Q3 2023 XPEL Inc Earnings Call
Good day, everyone and welcome to the <unk>, Inc. Third quarter 2023 earnings call.
At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host John Nesbitt IMS Investor Relations, Sir the floor is yours.
Good morning, and welcome to our conference call to discuss <unk> financial results for the third quarter of 2023.
On the call today, Ryan Pape Expos, President and Chief Executive Officer.
And Barry would X Bell senior Vice President and Chief financing Financial Officer will provide an overview of the business operations and review of the company's financial results immediately after our prepared comments, we'll take questions from our call participants.
Scripted this call will be available on the company's website after the call I'll.
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 are not limited to anticipated use of proceeds from capital transactions expansion into new markets and execution of the company's growth strategy such statements are based on current expectations and assumptions, which are subject to.
Don and unknown risk factors and uncertainties that could cause actual results could materially differ from those expressed in these statements. Some of these factors are discussed in detail in our most recent Form 10-K, including under the item one a risk factors filed with the Securities and Exchange Commission X spell undertakes no obligation.
To publicly 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.
Thank you John and good morning, everyone and welcome from me also to our third quarter of 2023 conference call.
Another strong quarter overall revenue growing 14, 4% to $102 7 million. This was in line with our expectations for revenue and what we discussed on our Q2 call also as expected China did have a nice sequential increase from Q2 was still a 7% decline from Q3 2022, which impacted.
The quarter over quarter growth rates, and our non China revenue growth in the quarter was 17, 4%.
Our U S region grew 14, 5% compared to Q3 2022 to 59 million sequentially. This was essentially flat to Q2, which itself was a record quarter. Our U S business is now 57% of our overall revenue. So its performance serves as a significant driver, but our overall results.
U S. New car sales continued to be solid despite the higher interest rate environment, we did see a slight reduction in the rate of growth in our aftermarket channel this quarter.
As Q2, but overall Q3 2022 was the peak quarter for last year and as you know we watched the front lines of our marketing customers very closely and our customers tell us their business has been relatively consistent this summer, but probably off the fever pace. We saw in Q3 of 2022.
I know that each of you covers many of you cover our business and the industry closely so I wanted to take the opportunity to step back for a minute and discuss our channel strategy and how our multiple channels in our view complement each other and enable us to reach an expanding customer base. So as many of you know paint protection film.
<unk> started almost exclusively in the aftermarket and the consumer had to first find out about P. P. S. Then it would take his or her car into an independently owned shop to have the product applied. So this consumer still represents a large portion of the channel of the buyer.
If theres he aspires dominate this channel and we estimate it's easiest buyer to be around 15% of all new car buyers.
Over time as dealerships are their customers purchase P. P. F. In the aftermarket dealerships began to move to adopt P. P. Yet and the reason for adoption is simple to generate gross profit and many dealerships outsourced the installation to the after market because they don't want to have to hire their own internal staff and as you know our hiring.
Internal staffing a dealership or a service center model can be challenging consumers' demand product excellence and to be effective dealerships need a technical skill set for installation yet they may only need a small team of installers or in some cases, just one person. This reality can make it challenging for dealerships to recruit train.
<unk> and staff around time off absences and other things. So some dealerships she used to build internal teams and are able to do this themselves successfully and they'll continue to do it at the same time.
There are other businesses that have no retail presence whatsoever to provide <unk> services to dealerships in our case youre not going to find these customers on our dealer locator are likely even though they exist. We refer to these customers is as dealership services. We've acquired several of them over time for paint protection film.
And Windows 10, and so we're in that business ourselves as you analyze our industry. It's important to understand that scaling to meet high penetration rates in dealerships. There's something few of the aftermarket installers are interested in is there as this daily requires substantially more human capital in a constant reinvestment of cash flow into the <unk>.
Business. Likewise, you don't really see dealership groups universally scale installation internally across their enterprise in a consistent way, it's typically locally decided and it's it's very much a patchwork in its implementation.
So even still as dealerships continue to sell more P. P F and ultimately create more awareness for P. P. M. On the whole this is not disruptive to the aftermarket and argue for several reasons one the aftermarket participates in this work by doing work for dealerships in some cases as I mentioned a minute ago.
And then enthusiast buyers who were still the largest part of this channel who were the original P. P. F buyers often opt out of the dealership channel and take their new card directly into the aftermarket seeking a more bespoke installation from someone they trust and then third obviously the P. P. F market overall has continued to.
