Greetings, and welcome to the XPEL Inc. First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Operator Instructions: please note that this conference is being recorded. I will now turn the call over to your host John Nesbett of IMS Investor Relations. Please go ahead.

Good morning and welcome to our conference call to discuss XPEL's financial results for 2021 first quarter. On the call today are Ryan Pape, XPEL's President and Chief Executive Officer; and Barry Wood, XPEL's Senior Vice President and Chief Financial Officer, who will provide an overview of the business operations and review the company's financial results. Immediately after their prepared remarks, we will take questions from our call participants. I will 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 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, as 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 the current expectations of the management of XPEL. 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 many 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 of which they are made and XPEL undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Okay. With that, I'd now turn the call over to Ryan. Go ahead, Ryan.

Thanks, John, appreciate it and good morning everyone. Also welcome to the first quarter 2021 call. Once again, we saw another record quarter for the company revenue growing 82.7% to $51.9 million. Great numbers certainly exceeded our expectations going into the quarter. As we discussed during our year end call we did have an easier comp in Q1 given the 2020 COVID impacts which are really just in China, not in the rest of the world. But even with that phenomenal number for the quarter Q1 revenue was higher not only than our Q4 revenue but also higher than every quarter in 2020. So growth was strong across the board. The U.S. business grew 64.6% to $25.6 million another record quarter for the region. Sequentially the U.S. revenue increased around 20% compared to Q4. Looking at that Q1 U.S. auto sales are strong, the U.S. car is at almost 18 million in March on an annualized rate and this certainly has been reflected in the results of the public dealership consolidators as well. So it's been a great time to be in the car business in the U.S. Most of our business on the auto side is correlated with new car sales versus new car production. So we've done very well there. Some of our business is tied to vehicle production, whether it would be a small segment of our OEM business or dealership business that involves pre-loading the dealerships inventory. So those areas would have been more negatively impacted by the production shortages, although you certainly wouldn't know it from the results. It's possible the current record setting U.S. new car sales trend could be negatively impacted at the end of Q2, when there could be a trough in new vehicle inventories before they rebound due to the semiconductor shortage and other lingering issues. U.S. new car inventories were down 13% since the start of the quarter. Whether that occurs or how that might impact our business remains to be seen. But more than anything, it likely just represents a cap for us in terms of our ultimate growth potential in Q2. And as inventories recover later in the year as is expected we would expect some of our dealership business to increase faster than the rest of the business as it's more tied to deliveries from the manufacturers than sales to the end customer. China business put up great growth in Q1 given these easy COVID related comps revenue coming in at $10.7 million. China auto sales like the U.S. continue to be strong, pleased with how we're performing there. Given timing of orders, delays, ocean freight, air freight, all the factors that impact the China business, it can be pretty lumpy, but we've seen things kind of trend in a closer range over the past few quarters we have ever seen. So business doing very well there. Canada also had a good quarter revenue growing about 19% from lockdowns continued into Q1, but the business has done well. Canada is also impacted by timing of some large quarterly orders into the dealership channel. Those were in Q1 of 2020, but will be in Q2 of 2021. European regions continue to perform very well. Continental Europe grew 54.8%. We have seen great performance in France following our acquisition last year. It just continues to reinforce the value of our various channel strategies and the ability to drive awareness and create demand through them. UK region grew 60% during the quarter really amazing given the lockdown implementation in the UK, really amazing results there given that. APAC region which excludes China, good quarter, revenue doubled from last year a bit of a COVID impact in APAC in Q1 of 2020, like China. So pretty easy comp. Still a good quarter. Latin America, another great quarter, talk about it being led by our Mexico business. As we mentioned last year, we've shifted our responsibility for managing the rest of the Latin America region to a team based in Mexico. We're seeing a good impact from that, I think we are starting to see that in the results and that'll certainly continue. Middle East matched our revenue, just about $2 million, good results there as well. So really hard to find much of an exception in the quarterly results by region. Really good results across the board. Very pleased. The individual drivers driving a lot of the performance in the different regions, but all in all very good across the board. From product line standpoint, window film continues to outperform revenue growing almost 132% to $7.2 million which was great for the segment. We continue to make progress on protection window film and other record quarter. The dollars in the window film product line still concentrated in the automotive segment, as you know. Sequentially the window film business was up almost 28% versus Q4. So really good result. On the ceramic coating side our fusion product continues to do well. And again, like the vision and another record revenue quarter there as well. So we're certainly seeing the adoption of these new product lines accelerate and continue to do really well. So all in all very strong results. Given the seasonality in the business, it's unusual for us to have sequential growth in Q1 from Q4. Normally we'll see Q1 revenue decline from Q4 as it's typically the seasonally slowest quarter. In many respects, I think we're seeing the economy in overdrive. As a result, supply chain, logistics, the labor market, they're pretty messy at the moment. And I think you're probably hearing that from a lot of people. The chip shortage is an impacts new vehicle production concern for the end of Q2 perhaps into Q3 as I mentioned earlier, but this is largely offset in our view by a seemingly voracious appetite for vehicles from consumers and positive momentum in our core products and their respective attach rates to new car sold and then excellent execution by our team. If you put all that together, we expect to grow Q2, 2021 revenue approximately 65% when compared to Q2, 2020. As you may recall, we saw COVID impacts begin in the U.S. and Europe rest of world outside of Asia in Q2, 2020 just as we saw China begin to rebound. So again makes for an easier comp. So we'll see Q2 build on the Q1 momentum and certainly come in at higher revenue than Q1. But just maybe with a cap on the upside revenue growth for Q2 due to the possibility of inventory shortages in the auto channel that is. If we don't see the impact from those then growth will be higher than that 65%. So I think a lot to be excited about and a lot to be pleased with in either case. As we talked about previously, we had planned increases in our inventory levels to drive efficiencies in the channel, mitigate risks of supply chain events or other unknown events that would cause disruptions just really coming out of the learnings from the COVID impact last year. The increase in inventory levels really hasn't materialized yet if you look at the balance sheet just nominally higher from end of year and it really hasn't happened due to higher than forecast demand consuming some of those additions. Overall supply chain is significantly disrupted today partially from surging demand as economy reopens and then also from the March winter storm that impacted Texas and the Gulf Coast petrochemical business. And that's really created a cascading series of problems. The possibility of shortages in a variety of components and raw materials lingers from that storm. But we've taken very strong action to mitigate the impact and we do not expect any material impact at this point. The only thing that will do is create the possibility of some volatility in our inventory levels for the rest of the year as we've planned for a worst case scenario in terms of disruptions lingering from those events, but expect a much milder impact. So if we do end up with a larger inventory build because of the aggressive nature of our plans to mitigate those issues, that'll normalize over quarter two. But when you're growing like we are, you absolutely must have ample inventory and we've pivoted to do everything we can to guarantee that that happens. I think like a lot of things, also seeing an inflationary impact and pricing in a variety of areas. I mean from components into products to corrugated and other things. Too early to summarize the impact of this or our response in terms of pricing, if any, but we don't expect substantial change in gross margin trend nor do we expect to change our previous guidance of improving gross margins towards the end of the year at this point. Finally, regarding our acquisition program, we did not close any acquisitions in the first quarter. However, we remain very active and reconfirm our intentions for the year in terms of both the number of acquisitions and the dollars put to work. Again these are domestic, U.S. and international in scope and they'll fit in the various categories we've discussed previously about our channel go to market or product related. So great quarter for the company. I mean, really exceptional quarter. And I'm pleased with the momentum. I am humbled by our team and the part that always goes unappreciated is when you really do overperform just how the team's got to work to make that happen in operations in other areas. So awesome job all the way around. So with that, we'll turn it over to Barry and then take some questions. Barry go ahead.

