Q1 2025 XPEL Inc Earnings Call
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Speaker Change: Good morning, everyone, and welcome to the X-Bell Incorporated First Quarter 2025 Earnings
Speaker Change: At this time, all participants have been placed on a listen only mode, and the floor will be open for questions following the presentation. If anyone should require operator assistance during this conference, please press star zero on your phone keypad.
Speaker Change: Good morning and welcome to our conference call to discuss X-Bells' first quarter 2025 financial results.
Speaker Change: on the call today, Ryan Pape, Xpel's president and chief executive officer.
Speaker Change: and Barry Wood, Xpel Senior Vice President and Chief Financial Officer will provide an overview of the business operations and review the company's financial results.
Speaker Change: Immediately after the prepared comments, we will take questions from our call participants. The transcript is called to be available on the company's website after the call. I now take a moment to read the safe harbor statement.
Speaker Change: During the course of this call, we'll make certain forward-looking statements regarding X-Belt 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 gross strategy.
Speaker Change: Such statements are based on our current expectations and assumptions, which are subject to known and unknown risk factors, and certain needs that could cause our actual results to be materially different from those expressed in these statements.
Speaker Change: Some of these factors are discussed in detail in our most recent Form 10K, including under item 1A risk factors filed with the SEC. Xpel takes no obligation to publicly update or revise any photos of the statements, whether as a result of new information, future events, or otherwise.
Ryan Pape: Okay, with that, I'm now going to turn the call over to Ryan. Go ahead, Ryan.
Ryan Pape: Thank you, John , and good morning everyone as well. Welcome to the first quarter, 2025 call. We're up to a good start this year, solid top and bottom line performance in the first quarter. Revenue grew 15.2% to 103.8 million. I think a good headline number for us, and obviously more details you look at our different regions.
Ryan Pape: US region grew 11.6% to 58.1 million in the quarter. This included sales into the aftermarket independent channel that grew over 10%. So I think a good result there relative to what we've been seeing.
U.S. car sales in the quarter.
Ryan Pape: We're good, a new car buyer seems to be wanting to get ahead of the tariff so...
Obviously, you saw really good saw in March, which...
Ryan Pape: You know, hard to know how that helps and hurts us in this dynamic, but it's it's not a bad thing when more cards are sold. So what that means for the rest of the year, I think remains to be seen. Obviously still a lot of uncertainty. Really impossible to predict what happens and how it and how it might impact the business, but we have good momentum in the US right now. So, I'm going to give you a little bit of a little bit of time. So, I'm going to give you a little bit of time.
and see that continue in all things equal.
Ryan Pape: Canada region, revenue declined 14.9% to 9.4 million in the quarter.
Ryan Pape: If we adjust for some timing differences from the previous year, revenue decline was around 10%, so still rather significant.
Ryan Pape: Sentiment from Customers in Canada is, I would say, relatively poor. Similar to how the US started the year last year, if you recall, in the first quarter, was very challenging for the US and Canada outperformed.
Ryan Pape: Handley in that quarter. So we started the end of the busy season and Canada has passed their election so we'll keep working hard there, I think.
Ryan Pape: I think the worst probably behind us, but you know time will tell.
Ryan Pape: China, revenue came in at 8.1 million. This was in line with what we expected. At this point everything is proceeding on track relative to all of our plans in China. We're still engaged with our distributor on evolving to go to market to be more direct in China and we'll probably have more to discuss in that over the next quarter or two.
Ryan Pape: We saw solid growth in most of the other regions, Europe had its second highest quarter in history from revenue standpoint, which was better, you know, off of some of the sluggishness in Q4.
Ryan Pape: I think our view on Europe for the years is probably improving at this point, and we saw record revenue in the Middle East.
Ryan Pape: as I mentioned earlier, it's impossible to predict what's going to happen in the coming quarters with all the tariff noise, so we won't be providing any guidance for the year. It's hard to say what the near-term impact will be. We saw a good momentum in April , obviously, that could change, but we're feeling pretty good about that. Our view right now is QT revenue should be in the $117, $219 million range, again, the environment we're in that could be on either side of that potentially.