So net net the dealerships offering is increasing attach rates by finding people that would never take their car into the after market in.
And as dealerships continue to adopt P. P. F. We've seen interest from the Oems begins to develop and again. This interest is profit motivated installing P. P S at or near the point of manufacturer delivery is attractive because the vehicles are located together for efficiency. The downside is you need a substantial physical footprint and.
Human human capacity to do a considerable number of vehicles has.
Installation is still done manually without any currently available automated installation processes. So there's a limit ultimately to the scale that can be achieved in that environment. Additionally, OEM programs are susceptible to being served by dealerships, who would prefer to internalize their programs and not select manufacturers ops.
For the product because they believe they can generate more profit and have more control.
And it's important to note again that the original and predominant enthusiast buyer.
These prefer their local installer, whom they know and trust and whose quality and workmanship. They prefer yet like dealerships Oems still have the ability to reach consumers not captured by any other element to the channel and those that don't know about the product, which is helping to grow consumer awareness overall, so when you look at.
At it in totality, we see the mix of channel activities, that's healthy and mandatory to the development of the P. P F market and we don't see direct aggregate cannibalization of the business for one segment to another.
As an example, even as you have seen more dealership participation in P. P up over the past few years. The after market is bigger than it's ever been for EXPAREL.
The next bill we have various internal measures, including our DAP software for estimating our vehicle attach rates for our products and the related revenue mix. In particular, we can look at this attach rate as it relates to traditional paint protection, which would be the front end of a vehicle or before.
We'll carve the vehicle separate from say, a mini kits or wear and tear applications that would be additional so as an example in the case of ribbon with whom we have a factory program. Our U S. Ex spell aftermarket attach rates are higher than many other mates in this case, the OEM program is incremental and as Hell.
<unk> to grow attach rates overall.
It's our view that initial buyers of a new bottle a model or a new brand like the recent development of the EV manufacturers or more likely to skew towards enthusiasts. So we would expect.
Attachment rates to be higher initially, but over time, if there's more mass market appeal, particularly if the price point is more accessible the buyer profile will change to be more similar with the overall industry dynamics. So put simply the incremental buyer of this type is less likely to be in enthusiasts. This means.
Over time, we might expect to see attach rates go down on a new vehicle as they expand production and their mass market appeal. So today as an example, our U S attach rate in Caribbean is substantially higher than Tesla for example, even excluding our OEM operation and this is likely due to the early presence of the enthusiast buyer dominating that.
Channel for a new vehicle that said as an example, our U S. Porsche attach rate is substantially higher and actually multiples higher yet again, because a large percentage of that core buyer are enthusiasts and because Porsche has a dealer network that exists and is very effective at selling the product other than <unk>.
As he has dominated and higher average price point makes followed similar trends.
Overall, it would take a range of approaches to continue to expand the market. The paint protection film beyond the 15% enthusiasts that I mentioned earlier and into the mainstream we estimate 25% of consumers will never buy the product and they probably wouldn't take it for free because the pride of ownership of their vehicle is just not there. These those.
Those consumers simply jump don't care, but that leaves, 50% to 60% of the new car buyer and our estimation that are open to the product if they learn about it if they can ex access it easily before during or after the sale process and if we can meet them with an appropriate price point to provide good value.
To do that we'll take a variety of sales channels and marketing activities to reach this group over time. So I know that's a lot to digest on the U S. On our U S go to market, but to summarize our channel strategy uniquely positions us to be there wherever the demand takes us and is a key part of our ability to drive sustained growth.
Turning back to our quarterly results most of our other regions had solid quarters led by European region, which posted a 43, 5% growth over the prior year quarter, and our Latin America region, which grew 58, 4% over the prior year quarter.
Canada's growth rate was impacted a bit by FX using Q3, 2022 exchange rates, Canada revenue would have grown approximately 10% as the Canadian dollar weakened substantially in that time.
As I mentioned previously China's Q3 performance was consistent with our expectations and we saw sequential growth over Q2 of this year, but still a 7% decline over Q3, 2022, which was the highest quarter for last year. The Q4 forecast we received from our distribution in China is positive and assuming we can ship all.
The product is forecast would indicate our Q4 revenue from China would be one of our highest quarters. In recent years of course things can change and they have in the past, but we're optimistic that this will be a good quarter for China. I also want to update you that we remain on track to have our initial team in country at the end of the year as we assess a variety of aspects on her over.
