Greetings. Welcome to the XPEL First Quarter 2020 Earnings Conference Call. Please note this conference is being recorded. I will now turn the conference over to John Nesbett with IMS. Thank you. You may begin.

Good morning, and welcome to our conference call to discuss XPEL's financial results for the 2020 first quarter. On the call today we have Ryan Pape, XPEL's President and Chief Executive Officer; and Barry Wood, XPEL's Chief Financial Officer, who 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. I'll take a moment now to read the safe harbor statement. During the course of this call, we will 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. 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 state that certain actions, events or results may, could, would, might or will be taken, occur or be achieved. Such statements are based on current expectations of the management of XPEL. The forward-looking events and circumstances discussed in this call may not occur by certain specified dates or at all and could differ materially as a result of known and 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 XPEL. Although XPEL 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 cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking statement can be guaranteed. Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made. And XPEL undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Okay. With that, I'll now turn the call over to Ryan. Go ahead, Ryan.

Thanks John and good morning, everyone. Again welcome to our first quarter 2020 conference call. Overall, I was quite pleased with our performance in the first quarter in light of some fairly significant headwinds due to COVID-19 in China early in the quarter and in the rest of the world at the end of the quarter. Revenue for the quarter grew 14.8% over Q1 2019 to $28.4 million. Our revenue from China declined 55% while our non-China growth was about 30%. As we mentioned last quarter there was around $2 million in pull ahead in China revenue out of Q1 back into Q4 2019; even with that there was a significant impact in China from COVID-19, if you compare Q1 to Q4 run rate obviously. Our Q2 forecast from China is encouraging and it seems at least for now we may be on the other side of the pandemic in China. China auto sales were up in April as some of you may follow, ending a 21-month decline streak. We've certainly seen that positive impact in our business and expect that to continue. We should be up significantly year-over-year in China for Q2 and it could be as much as a 100% plus year-over-year revenue growth. Again this has been expected due to weakness in Q2 last year as a result of inventories built prior to that quarter and then as a result of coming out of the other side of COVID-19 in China. So I think very good news there. We also saw some COVID-19 impact in our Asia Pacific region where revenue declined 11.7% quarter-over-quarter. That was certainly less than our initial more pessimistic assumptions for those markets, which again is good news. Looking at our other regions, we really didn't see any impact from COVID-19 until the last 7 to 10 days of March or so. Our U.S. region finished the quarter with 24% growth which is good performance for our largest region. In Canada, Canadian U.S. dollar revenue grew 35% for the quarter, which was helped somewhat by two months of new revenue resulting from our Protex Centre acquisition. Organic growth in Canada was around 25%, so still very good results there. In Europe, we had a very strong quarter with U.S. dollar revenue growth of 96.5%. So we continued executing and gaining traction in Continental Europe. As we mentioned on the last call, the Continental Europe business did quite well even during the initial COVID-19 stages which hit Europe earlier than, say, the U.S. and Canada. We did see more slowdown later in the quarter but it really did outperform. The U.K. posted U.S. dollar growth of 26.4% which is lower than recent quarters, but still good results. Our Latin America region was essentially flat in Q1 but that masked the 120% year-over-year growth in Mexico which is our primary focus within LATAM. Mexico is now over 60% of the total LATAM revenue when this is direct revenue that we were selling to dealers and installers whereas the remainder of that LATAM revenue to various small distributors through the rest of the region is inherently more volatile. So continue to be really proud of our team in Mexico and a real affirmation our direct, get-close-to-the-customer approach is viable in many, many markets. Overall, our gross margin improved 330 basis points as compared to Q1 2019 to 36.3%. Clearly, our lower China mix during the quarter contributed to that increase in gross margin as you would expect given the margin profile of the China business. Our EBITDA finished at $2.6 million for the quarter which was down from $2.8 million in Q1 2019 while net income finished at $1.6 million or $0.06 a share which was down from $1.9 million in Q1 2019. We held our 2019 Dealer Conference in May of 2019 while we held this year's conference in February. So the net cost of that was around $450,000. They had a record number of participants, well over 300 customers in attendance, which was up around 50% in terms of attendees from the prior year. And I don't believe we ever grew that conference attendance 50% year-over-year in recent years anyway. So that was really nice and we're still planning to hold our 2021 conference. Barry will talk a bit more about this but if you normalize for the conference since without a period comparatively and factor out the negative FX impact that we experienced from COVID, we posted a strong growth in EBITDA