Ryan Pape: I had a good growth margin performance in the quarter, which came in at 42.3%, this probably approximates our sort of near term run rate plus or minus.
Ryan Pape: and as we discussed previously, we still see the upside opportunity for that.
over the midterm.
Ryan Pape: Although, you know, our expectations of achieving that this year may be somewhat...
Ryan Pape: We saw nice leverage in the quarter on our SGNA growth, or nice leverage in the quarter as our SGNA growth rates moderated.
Ryan Pape: As we discussed on last call, we did do a restructuring initiative at about 400,000 in costs related to that in SGNA for the quarter of the 300,000 in Q2.
Ryan Pape: We're making good progress on our expense initiatives and that will continue to be a focus for us, but to be clear, we're continuing to invest in SGNA where it drives future revenue of the business.
Ryan Pape: examples of that being in our in-country distribution businesses which are actively building or services expansion where there may be SG&A investment needed. But the focus on SG&A is really on our overhead and back office.
Ryan Pape: where we have to spend more conservatively, but also where we've invested substantially over the past several years to build the team that we have. So if you'll feel pretty good about that, it continues to be a laser focus for us going forward, but I think we're making progress.
Ryan Pape: Eva DeGrew, 23.2% according to 14.4 million, which is a great result. My briefly touched on the tariff situation earlier. Our team obviously is closely monitoring the ever changing situation and we can take steps to mitigate potential impacts.
Ryan Pape: or for having to consider, and having to consider planning around tariffs and retaliatory tariffs doesn't help with our goal as optimizing and ultimately reducing total inventory because it's just less efficient, but we're in a good position.
Ryan Pape: I think much harder to understand is the impact on the new car business and the resulting trickle down impact to our business of tariffs. You know, questions we're asking are will there be pull ahead and demand maybe we've seen some of that in March or April ?
Ryan Pape: Will Buyer's ultimately substitute one vehicle for another if there's a large.
Ryan Pape: a pricing disparity. If that substitution happens, how does that impact their decision to accessorize?
Ryan Pape: Will the vehicle inventory become constrained? YouTube production cuts or other factors? How will that impact dealership behavior? Is that good or bad for us? So, you know, these are the kind of things that I think we're working to strategize on but
Ryan Pape: Really, our response to all of them is pretty simple. We're not actively doing anything today to change what the business does, except to, you know, stay focused on providing best products, services, and support to all of our customers.
Ryan Pape: and as things change or if things change relative to the car market and the impacts on the business will of course adjust our business and strategy appropriately.
Ryan Pape: on the product front, we talked a lot over the past couple calls, the windshield film continues to do well over launching additional colored films in Q2 as well as a surface protection films for
Ryan Pape: Architectural Application, I think I think what you'll see in that line is our internal mantra to protect everything. We'll see a lot more protection applications in the architectural space going forward.
Ryan Pape: Today, we announced our Board approved $50 million share of repurchase plan authorization.
Ryan Pape: We still view the number one priority for capital allocation is investing in the business of the M&A primarily and then secondarily possibility of more capex to drive our cost lower. Having said that, there's always a price we're buying yourself.
Ryan Pape: is obvious, and now we have a vehicle in place to do that.
Ryan Pape: Well, relative to our inorganic activities, we discuss our efforts to expand.
Services Business, so that work continues.
Ryan Pape: We're, I would say, prudently cautious in our approach given the end market for that business and sort of some of the uncertainty but we continue to work through that.
and I think a big part of...
Managing that correctly is to ensure we get the right evaluation for anything we look at and that, you know, that evaluation, the valuations of some of the targets we're looking at that they move appropriately relative.
Barry Wood: a good job. Everybody's really focused on all the details that matter to ensure we optimize the business and run it in the best possible way and I couldn't be more thankful for that. So with that, we'll turn it over to Barry. Barry, take it away.
Barry Wood: Thanks, Ryan, and good morning, everyone. As we said, our total revenue growth in the quarter was 15.2%.
Barry Wood: and if you take China out of that, the revenue growth in the quarter would have been approximately 8%.
Barry Wood: Obviously the GANET performance had a bit of a drag to that, but I think a good...