I'll go to market in China and of course, one of our goals.
We as we work on this project is to eliminate the Lumpiness of our China business in terms of sell in versus sell through.
And as we're doing with China. We're also establishing our first facility in India.
Which will be opened at the beginning of the year and looking at a more direct approach for that market as it develops and as it's in its infancy.
As we've discussed in the past our U S business does have some seasonality in Q1, which is our lowest quarter Q2, and Q3 tradeoff being our highest quarters and then we typically see a drop off in Q4, given that in your expectations for China as I mentioned earlier, so maybe we can deliver on the forecast we expect Q4 revenue to be in the 90.
Eight to a $100 million range, which would put our annual revenue growth rate towards the lower end of the 20% to 25% range. We've discussed this year.
On margin our gross margin for the quarter finished at 44%, which is a bit lower than our year to date run rate. We did have around $1 million of one time adjustments and inventory for the quarter and as we've moved up our supply chain concerns we've had coming into the year and in years prior and we've improved the manufacturing throughput we have remedied.
And off cuts in other material that is more commercially challenging to process that no longer needs to be retained as a safety stock and so that's part of the adjustment that you see here our processes and their processes. In this area will continue to improve an already has so perhaps some of that adjustment is probably out of period and if you normalize for that or.
Gross margin would've been a little less choppy from quarter to quarter. This year, but I certainly don't want to take away from the big picture, where our improving gross margin profile has been terrific. So nothing's changed in terms of our outlook related to the opportunities for that gross margin expansion, we still expect to close the year at or near 42% gross margin and still expect our gross margin profile.
To continue to expand in 2024 and beyond.
In other business updates we closed on two acquisitions in the fourth quarter with a combined purchase price of around $13 million. One was a Canadian based installation chain of six locations that came to market. The other was a European based business.
Installing product for two Oems at a small scale. Both of these will nicely complement our go to market strategy that we've discussed and you should add around $11 million in full year 'twenty 'twenty four revenue.
I also have two acquisitions to close in the remainder of the year one in the U S and one in Australia to supplement our direct model in that market that started last year with the acquisition of our distributor.
Our acquisition pipeline remains healthy and.
And we expect to deploy all of our excess cash.
Into this strategy and we still think that this is the best use for our cash the acquisition strategy focused on three core targets first we're looking to expand our distribution to other key markets globally, we're acquiring our distributors might make sense, our Australia acquisition from last year that I mentioned, a second ago is a great example of this where we are.
Three X the revenue we had prior to the acquisition.
<unk> margin profile are in.
In the system and we can directly execute on all facets of the go to market in the country.
As we've discussed before the closer we are to the end customer the more successful we are in a particular market as product awareness propagates secondly, we're looking into the channel for things like dealership services, where we can invest in a part of the market that we don't think is well served to tie them to my remarks earlier and finally well.
Well always look at adjacent product or service lines that complement our current portfolio as a possible acquisition target.
But one example of an adjacent market is colored films, we get asked a lot about this today youll see vehicle wraps used for marketing purposes and for color change historically that market is driven by vinyl films and now over the past few years, you've seen the presence of more TPU based colored films, where we're TPU as what paint protect.
Someone's made up.
And this is obviously than more similar in its construction to paint protection film there're, probably a half dozen to a dozen TPU based color products on the market today, and then dozen or two dozen or more sort of cast vinyl products, which had been the traditional main stay at that business.
Wrapping an entire vehicle with colored film B at vinyl or T. P. U has some of the same challenges as the P. P. F installation given the current manual application process.
A bit more difficult to install than P. P. F. In some cases, because he may want to disassemble part of the vehicle to ensure all painted surfaces covered so you don't have any gaps.
Or scenes and coverage.
However, given the cost quality and difficulty of full car installations, including a lack of a reliable automated installation capability and the need for repair ability of what's installed in the fleet. It's unlikely in our opinion will see films replace paint.
In mass anytime soon if ever it's more likely they'll continue to be used as they are now.
Or bespoke colors not offered through a manufacturing process for things like contrast roofs for graphics and marketing and then for select vehicle parts that are painted offline today and integrate it into a final build.
