Q1 2024 XPEL Inc Earnings Call
Operator: Good morning everyone, and welcome to the Xpel Incorporated first quarter 2024 earnings call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions after the presentation. If anyone should require operator assistance during the conference, please press star zero on your phone keyboard. Please note this conference is being recorded. I will now turn the conference over to your host, John Nesbett, IMS Investor Relations. John, you may begin.
Good morning, everyone and welcome to the X Bell incorporated first quarter 'twenty 'twenty four earnings call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions. After the presentation. If anyone should require operator assistance during the conference. Please press <unk>.
John Nesbett: Zero on your phone keypad. Please note. This conference is being recorded I will now turn the conference over to your host John Nesbitt IMS Investor Relations John you may begin.
John Nesbett: Good morning, and welcome to our conference call to discuss Xpel's financial results for the first quarter of 2024. On the call today, Ryan Pape, Xpel's President and Chief Executive Officer, and Barry Wood, Xpel's Senior Vice President and Chief Financial Officer, will provide an overview of the business operations and review the company's financial results. Immediately following these prepared comments, we'll take questions from our call participants.
John Nesbett: Good morning, and welcome to our conference call to discuss <unk> financial results for the first quarter of 2024 on the call today, Ryan Pape, <unk>, President and Chief Executive Officer, and Barry Wood ex Bell 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 comments, we'll take.
John Nesbett: Questions from our call participants and 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 <unk>, 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 steps such statements are based on our current <unk>.
John Nesbett: 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 Xpel 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 our current expectations and assumptions, which are subject to known and unknown risk factors and uncertainties that could cause our actual results to be materially different from those expressed in these statements.
John Nesbett: Expectations, and assumptions, which are subject to known and unknown risk factors and uncertainties that could cause our actual results to be materially different from those expressed in these statements. Some of these factors are discussed in detail in our most recent Form 10-K 10-K, including under item one a risk factors filed with the SEC.
John Nesbett: Some of these factors are discussed in detail in our most recent Form 10-K, including under Item 1-A, Risk Factors, filed with the SEC. Xpel undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
John Nesbett: Expo undertakes no obligation.
John Nesbett: 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 to Ryan go ahead Ron.
Ryan L. Pape: Thank you, John. Good morning, everyone, and welcome as well to the first quarter 2024 conference call. I think obviously Q1 was a tough quarter for us. Revenue grew 5% to $90 million.
Ryan L. Pape: Thank you, John.
Speaker Change: Thank you John Good morning, everyone and welcome as well to the first quarter 2024 conference call well I think obviously Q1 was a tough quarter for us our revenue grew 5% to $90 million.
Ryan L. Pape: U.S. revenue grew 1.9% compared to Q1 2023 to $52 million. We saw softness in the aftermarket to start the year. This is a continuation of the trend that we saw starting in late summer, which I think we've talked about generally. We're also now going to be lapping the stronger part of 2023, which was the first half.
Ryan L. Pape: S revenue grew one 9% compared to Q1 2000 $23 million to $52 million.
Ryan L. Pape: We saw softness in the after market to start the year.
Ryan L. Pape: This is a continuation of the trend that we saw starting in late summer, which I think we've talked about generally.
Ryan L. Pape: We're also now going to be lapping the stronger part of 'twenty to 'twenty, three which was the first half.
Ryan L. Pape: Our customers in the aftermarket are very diverse, and it's hard to generalize them as a whole. But for context, it was not uncommon to see dealers who were down 10, 15 percent in the first quarter from the prior year period. And as we've said before, our internal company-owned locations are a good proxy for the aftermarket as well, and we saw the same type of weakness in those on a year-over-year basis in the first quarter.
Ryan L. Pape: Customers in the aftermarket are very diverse and it's hard to generalize them as a whole but for context. It was not uncommon to see dealers, who were down 10, 15% in the first quarter from the prior year period.
Ryan L. Pape: And as we've said before our internal company owned locations are are a good proxy for the after market as well and we saw the same type of weakness in those on a year over year basis in the first quarter. So obviously you know some customers were down more than others. Some grew depending on their business model and there were new.
Ryan L. Pape: So obviously, some customers were down more than others, and some grew, depending on their business model. And there were new and lost customers, as there always are. But the universal theme for many, and many that I spoke to personally, was the slow start of January and February, in particular this year. And that was really across geographies, mostly folks in the U.S. that I spoke to personally, but East Coast, West Coast, and in between.
Ryan L. Pape: New and lost customers as there always are but the universal theme for many and many that I spoke to personally was the slow start of January and February in particular, this year and that was really a.
Ryan L. Pape: Across geographies, mostly folks in the U S. I spoke to personally, but east coast West coast and in between.
Ryan L. Pape: In terms of what we're seeing, you know, I think one is that there is more consensus emerging of just weakness in the consumer overall, and this buyer makes up a substantial portion of our aftermarket business, where the dealership component in the aftermarket makes up a smaller portion. I've kind of seen some of that echoed in earnings season and even this week, but, you know, we're our own niche, so we're going to feel and experience this in our own way. I think for us, there's probably a better consumer, consumer credit-centric leading indicator for us that we've yet to find, but that's probably out there.
Ryan L. Pape: Oh in terms of what we're seeing.
Ryan L. Pape: I think one there is more consensus.
Ryan L. Pape: Emerging of just weakness in the consumer overall and this buyer makes up a substantial portion of our aftermarket.
Ryan L. Pape: Aftermarket business, where the the dealership component in the aftermarket makes up a smaller portion kind of seen some of that echoed in in earnings season, and even in this weak, but you know we're our own niche. So we're going to feel and experience this and in our own way I think for us there.
Ryan L. Pape: There's probably a better consumer consumer credit centric, leading indicator for us that we've that we've yet to find but it's probably out there.
Ryan L. Pape: Secondly, I think the EV adoption over the past few years has likely been a tailwind for the business, really, for two reasons. You think about our core enthusiast customers, who still make up a substantial portion of our customer base. They began to adopt EVs.
Ryan L. Pape: Secondly, I think the EV adoption over.
Ryan L. Pape: The past few years has likely been a tailwind for the business really for two reasons, you think about our core enthusiast customer who's still makes up a substantial portion of our of our customer base. They began to adopt <unk>, but more importantly leaves the EV Revolution, if you will.
Ryan L. Pape: But more importantly, the EV revolution, if you will, it created a new class of enthusiasts. And these were not traditionally our customers. They were enthusiasts by virtue of the EV cycle.
Ryan L. Pape: Created a new class of enthusiasm and and these were not traditionally our customers and they were in.
Ryan L. Pape: And enthusiastic by virtue of the E V O E V cycle and as that market has cooled EV market has cooled off the E.
Ryan L. Pape: And as that market has cooled, the EV market has cooled, and the EV buyers lured to the market now by discounting in this part of the cycle are probably less likely to be our customers in the aftermarket. So in that sense, EV sales declines probably hurt us twice, once on volume, but also by shifting the composition of those buyers to those that have a lower propensity to participate in the automotive aftermarket in general.
Ryan L. Pape: Buyers Leeward to the market now by discounting in.
Ryan L. Pape: In this part of the cycle are probably less likely to be our customer in the aftermarket.
Ryan L. Pape: So in that sense EV sales declines probably hurt us twice once on volume.
Ryan L. Pape: But also by shifting the composition of those buyers.