and net income, so all-in-all I was pretty happy with the Q1 performance as I mentioned. As you can imagine though Q1 feels like it was a really long time ago. Like other companies we had to quickly shift our focus to managing through the crisis and uncertainty created by the COVID-19 pandemic. Our response really centered around four main objectives. First, ensure the safety of our team. Second, ensure we can continue to operate and serve our customers. Third, maximize liquidity given the immense uncertainty, and certainly that was a priority in the very early days, where we just really didn't know what we were dealing with. And fourth, minimize the financial impact to our employees and our partners as much as possible. To that end, we took a very early position with our team that we were not anticipating any reduction in our workforce and we would adopt other shared sacrifices in a variety of ways before that was necessary, if it was necessary. We worked really hard to build a team we have to allow us to get to this point. And I think we would all agree we're not — certainly not — overstaffed in any area. So we've been able to live up to that commitment to our team and expect that to continue. And we certainly do not underestimate the cost of recruiting, training and hiring a winning team. And I think some companies do and it's a big mistake. So that was very important. As I mentioned on our last call, we performed a detailed review on supply chain risk and this is really suppliers of — some down to suppliers of suppliers of suppliers just looking at the impact of really a global supply chain and, consistent with what we said last time, there's no disruption and really no impact to the supply chain. And we do not expect any. I know a question on everyone's mind is what will the overall impact of the COVID-19 pandemic be to us in the future, in particular in Q2. We won't be providing any overall guidance related to Q2 because there's just too much uncertainty and it's so unprecedented in many ways. However, we'll tell you what we know so far. Our overall April revenue was down 21% versus April of last year. Our April U.S. revenue was down 36%, which was significant but less than we saw car sales decline for the U.S. Our DAP usage declined quite a bit less than 21%. So it suggests some deferred restocking and perhaps better underlying demand performance than revenue alone indicates. And I think we wouldn't be too surprised if as the pandemic escalated in the U.S. that there was some deferred reordering by our customers. We've seen a definite pickup in order volume and customer service phone call metrics in the last 10 days or so. It's more customers are coming back online. So I would say it certainly feels like we turned a corner. China, obviously, which I mentioned, and then U.S. and Canada. Mexico and the U.K. are behind in their timing but we expect them to follow a similar path. We also had some great wins on the sales side. Even when you're selling a product that will make your customer money or make them more successful, they still have to make time to engage with you and in the slowdown that we've felt this has really allowed our team to spend time with some key prospects and significantly more time with various dealership accounts and dealership groups. When things are going at 100% it's a lot harder to get that needed face time. So we're actually quite optimistic on our current customer pipeline, particularly with our dealership initiatives. I believe we'll see the impact of that over the next two quarters. And finally, we track our average daily installation revenue through our company-owned locations, principally in the U.S. and Canada, and for May so far, we're back around March daily averages. So it's too early to say whether that's back to trend or it's addressing pent-up demand from unfinished jobs or deliveries prior to shutdowns; time will tell, but it's certainly a very positive departure from April's significantly reduced average daily installation numbers. And while that only represents our corporate locations there's nothing to expect fundamentally that our customers are faring indifferently. Our training classes are opening back up next week starting in the United States with enhanced safety protocols. And we have plenty of new interest from customers across our regions. We also have customers who we had to cancel as we closed down training in March and April who are looking to reschedule. So that's encouraging. We'll reopen Europe next followed by the U.K. and then Mexico. So encouraged by that trend and we continue to monitor that. We can't know whether all these positive signs represent a return to the new normal or reflect pent-up demand; time will tell but we're certainly feeling fairly optimistic at this point. Finally, I'd be remiss if I didn't mention how proud I am of the attitude of our team during this uncertain time. We asked many on our team to help with our face shield project where we've been supplying tens of thousands of face shields to meet some unmet demand for PPE and doing that in all the countries in which we operate. We also asked some on our team to work unusual shifts for social distancing at significant disruption to their routine and personal lives and really everyone delivered without complaint. Our attitude and dedication to providing outstanding service to our customers is what sets us apart and our team continues to rise to the occasion. So in light of the circumstances I feel very good about where we are as a company and firmly believe that we will be even better coming out the other side of COVID-19. With that I will turn it over to Barry and then we will take some questions. Barry, go ahead.

