XPEL, Inc.

Greetings and welcome to the Expel Inc. fourth quarter and year-end 2020 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce John Nesbitt of IMS Investor Relations. Thank you. You may begin.

Good morning. Thank you for joining us. On the call today, we have Ryan Pape, XBEL's President and Chief Executive Officer, and Barry Wood, XBEL's Chief Financial Officer, who will provide overviews of the business operations and review the company's financial results. Immediately after the prepared comments, we will take questions from our call participants. Let me take a moment to read the safe harbor statement. During the course of this call, we will make certain forward-looking statements regarding XBEL and its business. which may include but not be limited to anticipated use of proceeds from capital transactions, expansion into new markets, and execution of the company's growth strategy. Often but not always, forward-looking statements can be identified by the use of words such as plans, is expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes, or variations, including negative variations of such words and phrases, or the state that certain actions, events, or results may, could, would, might, or will be taken, occur, or be achieved. Such statements are based on the current expectations of the management of Expel. Forward-looking events and circumstances discussed on this call may not occur by certain specified dates or at all and could differ materially as results of unknown risk factors and uncertainties affecting the company, performance and acceptance of the company's products, economic factors, competition, the equity markets generally, and other factors beyond the control of Expel. Although Expel has attempted to identify important factors that could cause actual actions, events, or results to differ materially from those described in forward-looking statements, there may be other factors that could cause actions, events, or results to differ from those anticipated, estimated, or intended. No forward-looking statement can be guaranteed, except as required by explicable securities law, forward-looking statements speak only as of the date on which they are made. An expo owner takes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. Okay, with that, I will now turn the call over to Ryan. Go ahead, Ryan.