Ryan L. Pape: Those that have a lower propensity to participate in the automotive aftermarket in general So I think it highlights also the continued need to reach all types of customers, including those that would not normally participate in the aftermarket so programs like we had with Arabian OEM other OEM programs.
Ryan L. Pape: So, I think it highlights the continued need to reach all types of customers, including those that would not normally participate in the aftermarket, so programs like we have with Rivian, OEM, other OEM programs, dealership activation for us and for our installers in the aftermarket, these are all things that help do that and are why we're focused.
Ryan L. Pape: Dealership activation or Austin for our installers in the aftermarket. These are all things that help do that and that's why we're focused on that.
Ryan L. Pape: We have some data; we actually see this play out on a model level, as some of the big global OEMs launch their first EV platform, attachment rates start high, and then they would decline, so showing the sort of enthusiasm for those vehicles even embedded in all of the big global OEMs. And then third, port delays in the U.S. specifically resulted in reduced sales of Porsche and Audi to the tune of 20 percent, I believe is the number in the case of Porsche, which are two of our top brands for traditional paint protection film coverage by one measure of attachment that we have.
Ryan L. Pape: We have some data where you actually see this play out on a model level as some of the big Global Oems launch their first EV platforms.
Ryan L. Pape: Street rates would start high and then they would decline so showing the sort of enthusiasm for for those vehicles, even embedded in all of the big Global Oems.
Ryan L. Pape: And then third port delays in the U S. Specifically resulted in reduced sales Porsche and Audi to the tune of 20% I believe is the number in the case of Porsche, which these are two of our top brands for traditional paint protection film coverage by one measure of attachment that we have so this is.
Ryan L. Pape: So this is this sort of post-quarter and is probably contributing to the stronger April that we saw. Traditionally, in our business, it would be unusual to see April with higher revenue than March. That's that's counter to the normal cycle and the start of the season, but that's what we've seen this year.
Ryan L. Pape: This is he's sort of post quarter end is probably contributing to the stronger April that we that we saw traditionally in our business. It would be unusual to see April with higher revenue than March that's that's counter to the normal cycle and it started the season, but that's what we've seen.
Ryan L. Pape: This year.
Ryan L. Pape: So that said, you know, there isn't one vehicle brand that dominates all others for us when you're looking at any of the metrics we have or a metric of attachment, like, how many bumpers by brand do we cover with film? So you have four variables that drive our attach rates, as we talked about. You've got the enthusiast nature of the brand first and foremost, the price point of the vehicles. You know, traditional paint protection film is still relatively expensive. And so you have an over index as the price goes higher. And then the number produced is obviously significant.
Ryan L. Pape: That said you know there isn't one vehicle brand that dominates all others for us when you're looking at at any of the metrics, we have or a metric of attachment of say how.
Ryan L. Pape: How many bumpers with for by brand do recover with film. So you have four variables that drive our attach rates as we talked about you've got the enthusiast nature of the brand first and foremost on the price point of the vehicles you know traditional paint protection film is is still a relatively expensive and so you have.
Ryan L. Pape: The over index as the price goes higher and then the the number produced is obviously significant you know I think we cover and protect way more toyotas than anyone realizes and that's not because they have the highest attach rate, but its because they produce so many vehicles and then you have the effectiveness.
Ryan L. Pape: You know, I think we cover and protect way more Toyotas than anyone realizes. And that's not because they have the highest attach rate, but it's because they produce so many vehicles. And then you have the effectiveness or lack of effectiveness of the dealership channel in selling these products because the dealerships, service centers, and dealerships can reach customers that we're not gonna reach in the aftermarket. And you see quite a divergence between the brands overall in terms of how effective they are at doing that. So while the port delays were a US-specific item for the quarter,
Ryan L. Pape: S or lack of effectiveness of the dealership channel in selling these products because the the dealerships service centers dealerships. They can reach customers that were not going to reach in the aftermarket and you see quite a divergence in the brand's overall in terms of how it sector, they're doing that so while the port.
Ryan L. Pape: Delays were a U S specific items for the quarter.
Ryan L. Pape: These trends are not unique to the U.S. overall, but as it's our largest market by far, we're going to see them more here where we have a larger existing base of business versus other markets that are still in their infancy, where new customers comprise a much larger percentage of the growth. And you've seen that play out if you look at our geographic distribution and results this quarter. The dealership services business continues to be a bright spot.
Ryan L. Pape: These trends are not unique to the U S. Overall.
Ryan L. Pape: But as it's our far our largest market by far we're going to see it more here, where we have a larger existing base of business versus other markets that are are still in their infancy, where new customers comprise a much larger percentage of the growth and you've seen that play out if you look at our geographic.
Ryan L. Pape: You shouldn't and results. This this quarter.
Ryan L. Pape: The dealership services business continues to be a bright spot, we're seeing growth both in the in the quarter and car counts and in the U S. P. S. Both trending in the right direction. The team is doing a really good job of introducing more paint protection film into our.
Ryan L. Pape: We're seeing growth both in the quarter in car counts and in the ASPs, both trending in the right direction. The team's doing a really good job of introducing more paint protection film into our existing relationships and doing out great service. And again, you know, this is part of the mission to reach customers that aren't going to take their vehicle into the aftermarket.
Ryan L. Pape: Existing relationships and doing that with great service and again you know this is part of the mission to reach customers that that aren't going to take their vehicle into the aftermarket where we're evaluating further service opportunities in the dealership channel to build deeper relationships with the dealerships, we serve or the dealerships we might want to serve.
Ryan L. Pape: We're evaluating further service opportunities in the dealership channel to build deeper relationships with the dealerships we serve or the dealerships we might want to serve. And you can see how our results here in different parts of the business have performed differently over time. You know, the aftermarket is not the same as the dealership business in terms of the customer base, in terms of the product composition, or even price point. You know, these segments have fundamentally different characteristics for us.
Ryan L. Pape: And you can see how our results here in different parts of the business that performed differently over time, you know the aftermarket is not the same as the dealership business.
Ryan L. Pape: In terms of the customer base in terms of the product composition or even price point you know these these segments have fundamentally different a different characteristics for us no credit access is different than the aftermarket versus in the context of a new car purchase.
Ryan L. Pape: You know, credit access is different in the aftermarket versus in the context of a new car purchase, where our products are typically financeable. So there are many different variables to consider. Also in the U.S., in April, we reached an agreement with Tint World, an automotive accessory and window tinting franchise with well over 100 locations. This is predominantly tint, window tint, as the name might imply, but also some paint protection film and coatings where applicable.
Ryan L. Pape: They're where our products are typically typically financeable. So there are many different variables to consider.
Ryan L. Pape: Also in the U S. In April we reached an agreement with tint World. This is an automotive accessory and window tinting franchise with well over 100 locations to supply their franchisees with co branded products.
Ryan L. Pape: This is predominantly tint window 10 is the name might imply but also some paint protection film in coatings, where where applicable tint world offers a range of services, including window tint vehicle wrap Saudi electronics and in others. We look forward to working with them in the coming years into a working to integrate with them over.
Ryan L. Pape: Tint World offers a range of services, including window tint, vehicle wraps, audio electronics, and others. We look forward to working with them in the coming years and to working to integrate with them over the rest of this year. So really happy with that relationship. Looking outside the U.S., the China region finished at 1.5 million for the quarter, and that was obviously a big driver of our overall lower-than-anticipated revenue growth rate, in addition to the U.S., and as we discussed, Timed numerous times on our previous calls, you know, we're we're constantly met in China with the sell-in Verso through dynamic that makes the business Lumpy and China had the highest quarter in history in q4 of last year.