Many of our aftermarket installers came to paint protection film business from the traditional colored wrap business because they found the P. P F business more attractive and a larger potential customer base. So we've had a wait and see approach to this market relative to our overall priorities and its future with us even though its prop.
<unk> one of the next most adjacent markets in terms of product.
In that context should we decide to participate in it the colored wrap business should be seen as something that can expand the tam of X, though not something that threatens to reduce it.
Across all our product lines, our suppliers are very important to us and we've developed an extended base of raw materials and converting suppliers in particular for our paint protection film business over the years, even as we've diversified that manufacturing using the asset light model.
And outsourced manufacturing model that we've used since inception, we've had a strong and long standing 15 year relationship with entrants out earlier. This year. It was announced that P. P. G and formed a joint venture with entry check around colored film products enter techs had developed over a period of many years. We welcome the P. P F joint venture with <unk>.
Intertek and there are many possible opportunities for collaboration with P. P. G actively discussing ways in which we might do that with their senior leadership.
Next let me turn to our leadership team here and provide a brief update as many of you know Matt Moreau has decided to retire from the business after serving as our senior Vice President of sales and product who joined the company in 2015. After we acquired his business in Canada and has held positions of increasing responsibility ever.
Since he will be you'll be missed we wish him all the best.
We're also excited about two additions recently, Tony Remiss has joined us as our VP of revenue.
Commercial revenue and strategy responsibility.
Including our partnerships and Tony has a wealth of automotive industry experience, including time running of the top 50 dealership group and then later in automotive venture capital. So he's a great addition to the team and finally, you brought on Tim Steiner as our vice President of people and culture, and we have nearly 1000 employees now and growing as we.
<unk> operate on the diverse business model is a critical role really excited to have her on board.
And our culture centers around doing what's best for the customer with a no tomorrow attitude and Kim will be integral in helping drive that even further across the organization. We're also working on a number of internal changes to reflect.
Our organization both around key operating functions, but even as importantly around key regions Asia as we mentioned earlier in middle East and India going forward to ensure that we've got a leadership in the region and then we have a sufficiently decentralized decision making process to to remain agile company.
That we have been and need to be.
Finally, we just attended the annual Sema show, which is the largest.
Aftermarket automotive event of its kind in one of the largest trade shows in existence.
I'm really proud of our amazing display there, which you may have seen on social media through the X belt House, which showcases all of our products in an innovative way I know our presence there was universally well received we've got a lot of other great marketing initiatives going into 2024, including additional sponsorships and targeted marketing programs to drive.
More of that non enthusiast car buyer in the two to the market for paint protection film as I discussed earlier and then Additionally, we have a new global platform launching next year, our global web platform launching next year.
With enhanced e-commerce for selling car car care products to increase the number of touch points, we have with our customers over the lifetime ownership of their vehicle.
Before turning it over to Barry I, just want to take note, obviously, there's been quite a bit of external noise and conjecture during the quarter.
This noise been built on a great deal of speculation we're on track for a strong year and remain focused on providing outstanding service to our customers and I've never been more optimistic about the long term opportunity for our business. You know EXPAREL, we are a strong and industry, leading business and our strength is based first on having the best team.
In the business and then on the fact that we have a very diverse business diverse by geography by customers by channels and by product lines and an intense focus on executing the go to market strategy.
So with that we'll turn it over to Barry.
Thanks, Ryan and good morning, everyone, just a little bit more color on our revenue. If you look at the product lines combined paint protection film in Cutbank revenue grew eight 4% in the quarter and was up sequentially, a little under 4% our window film product.
Revenue grew 21, 9% quarter over quarter to $18 8 million, which represented 18, 3% of our revenue and this was the second highest quarter for the window film product line in our history coming off a record quarter in Q2.
Revenue for the vision product line, which included a total window film.
Which is included in total one of them grew 50% to $2 7 million and this represented approximately 14% of total window film revenue and two 6% of overall revenue.
Sequentially. This was up approximately 12% over our previous high in Q2.
Our OEM business also had a nice quarter with revenue growing a little under 62% versus Q3 2022 to $3 9 million and this was down sequentially a little bit as production.
<unk> in August for most of our European Oems for vacations. So this sequential decline was normal and expected.
Our fusion ceramic coating product revenue, which is included in our other revenue line grew 35% for the quarter to $1 5 million and represented 1.5% of total revenue for the quarter.
Our total installation revenue combining product and service grew 34, 2% in the corner and it represented 17, 2%.
