Earnings Call Transcript - XPEL Q3 2023

Operator, Operator

Good day, everyone, and welcome to the XPEL, Inc. Third Quarter 2023 Earnings Call. It is now my pleasure to turn the floor over to your host, John Nesbett, IMS Investor Relations. Sir, the floor is yours.

John Nesbett, Investor Relations

Good morning, and welcome to our conference call to discuss XPEL's financial results for the third quarter of 2023. On the call today, Ryan Pape, XPEL's President and Chief Executive Officer; and Barry Wood, XPEL'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'll take questions from our call participants. A transcript of this call will be available on the company's website after the call. I'll 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 anticipated use of proceeds from capital transactions, expansion into new markets, and execution of the company's growth strategy. Such statements are based on current expectations and assumptions that are subject to known and unknown risk factors and uncertainties that could cause actual results to materially differ from those expressed in these statements. Some of these factors are discussed in detail in our most recent Form 10-K, including under the Item 1A Risk Factors filed with the Securities and Exchange Commission. 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.

Ryan Pape, President and CEO

Thank you, John, and good morning, everyone, and welcome from me also to our third quarter of 2023 conference call. We had another strong quarter. Overall revenue growing 14.4% to $102.7 million. This was in line with our expectations for revenue and what we discussed on our Q2 call. Also, as expected, China did have a nice sequential increase from Q2, though still a 7% decline from Q3 2022, which impacted the quarter-over-quarter growth rate, and our non-China revenue growth in the quarter was 17.4%. Our U.S. region grew 14.5% compared to Q3 2022 to $59 million. Sequentially, this was essentially flat compared to Q2, which itself was a record quarter. Our U.S. business now constitutes 57% of our overall revenue, so its performance serves as a significant driver of our overall results. U.S. new car sales continued to be solid despite the higher interest rate environment. We did see a slight reduction in the rate of growth in our aftermarket channel this quarter versus Q2. But overall, Q3 2022 was the peak quarter for last year. And as you know, we watch the front lines of our marketing customers very closely. Our customers tell us their business has been relatively consistent this summer, but probably off the fever pace we saw in Q3 of 2022. I know that many of you cover our business and the industry closely, so I want to take the opportunity to step back for a minute and discuss our channel strategy and how our multiple channels, in our view, complement each other and enable us to reach an expanding customer base. As many of you know, paint protection film started almost exclusively in the aftermarket. The consumer had to find out about PPF, then take their car into an independently owned shop to have the product applied. This consumer still represents a large portion of the channel and of the buyer. Enthusiast buyers dominate this channel, and we estimate an enthusiast buyer to be around 15% of all new car buyers. Over time, as dealerships saw their customers purchasing PPF in the aftermarket, dealerships began to adopt PPF. The reason for adoption is simple: to generate gross profit. Many dealerships outsource the installation to the aftermarket because they don't want to hire their own internal staff. Hiring internal staff in a dealership or a service center model can be challenging. Consumers demand product excellence, and to be effective, dealerships need a technical skill set for installation, yet they may only need a small team of installers or, in some cases, just one person. This reality can make it challenging for dealerships to recruit, train, and staff around time off, absences, and other issues. Some dealerships choose to build internal teams and successfully do it themselves, and they'll continue to do it. At the same time, there are businesses without a retail presence that provide PPF services to dealerships. In our case, you're not going to find these customers on our dealer locator, even though they exist. We refer to these customers as dealership services. We've acquired several of them over time for paint protection film and window tint, so we're in that business ourselves. When analyzing our industry, it's important to understand that scaling to meet high penetration rates in dealerships is something a few of the aftermarket installers are interested in, as this scaling requires substantially more human capital and a constant reinvestment of cash flow into the business. Likewise, dealership groups typically don't scale installation internally across their enterprise in a consistent way; it's usually locally decided and very much a patchwork in its implementation. Even as dealerships continue to sell more PPF and ultimately create more awareness for PPF, on the whole, we do not see this as disruptive to the aftermarket for several reasons. One, the aftermarket participates in this work by doing work for dealerships in some cases. Enthusiast buyers, who are still the largest part of this channel and were the original PPF buyers, will often opt out of the dealership channel and take their new car directly into the aftermarket, seeking a more bespoke installation from someone they trust. Thirdly, the PPF market overall has continued to grow. So net-net, the dealership's offering is increasing attach rates by finding people who would never take their car into the aftermarket. As dealerships continue to adopt PPF, we've noted increased interest from the OEMs driven by profit motivations. Installing PPF at or near the point of manufacture delivery is attractive because the vehicles are located together for efficiency. The downside is the need for substantial physical footprint and human capacity to handle a considerable number of vehicles, as installation is still performed manually without any currently available automated installation processes. There's a limit, ultimately, to