Ryan L. Pape: The rest of this year, so really happy with that with that relationship.
Ryan L. Pape: Looking outside the U S.
Ryan L. Pape: China region.
Ryan L. Pape: Finished at $1.5 million for the quarter and that was obviously a big driver of our overall lower than anticipated revenue growth rate are in addition to the U S and.
Ryan L. Pape: As we've discussed.
Ryan L. Pape: Time numerous times on our previous calls you know, we're we're constantly met in China with the sell in versus sell through dynamics that makes the business are lumpy and China had the highest quarter in history in Q4 of last year. So we knew Q1 was going to be lower even with that China is still finished about three to 4 million.
Ryan L. Pape: So we knew q1 was going to be lower Even with that China still finished about three to four million lower than our forecast was last year We're making a lot of progress in terms of evolving our strategy and go-to-market in China With the help of our team on the ground and the reorganization of our business Look forward to discussing our plans more in the subsequent quarters We're focused on making significant changes in the go-to-market including optimizing the product portfolio and increasing inventory and supply chain efficiency both in and outside the country as well as other changes to the distribution model, And our priority for the first three quarters of this year is to implement all of these fundamental changes and streamline the product lines and inventory. And this will continue the lumpiness for now, but will set us up well for the future where, you know, that lumpiness will be eliminated and the business in country will grow.
Ryan L. Pape: Lower than our forecast was last year.
Ryan L. Pape: Where we're making a lot of progress in terms of evolving our strategy and go to market in China with the help of.
Ryan L. Pape: Of our team on the ground and the reorganization of our business are look forward to discussing our plans more in the subsequent quarters, we're focused on making significant changes in the go to market, including optimizing the product portfolio and increasing inventory and supply chain efficiency, both in and outside the country as well as other change.
Ryan L. Pape: As to the distribution model and.
Ryan L. Pape: And our priority for the the first three quarters of this year is to implement all of these fundamental changes in stream streamline the product lines and inventory and this will continue the lumpiness for now, but will set us up well for the future.
Ryan L. Pape: So credit to our growing team in Asia for their work there, and also in the other markets in Asia, even outside China, that we're prioritizing. So more to come on that, but I feel very optimistic about the plan that we have there. And we'll talk more about it in the future. The rest of the world outside the U.S. and China had a good quarter, growing a little over 30 percent, record quarters in Europe and APAC, in the Middle East, and Latin America.
Ryan L. Pape: Where you know that that lumpiness will be eliminated.
Ryan L. Pape: And the business in country will will grow so credit to our growing team nine Asia for their work there.
Ryan L. Pape: And also in the other markets in Asia outside China that we're prioritizing so more to come on that but I I I feel very optimistic about the plan that we have there and we'll we'll talk more about it in the future.
Ryan L. Pape: The rest of the world outside the U S and China had a good quarter growing a little over 30% a record quarters and in the Europe and APAC in Middle East Latin America again, Q1 is typically the lowest quarter.
Ryan L. Pape: Again, Q1 is typically the lowest quarter for these regions as well, so continued good performance there. Our operation in India is well on the way to being fully established, and it's going to provide a lot better support for our customers in the Middle East and our expansion there. So very pleased with how that's going, in addition to what we plan to do in the domestic market in India. So, good progress.
Ryan L. Pape: For these regions as well so continued good performance, there or our operation in India as well a long way as well on the way to being fully established and its going to provide a lot better support for our customers in the middle East and our expansion there. So I'm very pleased with how that's going.
Ryan L. Pape: In addition to what we plan to do in the domestic market in India. So good good progress.
Ryan L. Pape: And finally, the OEM business was a bright spot. Revenue was up just around 58% year-over-year, really kind of at quarter-end or subsequent to quarter-end, and they were also starting to launch a full stealth MacFilm option with Rivian. So again, that'll be growth and more awareness for that type of product as well. The best forecasting tool we have with thousands of individual customers is to look backwards to look
Ryan L. Pape: And finally the OEM.
Ryan L. Pape: OEM business was a bright spot revenue was up just around 58% year over year, I'm really kind of at a quarter end or subsequent to quarter end also starting to launch a full stealth a math film option with Libyan so again that'll be that'll be growth and more awareness for that type of product as well.
Ryan L. Pape: The best forecasting tool, we have with thousands of individual customers is to look backwards to look forwards and obviously that makes forecasting complicated in a changing environment because things have to change to look backwards at them I'm looking at the state of the market and the trends to start the year with.
Ryan L. Pape: And obviously, that makes forecasting complicated in a changing environment because things have to change to look backwards at them. Looking at the state of the market and the trends to start the year, which obviously lowers our internal modeling, you know; it gives us some conservatism, I think, for the year. So as a result, we're reducing our revenue guidance for the year to eight to 10 percent organic growth, and our expectation for Q2 revenue is in the $105 million to $108 million range. Look, it's a dynamic environment.
Ryan L. Pape: Obviously lowers our internal modeling you know it gives us some conservatism I think for the year. So as a result of reducing our revenue guidance for the year to 8% to 10% organic growth and our expectation for Q2 revenue was 105 hundred $8 million range look it's a it's a dynamic environment.
Ryan L. Pape: You know, as I mentioned, seeing an April exceed March is very unusual in the typical cycle we have in the U.S. So, you know, we need to understand that, but that's sort of the best we're looking at now in terms of our expectations, and we'll update that as we go. I think while the current environment is incrementally more challenging, we're very much focused on the future and continuing to drive long-term double-digit revenue growth.
Ryan L. Pape: As I mentioned seeing in April exceed March it was very unusual in the in the typical cycle. We have in the U S. So you know we need to we need to understand that but that's sort of what were.
Ryan L. Pape: The best where we're looking at now in terms of our expectations and we'll update that as we go I.
Ryan L. Pape: I think while the the current environment is incrementally more challenging you know, we're very much focused on the future and continuing to drive the long term double digit revenue growth.
Ryan L. Pape: We're very mindful of the current state and the cost structure we've built, and obviously, we've built that for even more growth. But our focus remains on setting us up for continued maximum growth over time. So there's no diminution of the opportunity set in front of us, and we don't want to make short-term decisions that compromise any of our long-term prospects.
Ryan L. Pape: You know, we're very mindful of the current state and our cost structure, we built.
Ryan L. Pape: And obviously, we built that for even more growth, but you know our focus remains on setting us up for continued maximum growth over time. So there's no dimunition of the opportunity set in front of us and we don't want to make short term decisions that compromise any of our long term prospects.
Ryan L. Pape: So, excluding the impact of any acquisitions, which we'll talk about, from an SG&A standpoint, at this point, we're really more focused in the near term on holding our cost structure rather than trying to reduce it significantly. There's plenty of opportunity for our core business, even in this environment, to grow and to grow into that cost structure. Look, obviously, if things change, we'll change, and we have to be flexible, but that's our current view. A bright spot for the quarter was gross margin performance finished at 42 percent, returning to the trend that we expect after lower than expected margin due to high distribution sales in Q4.
Ryan L. Pape: So excluding the impact from any acquisitions, which we'll talk about from an SG&A standpoint at this point, we're really more focused in the near term on holding our cost structure, rather than trying to reduce it significantly.