Total revenue and on a year to date basis total revenue grew 18, 4%.
Our Q3 SG&A expense grew 29, 5% to $23 9 million and represented 23, 3% of total revenue.
And included in our Q3 SG&A was approximately <unk> 6 million.
Of course related to one time executive relocation and legal fees related to our acquisitions that we discussed earlier, we also incurred approximately <unk> 5 million in one time costs related to some research and development around some new product development.
If you normalize for that SG&A would have grown approximately 25% for the corner representing approximately 22% of total revenue.
Even for the quarter grew four 1% to $19 7 million, reflecting an EBITDA margin of 19, 2%.
And if you normalize for the items I mentioned previously EBITDA would have grown 16.7% EBITDA margin would've been 21, 5%.
Net income for the quarter grew two 5% to $313 7 million, reflecting net income margin of 13, 3% and again normalizing for those items that I mentioned net income would have grown 16, 9% and net income margin would have been 15, 2%.
E. P. S finished at 49 cents per share for the quarter and normalized EPS finished at 56 cents per share.
On a year to date basis, EBITDA grew 23, 4% to $59 2 million and net income grew 23, 6% to $48 million.
We did have an issue during the quarter, where one of our suppliers began experiencing some abnormal quality issues and this will start seeing this in late Q2 early Q3, and they were unable to pinpoint the issue. We're really know when it was going to be resolved.
And one thing that Ryan has been very clear about with our team is that we should never run out of product for our customers. If we were to be out of stock on something that our aftermarket customers need it would really be devastating for them because most of them operate on a just in time inventory basis and because of this we do everything we can to not let sue.
Doc outs happen. So when we saw these quality issues are not really having any visibility into when they would be resolved we had to increase our orders with alternate suppliers to ensure we were able to meet demand later in the corner and Q4 Ulta.
Ultimately the issue ended up getting resolved relatively quickly which was good without any customer facing impact, but by that time, we had all we had more raw materials in the pipeline and consequently, we ended the quarter with higher inventory than planned.
Our days on hand were flat to Q2, but we will see an increase in days on hand in Q4, and we should be back to normal in Q1 as the inventory sells through even with that our cash conversion cycle did improve slightly in the quarter.
Cash flow from ops for the quarter was $11 1 million and we had a bit of an anomaly on our cash flow reporting for the quarter related to our acquisitions that we closed subsequent to the quarter end.
Well he had put approximately some point 4 million USD in escrow in advance of the closing. These closings. This amount sits in our prepaid expense on our balance sheet and accordingly as reflected in our operating cash flows and this will flip and invest to investing in Q4, when we book the acquisition. So absent this anomaly.
<unk> cash flows would have been approximately 18.5, and if you compare that sequentially to Q2.
Was slightly down due to the inventory we added related to the to the quality issue.
Even with that our cash are.
You know we're we're we're in really good shape from a cash perspective.
And we did pay off line of credit during the quarter and we expect to be able to generate enough cash to execute on our immediate acquisition plans and of course. This will always depend on deal size and we're certainly not opposed to some modest leverage where appropriate.
And generally we're still seen deal multiples in the four to six X six X range. So from a capital allocation perspective. These deals are the right thing to do and remain solid value adds for us.
So another good quarter for us and we look forward to closing out the year strong with that operator, we'll now open the call up for questions.
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Your first question is coming from Steve Dyer from Craig Hallum. Your line is live.
Thanks, Good morning.
Just I guess first on the inventory do you anticipate any more inventory write downs and then I guess, even backing that out in the quarter gross margin was a.
Touch lighter them. Then then I think I would've expected anything else kind of call out there in the quarter in terms of sort of things that caught you by surprise in the gross margin line.
Oh, Steve I think you know we don't we don't expect any more adjustments like that I mean, obviously over a longer period of time, there's always things that happen, but sort of nothing planned in.
In the quarter, you've got you know China mix, you've got a little FX, you've got you know a lower labor utilization with some of the OEM.
August shutdowns and things like that so nothing of consequence to point out I'll, probably just a few incremental pieces like that.
Okay and then your gross margin guidance for Q4 implies a pretty strong quarter, even with a you know a little bit.
Lower revenue and in the China mix et cetera.
Got to help me help me understand kind of what sort of gives you that continued confidence that gross margins will really be pushing that 42% number.