Thanks, Ryan. And good morning, everyone. Obviously it was a great quarter for us by really almost any measure. We broke $50 million in quarterly revenue for the first time in the company's history, finishing at $51.9 million. Product revenue in the quarter grew 89.2% to approximately $44.9 million which was another record high and in this product revenue category paint protection film grew 81% to $35.8 million which was again another record. The strong growth was brought pretty much broad based led by U.S. and China. And again, China was heavily impacted by COVID in Q1, 2020. And as Ryan mentioned, our window film product line had amazing growth of 131.7% to $7.2 million, which was another record and it represented 13.8% of total revenue. And while it's atypical to have a higher total revenue in Q1 than Q4, it is even more unusual to have a record quarter in this product line given the timing here. I also will note that our other revenue category, which we usually don't talk about as much grew 123.7% to approximately $2 million. And this line item just as a reminder consists primarily of products ancillary to PPF and window film sales such as plotters, chemicals and tools. Our Q1, 2021 service revenue grew 49.5% to $6.9 million and our total installation revenue combining product and labor increased a little over 54% and represented 7.1% of our total revenue and we saw strong performance during the quarter in all of our company owned installation facilities. Gross margin for the quarter grew at 77.6% to $18.3 million which was another record and our gross margin percentage was down slightly to 35.3% versus 36.3% in Q1, 2020 but it was up sequentially from Q4, 2020, which came in at about 32.8%. And while our gross margin percentage was down 100 basis points relative to Q1, 2020, we did finish near the top of our historical range of 32% to 35%. China represented a little over 20% of our total revenue for the quarter. But even with that there was relatively strong gross margin performance on the quarter for sure. Our Q1, 2021 SG&A expense grew 24.7% to $9.7 million and represented 18.8% of total revenue. And sequentially, Q1 SG&A expense was up just under 13% versus Q4, 2020. Sales and marketing expense increased 23.5% during the quarter due primarily to the hiring of additional sales and marketing personnel, the payment of higher commissions on higher sales obviously and the continued resumption and expansion of our marketing activities. Q1, 2021 general and administrative expense grew 25.3% to $6.4 million as we continue to support the ongoing growth in the business. And we saw outstanding leverage in a quarter with EBITDA increasing 256% to a record $9.2 million reflecting a 17.7% EBITDA margin. Q1, 2021 net income increased 325% versus Q1, 2020 to $6.8 million and that reflected a 13.2% net margin, and EPS for the quarter was $0.25 per share. And we had strong operating cash flow on a quarter with cash flow from operations of $8.9 million generated mainly via increases in EBITDA which were offset by other working capital changes including increases in inventory. We exited the quarter with approximately $35.6 million in cash and about $25 million in inventory and as Ryan mentioned, we are active on the acquisition front and expect to deploy our excess cash on accretive investments in the coming quarters. So obviously a great quarter for us. But obviously, that's now behind us. But we look forward to continuing to build on that momentum as we move throughout the year. And with that operator we will now open the call for questions.