Ryan L. Pape: There's plenty of opportunity for our core business, even in this environment to grow and to grow into that cost structure look obviously, if things change, we'll will change and we have to be flexible, but that's our current view.
Ryan L. Pape: A bright spot for the quarter was gross margin performance finished at 42% are returning to the trend that we expect after lower than expected.
Ryan L. Pape: Margin due to due to the higher distribution sales in Q4 and in some respects that got outperforms, even a little bit because as as volumes are down you know you become less efficient in some ways with with costs that are that are part of your cost of goods, but.
Ryan L. Pape: And in some respects, that outperforms even a little bit because, as volumes are down, you become less efficient in some ways with costs that are part of your cost of goods but, over a short period of time, are relatively fixed. So I think that's a good number for us, and it's one that, you know, we still will look to continue to grow over time. Improving our free cash flow remains a top priority for management and our board.
Ryan L. Pape: And over a short period of time of relatively fixed so I think that's a that's a good number for us and it's one that you know we we still will look to continue to grow over time.
Ryan L. Pape: Improving our free cash flow remains a top priority for management and our board.
Ryan L. Pape: And managing inventory is the primary, not the only, but the primary way to accomplish that. In the quarter, we've seen a significant reduction in our raw materials and work-in-progress inventory as those turn into finished goods and then ultimately sold through in the future. And as they're sold through, we'll see our days on hand reduce through the year. So that's a really important step to continue that process of reducing the days on hand.
Ryan L. Pape: And managing inventory is the primary not the only way, but the primary way to accomplish that in the quarter. We've seen a significant reduction in our raw materials and work in progress inventory as those turn into finished goods and then ultimately sold through in the future and as they're sold through well.
Ryan L. Pape: See our days on hand reduce through the year. So that's the a really important step to to continue that process of of reducing the days on hand, and as you may recall from last year, a lot of those raw materials in and are a work in progress materials, where were inflated in the second half of last year, which.
Ryan L. Pape: And as you may recall from last year, a lot of those raw materials and work-in-progress materials were inflated in the second half of last year, which we didn't anticipate going into the year. So it's good progress to see that go down and get work through the channel. That's what we want to see.
Ryan L. Pape: You didn't anticipate going into the year. So that's good progress to see that go down and get worked through the channel. It's what we want to see obviously higher revenue in Q1.
Ryan L. Pape: Obviously, higher revenue in Q1. And, in particular, the sales to China that we had forecast, that would help in terms of the inventory situation as well, because those products are still on hand instead of being sold. But the plan is tracking for the year. And, you know, it's really, I mean, hard to say outside of growing the business as aggressively as possible that there's something more important to us than optimizing. Finally, I want to talk about capital allocation.
Ryan L. Pape: And in particular, the the sales to China that we had forecast.
Ryan L. Pape: That would help in terms of the inventory situation as well because those products are still on hand, instead of being sold but the plan is tracking for the year and you know theres really.
Ryan L. Pape: Hard to say outside of growing the business as aggressively as possible, but there's something more important to us than then optimizing that.
Ryan L. Pape: Finally, I want to talk about capital allocation you know, we feel that the best the best use of our capital remains M&A.
Ryan L. Pape: You know, we feel that the best use of our capital remains M&A, and that does not change in the current environment. We haven't seen multiples compress up to now, but I think it's possible that we might see that change.
Ryan L. Pape: It does not change in the current environment, we haven't seen multiples compress up to now, but I think it's possible that we did we might see that change you know we've been asked about that many times over the past few years, but as you as you saw the the relative strength of all the businesses in the in the overall ecosystem even.
Ryan L. Pape: You know, we've been asked about that many times over the past few years, but as you saw the relative strength of all the businesses in the overall ecosystem, even when we had SAR declines due to inventory and things like that, you know, we just didn't see any of that. But I think now, you know, it's possible that we'll start to see that, and it would be smart for us to be opportunistic there. But I would like to highlight that we really have lasered our focus even further in terms of M&A in this environment. You know, now is not the time for our attention to wander from the core.
Ryan L. Pape: We had saw declines due to inventory and things like that.
Ryan L. Pape: Didn't see any of that but I think now you know, it's it's possible that we'll start to see that and it would be smart for us to be opportunistic there.
Ryan L. Pape: But I would like to highlight that we really laser to our focus even further in terms of the M&A. In this environment. You know now is not the time for our attention to wander from the core think that's really important to emphasize we first you know we have several international.
Ryan L. Pape: I think that's really important to emphasize. First, you know, we have several international distributor acquisitions that we're pursuing this year and Xpect2Complete this year. These acquisitions have been some of our best performing over time, and deepening our presence in a market is a way to drive growth, even in a slow market or a slower market, as we're able to take share in increased growth rates when we internalize international distribution.
Ryan L. Pape: <unk> distributor acquisitions that we're pursuing this year.
Ryan L. Pape: And expect to complete this year. These acquisitions have been some of our best performing overtime and deepening our presence in a market is a way to drive growth even in a slow market as or a slower market as we're able to take share and increase growth.
Ryan L. Pape: Rates when we internalize the international distribution, we've seen it time and time again and you know we're seeing it in probably the most recent example is the success that we're that we're having in Australia with that strategy post acquisition.
Ryan L. Pape: We've seen it time and time again, and probably the most recent example is the success that we have in Australia with that strategy post-acquisition approximately a year and a half ago. So we'll use that to round out our presence ourselves in the top car markets of the world. So that's the number one focus. Second, we'll be focusing on the dealership business and ways to invest to grow that further. It's performed well.
Ryan L. Pape: Approximately year and a half ago. So we'll use that to round out our presence ourselves in the top car markets of the world.
Ryan L. Pape: So that's the number one focus second we'll be focusing on the dealership business.
Ryan L. Pape: And ways to invest to grow that further it's performed well and as I mentioned, a couple of times. It creates an opportunity to expose more people to paint protection film that wouldn't learn about it any other way. So it's it's it's good for revenue and it's good for product awareness.
Ryan L. Pape: And as I mentioned a couple of times, it creates an opportunity to expose more people to paint protection film that wouldn't learn about it any other way. So it's good for revenue, and it's good for product awareness. This will quite predominantly be looking in service businesses directly in our space or even slightly adjacent service businesses targeting dealerships where our products could be added through existing relationships. You're less likely to see us pursue acquisitions targeting additional products or to pursue, you know, costly acquisitions or acquisitions of any consequence in other verticals at this time.
Ryan L. Pape: This will predominantly be looking and service businesses directly in our space or even slightly adjacent services.
Ryan L. Pape: Service businesses targeting dealerships, where our products could be added through existing relationships.
Ryan L. Pape: You're you're less likely to see us pursue acquisitions targeting additional products.
Ryan L. Pape: Or to pursue you know costly acquisitions or acquisitions of any consequence in other verticals at this time.
Ryan L. Pape: You know, if there's one thing I want to emphasize, it's the discipline that we're trying to bring to the process, both in light of the current overall macro, but also increasing our effectiveness at putting more capital to work and doing it more efficiently. And the focus there, intensifying that focus, we think is really important to help do that.
Ryan L. Pape: There's one thing I want to emphasize it's it's the discipline that we're trying to bring to the process. Both in light of the current.
Ryan L. Pape: Overall macro but also are increasing our effectiveness at putting more capital to work and doing it more efficiently and the focus there.
Ryan L. Pape: Densify that focus we think is really important to help do that.
