Good morning, ladies and gentlemen, and welcome to the XPEL, Inc. Third Quarter 2021 Earnings Call. It is now my pleasure to turn the floor over to your host, John Nesbett, Investor Relations for XPEL, Inc. Sir, the floor is yours.

Good morning and welcome to our conference call to discuss XPEL's financial results for the 2021 third quarter. On the call, we have Ryan Pape, XPEL's President and Chief Executive Officer; and Barry Wood, XPEL's Senior Vice President and Chief Financial Officer. They'll provide an overview of business operations and review the company's financial results. Immediately after prepared remarks, we'll take questions from call participants. Okay. I'd like to take a moment 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 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 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 well as for 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 the 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 again, I would extend my welcome to our third quarter 2021 call. Q3 was another strong quarter even in the face of some headwinds related to pricing pressure in the supply chain and, of course, new vehicle inventory. Revenue finished at $68.5 million for the quarter; it was basically flat relative to Q2. When you factor out acquisition-related revenue, Q3 was down sequentially from Q2 around 5%, which is right in line with what we were expecting exiting Q2. As we talked about on the last call, we did see some advanced buying in Q2, primarily due to concerns about supply shortages and the prospect of price increases coming. Looking at the regions, our U.S. region continues to outperform, revenue growing 69.5%. Factoring out acquisition-related impacts there, U.S. revenue grew 49%, which is really a great result for our largest region. Q3 U.S. new car sales were actually the slowest in a decade, owing to the vehicle shortages. So, in that sense, we're really pleased to drive such organic growth in that environment. On October 1, we acquired two businesses, Tint Net and One Armor, which have a similar business model to the PermaPlate Films business that we acquired earlier in the year. As you may recall, this is a high-volume window film installation business for dealerships. We like the business because it further expands our overall business into a mid-range market and provides a platform to grow our paint protection and other products into the dealerships covered by these acquisitions. Unlike the rest of our business, these businesses, being Tint Net, One Armor and PermaPlate Films that we acquired earlier, are really tied more to new car inventory than to new car sales. So as new car inventories have continued to lean out, this has had a temporary negative impact on this business because there are simply fewer vehicles to tint. We talked about this impact last quarter, but it does now seem that Q4 will be the bottom in terms of inventory. You're hearing this from many of the manufacturers, and we're starting to see it in our numbers as well. So, this is very encouraging. And we expect that we'll actually see revenue increase just as the vehicle inventories recover because that's the time that we're making the sale. Now today, in this business, we're operating at less than 70% capacity, which impacts our gross margin. We saw that a little bit in Q3 versus Q2 as we have to subsidize our labor force with extra compensation to make up for low inventories. The run rate right now is about $1 million a year in extra expense through COGS. And simply put, that's there to ensure that we retain our labor, which is so important to our team because, by and large, they're paid on the work that they do. If there's lower inventory and less work to be done, we've got to subsidize that to retain our team. So no question we would do that. Regarding the PermaPlate Films acquisition, you'll note that we incurred the majority of our expected integration expense during the quarter. This should be complete by year-end. A little bit is left to go in Q4, but most of that was, as we had previously indicated, incurred in Q3. Our Canada region had another great quarter with revenue growing 40.3% to $8.7 million. Strong performance in the U.S. and Canada, our two highest-penetrated regions, is really great to see and suggests we'll continue to see attach rates and penetration continue to increase. In Canada, we did acquire several businesses on October 1 around installation and distribution. These are really textbook kinds of acquisitions for us in keeping with our Get Close to the Customer strategy. We've always been very committed to the Canadian market, and these acquisitions are consistent with that. There was also a software business similar to our DAP which was acquired that would provide patterns and software used to cut paint protection film. That software will be combined with our DAP soon, really by year-end, bringing more patterns and adding folks to our design team so we can continue to design more and more coverage for more and more vehicles. That product will cease to exist as a separate product by year-end is the current plan. So really happy with those acquisitions in Canada. Our China region reached up over Q3 to $10.6 million, growing 12.5% in Q3. As we mentioned on the last call, there's about $1 million of revenue accelerated to Q2 from Q3. China's new car sales were down 13% from the prior year. So, China will be one to watch over the next year, especially with all the other macro news coming out of China. In Europe and the UK regions, both had strong quarters. Europe grew just under 30% to $4.7 million in U.S. dollar terms, while the UK grew 34% to just under $2 million in U.S. dollar terms. Asia Pacific grew 35.7% compared to Q3 of the prior year, which is a good result. I think that we continue to see more impact from COVID-related challenges in that region more so than others, but it does appear that some of that is continuing to lift. Latin America continues to do well, growing 75.6% off a small base. As we talked about coming into the year, we've put more effort in all of Latin America led out of our Mexico office, and I think we're seeing some benefits from that. So clearly, the right strategy there. In total, the acquisitions completed on October 1 will add revenue of about $17 million in U.S. dollar terms and post-synergy EBITDA of about $4 million on a run-rate basis, and we expect to fully see that as we exit Q1, get into Q2 of next year. And then finally, recently, we announced the acquisition of UK-based invisiFRAME Ltd., which is a provider of bicycle frame protection kits. So, there's a lot left in the world to protect, and it makes sense for us to place some bets on where we can expand the reach of the brand and our products into other applications. Particularly in this case, where we had an established customer using our product in this adjacent space and we had demand from our existing customers. We like the idea of this as an adjacent protection market because it both opens up new customers in terms of bicycle shops; it is additional products for our current customers to sell; and in fact, many people will bring all manner of things into our current customers' locations to protect. It also adds a direct-to-consumer component to the business, which we do a little bit of, but this has a larger direct-to-consumer component. So, invisiFRAME will add a little over US$2.7 million, and we're really excited about that. In our research, we found a lot of connectivity between some of these bike buyers and our existing car buyers, so it's a good market for us to try and expand into. This invisiFRAME acquisition will conclude all the acquisitions we have planned for this year. And with one exception, all the acquisitions completed this year have been at least two years in the making and were delayed by COVID and other factors. So really, this didn't materialize this year; these have all been discussions that we've been having for quite some time. So really happy to get them done and, like I said, that will conclude what we're doing this year and then obviously have other things we're looking at for next year. As you may recall, we've been really focused on supply chain this year. The possibility of delays and shortages looms across all industries. This started for us when we took a very aggressive posture early on around the March freeze in Texas and the impact in Houston and the Gulf Coast. And it's really paid off. Our customers have experienced essentially no disruption in terms of product stock-outs or product availability from us. That really can't be said for others in the space or some of our competitors who had substantial problems this year. It doesn't appear overall that the supply chain situation has fundamentally improved, and perhaps in some ways it's even more problematic now as we look going into next year. So, we continue to maintain an aggressive posture in terms of inventory going into next year, really to protect the business and protect the customers. You saw us build quite a bit of inventory in Q3 from Q2, really just owing to how low inventories got with the record demand in Q2. But we're anticipating inventory around $45 million for the end of the year. We expect Q4 revenue to be just a bit higher than Q2 and Q3, or perhaps much higher if we continue to see recovery in new car inventories materialize like we expect, because as those inventories recover, that's revenue that we'll have at the time those deliveries are made to dealerships even more so than when they're sold. So, talking about gross margin for the quarter, we finished at 35.7% compared to 34.8% in Q3 of 2020. This was down sequentially from Q2, which came in at 36.7%. We have started to see, like many others, broad pricing pressure really across the board, whether that's from packaging to labor to shipping, throughout the supply chain, and so we felt some of that in the quarter. And then also the additional labor costs relative to our dealership window tinting business, the PermaPlate Films business, as I talked about earlier, offset some of the continued benefit we have in terms of mix. So that's why we felt a little bit of margin degradation from Q2 to Q3. Despite the pressures on margin we've been seeing, we still remain confident that we'll be able to increase gross margins out of our historical 34% to 35% range by the end of Q4. And we continue to expect gross margins to go higher next year and to be approaching 40% by midyear. So even with these near-term impacts, when you look at the overall product mix and what we're doing with supply chain, it really doesn't change our expectations for continued increase in gross margin for next year. We received many price increases from suppliers, but we've also implemented price increases in many markets. So starting in Q4, depending on the geography, to the tune of 3% to 4% across the world depending on local market conditions. That will serve for now to more than offset cost increases that we've been receiving or are expecting. That will help keep us on track for the gross margin profile I just talked about. So, all in all, another good quarter for us. Lots of moving pieces, lots of work for the team on all of the acquisitions we've done and the integration work that it takes; it's a big commitment for everybody. So really much appreciation for the work that has been done. They've done a great job. So, with that, I'll turn it over to Barry and then take some questions. Barry, go ahead.