Thank you. We will now be conducting a question and answer session. Operator Instructions: Our first question comes from Steve Dyer with Craig-Hallum. Please go ahead.

Thanks. Good morning and congratulations on the exceptional results. The gross margin was as you noted, really, really good this quarter, particularly given the China contribution. Does anything sort of change given your new revenue run rate just in terms of your target? You've kind of talked 32 to 35. But you're now exceeding that number even with a lot of China exposure. Just kind of curious how we should think about your gross margin expectations for the rest of the year?

Sure. Yes, I think you're hitting on something very important, which is that it was exceptional gross margin performance in Q1 with the large China concentration. And historically, when we get to 20% of revenue of China or higher that really tends to hurt us on gross margins. So I think it's a mix of several things doing that. A lot of the work that we've been doing on managing sort of non-direct product costs that are in cost of goods, we're getting some benefit from that. The mix in product line we're trending towards a more favorable mix overall in terms of gross margin contribution with the addition of some of our other products and then areas within our existing paint protection and window film lines that are generating more gross profit that are higher margin. So all those things are contributing along with the real concerted effort to manage this up over time. So when we talk about sort of the peak gross margin we've seen it's right in that 35 to 36 range, that's sort of with lower China contribution, but that's the peak we've done, and then the range of 32 to 35, that's where we're expecting to be on trend maybe in Q4 or towards the end of the year to really move up the top end of that range where we're not capped at a 35 or maybe 36, but start to get that up to 37 to 37.5 and then hopefully higher there. So I think what you're seeing now is sort of a preview of us being able to do that, like we've been talking about.

Got it. Just kind of, I guess a question on acquisitions, as you expand the distribution network, and now you're starting to have a lot of success really with the window film and so you have sort of two products working your way through here. As you look at acquisitions, I guess, A, would you look to do something larger? And B, are there ancillary products that you could buy, just given your reputation in the industry and the fact that you now have multiple products going down through there? Would you look to sort of expand horizontally?

Sure. Well, I think, first and foremost, we go to a lot of effort to build this geographically distributed in-country distribution operation. I mean, it's very hard to do. And we've been at it for a while and have had that as a stated goal going forward. So I think long term to get the absolute full benefit of that investment it is the larger portfolio of products that will help do that. I temper the enthusiasm for that just saying that the core set we have now either with the additions we've made with protection, window film, and on the ceramic coating side, we have a lot of work to do just to get adoption of those. So we're trying to balance the attention and focus that those need with the ultimate strategy of continuing to expand that. So you will see additional product line expansion. In terms of acquisition and the size of acquisition, I think you'll see us certainly do bigger acquisitions going forward and including this year. I don't know that there are transformational acquisitions we are necessarily seeking that type of M&A. But I think overall, there are some certainly larger opportunities relative to what we've done in the past. And that's part of what we're focused on now.

Got it. I will jump back in queue. Well done. Thanks, guys.

Thanks, Steve.