Ryan L. Pape: Speaking of products, we announced a number of tuck-in products into our various product lines during our dealer conference, as we mentioned previously. These are largely things to round out the portfolios that we have and to ensure we've got a broad product set for any of our customers in the respective disciplines. But we'll be operating with discipline this year on future product additions, you know, relative to our free cash flow goals. As you can imagine, adding too many new products reduces the efficiency of that inventory as those things are, as those things are, are novel.
Ryan L. Pape: Speaking of products, we announced a number of tuck in products into our various product lines. During our dealer conference as we mentioned previously on these are largely things too.
Ryan L. Pape: A round out the portfolios that we have and to ensure we've got a broad product set for any of our customers and their respective in their respective disciplines, but will be operating with disciplined this year on on future product additions you know relative to our free cash flow goal.
Ryan L. Pape: As you can imagine I'm, adding too many new products reduces.
Ryan L. Pape: The efficiency of that inventory as those things are as those things are are novel.
Ryan L. Pape: We are planning to expand into more colored film options this year, in addition to the black that we've offered for some time. There are nearly a dozen colored PPU-based wrapping films either in the market or planned for launch by a variety of suppliers in the business. And these are those with a typical vinyl or PVC background and those with a PPF-type background and others.
Ryan L. Pape: We are planning to expand into more colored film options. This year. In addition to the block that we've offered for some time, there's nearly a dozen colored TPU based wrapping films either in the market or planned for launch by a variety of suppliers in the business and these are those.
Ryan L. Pape: With a typical vinyl or P. B C background and those with the P. P F type background and others.
Ryan L. Pape: You know, it's unclear how much these will ultimately expand the addressable market for colored films. However, initially, we do expect to see shared gain of these products at the expense of some of the traditional PVC vinyl-based color wrap films. What's less certain is whether this will translate to appreciable growth of the color change business in the aftermarket. But as the product installation becomes more similar to paint protection film, it actually opens up the opportunity for a larger portion of the aftermarket to participate, we believe.
Ryan L. Pape: It's unclear how much these will ultimately expand the addressable market for color Jones. Initially we do expect to see share gain of these products at the expense of.
Ryan L. Pape: Some of the traditional PVC vinyl based color wrapping films, you know whats less certain is whether this will translate to appreciable growth of the color change business in the aftermarket, but as the product installation.
Ryan L. Pape: Becomes more similar to paint protection film and it actually opens up the opportunity for a larger portion of the aftermarket to participate we believe so as we've talked about previously.
Ryan L. Pape: So, as we talked about previously, using colored films to replace paint, it doesn't seem to be viable at scale today, maybe if ever. But the improved durability of a PPU based color wrapping film versus a vinyl based film presents options for more accessorizing in the aftermarket dealership and OEM channels certainly opens up options there, like doing contrast roofs with film instead of the multi-step paint process they have to do.
Ryan L. Pape: You're using colored films to replace paint, it's not seem to be viable at scale today, and maybe if ever but the improved durability of a P. P. U based color wrapping zone versus the vinyl based film presents options for more accessorizing and the aftermarket dealership.
Ryan L. Pape: The OEM channels, certainly opens up options there like doing contrast roofs with film instead of multi step paint process. They have to do so all of this you know represents growth opportunities for the industry as a whole so obviously a challenging quarter for us.
Ryan L. Pape: So all of this, you know, represents growth opportunities for the industry as a whole. And, obviously, a challenging quarter for us. I want to highlight, you know, the areas we're focused on that we've got our whole team aligned on. We remain very excited about the opportunity ahead. The potential for these products is as strong as they've ever been, and we're excited about that. So with that, I'll turn it over to Barry, and then we'll take questions.
Barry: I want to highlight the areas we're focused on.
Barry: That we've got a whole team a team aligned on we remain very excited about the opportunity ahead, you know the <unk> the potential for these products is as strong as they've ever been and and we're excited about that so with that I'll.
Ryan L. Pape: I'll turn it over to Barry and then we'll take questions.
Barry R. Wood: Thanks, Ryan, and good morning, everyone. Just to start out, I wanted to provide a quick reminder about our seasonality of our business. In all regions, excluding China, Q1 is typically our lowest quarter of the year. Q2 and Q3 can trade off being the highest quarters, and then Q4 is less than Q2, Q3, but higher than Q1.
Barry: Thanks, Ryan and good morning, everyone just to start out I wanted to provide a quick reminder, on the seasonality of our business in all regions. Excluding China Q1 is typically our lowest quarter of the year Q2, and Q3 can trade off being the highest quarter.
Barry R. Wood: And then Q4 is less in Q2, Q3, but but higher than Q1 and this holds true in China, except that Q4 tends to be their largest quarter. So given all that comparing revenue sequentially versus Q4's, theres really not near as meaningful as it is in other quarters.
Barry R. Wood: And this holds true in China, except that Q4 tends to be their largest quarter. So given all that, comparing revenue sequentially versus Q4 is really not as meaningful as it is in other quarters. Looking at the product lines, combined paint protection film and cut bank revenue declined about 1% in the quarter, again owing to the China performance and lower U.S. demand. Our window film product line revenue declined 2.9% quarter over quarter to $14.5 million, which represented 16.1% of our revenue, but excluding China, the total window film revenue grew 10.3%, which is still a decent performance, even in a seasonally lower quarter.
Barry R. Wood: Looking at the product lines combined paint protection film in Cutbank revenue declined about 1% in the quarter again, owing to the China performance in lower U S demand.
Barry R. Wood: Our window film product line revenue declined 2.9% corner over quarter to $14 5 million, which represented 16, 1% of our revenue, but excluding China. The total window film revenue grew 10, 3%, which is still a decent performance even in a seasonally lower corner.
Barry R. Wood: Our Q1 Vision product line revenue, which is included in our total window film revenue, grew 33.1% to $1.8 million. So again, good growth in a low seasonal quarter. And, as Ryan mentioned, our OEM business continued to post strong results with revenue growing just under 58% versus Q1 2023 to $4.6 million. Our total installation revenue, combining product and service, grew 34.7% in the quarter and represented approximately 22% of total revenue.
Barry R. Wood: Our Q1 vision product line revenue, which is included in our total window film revenue grew 33.1% a 1.8 million. So again good growth in a in a low seasonal quarter and as Ryan mentioned, our OEM business continued to post strong results with revenue growing just under 58% versus Q1 2023 to four.
Barry R. Wood: $6 million.
Barry R. Wood: Our total installation revenue combining product and service grew 34, 7% in the quarter and represented approximately 22% of total revenue.
Barry R. Wood: And as Ryan mentioned previously, many of our corporate stores' revenue declined versus Q1 2023, so the total installation revenue was certainly buoyed by our dealership services business and OEM businesses. Our Q1 SG&A expense grew 36.2% to $28.6 million and represented 31.8% of revenue. Included in Q1 SG&A was approximately $1.6 million in net costs from our annual dealer conference that was held in February this year but held in Q2 last year. And if you normalize for that, our SG&A would have grown approximately 28.6%.
Barry R. Wood: And as Ryan mentioned previously many of our corporate stores revenue decline versus Q1 2023. So the total installation revenue was certainly buoyed by our dealership services business.
Barry R. Wood: And OEM businesses business.
Barry R. Wood: Our Q1 SG&A expense grew 36, 2% to $28 6 million and represented 31, 8% of revenue included in Q1 SG&A was approximately 1.6 million in net costs from our annual dealer conference that was held in February this year, but held in Q2 last year and if he nor.