Thanks Ryan and good morning, everyone. As Ryan mentioned, Q1 2020 revenue grew 14.8% to $28.4 million. Included in this amount is approximately $200,000 or so of revenue from customers participating in our Annual Dealer Conference. And also as Ryan mentioned that was out of period. In addition, we added approximately $250,000 revenue related to our February acquisition of Protex Centre in Montréal. So if you normalize for those items, Q1 revenue would have grown right around 13%. Q1 2020 product revenue increased 12.8% to $23.7 million and in this category Paint Protection Film grew 7.1% to $19.8 million and our Window Film product line grew 68.6% and this growth in window film is really consistent with some of the outstanding growth we saw in previous quarters. This product line grew 55% in 2019 on an annual basis and we were certainly off to a great start in 2020 pre-COVID-19. Our installation revenue, combining product and labor, increased 55.6% and represented 8.5% of our total revenue this quarter. This increase was due primarily to increased revenue from our OEM projects in Europe, the new revenue from our acquisition of Protex Centre and, of course, the increased sales in our other company-owned installation facilities. Gross margin for the quarter grew to $10.3 million and our gross margin percentage finished at 36.3% versus 33% in Q1 2019. This gross margin percentage was the highest in our history, but with lower China mix and it wasn't totally unexpected. Our Q1 2020 SG&A expense grew 37.6% versus Q1 2019 and represented 27.5% of total revenue. Included in this was approximately $670,000 of expenses related to our Annual Dealer Conference, which was out of period. So if you normalize for that, SG&A expenses would have grown 25.6% representing 25.1% of revenue. Sales and marketing expenses grew 71% versus Q1 2019 to $2.7 million; normalizing for the dealer conference cost there, sales and marketing would have grown 29%. And this normalized increase is due to our decision last year to increase our marketing spend by 90 basis points, part of which was our IndyCar sponsorship. Q1 2020 general and administrative expenses grew 24.3% versus Q1 2019 as we continue to support the growth needs of the business. And we also picked up some increased SG&A within our installation acquisition and Protex Centre that have facilities, utilities and other support staff. You'll also note that we incurred approximately $416,000 in FX loss during the quarter. As you're likely aware most of the functional currencies in our foreign locations weakened substantially during a period of intense FX volatility in the last week of March in response to the growing pandemic. Approximately $655,000 of this loss was realized based on the actual movement of cash in response to the pandemic, while the remainder was unrealized. Q1 2020 EBITDA decreased approximately $267,000 quarter-over-quarter to $2.6 million reflecting an EBITDA margin of 9.1%. But if you normalize for the dealer conference and the FX loss, EBITDA would have grown 21.8% and EBITDA margin would have been right around 12.2%. Q1 2020 net income declined 13.4% versus Q1 2019 to $1.6 million and represented 5.7% of total revenue. EPS for the quarter was $0.06 per share but again if you normalize for the dealer conference and the FX loss, net income would have grown 24.3% and represented 8.1% of revenue. EPS would have been $0.08 per share. And as Ryan alluded to in his comments, one of our key objectives in response to the unprecedented uncertainty related to COVID-19 was to maximize liquidity. To meet that objective, we took several steps. In March, we drew $6 million on our U.S. line of credit. In April, we drew $4 million on our Canadian line of credit. And this week we closed on a $6 million three-year term debt facility with the Bank of San Antonio. We're also proactively taking advantage of government programs when eligible in all jurisdictions where we operate. Most of these consist of deferrals of tax payments and delays in transactional filing deadlines. We believe these measures provide liquidity to effectively accomplish our objectives in managing through the crisis and they also provide us some flexibility should acquisition opportunities arise in the future. So we're really on a war footing when it comes to this crisis. Fortunately, and the good news so far has been the business continues to generate positive cash flows since the middle of March when the crisis ramped up as a result of our focus, discipline and micro-management of the details of our business that we implemented. We're still in a very uncertain time and hopefully the recent trends in our business that we're seeing are indicators that we are in fact coming out of this. Time will tell. And with that, operator, we'll turn the call over for questions.