Thanks, Ryan, and good morning, everyone. Q3 revenue grew 48.6% to $68.5 million versus Q3 2020. Included in this was about $4.8 million or so of net new acquisition-related revenue. So organic revenue growth was approximately 38.4% for the quarter, so really strong performance there. On a year-to-date basis, revenue grew 71.4%. Product revenue grew 44.2% to $56.9 million in the quarter and 70.4% to $160.6 million on a year-to-date basis. In this product revenue category, paint protection film grew 35.2% to $43.2 million in the quarter and 63.5% on a year-to-date basis. Our window film product had another outstanding growth quarter, growing 80.9% to $11.4 million and 93.2% to $29.6 million on a year-to-date basis. I'll also add that our FUSION product line had another record quarter and continues to do very well. Q3 2021 service revenue grew 74.9% for the quarter and 77.5% on a year-to-date basis. Total installation revenue from our company-owned installation centers in our OEM segment grew 107.6% and represented 11.8% of total revenue for the quarter. If you exclude our acquisition-related growth, total installation revenue grew 17.1%. And keep in mind, most of the PermaPlate Films business hits this line item. On a year-to-date basis, total installation revenue grew 98.6%, and excluding the acquisitions, total installation revenue grew 41.4% on a year-to-date basis. Ryan spent some time on gross margins, so I don't really have much to add here other than we did have approximately $0.3 million in one-time costs related to our integration activities that hit gross margin that will not reoccur in the future. On the SG&A front, our Q3 2021 SG&A expense grew 85% versus Q3 2020 to $14.1 million and represented 20.6% of total revenue. On a year-to-date basis, total SG&A expenses were up 65.3%, representing 19.2% of revenue and included in Q3 SG&A expenses are approximately $0.5 million of integration and other one-time costs that again will not reoccur in future quarters. Q3 2021 EBITDA increased almost 27.1% quarter-over-quarter to approximately $11.4 million, reflecting the EBITDA margin of 16.6%. If you exclude the integration and other one-time costs, EBITDA would have grown 35.1% to $12.1 million, reflecting an EBITDA margin of 17.7%. On a year-to-date basis, EBITDA grew 98.4% and represented 18.1% of total revenue. Q3 2021 net income increased 26.1% versus Q3 2020 to $8.3 million, reflecting a net income margin of 12.2%, and EPS for the quarter was $0.30 per share. If you exclude the integration and other one-time costs, net income would have increased 35% to $8.9 million, reflecting net income margin of 13%. Again, if you exclude the integration and other one-time costs, EPS would have been $0.32 per share. On a year-to-date basis, net income grew 108%, reflecting a net income margin of 13.4%. Our year-to-date EPS was $0.92 per share. Cash flow from operations was $1.1 million in the quarter, which was quite a bit lower than what we've done in prior quarters, primarily due to our increase in inventory levels. We did close out the quarter with minimal debt, but that will obviously change in Q4 given our recently announced acquisitions and our decision to continue to increase inventory to hedge against potential supply interruptions. But even with that, we're in a very strong financial position to continue to execute on our acquisition initiatives and our other strategic priorities. Finally, I'd like to give a shout-out to our team, who did a great job integrating PermaPlate Films, and we're well down the road in getting the recent acquisitions integrated. As Ryan mentioned, we do not anticipate closing any acquisitions for the rest of the year as we continue to focus on finishing up our integration initiatives that are currently ongoing. It's been a very busy few months for us, and we look forward to continuing our momentum in Q4. With that, operator, we'll now open the call up for questions.