Barry R. Wood: <unk> for that our SG&A would have grown approximately 28, 6% sequentially. After factoring in the dealer conference costs in Q1, SG&A grew one 3%.
Barry R. Wood: After factoring in the dealer conference costs in Q1, SG&A grew 1.3%. And certainly, our expense profile looks outsized in a down revenue quarter, but as Ryan alluded to, we're actively managing our costs where we can and really trying to thread the needle between the right tradeoff of managing costs versus continuing to do right by our customers. And we've gotten and continue to get an ROI on our SG&A spend in the form of improved gross margins, and we want to continue that for sure.
Barry R. Wood: And certainly our expense profile looks outsized in a down revenue quarter, but as Ryan alluded to we're actively managing our costs, where we can and really trying to thread the needle between the right trade off of managing costs versus continuing to do right by our customers.
Barry R. Wood: And we've gotten and continue to get an ROI on our SG&A spend in the form of improved gross margins and we want to continue that for sure. So we'll continue to monitor this but our expectation is that our SG&A run rate will remain largely intact for the remainder of the year, especially in light of improving our revenue momentum.
Barry R. Wood: So we'll continue to monitor this, but our expectation is that our SG&A run rate will remain largely intact for the remainder of the year, especially in light of the improving revenue momentum. Our Q1 EBITDA declined 31.5% to $11.7 million, reflecting an EBITDA margin of 13%. And normalizing for the dealer conference costs again, EBITDA would have declined 22.1%, and EBITDA margin would have been 14.8%. Our Q1 net income declined 41.7% to $6.7 million, reflecting a net income margin of 7.4%, and our EPS was $0.24 a share. But again, normalizing for the dealer conference cost, net income margin would have been 8.8%, and EPS would have been $0.29 per share.
Barry R. Wood: Our Q1, EBITDA declined 31, 5% to 11.7 million, reflecting an EBITDA margin of 13% and normalizing for the dealer conference costs again, EBITDA would have declined 22, 1% and EBITDA margin would have been 14.8%.
Barry R. Wood: Our Q1 net income declined 41.7% to $6 7 million, reflecting net income margin of seven 4% and our EPS was <unk> 24 cents a share, but again normalizing for the dealer conference costs net income margin would've been eight 8% and a P. S would've been 29 cents per share.
Operator: Ryan talked about our inventory earlier, so I don't have much to add to that, other than it did impact our cash flow from Operations, where we posted a use of cash of approximately $5 million. Again, our expectation is to return to positive operating cash beginning in Q2, as we work down our days on hand, as we've discussed. So, a tough quarter for sure, but we're well positioned to continue to work through these macro challenges and get back to solid double-digit growth. And with that, Operator, we'll now open the call to questions. Thank you very much.
Barry R. Wood: <unk> talked about our inventory earlier, so I don't have much to add to that other than it did impact our cash flow from ops, where we posted a use of cash of approximately 5 million again, our expectation is to return to positive operating cash beginning in Q2 as we as we worked down our days on hand, as we discussed.
Operator: So tough quarter for sure, but you know, we're well positioned to continue to work through these macro challenges and get back to solid double digit growth and with that operator, we'll now open the call up for questions.
Operator: Thank you very much. At this time, we'll be conducting our question and answer session. If you would like to ask a question, please press star 1 on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. For anyone using speaker equipment, it might be necessary to pick up your handset before you press the key.
Speaker Change: Thank you very much at this time, we'll be conducting a question and answer session.
Operator: If you would like to ask a question. Please press star one on your phone keypad now a confirmation.
Operator: Your line from Nicky you may have.
Operator: Yes.
Operator: Who would like to remove your question from Nicky how anyone using speaker equipment, it might be necessary to pick up your handset before pressing the keys.
Operator: Please pause a moment whilst we poll for any questions. Thank you. Our first question is coming from Jeff Van Sinderen of B Reilly. Jeff, your line is live.
Operator: Please.
Operator: Paul.
Operator: Awesome.
Speaker Change: Thank you.
Operator: <unk> is coming from Jeff Johnson Darren B.
Speaker Change: B Riley Jeff Your line is.
Jeffrey Wallin Van Sinderen: Thanks, and good morning. I wonder if you could give us your expectations for gross margin. Your gross margin was, I think, one of the highlights of positivity in Q1. Maybe for Q2 and for the rest of the year, anything we should be factoring into that. And then operating expense expectations for Q2 and the remainder of the year, just maybe giving us a better sense of how to model those.
Speaker Change: Oh, Thanks, and good morning.
Jeffrey Wallin Van Sinderen: Wonder if you could give us your expectations for gross margin. Your gross margin was I think one of the highlights of positivity.
Jeffrey Wallin Van Sinderen: Q1.
Jeffrey Wallin Van Sinderen: Maybe for Q2 and for the rest of the year or anything we should be factoring in for that and then operating expense expectations for Q2, and the remainder of the year, just maybe giving us a better sense of how to model those.
Ryan L. Pape: Sure, Jeff. Yeah, thanks for the question. Yeah, I think our goal last year was to really exit the year at around that 42% gross margin, and we started the year there. And so, you know, that's where we want to be or higher. And I think that in gross margin, we still have opportunity to improve that over time, as we've talked about. What weighs against that is that you do have costs that, you know, are part of the cost of goods that, over a short period of time or midterm period of time, feel more fixed.
Speaker Change: Sure Jeff Thanks for the thanks for the question Yeah. I think we you know our goal last year was to really exit the year, you know at around that 42% gross margin and.
Ryan L. Pape: Started the year there and so you know, that's that's where we want to be or higher and I think that in gross margin, we still have opportunity to improve that over time as we've talked about what what weighs against that is that you do have costs that you know are.
Ryan L. Pape: Part of cost of goods that over a short period of time or midterm period of time still more fixed so that probably challenge us a little bit to go much higher than that in the near term, but we still have that opportunity. What the flip side is you know there's there was nothing really that unique about like <unk>.
Ryan L. Pape: So that probably challenges us a little bit to go much higher than that in the near term, but we still have that opportunity. But the flip side is, you know, there was nothing really that unique about Q1 that would prevent us from sort of maintaining that level. And I think on the SG&A question, as Barry mentioned, we really don't intend to go backwards in a meaningful way in our overall SG&A, kind of at the run rate that you see.
Ryan L. Pape: One that would that would prevent us from sort of maintaining that level and I I think on the SG&A question as as as Barry mentioned, you know, we we really don't don't intend to go backwards.
Ryan L. Pape: In a meaningful way in our overall SG&A kind of at the run rate that you see we we want to make sure we're doing that efficiently and make the right tradeoffs, we need to do and you know prevent that from growing and certainly excluding you know some type of acquisition impact or something else that.
Ryan L. Pape: That could impact that one way or the other.
Ryan L. Pape: With the expectation that you know, we'll see we'll see growth and we will we'll grow into that to that cost structure. You know now of course, if the if the.
Ryan L. Pape: You know, now, of course, if the environment were to deteriorate further in some way, we might take a different view. But, you know, we're really working to hold the SG&A and get the most out of what we're spending rather than trying to reduce it sort of in total dollars, if you will.
Ryan L. Pape: Environment were to deteriorate further in some way we might take a different view, but you know we're really working to hold the the SG&A.
Ryan L. Pape: And get the most out of what we're what we're spending rather than we are trying to reduce it sort of in a in a total dollars. If you will.