Barry Wood: Takeaway for the Quarters, the US business, which is our largest and most mature market and represents 56% of our total revenue grew to 11.6% and was almost flat sequentially. So that and the strong performance in most of our other regions are certainly all positives for the quarter.
Barry Wood: Our Total Window Film Product Line grew 28.1% in the quarter with our new windshield protection film product contributing to that. Automotive Window Tent grew 16.2% in the quarter and our architectural window film grew 9.6%. And sequentially, Total Window Film Revenue was flat to Q4.
Barry Wood: As Ryan also mentioned, our SDNA expense grew 14.4% in the quarter to 32.8 million.
and sequentially this was up about 4.5% versus Q4.
Barry Wood: and in addition to the .4 million of RIF costs that Ryan mentioned, we also had approximately 1.2 million in net costs associated with our dealer conference, included in our Q1 S-GNA.
Barry Wood: Ryan also mentioned our solid EBITDA performance, which grew 23.2% to 14.4 million, and this was about a 14% EBITDA margin for us. Sequentially, EBITDA was up a little over 1% versus Q4.
Barry Wood: and net income for the quarter increased 28.8% reflect an 8.3% net income margin, and EPS for the quarter was 31 cents per share.
Barry Wood: In just a note, our effective tax rate for the quarter was higher than normal at 23.9%, due mainly to some foreign taxes paid that will not re-accur. So for planning purposes, moving forward, you should assume a 21% effective tax rate in future quarters.
Barry Wood: Cashflow provided by OPS was 3.2 million for the quarter, and we continue to build cash on the balance sheet and have substantial debt capacity, so we feel good about our ability and our well-positioned to execute on our capital allocation priorities as we move forward here.
Barry Wood: and with that operator, we'll now open up to call up for questions.
Speaker Change: Certainly, everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality.
Speaker Change: Once again, if you have any questions or comments, please press star one on your phone.
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Speaker Change: Thank you. Your first question is coming from Jeff Van Sinderen, from Be Riley Securities. Your line is live.
Speaker Change: Good morning everyone and congrats on the strong metrics in the quarter. Wanted to see if you could give us any more color on kind of what you're seeing and hearing from a U.S. dealer network in terms of velocity of business.
Speaker Change: maybe a little bit of pull forward there, just giving them the overall general macro uncertainty out there.
Speaker Change: Yeah, Jeff, thanks for the question. I mean, we, I think if you look at the data, if you look at the the March Tsar as an example, I think it suggests.
Speaker Change: some amount of pull-ahead, I think as you talk to dealerships.
Speaker Change: You get maybe more of a mixed answer. Some definitely think they saw that some not so much. So I think it sort of stands to reason that we probably probably see some of that and then I think the question there is.
Speaker Change: If the age of the fleet is continued to grow, obviously there's kind of a tough demand. If we pull ahead now, are we going to pay for that later? Or will that just be sort of a permanent pull ahead to help fill some of the deficit of what hasn't been sold? But I think there's definitely some of that that's occurring.
Speaker Change: Okay, and then if we could shift to China for a minute, just wondering any more color you can provide on what we might expect there. Obviously business was up a lot every year in the quarter and just wondering anymore thoughts you can share there.
Speaker Change: to make the entire supply chain more efficient and in the cell in, cell through.
Match
Speaker Change: and so you're not seeing these oscillations in revenue quarter to quarter like we had, and obviously that...
was painful by comparison in Q4 and positive by...
Speaker Change: Caparis and EQ1, but it's going to be much more normalized going forward. And then I think our approach, current issues, notwithstanding is that we very much want to pursue a more direct business model in China like we have in other markets.
Speaker Change: and that's something we're so very actively working on and we'll continue over this quarter.
Speaker Change: Okay, great. And then just one more if I could squeeze it in on the tariff situation, realize that's really fluid and kind of a tough question.
Speaker Change: But, terrifying fact on the China business, how do we think about that?
Speaker Change: Yeah, I know it's a great question. I mean, I think that, you know, the conventional view on China as an impact terrorist is from the perspective of a Chinese supply base supplying into the US market.