Our first question is from Jeffrey Van Sinderen with B. Riley FBR. Please proceed.

Good morning, everyone. Can you speak a little bit more about the sales progression you've seen in China in recent weeks during the reopening? And I guess what you anticipate in that region for Q2?

Yes. I think we've obviously been following it very closely both because the China business is so important to us and then just trying to understand how that recovery could be a proxy for the rest of the world. Some of the things that we tried to understand are: is the return to normal there really slow and gradual or does it move a lot quicker? Does it seem like it's sustainable or is it kind of trying to meet backlog demand? And then digging out and really everything that we're seeing is that the recovery in China by all respects has happened quickly. It looks pretty deep and sustainable. As we're looking at forecasting out through the rest of Q2, all indications are that we're seeing real movement there. For us, obviously, we had a tremendous Q4 2019 with China. One it was a great quarter based on the momentum last year, but then we pulled ahead some of the sales from Q1 like we've talked about; then we have Q1 which was down 55%—really painful with China shut down between the Lunar New Year and COVID, it really shut down for most of the quarter. So for Q2 now we're conceivably at 100% plus growth year-over-year which is really good. It's off of the low base in Q2 2019 but it's huge growth. That way it's huge sequential growth from Q1. It still puts us off of that peak that we had in Q4 but I think under the circumstances we're really happy to be able to see that for Q2.

Okay. Good. And then I understand you aren't providing guidance but can you give us more color on what you're seeing in your business in North America, in regions that have eased lockdown measures? And how are you thinking about reopening for your business both in your own shops and are dealers reopening? Maybe just touch on COVID measures that you're taking in your own facilities and what your dealers are doing around COVID? What's your sales progression?

Sure. It's been really kind of mixed when you look at the different regions. If you compare even Canada to the U.S., when Canada was in the depths of their lockdown, it was implemented much more effectively, much deeper and you felt it. Whereas in the U.S. the level of activity has kind of ebbed and flowed and sort of bottomed in mid-April. But it was never as clean cut and it never was just shutting off the spigot entirely. I think as I mentioned what we're seeing with our average daily revenue trend for our installation businesses, anecdotally we're hearing that echoed from a lot of our customers where it's not uncommon for—we have customers this month that are fully booked and say they're operating in a normal way. Now it does vary by geography, but there's more of that than maybe we would have expected. What we're doing and what we are helping to guide our customers to do is focus obviously on safety of our team. So this includes temperature checks, masks and shields, disinfection procedures and also procedures around how you ensure that the customers' vehicles are disinfected as they come in and as they leave. We're trying to help our customers adopt best practices with that too. They all have similar concerns but given our position in really understanding that part of the business since we do it also, we're in a really good position to help.

Okay. Great and then if I can just squeeze in one more. How are you thinking about perhaps evolving your acquisition strategy during this COVID period?