Well I mean, we we knew going into the year looking at it on a full year basis, you know what our expectations were and we were really kind of running hot on that to start the year and we've we've had a we've had planned what what we expected in terms of a strong Q4 for China all year.
Now we've talked about that we expected the year to be to be back end loaded.
So you know that's that's what our modeling continues to suggest and then you know obviously revenue mix currency. These things will will matter for the fourth quarter like they did for the third but you know in aggregate the whole year, it's been relatively consistent aside from say Q Q2, where we were really really runny.
Hot on gross margin you know pushing above that 42.
Yep, a couple more questions I guess, just on the quarter I guess ive not heard you call out one time R&D expense for new product development before can you give any more detail sort of what that is is that product still in development any color there.
Yeah, we've Steve we built over the past five years, you know a substantial internal R&D team, our R&D quality and an adjacent functions. Both by people and then investment in AR and equipment, but we we also utilize third parties for certain projects that.
Either we don't have the internal expertise for that we're trying to move faster on so.
So some of that happens and it's not really noteworthy based on the timing of the expense in and.
When it occurs in this case, it just kind of happened to hit.
In this quarter with a slightly larger amount alongside these other sort of onetime expenses. So we called it out but it really reflect reflect sort of the continuing cadence of things were doing not a one off looking at you know how do we make our existing products better and the in the markets. We're in and then as we as we look at the.
Adjacencies.
You know where else might we want to go so I wouldn't I wouldn't call. It out to any specific area. We're focused on I think we just really called out due to the timing of how it presented.
Gotcha Okay.
And then I guess as you look forward to next year I know you only guide one quarter out, but you know you've typically kind of been running in that 20 plus percent range for a long time.
You know that maybe that's aggressive in a year that it feels like we're going into a recession et cetera, but I guess any any interest in taking a big picture a swipe at that and how you're thinking about next year.
I mean I agree with you you know we've had you know the the the macro question and I guess, we really had that coming into 'twenty 'twenty four two if you're if you picture yourself at this time last year or we had it coming into 2023 rather and you know this year I think by all accounts for everybody probably ended up stronger than was thought in November 2022.
So I think you know with with that caveat in mind, you know if we were to see kind of the the the tempo that that we're in now continue.
I think we would be looking in a in a 'twenty 'twenty four environment at kind of the 15% to 20% sort of.
Organic growth rate, that's kind of how we see it.
You know that then subject to change from sort of the inorganic acquisition components and then obviously is to the downside is the no recession risk score or the auto market loses steam from the pace. It's been on you know that would that would potentially challenge that to the downside but.
But I think you know we've we've we see enough opportunity and we see angles for organic growth into the future you know to give us kind of that sustained organic growth rate. You know are we going to hit a 20% compounded organically year over year that might be that might be a little a little tough as you get to <unk>.
Larger numbers, but I think if you could get to 15 to 15 plus percent you know that that would be good in this environment.
Yeah, absolutely and then lastly, I don't necessarily want to ask ask you to comment on somebody else's business, but you touched on the P. P. G intertek.
Joint venture.
There's been some chatter just around their ability or.
Progress in embedding.
I guess the P. P F or a P. P F like alternative into the paint we've done quite a bit of work around that and have not seen anything remotely that would suggest that that's happening, but I'm, giving you the opportunity I guess the comment on it as you wish.
Yeah, No. We watch these things closely I can tell you that you know there's no known technology that puts film inside paint that we're aware of and this is not something that are our partners. The P. P. G are doing and so I think that you know what you're seeing on a on a broader basis is can you use.
Use.
<unk> to augment or replace paint in limited circumstances, you know that's what's been kind of developing at a at a at a slow pace.
Probably for the past 10 years.
But that's a far cry from some theoretical technology to quit film inside paint than that that doesn't exist.
Okay got it thanks, guys I'll pass it along.
Thanks, Steve.
Thank you. Your next question is coming from Jeff Van <unk> from B Riley Your line is live.
Good morning, everyone. So maybe we could just touch on your OEM business, a little bit more maybe you can kind of give us your thoughts on how you see that business developing.
I think you said you mentioned it and you mentioned that you actually acquired a small OEM.
OEM related business, if there's any more detail you can give us on that and just kind of overall speak to your outlook for the business.
Sure I think you know, Jeff we tried to give a lot more color to how we how we view the channel.
In our remarks. This time, just because we do see all of these pieces is complementary.