Jeffrey Wallin Van Sinderen: Okay, that's helpful. And then I just wanted to hit on one of your comments in the prepared remarks. I know you spoke to, you know, what you saw in your own dealer units and what you saw in folks that you sell product to your partners out there, if you will. And I think you said 10 to 15% declines in order of magnitude were not unusual in Q1. And so, just sort of juxtaposing that with the improvement you saw in April, maybe you could speak to your level of confidence and get to the 8 to 10% growth in revenues for the year.
Speaker Change: Okay. That's helpful.
Jeffrey Wallin Van Sinderen: And then I just wanted to hit on on one of your comments in the prepared remarks, I know you spoke to.
Jeffrey Wallin Van Sinderen: What you saw in your own dealer units and what you saw in and folks that you sell product to.
Jeffrey Wallin Van Sinderen: Your partners out there if you will and I think he said, 10% to 15% declines order of magnitude was not unusual in Q1.
Jeffrey Wallin Van Sinderen: And so just sort of Jackson positioning that with the improvement you saw in April maybe you could speak to your level of confidence in getting to the 8% to 10% growth in revenues for the year.
Ryan L. Pape: Yeah, well, I think frankly, you know, we saw much better growth within that segment in April versus the aggregate we saw in the first quarter. So that's quite a change in that segment.
Jeffrey Wallin Van Sinderen: Yeah, well I think frankly, you know we we saw you know.
Ryan L. Pape: A much better growth within that segment in April versus the aggregate we saw in the first quarter.
Speaker Change: So that's quite a change within that within that segment. Now you know April is is one month and you know you've got some sort of a hangover effects from the first quarter. You know maybe April outperforms, our may and June I mean, frankly, we don't know, but you know we've we've seen we've seen you know more growth.
Ryan L. Pape: Now, you know, April is one month. And, you know, if you've got some sort of hangover effects from the first quarter, you know, maybe April outperforms May and June. I mean, frankly, we don't know. But, you know, we've seen more growth than we saw sort of declines in the first quarter. So, I mean, candidly, when you look at the data that we have, you know, that's as far into the future as we can see. So I think that is a positive trend, but, you know, maybe one month doesn't make a trend.
Ryan L. Pape: We saw sort of declines in the in the first quarter. So I mean, that's you know candidly when you look at the at the data that we have you know that's as far into the future as we can see so I think that is a a a a positive trend, but you know maybe one month doesn't a trend make.
Jeffrey Wallin Van Sinderen: Okay, fair enough. And then just in order of magnitude, I realize you guys are selling to a lot of different, you know, you're getting film on a lot of different car brands, vehicle brands. Order of magnitude, were there any 10% size or 10% or larger vehicle brands in Q1? And maybe you can sort of speak a little bit more about what you're seeing in the EV brands, I know you mentioned Rivian, how much and which brands impacted your business the most, and anything you could say about the concentration of those. Yeah, I think, you know, it's great.
Speaker Change: Okay Fair enough and then just order of magnitude I realize you guys are selling to a lot of different you know youre getting from a lot of different car brands vehicle brands.
Jeffrey Wallin Van Sinderen: Order of magnitude were there any 10% size for 10% of our larger vehicle brands in Q1.
Jeffrey Wallin Van Sinderen: And maybe you can sort of speak a little bit more about what you're seeing in the E. V brands I know you mentioned revision.
Jeffrey Wallin Van Sinderen: How much and which brands impacted your business. The most and anything you can say a concentration of those brands. Yeah. I think you know as we've talked about today and and in the past.
Ryan L. Pape: Yeah, I think, as we've talked about today and in the past, the distribution of this business is likely a lot wider than people might think. You know, there's this idea that all of the revenue is concentrated in one brand or two brands or something, and that's really not the case. I mean, I think, you know, we talked about the type of make-related concentration last year, you know, like 5% or less. And so what I think is maybe not obvious that we continue to work to try and explain better is that you have all of these tradeoffs, right?
Ryan L. Pape: The the distribution of this of this business is likely a lot wider than than people might think on you know there's this idea that you know all of the all of the.
Ryan L. Pape: Revenue is concentrated in one brand or two brands or something and that's that's really not the case I mean, I think you know we.
Ryan L. Pape: We talked about the types of comp make make related concentration last year, you know like 5% or less and so what what what I think is is maybe not obvious that we continue to work to try and explain better is that you you have all of these trade offs right. So you've got.
Ryan L. Pape: So you've got makes with huge volumes, like Toyota, but that have low, much lower attach rates. Then you have brands like Porsche that have much lower volumes but much higher attach rates. And the same is true with, you know, all the other brands. But when you put that together, you can have various measures of attachment, which look, there are many ways to think about it, you know, content for vehicle versus some film per vehicle or versus using the bumpers as a proxy. We have all of this.
Ryan L. Pape: Got makes with huge volume like Toyota.
Ryan L. Pape: But did have a low much lower attach rates than you have brands like Porsche that have much lower volume, but much higher attach rate and the same is true with with you know all the other brands, but when you. When you put that together you know you can have various measures of attachment.
Ryan L. Pape: Which look there's many ways to think about it you know our content per vehicle versus some film per vehicle or versus using the bumpers as a proxy we have all of this but you know where you have these these are top brands that all that all by some of these measures all have kind of the same aggregate volume now the attachment.
Ryan L. Pape: But, you know, where you have these top brands that all, by some of these measures, all have kind of the same aggregate volume. But, the attachment rate is fundamentally different.
Ryan L. Pape: It is fundamentally different so.
Ryan L. Pape: And I really just can't stress enough that there isn't a single point of concentration on any one vehicle in this business; they all trade against each other. And when you get to enthusiast vehicles, you know, we'll see, you know, higher attach rates in some brands than others that are ultimately meaningful to their results. I mean, we'll see BMW attach rates by the measures we have that far exceed Mercedes. And so, there isn't one thing driving that. There isn't one outsized brand. They all play their part in what we're doing here. And if we had outsized concentrations in any one make or one segment, you know, we would talk about that.
Speaker Change: No I really just can't stress enough that there isn't a.
Ryan L. Pape: Single.
Ryan L. Pape: A single point concentration risk into any one vehicle in this business. They all trade against each other and when you get to enthusiast vehicles. You know we will see you know higher attach rates in some brands that others that are ultimately meaningful to their results I mean, we'll see.
Ryan L. Pape: The B M W attach rates by the measures we have that.
Ryan L. Pape: That far exceed our far exceed Mercedes and so there isn't one thing driving that there isn't a.
Ryan L. Pape: One outsized brand and they all have their their part in what we're doing here and if we had outsized concentrations.
Ryan L. Pape: In any one make or one segment you know we would we would talk about that.
Jeffrey Wallin Van Sinderen: Okay, thanks for providing all that information. That's helpful. I'll jump back in the queue. Thank you very much.
Speaker Change: Okay. Thanks for providing all that that's helpful I'll jump back in the kit.
Speaker Change: Thanks, Jeff.
Operator: Thank you very much. Just a reminder there, if anyone has any remaining questions, please press star 1 on your phone keypad now. I'm not seeing anyone else come into the queue at this moment, so I will now hand back over to management. Oh, my apologies. We've just had someone join the queue, and it's from Steve Dyer on Craig Hallam. Steve, your line is live.
Speaker Change: Thank you very much just a reminder, that if anyone has any remaining questions. Please press star one on your phone keypad.
Steven Lee Dyer: Anyone else come into queue.