Yes. I think that's a very important question. We're not looking at fundamentally pausing or suspending acquisitions. I think it will change. Market-by-market, even within North America or within another country, some of the dynamics are going to be different. So it may change what we prioritize and what we're willing to pay. I think it may increase the number of interested parties we have. Companies of every size realized with something like this that's so unprecedented how vulnerable really all companies are. Particularly the smallest companies are just that much more vulnerable. The prospect of business going to zero due to government mandate is a frightening thing. So I think it really opens up a window as we plan to get more engaged, like we've been talking about, and then obviously we did the last transaction in Canada earlier this year. I think it really gives us an opportunity to double down there, but I think there will be differences. The mix may shift; the economics may shift and we may be looking for different deals, but it's not going to slow us down at all, I don't think.

Our next question is from Steven Dyer with Craig-Hallum. Please proceed.

Hey. Thanks. Good morning, guys. You've given a lot of great color about sort of what you've seen in China versus here. And I know it's very, very early days here—some dealerships aren't even open—but I think typically back of the house has been open through some of this. Are you able to sort of compare and contrast at all what you saw in China in terms of reopening to what you're seeing early days here? Is one of them responding better, bouncing back better?

Well the one main difference I would say is in some of the other countries the shutdown in China was certainly either more absolute or more effective. So China activity went to zero for a period of time or close to it whereas in the U.S. we really didn't see that. So I think that's going to be a key difference; you're not ramping off of the same low because it just didn't get to that level. But I think so far—I'm really basing this on the past 10 business days or so in May—we're seeing a lot of instances where things have ramped quite quickly. It may be too soon to say that across the board within the U.S., but in pockets and with certain customers we've seen that and that resembles China to some extent.

That's great, Ryan. Thanks. In terms of Europe, I thought you had a really strong quarter despite sort of being on the leading edge of the curve relative to us. What have you seen there in the second quarter so far?

We've been off of our sort of peak rate that we saw in Q1. We saw some slowdown in Europe really at the end of March and into April similar to what you saw in the U.S., but we're seeing that pick up commensurate with what we're seeing in the U.S. and Canada now. So I don't think that Europe's situation is fundamentally delayed; it's just for us been a bit more muted compared to some other markets.

Sure. In Q2 would you anticipate just sort of the relative higher mix of China vis-à-vis China's bouncing back and the U.S. probably having its worst quarter? Would you anticipate any sort of material swing in gross margin on that or am I overthinking that?

Well, I think we will see—depending on what that mix is—we will see gross margin swing. We were at Q1 36 plus percent, the highest we've ever been. If you go back and look at Q4 2019 where China was a much bigger percent of the mix, we were significantly off from 36. So I think we're going to be closer to that lower range probably in Q2 if we see China really outperform relative to the rest of the world, which right now I think is our best guess. But the exact mix is to be determined. So yes, I think from the Q1 run rate with gross margin we will see that decline potentially and sequentially into Q2.

Got it. And then lastly, just sort of a one-off: the face shields, is that something you anticipate doing for some time yet and is there any sort of material contribution from that? That's it for me. Thanks, guys.

Sure. No, Steve, thanks. Early on we said how can we help and many of the raw materials used for face shields and other things were in short supply. We said, well, we can create a face shield using raw materials that we have. It's a higher cost of construction product, but we have an ample supply and it was a good way to really get our team rallied. We're seeing that demand continue and people think about PPE relative to medical facilities and whatnot, but I think what's lost in that is that there are all sorts of businesses that need PPE that never needed it before and are just trying to protect their workforce. So it's not material from a revenue sense. It does allow us to keep inventory moving, so from a cash flow standpoint that's a nice side benefit. We do intend to continue doing it as long as there's demand and then if that ends, we'll stop doing it. But it's a good project and something where we can help a little bit, so we're happy to do it.

We have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.

Yes. I want to just make one correction earlier. I think Barry stated that we had $665,000 of our FX losses realized. It's actually $265,000 out of the approximately $400,000 FX loss. So just so that's clear. Thank you everybody for your time. We look forward to speaking with you next quarter. Thank you.

This concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.