Speaker Change: and obviously there's a massive tariff load on that for us. That's a non-factor because we just don't trade in that way. There isn't...
Speaker Change: meaningful flow of goods for us from China to the U.S.
So then the second impact is really...
Speaker Change: from retaliatory terrorists being the flow of US goods into China now.
and for us there is...
Speaker Change: Historically more exposure there, but with the diversification of our manufacturing and manufacturing
Speaker Change: Product being made, the Pay Protection on Products being made in three countries globally.
We're able to supply.
Speaker Change: So, supply chain, not everything is always in the right place at every exact second. So, as you have to react to these, you're incurring, you know, logistic expense and probably
Speaker Change: of working capital a little bit. And maybe there's some tariffs paid on a very transitory basis to get things in the right place. But to the heart of your question, the China tariffs and then retaliatory tariff impacts for us is really a non factor.
Speaker Change: Okay, great to hear. Thanks for taking my questions. I'll take the rest off one.
Thanks Jeff.
Speaker Change: Thank you. And once again, everyone, if you have any questions or comments, please press star, then one on your phone.
Speaker Change: Your next question is coming from Steve Dyer from Craig Hallum. Your line is live.
Speaker Change: Hey, thanks. This is Matthew Robbon for Steve. I want to ask a question and pull forward of demand, but I'll ask it in a little different way.
Speaker Change: I'm the take rate for PPF and film, mostly in the US. Have you seen any meaningful change there from what is kind of a typical steady state versus the last few weeks of Q1 and thus far into Q2?
Speaker Change: I guess I would have thought that a buyer that's rushing out to get a car probably wouldn't add film, but just curious on that.
Speaker Change: Yeah, I think your hypothesis is certainly one that we've been...
Speaker Change: I'm asking ourselves too, if you are a pull forward customer and you are one of those, how does that impact your take rate? And I think our instinct is that that's probably not...
Speaker Change: our core buyer, necessarily. So I think we're not really of the mindset that we've sort of...
Speaker Change: from that in some outsized way that the pull forward is actually bringing demand forward for us. I think our view on that is...
Speaker Change: probably that it's not. But I think in the metrics we have, you know, there's really nothing that stands out to highlight the answer to your question. I think it's, it's, you see, everything seems pretty stable from our perspective.
Speaker Change: Okay, got it. And then on preloading in the dealership channel, noted it was pretty close to a state-to-state last quarter.
Speaker Change: Given dealer inventory is turning a little bit lower and that probably continues in the near term, has that or will that be a headwind for you guys and then are there any strategies that you can take to offset?
Speaker Change: I think the biggest headwind for us was the shift from...
Speaker Change: Majority of dealerships or plurality of dealerships, building inventory and moving to that sort of steady state inventory environment that you may be transitioned to in the more of the second half of last year. That was really the on set of that headwind, so now it's sort of stable in that sense.
Speaker Change: You know, if inventory contracts, you know, certainly we saw that at the onset of...
COVID or the aftermath of COVID and the supply chain charges.
You know inventory
Contracting is a...
a near-term negative for that.
Speaker Change: But I think it's probably too early to really see that that's going to happen here. I think, you know, that's certainly a risk if there's a...
Speaker Change: Production cuts and, you know, production cuts combined with pull forward of demand is something that would be a negative for that. But, you know, right now, I don't, I think it's too early to really call that out as a, as an actual risk for us.
Okay. Yeah. And then...
Speaker Change: Just sort of curious, has there been any headwind from Audi and Porsche vehicles being held at port?
Speaker Change: You know, at least that's what our checks have said, you know, starting maybe late in Q1 but probably more impactful in Q2. Have you guys seen that?
Speaker Change: Is that any of our business near term? Yeah, we've not seen that. I mean, we're sort of watching all of the the talk track around what folks are doing with.
Speaker Change: and logistics, and whether they're holding shipments or not. So I think we've not seen that, and Mark has been pretty good for us, so I think that will be kind of a wait and see.
Speaker Change: Okay, that's great. That's all for me. Thanks, guys. Thank you.
Speaker Change: Thank you. That concludes our Q&A session. I will now hand the conference back to management for closing remarks. Please go ahead.