Steven Lee Dyer: So I will now hand back.
Steven Lee Dyer: Apologies just had someone join the queue.
Operator: It's from Steve Dyer of Craig Hallum, Steve Your line is now.
Operator: Hi guys, this is Matthew Robb. I'm for Steve. I guess I'll just start with China in Q1, obviously it was much weaker, under $2 million. Can you kind of talk about what you see in Q2, kind of thinking about the revenue guide? Seems like it's much more second-half weighted. Is that kind of the right way to think about that?
Operator: Hi, guys. This is Matthew Rob on for Steve.
Operator: I guess I'll just start with China in Q1, obviously is much weaker under $2 million can you kind of talk about what you're seeing in Q2, I'm kind of thinking about the the revenue guide it seems like its much more second half weighted so that kind of the right way to think about that.
Ryan L. Pape: Well, I think it is in the sense that we have this sell-in versus sell-through dynamic that we've talked about sort of ad nauseum. But our goal is to eliminate that this year and then have the ability to, you know, recognize our revenue in China as it occurs. And that's part of what we're trying to accomplish there and part of what we're trying to change to actually enable us to see even more growth in China.
Speaker Change: Well I think I think it is in the sense that we have this sell in versus sell through dynamic that we've talked about sort of the ad nauseum.
Ryan L. Pape: But our our goal is to eliminate that this year and to then have the ability to you know recognize our revenue in China as it as it occurs and that's part of what we're trying to accomplish there and part of what we're trying to to change to you.
Ryan L. Pape: And that could take a number of forms in terms of what we do, you know, vendor-managed inventory type process, or others. And so all of that is part of what we're working on in China. When you've got the bulk of the product for China coming from the US, you've always got lots of material in transit; you've got lots of inventory held at different points. And so that creates this lumpiness until you can actually sell through it. And, you know, that's what we're, that's what we're going to change. So, you know, our quarter to quarter, you know, our sales into China really have almost no relationship to actually what's happening on the
Ryan L. Pape: Enable us to see even more growth than in China and that could take a number of forms in terms of what we do you know what vendor managed inventory type process or others and so all of that is a part of what we're we're working on in China, when when you've got the bulk of the product for.
Ryan L. Pape: China coming from the U S. We've always got lots of material and transit you've got lots of inventory held at different points and so that creates this this lumpiness until you can actually sell through it and you know that's what we're that's what we're going to change. So you know our quarter to quarter, you know our sales into China really have.
Ryan L. Pape: Almost no relationship to actually what's happening on the ground.
Matthew Robb: Okay, yep, makes sense. And interesting commentary on the colored film.
Speaker Change: Okay Yep makes sense.
Speaker Change: And interesting commentary on the on the colored film can you kind of explain what sparked that move because you guys have been cautious in the past just curious why why why the change.
Ryan L. Pape: Can you kind of explain what sparked that move? Because you guys have been cautious in the past. I'm just curious about the change.
Ryan L. Pape: Well, I think you're at an inflection point here to say, does the application of colored films now fit more in with our business model if you can use a technology and installation profile that more of our customers are familiar with? The incumbent products, the non-TPU-based products, are fundamentally different in their physical characteristics, if you will, and so that leap from a technician or an installer standpoint is a further leap because it's not the same to install.
Speaker Change: Well I think you you you were at a year.
Ryan L. Pape: You're you're at an inflection point here to say you know does the application of colored films now fit more in with our business model. If you can use.
Ryan L. Pape: <unk> technology and installation profile that more of our customers are familiar with.
Ryan L. Pape: The incumbent products, the non sort of TPU based products are are fundamentally different in there.
Ryan L. Pape: Physical characteristics, if you will and so that that leap from a technician or an installer standpoint is a further leap because it's not the same to install but as you see you know the the movement and the momentum around using a.
Ryan L. Pape: But as you see, the movement and the momentum around using a TPU-based colored film, that brings it more into the realms of our current customer base and the labor that we've trained and the labor that exists in the market. So it creates an opportunity for that. You know, the products themselves, if you're using TPU as a substrate, they have the possibility of being more durable, the possibility of better optical properties, and a better appearance.
Ryan L. Pape: A TPU based colored film that brings it more into the realms of our current customer base and the and the labor that we've trained and the labor that exists in the market. So it creates an opportunity for that.
Ryan L. Pape: You know the products itself, if you're using TPU as a substrate you know they have the.
Ryan L. Pape: Possibility of being more durable the possibility of a better optical properties and a better appearance. So so that's attractive you know, but I think at the same time, we're where we're being candid about it is that you know I don't know at a consumer level that it fundamentally changes the number of people.
Ryan L. Pape: So that's attractive, you know, but I think at the same time we're being candid about it is that, you know, I don't know at a consumer level if it fundamentally changes the number of people that want to change the color of their car. That's still something that is a bespoke option and, you know, not inexpensive. And so it probably appeals to a fairly narrow, fairly narrow portion of the buyer.
Ryan L. Pape: Want to change the color of their car, that's still something that is bespoke option, a and you know not inexpensive and so it probably appeals to a fairly narrow a fairly narrow portion of the buyer.
Ryan L. Pape: But as you're looking at other programs around accessorization and customization, you know, at the dealership level or the OEM level, there will be more opportunity for that. So, you know, the time is right to further advance that. And I think, from a product line standpoint, you have to be mindful around things like colors. Maintaining many colors requires a lot of inventory, and colors come in and out of style, particularly in the aftermarket.
Ryan L. Pape: But as Youre looking at other programs around accessories Asian and customization.
Ryan L. Pape: At the dealership level at the OEM level, you know there there will be more opportunity from that so you know that the time is right to further advance that and I think you know from a product line standpoint, you have to you have to be mindful around things like colors, you know maintaining a many colors require.
Ryan L. Pape: There's a lot of inventory and colors come in and out of style, particularly in the aftermarket. So that's probably part of our conservatism in and approach on that.
Ryan L. Pape: So that's probably part of our conservatism and approach to that historically. But I think you're going to see some reordering of the industry in the aftermarket relative to colored films over time, just by virtue of this bifurcation in the technology that's used. And I think ultimately that can play to our strengths. So that's why, you know, expanding that sort of beyond black is something that's worth doing.
Ryan L. Pape: Historically, but I think it's you you're going to see you're going to see some.
Ryan L. Pape: Reordering of the industry and the aftermarket relative to colored films overtime.
Ryan L. Pape: Just by virtue of this bifurcation in the technology, that's used and I think ultimately that can play to our strengths. So that's why you're expanding that sort of beyond.
Ryan L. Pape: <unk> black.
Ryan L. Pape: <unk> is something that's worth doing.
Matthew Robb: Okay, great. That's it for me. Thank you very much.
Speaker Change: Okay, Great. That's it for me thank you very much.
Ryan L. Pape: Thank you very much. We will now be handing back over to management for any closing comments.
Speaker Change: Thank you very much.
Speaker Change: I'll be handing back over to management for any closing comments.
Ryan L. Pape: I want to thank everybody for joining us on the call today and thank our team for working really hard to set the business up for success. I look forward to speaking with everyone again.
Speaker Change: I want to thank everybody for joining us on the call today and thank our team for working really hard to set the business up for success and look forward to speaking with everyone again.
Operator: Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Operator: Thank you very much. This does conclude today's conference you may disconnect. Your phone lines at this time and have a wonderful day. Thank.
Operator: Thank you for your participation.