Thanks, John. Good morning, everyone. Welcome to our year-end 2020 call. We closed out the year with another record revenue quarter, reflecting strong top and bottom line performance. Momentum we saw in Q3 continued into Q4, with revenues growing 23.1% to $48.6 million, which was a really solid quarter. And given the COVID headwinds we saw early in the year, I was really pleased with how we finished the year with revenue of 158.9 million, growing 22.3% compared to 2019, especially as we saw some COVID-related lockdowns reinstated at the end of 2020 in some of the markets. Looking at the regions, our U.S. region continued its second half momentum with solid 36% growth in Q4 after posting 40% growth in Q3. Sequentially, revenue was down slightly from Q3, but all in all, it was a great quarter. As you know, new car sales were relatively strong. Second half of 2020 in the U.S. was certainly a benefit to us. China closed out the year strong with an $11.4 million quarter. This was down a little over 15% compared to the fourth quarter of 2019, but considering the timing of shipments as we've been discussing and the relative performance of China in 2019, This was really better than we initially expected. Sequentially, Q4 was up 21% versus Q3 and represented the highest quarter for the year. China auto market has been performing well, and we're off to a great start in China for 2021. In Canada, revenue was up 32.6% in Q4, which again was a great result. Our Protech Center acquisition from February of last year continues to outperform our expectations. And it really highlights our strategy in the channel where our installation-related acquisitions serve to grow our product sales in the markets where they operate. Parts of Canada reentered lockdown the last week of the year. Given that, I was really pleased with the Canadian results. Continental Europe continued to outperform with revenue growing 64.8% after posting incredible 88% growth in the third quarter. And as we've seen in recent quarters, This is being driven both by our aftermarket and OEM segments in Europe. Our UK business, another great quarter growing 58%. Even more impressive considering our team posted those results while COVID lockdowns were being reinstated in the UK. So another great job. In Asia Pacific, we had a record quarter in Q4 with a little over 49% growth. Latin America region grew a little over 48%. Team in Mexico continues to do a great job. We also had a record quarter in the Middle East in Q4, where we've seen some nice momentum in the second half of the year. So it's really great to see good results in all three of these regions because they're still small, they have a lot of growth opportunity as we run our channel strategy to drive market development. And as we mentioned previously, we're building a team to manage our Latin America business based in Mexico, and this will be a significant driver for 2021 and on for that region. From a product line standpoint, We saw continued growth in our window film segment with revenue growing over 96%. Sequentially, our window film revenue was down about 11% compared to Q3, which was a record quarter, but strong performance given the time of year. Seasonality, there's a bit more seasonality to window film than paint protection products. Our vision sales grew over 60% compared to Q4 2019. Continue to be pleased with our progress there. And as you may have seen in the fourth quarter, we acquired Veloce Innovation, a brand of architectural window film. This is another catalyst for this line of business to bring focus and dedicate more focus to the product line. We have earnouts as part of that acquisition that will align interests to ramp the architectural window film business. Our local teams will still be responsible for these products as they are the automotive products in their region, but they're being backed up by a more specialized team to give them the confidence to sell and grow that product line. Our fusion product line continues to make great progress, a good quarter in Q4, revenues grew 70% compared to Q4 prior year. On the gross margin front, 2020 gross margin closed at 34%, which is up slightly from 2019. Our Q4 gross margin ended at 32.8% versus 31.5% in Q4 of the prior year. As we mentioned in the past, our gross margin is dependent on our direct versus distribution sales mix, particularly our China distribution. We typically see gross margins fluctuate in the range of 32 to 35% from quarter to quarter, depending on that mix. We're working on initiatives that will allow us to break out of that typical 32 to 35% range, and we should be able to start seeing results the second half of this year or early next year on the gross margin side. Our Q4 EBITDA grew 45.3%. and our 2020 EBITDA grew 34.9%. Q4 net income grew 31.8%, and our 2020 net income grew 30.6%. So clearly strong operating leverage there. And as we've said in the past, looking at our overarching financial objectives, obviously we want to grow revenue meaningfully, drive gross margin, as I just mentioned, and we're still targeting SG&A at around 18% of revenue. And if we're able to do that, we can drive tremendous leverage in the business. And we were able to do that this year for sure. The momentum we saw in Q4 has carried over into 2021. China revenue will be very strong in Q1, which is the weakest quarter for China revenue due to Chinese New Year and other seasonal reasons. As you will recall, China was significantly impacted by COVID last year. And as a result, we have a bit of an easy comp in Q1. But even excluding the COVID impact, China has been doing great. As such, we expect our overall 2021 Q1 revenue growth to be in excess of 60% year over year, which will be a great result in our seasonally slowest quarter. A couple other things I want to mention before I turn the call over to Barry. We're expanding our facilities in San Antonio to offer more distribution and production space for new products, as well as a brand new world-class training center. Our training program continues to be a key part of our business and this new facility will allow for more classes as we've been increasing the size of our training staff in recent months. Also, we closed the year out with about $22 million in inventory and we're targeting increasing that another $3 or $4 million going into Q2. As we mentioned on our last call, we're increasing our inventory levels to mitigate various risks we identified after reflecting on what could have happened during the initial days of COVID-19. While we're consuming working capital to do so, we'll ultimately benefit in reductions in non-product COGS costs and SG&A, where more inventory lowers logistics costs. So another win on that side. Another exciting announcement we made earlier this month is we'll be the title sponsor of Texas Motor Speedway's second race of the IndyCar Series Doubleheader, which will be named the Expel 375, scheduled for May 2nd. This includes a multi-year sponsorship at Texas Motor Speedway. It's a great opportunity for more brand exposure and is a nice complement to our existing IndyCar relationship with Team Penske. Texas is a great market for us and includes the largest portion of our U.S. installation business, so we're excited to sponsor such a prominent event in the state. And finally, we're really active on the acquisition front, primarily around domestic and international channel strategy that we talk about, but also including product expansion and application of our existing products and other verticals. We're seeing some great things that are highly strategic to us. It's our expectation that we'll be able to close more acquisitions this year in dollar terms than we've done cumulatively in our history. So the team's very focused on that. Obviously, a great year for us. I couldn't be more proud of our team, their constant focus on the customer in what was initially a very challenging year, both in the early days of COVID and then in the recovery when things ramped up. really humbled by everyone's dedication and performance, and look forward to a great 2021. With that, we'll turn the call over to Barry and then take some questions. Barry, go ahead.