XPEL, Inc.

good morning and welcome to the expel incorporated second quarter 2025 earnings call at this time all participants are in a listen only mode and the floor will be opened for questions following the presentation if anyone should require operator assistance during this conference please press star zero on your phone keypad please note this conference is being recorded i will now turn the conference over to your host John Nesbitt of IMS Investor Relations. John, the floor is yours.

Good morning and welcome to our conference call to discuss Expel's second quarter 2025 financial results. On the call today, Ryan Pape, Expel's President and Chief Executive Officer, and Barry Wood, Expel's 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 will take questions from our call participants. A transcript of this call will be available on the company's website after the call. Take a moment now to read the safe harbor statement. During the course of this call, we'll make certain forward-looking statements regarding Expel Inc. and its business, which may include, but is 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 can cause actual results to differ materially from those expressed in these statements. Some of these factors are discussed in detail in our most recent Form 10-K, including under item 1A, risk factors, filed with the SEC. Expel undertakes no obligation to publicly update or revise any forward-looking statements whether a result of new information, future events, or otherwise. With that, we'll now turn the call over to Ryan. Please go ahead, Ryan.

Thank you, John, and good morning as well, everyone, and welcome to our second quarter 2025 call. We had a record quarter in Q2 with revenue growing 13.5% to $124.7 million. I think this exceeded our expectations going into the quarter and in the environment that we're in. We had an easier comp in China, given the sort of orchestration of the revenue in the previous year. But even factoring that in, revenue growth would have been about 11% in a more normalized environment. So really good. I think the U.S. region grew significantly. 8.4% to $70.4 million for the quarter, which was also a record and good. I think obviously Q2 in the U.S. was quite exciting, you might say, in the sense it was punctuated by tariff anxiety to start. And for those who follow the car market, this jumped the USR in the first part of the quarter, and then it slowed in the end as maybe some consumers tried to front-run pricing fears in the new car market. You know, our view is really mixed as to whether that helped us, hurt us, or what the impact was. Obviously, we would prefer a more stable environment month to month. But I don't think it was overwhelmingly positive for us because some of those gains at the front half of the quarter were given up in the second half. And if you look at the new CARSAR for the quarter, I think it was up modestly like 2%, 2.5% from prior year. So I think this is just more of the same in terms of this choppy and uncertain environment that we've been in and expect to continue to be in. Canada region revenue grew 7.4% for the quarter. As we discussed previously, Canada started the year very slow, but this has been recovering. It was similar maybe to how the U.S. started in the prior year. July for Canada was quite good, the most on track this year. I think we hit our internal budget for Canada for July, which was set last year. So that's good. We've seen a pattern like this sort of ripple through all the markets in which we serve. And it's just something we have to deal with and stay the course and maintain what we're doing in spite of the volatility. China revenue came in at $7.7 million. This is sort of in the range we've been talking about in terms of the more normalized cadence of revenue recognition we get now instead of this choppiness we've seen in the past. Uh, we're finalizing our, our strategy for the China market. We expect to have more to discuss on that very soon. Uh, we also saw strong performance on our other remaining regions, uh, Europe, uh, India, Middle East. These all did well for us, uh, with exception of Latin America, where we saw a revenue decline quarter over quarter. This is really due to some large distributor markets in South America where the, the timing of revenue is inconsistent. And, uh, you know, we're working to move to a direct sales model in the largest car markets of the world. And so as you look at a market like Brazil, you know, that's something that we're focused on this year as well. We had a good first half of the year from revenue perspective, I think, particularly in light of all the uncertainty and tariff noise. Q3 revenue should be in the $117 to $119 million range. Again, based on what we know today, Uh, as you may recall, Q3 24 was our highest revenue quarter in history up until this quarter. So it's challenging comp, but we see Q2 and Q3 trade off year to year as the peak quarter of the year from a seasonality perspective. And then Q3 last year was the first quarter where we saw more stable revenue pattern in terms of our China revenue. So we'll be lapping that a little bit, but we're certainly glad