The first question is from Steve Dyer of Craig-Hallum. Your line is live.

Thank you. Good morning, gentlemen. Nice quarter.

Good morning, Steve.

Just as it relates — you guys are performing really, really well, particularly given the situation with new vehicle inventory and sales. Do you feel like — are you seeing any difference in take rate or any other things that maybe dealers are doing to push the product and the service? It just seems like that should be having more of an impact to you guys than it is, all else equal?

Yes. I think we tried to understand what we've been experiencing. What we're watching is how much benefit we're getting from the continued momentum of the products being adopted, like paint protection film, and the growing attach rate versus extra work or extra incentives by the dealers who are in such a position to be able to accessorize the vehicles more because of the low inventory. It's obviously some of both, and we get the benefit of that. We see the benefit of that weighed against the other part of our business where the low inventory is maybe a negative, and that's where you get to the net balance where it's been pretty positive in spite of the low inventory situation.

Got it. And then you talked about sort of your sale having more to do with the sell into the dealership as they put vehicles into inventory as opposed to selling it through to the customer. Just curious, are you seeing more dealers sort of pre-wrap the different pieces of the car or so forth and sort of pro forma charge people? Or how does it work as it goes?

So if you look at our business historically, even from a year or two years ago, really all of our sales were tied to the sell-through for the most part because you're generally selling the products at the time the vehicle is sold, or at least that's when we're generating revenue. Historically that was the vast majority of the revenue. Where that's changing a bit is with our OEM business and with the PermaPlate Films and the other related acquisitions we did. In the PermaPlate Films business, we're exclusively preloading the vehicles as they're delivered to the dealership lot. That's in direct contrast to our historical business, and it's really tied almost entirely to inventory in that sense. In a similar way, the OEM business, while it's a small part of our overall revenue, is the same in that it's tied to new vehicle production. If that's delayed because of supply chain or part shortages that will impact that as well. So you really have that mix now, which just didn't exist before but is now a component of the business. It's not so much that it's changed our core business, but rather that several of these acquisitions have a different model where it is preloaded.