Operator Instructions: Our next question comes from Jeff Van Sinderen with B. Riley. Please go ahead.

Good morning, everyone. And let me add my congratulations. So multi question for you guys. I'm just wondering if we can get a little more granularity on most recent trends you're seeing in the drivers of North American sales in terms of mix? Is it now weighted more toward more sales running through your existing account versus adding new accounts or vice versa? And then maybe just how does that same phenomenon differ by product line? Any help you can give us there?

Sure, Jeff. Yes. So I think when you look at the customer base we have, there's always a healthy mix of both. When you look at our aftermarket customer base their desire and propensity to reinvest in their business and grow it varies tremendously from customer to customer. And I don't think if you think about the profile of these businesses, I don't think that's necessarily surprising. So you see some that are very eager to grow that have put in place systems to hire and scale people to really adopt new products and expand what they're doing and then you have some that don't have the same aspiration to grow in that way. And so what that means for us is it's really market by market dependent in terms of what you're seeing whether it's more growth from existing customers or more net new customers, because it really depends on the mix of customer types we already have. But suffice to say that it's a healthy mix of both. It has been both growth from existing and new customers and we would expect that to continue as well. In terms of the product line contribution, certainly when we're out with new products, say automotive window film, or the ceramic coating products, in the launch stages of those products, which we were and still are to some extent with the automotive window film, there's a higher percentage of competitive win at the onset of a new product category. So we're seeing that with those now just like we did with paint protection when the company was much younger and then we expect over time that transitions more to just growth from existing customers and growth from people net new to that product line.

Okay, great. And then I know you spoke about inventory. Just wondering if maybe you can elaborate a little bit on that in terms of the outlook for your flow of inventory for you, and also how you see the impact playing out relevant to new auto deliveries at dealers? I know, you mentioned kind of this Q2 phenomenon that might go into Q3. It seems like there's a lot of moving parts there. I guess, sort of what is your most likely scenario that you think is likely to play out at this point for vehicle inventory flow and then also your inventory?

Sure. So I think that the vehicle inventory and the number of days inventory on new car lots for our business is generally not a factor. What's a factor for us is how many cars are being sold. So even if inventory goes down and vehicle turn goes up at the dealership level, that's not a negative for us. In fact, there's some argument that scarce inventory that reduces discounting and adds accessorization is actually a net benefit for us. And maybe we're benefiting from that. So as long as dealerships are able to turn inventory very quickly, and hit these really high annualized rate numbers, even if inventory is low, or even if it were to go lower that helps us or it's a positive thing. I guess the only cloud on that horizon is to the extent production were to fall such that it actually impacts the new vehicle sales, because there just aren't enough to hit that huge annualized rate number, then that starts to be a negative for us. But I'd caveat that in the environment we're in that negative in that context is simply a cap on the upside and the great growth we're seeing. So I don't think we're expecting a situation where that's actually a detriment to the performance of the business. It just delays more upside. Not all manufacturers are impacted the same, not all geographies necessarily the same. And then our business is concentrated in little pockets here and there in terms of where we see attach rates by geography. So it's really kind of hard to say, but I think it is something we're watching. But I really would think of it more as a cap on what's possible in Q2, rather than some kind of complete Black Swan event that causes something negative here.

Okay, fair enough. And then just one last one, if I get squeezed, just wondering if the acquisition pipeline has changed for you at all? If there's anything you would say is shifted in terms of characterizing the environment for acquisitions. And then just anything in the latest thinking about Greenfield locations from your opening remarks?

Yes, so no, I would say from a pipeline strategy prospect standpoint really nothing has changed relative to acquisitions. I think when we look at the results that we have for the acquisitions that we've done, it really reconfirms that we'd like the strategy we have. We like our ability to create and execute and do that. So really, nothing's changed in terms of what we're going after and what we're looking for. Like we said on the previous question, maybe the sizes get a little bit bigger, though we're very much focused on that. In terms of the installation business, we're really not interested in Greenfield activity there aside from some of the OEM projects that we're looking at doing. And that's really because we think that we have a lot of customers and there are a lot of people in the industry that are sort of looking for their next step with their business either to help it grow or to transition or to plan for their future. And so we look at the acquisition strategies that touch our customers and people like that as really a way to help them and unlock value and unlock their time. And it's been the source of some of the best people we have in the company. So no, really, the way to the installation outside the OEM is through M&A really exclusively.

Okay, excellent. Thanks for taking my questions and continued success.

Thanks, Jeff.

I will now turn the call over to management for closing remarks.

I'd like to thank everybody for joining us on the call and for your time and we'll speak with you next quarter. Thank you.

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