that, uh, we have that predictability with all the changes we've been working through. Overall, I really think we're performing quite well in this environment relative to our competitors and even others in the broader space. The team's really executing. I think everyone knows where they see opportunity and where they need to work really hard. It's certainly a challenging environment, but we're really executing well. And I think on a global basis, our shift to a A very focused and decentralized P&L model around our various regional leaders is proving success and showing results. Things will remain volatile. But if we've got the right ownership of every area of the business and good leaders, they will solve the challenges that we see. So really, I think I feel the best about the internal workings of the company right now than I have in probably two years. So we're certainly excited about that. Continued good performance at the gross margin line. The quarter came in at 42.9%, which is up six basis points today. Sequentially, this is down to prior years, second quarter, mainly due to a revenue mix where we had higher China, which is distributed revenue this year than last year. So pretty consistent. We still expect the opportunity to trend this gross margin upward going forward as we continue to work all the initiatives we have. We've talked about sort of tariff impact in terms of our business and that that is expected to be minimal, and we have the ability to work around that developing situation. And I can't rule out some short-term noise in that as things happen, but I think as you see here, we have really stability in that front, and our overall architecture of the business is just not exposed to what we're seeing on a broader scale, so still remain in a good position there. Our SG&A growth, in the quarter is largely driven by overhead added in the second half of last year that's embedded in our distributor acquisitions in Thailand and Japan. As we discussed, these are important markets for us to build a direct presence, so obviously we now have facilities and employees in-country upon which to build a bigger base. Additionally, We did have about $1.6 million in one-time cost in SG&A for the quarter. Some of you may remember we discussed this in the first quarter. We had some restructuring costs that we did to reorganize the business coming into this year. Some of those were born in Q1 and the remainder in Q2. And then we also have quite substantial costs in the quarter related to legal and due diligence for M&A that we've been pursuing, as we've discussed. And then we have some other costs for this quarter that will not reoccur, so $1.6 million in total. If we normalize for those, EBITDA would have grown 14.7% to $25 million, or just right at about 20% of revenue, which is good. generated just under 28 million in operating cash flow in Q2, really driven by the strong results overall, and then slight reduction in inventory. And we ended the quarter with approximately 50 million net cash on the balance sheet. So we're advanced in a number of M&A opportunities. We're starting to see some opportunity here in terms of valuations for things that we've been interested in. Many have asked. We've seen those be stubborn, I would say, given the overall macro situation. But we're starting to see that change a little bit, starting to see a few distressed things that might be of interest to us. So I feel very strong about our plans in terms of capital allocation here for the rest of the year and going in the next year. This is a top focus of the company and the board. But we're also extremely prudent and extremely diligent. We're not going to be a footnote in history of doing bad M&A and ruining a company. So I feel really good about the process that we're going through on this and that will continue. We're seeing really good momentum with our personalization platform and This is where we sell installations of products online and refer them to our installer network. Volume continues to grow. In fact, it's grown substantially even in the past two months. And we see very good end consumer satisfaction. So we're investing a lot in this to continue to drive it forward to make it applicable to more use cases and really serve as the ability to help drive attachment of our products and others. And this has been part of our ongoing investment in our DAP system. It's all run through the same platform. So I think this is really an emerging success story for us and one that we're very focused on expanding the use cases. Finally, product front. We've talked in recent quarters about a lot of new products. We've taken most of them to market. We'll be launching a set of colored paint protection films in the end of this quarter, beginning of next. You know, we've talked about this previously. It's a nice adjacent product set for us and something that we're pursuing. And we'll have features in the DAP and elsewhere to really help maximize this opportunity for our customers. So I'm really excited about that. So all in all, a good quarter. Team's doing excellent. And I look forward to a good second half of the year. Turn it over to you, Barry.