Got it. That's very helpful. Last one for me and I'll pass it along. As you look at potential future acquisitions, be it next year or the year after, are you looking more along the lines of installation and buying up chunks of that like you've done more recently? In other words, do you feel like you have the product portfolio where you wanted and now it's more of an installation and distribution thing? Or should we continue to look as well — would you look for different product add-ons as well?

Sure. No, we definitely would not say that our product portfolio is complete. There are definitely other adjacent businesses that we're interested in, so I would not foreclose anything on the product side. I think with the acquisitions we did this year, with PermaPlate Films and then Tint Net and One Armor, those were relatively unique businesses. There aren't a lot of those types of businesses with that scale and that business model. So obviously we acquired those, but not a lot of other ones like that. I wouldn't define our strategy going forward to say it will be dominated by installation; that's just where we've been focused this year. As we said in the prepared remarks, we've had discussions with these businesses for over two years. It was a strategic decision for us to expand the platform to get into more midrange dealerships, whereas historically our paint protection film business is more high-line. As part of growing paint protection film and window film and other things, we needed a platform to do that. These acquisitions helped us do that strategically. But what we're looking at after that will be more broad-based than just installation.

Got it. Very helpful. Thank you, guys and good luck going forward.

Thanks, Steve.

Your next question is coming from Jeff Van Sinderen from B. Riley. Your line is live.

Good morning, everyone. And let me say congratulations on the strong performance. Kind of a multipart question here, if you can bear with me. You mentioned supply chain and pricing pressure. Wondering if you can elaborate on that a bit more, maybe dynamics of what you're seeing, steps you're taking to mitigate and then the outlook for that pressure, hopefully, to ease. And then, I guess, any metrics around that? Any order of magnitude for your inventory levels to trend into FY2022?

Sure. Like many people, we're watching what's going on with pricing across the board. It's pretty unpredictable and broad-based, and it's difficult to make assumptions on where that goes — even things like pricing of corrugate and other items used in packaging have seen big spikes, or even entry-level labor and hourly wage increases. We've seen that and expect to continue to see it in some respect. At the same time, in this environment we're pushing forward our own price increases to offset that. I don't know that I can predict the trajectory of that any better than anyone else going into next year; it's been volatile and hard to forecast. From an overall supply chain standpoint, there have been shortages in chemicals and the feedstock that goes into different components of our products, which have been widely discussed this year and into next year. We've been advised of these shortages in resins and TPU feedstocks and similar structural problems. Our approach has been to build inventory to protect ourselves. We'll continue to do that as we talked about going into year-end and will still be making decisions on what we're planning for after that because things could deteriorate quickly if you don't have enough product for customers. We saw that with a number of competitors over the past year. It's possible inventory will go higher into 2022. Some of that is just to grow commensurate with our sales since we've seen large increases in sales over the past year. So some of the inventory increase is expected, and beyond that we plan based on the current risks we see.

Okay. That's helpful. And then if we could just touch on OpEx for a moment: what should we expect in Q4 and then your thinking about OpEx leverage next year, excluding incremental acquisitions?

We've seen integration expenses for the acquisitions and direct acquisition costs like legal in Q3, and we'll have some of that in Q4. We've trended a bit higher on SG&A as a percent of revenue, but we still feel good about the 18% target that we're budgeting toward as providing the ability to invest in the business and grow while allowing for maximum leverage to the bottom line. That's still the target. As we get through some of these near-term expenses related to the acquisitions, looking into next year we still think that's a good target. Combined with the gross margin profile we see on track with what we've been discussing this year, even in spite of cost increases, it positions us for a strong operating performance going into next year.

Okay. Great to hear. And then if I can squeeze in one more: anything else you can say about the plan to evolve the PermaPlate and related segment to drive the PPF business? Maybe any initiatives planned in 2022 that are not competitive-sensitive? And any milestones we should look for?

Our primary focus up to now has been getting the business integrated and functioning well. The goal for next year is to begin integrating some amount of paint protection film into the customers we've acquired via PermaPlate and the other Tint Net and One Armor acquisitions. That could be smaller coverage paint protection film than what we do today in the aftermarket or in high-line dealerships, but the goal is to get some paint protection film attach rate into those dealerships that maybe have none today. What's the easiest way to start for a dealership that came in through that business model? It could be small wear-and-tear type coverage or a variety of things, but we want to get in there with something through those relationships and then grow that over time. That's the focus for that business going into next year.

Ok great. Thanks for taking my questions. And best of luck.

You bet, Jeff, thanks.

We have no further questions from the lines at this time. I would now like to turn the floor back to management for closing remarks.

I want to thank everybody for joining us and for bearing with me today with my raspy voice. Great quarter, lots of good stuff going on, and a lot of thanks to our team for all the work they have been doing. It's been an incredibly busy time operationally, and everybody has done a really great job. Thanks for joining us; we look forward to speaking with everybody again next year.

Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.