youre going to feel that.
So I think from that standpoint, it's very strong.
The architectural side like I mentioned earlier, that's that's a still a new space for us and our progress there to date has really been about taking that product to our existing customers, which we want to do and we want to support them and we actually have customers interested in expanding into that but there's a large.
Portion of that business that is run separately from automotive and these tend to be the larger customers. They may be more established with competitive brands and we're now seeing interest from them and really working to deepen those relationships. So that cycle is obviously completely different than that.
The cycle, we're seeing on automotive that's really more on our own terms about us being perceived as a helpful partner and may be a superior brand for the folks in that business and we'd love to have them onboard and we're working very diligently to do that.
Okay, great. Thanks, so much and I'll take the rest offline.
Jeff.
Thank you we have no further questions at this time I would now like to turn the floor back over to management for closing remarks.
I'd just like to say again to our teams. Thank you it's been an incredibly busy year and we've accomplished a lot and a lot planned for 2022 and thanks, everybody for your time today and look forward to speaking again soon.
Thank you ladies and gentlemen, this does can.
Today's event you may disconnect at this time and have a wonderful day, we thank you for your participation.