And you know on an individual unit basis, Yeah. There you could cannibalize one unit from one channel to the other but net net net we see this as a way to grow awareness and reach beyond the traditional enthusiast buyer that has dominated our business. So from that end I I see more opportunity with the Oems.
You know, it's not going to come to dominate the business, but it certainly has the ability to grow on a percent of total revenue basis, and it's really complementary to everything else. We're doing and you know the thing to understand about so any product that's installed even if it's installed centralized in an OEM environment. You are still has to be.
I'll have to have the ability to service and repair it and are in the real world and so that's that's another area, where you have the OEM business intersect the need for the aftermarket channels. So it's something we're going to we're going to continue to pursue and in view of trying to create more awareness and expand.
The buyer for paint protection film and it likely will grow on a percent of revenue basis, but it is not gonna grow to dominate a to dominate our revenue. It's just gonna be one piece of the overall pie.
Okay, and then maybe if you could give us any more color. There you know around what you're seeing in China.
Perhaps speak to I guess, how you're evolving the China business, a little more understanding and color around that and then I think you also mentioned NDS, maybe quick thought on approach to India, Yeah, Jeff I think if you. If you look at you know all the lessons we've learned in our business over the years is that you know we know.
We do exceptionally well when we get as close to the customer as possible and that's allowed us to participate in the channel in a variety of ways, but including you know acquiring our distributors in various countries and setting up in country and.
You know for US China was really always the exception to say you know that's the caveat to that strategy and I think where we are now saying well you know we need to have a much more open mind in terms of the best go to market for China are two to support the distribution, there and really set it up on a even stronger.
Platform for growth and so the first thing we're doing is youre getting our team assembled a we've been working very closely with our our master distributor in China and really put together a plan that says how do we make this whole thing better and you know I mentioned in the prepared remarks about sort of the lumpiness of sell through and sell in well you know maybe.
We can do things around the inventory planning and inventory in country to make that easier for everybody. As one example, you know the other the other side as we've just we've got to get much closer to the business. The the you know kind of Covid are two and a half years.
You know you had much of the world not present in China from the outside in the market. There continues to do its thing and so we've got to be an increasingly present, an increasingly close to it. So I think you know we're very active on that I would expect you know to see what we're doing there evolve next year sport for the better based on all the <unk>.
Feedback, we get and and whatever modifications to the go to market and I guess similarly to India.
India is a market that we have very little revenue from today, but we see the great a great prospects for development as the country development. The country continues to develop them per capita incomes grow and the number of people with higher incomes continues to grow and I think you know one of our lessons candidly from China.
Applied into India is that we need to be on the ground and we need to be present not to say we have to there's no room for local distribution. There's no. There's no room for a bifurcated go to market strategy. All those things are on the table, but we need to be there and be present at the very beginning and so that's what you're seeing us do with India where are we.
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Relocating a leader from Texas to India to lead that and I think you know you see that.
With the lessons we've had from distribution around the World and then also in particular lessons learned in China, where you had a market that was rapidly developing so I think you can kind of look at those in a similar way.
Okay. Thanks for that that's helpful. And then just one more quick one are there any more extraordinary items that you anticipate over the next couple of quarters that might impact the P&L.
No well I would say that we anticipate no but everything that we're doing is with the long term our view of the company in line. So you know to the extent our acquisition cadence continues or increases or accelerated you know you are going to see things.
Things like legal expenses, if the if the product development and the they're the research and development activities. We have could be further accelerated by outside resources like what you saw in the second half of this year you know, we're going to make those decisions, even if we feel it quarter to quarter, but you know all that said you know there's there's nothing.
Nothing on the horizon to identify at this point, but we're always going to we're always gonna side on the.
A long term view of the company versus the short term in making those decisions.
Okay fair enough. Thanks for taking my questions I'll take the rest offline.
Thanks, Jeff.
Thank you that concludes the Q&A portion of the call I will now hand, the conference back to management for closing remarks. Please go ahead.
I'd like to thank everyone for for participating today and really thank our entire team. We've had a we've had an amazing quarter, we've seen huge development in our team and the people really going deep to further the initiatives, we have including folks taking a lot more responsibility and then those that we've got relocating to other parts of the world.
To help drive the Expo vision elsewhere, so couldn't do it without them. Thank you very much and look forward to speaking with everyone. Soon.