the scale that can be achieved in that environment. Additionally, OEM programs can be usurped by dealerships preferring to internalize their programs in pursuit of higher profit and more control. Importantly, the original and predominant enthusiast buyer may always prefer their local installer whom they know and trust. OEMs still have the capacity to reach consumers not captured by any other element of the channel, therefore helping to grow consumer awareness overall. In totality, we see the mix of channel activities as healthy and mandatory to the development of the PPF market, and we do not observe significant direct aggregate cannibalization of the business from one segment to another. For example, even as we've seen more dealership participation in PPF over the past few years, the aftermarket is larger than it has ever been for XPEL. In XPEL, we have various internal measures, including our DAP software for estimating our vehicle attach rates for our products and the related revenue mix. We can analyze this attach rate relative to traditional paint protection, which would involve the front end of a vehicle or the full car, separate from mini kits or wear-and-tear applications that would be additional. For instance, in the case of Rivian, with whom we have a factory program, our U.S. XPEL aftermarket attach rates are higher than for many other brands. In this case, the OEM program is incremental and helps to grow attach rates overall. We believe initial buyers of a new model or a new brand, such as the recent emergence of EV manufacturers, will more likely skew towards enthusiasts. Thus, we would expect attachment rates to be higher initially, but over time, if there's more mass market appeal, particularly if the price point is more accessible, the buyer profile will change to more closely resemble overall industry dynamics. Simply put, the incremental buyer of this type is less likely to be an enthusiast. Over time, we might expect to see attach rates decrease on a new vehicle as they expand production and attract mass market appeal. Currently, for example, our U.S. attach rate into Rivian is substantially higher than Tesla, even excluding our OEM operation, likely due to the early presence of the enthusiast buyer dominating the channel for a new vehicle. Similarly, our U.S. Porsche attach rate is substantially higher, in fact, multiples higher, because a large percentage of that core buyer are enthusiasts, and Porsche has a dealer network that is very effective at selling the product. Other enthusiast-dominated and higher average price point makes follow similar trends. Overall, it will take a range of approaches to continue to expand the market for paint protection film beyond the 15% of enthusiasts mentioned earlier into the mainstream. We estimate 25% of consumers will never buy the product and likely wouldn't take it even for free because their pride of ownership in their vehicle is simply not present. Those consumers just don't care. However, this leaves 50% to 60% of new car buyers, in our estimation, open to the product if they learn about it, have accessible options before, during, or after the sale process, and if we can meet them with an appropriate price point providing good value. To do this, we'll employ a variety of sales channels and marketing activities to reach this group over time. To summarize our U.S. approach, our channel strategy uniquely positions us to be present wherever demand arises and is a key component of our sustainable growth. Turning back to our quarterly results: Most of our other regions had solid quarters, led by the European region, exhibiting 43.5% growth over the prior year quarter, and our Latin America region, which grew 58.4% over the prior year quarter. Canada's growth rate was slightly impacted by FX using Q3 2022 exchange rates; Canada revenue would have grown approximately 10% as the Canadian dollar weakened significantly during that time. As previously mentioned, China's Q3 performance aligned with expectations, seeing sequential growth over Q2 of this year, but still a 7% decline over Q3 2022, which was our highest quarter for last year. The Q4 forecast from our distribution in China is positive, and assuming we can ship all the product accordingly, our Q4 revenue from China could be one of our highest quarters in recent years. Of course, things can change, as they have in the past, but we're optimistic that this will be a good quarter for China. I want to update you that we remain on track to have our initial team in-country by the end of the year, while we assess a variety of aspects concerning our overall go-to-market strategy in China. One of our goals with this initiative is to mitigate the irregularity of our China business in terms of sell-in versus sell-through. Similarly, we're establishing our first facility in India, slated to open at the start of the year, and are contemplating a more direct approach for this market as it develops and is still in its infancy. Our U.S. business does exhibit seasonality in Q1, which is our lowest quarter, with Q2 and Q3 being our highest quarters, and then typically seeing a drop-off in Q4. Given our expectations for China, assuming we can fulfill forecasted deliveries, we anticipate Q4 revenue to range from $98 million to $100 million, positioning our annual revenue growth rate toward the lower end of the 20% to 25% range we've discussed this year. Our gross margin for the quarter concluded at 40.4%, slightly lower than our year-to-date run rate. We had around $1 million in one-time adjustments in inventory for the quarter. Moving off the supply chain concerns we've faced earlier this year and in prior years, we've improved manufacturing throughput. We had remnants and offcuts, plus other materials that were more commercially challenging to process, and no longer need to be retained as safety stock. This adjustment accounts for some of the fluctuations you've seen here. Our processes in this area will continue to improve. If you normalize for these adjustments, our gross margin would have been less volatile quarter-to-quarter this year. But I want to emphasize the larger picture: our improving gross margin profile has been strong. So nothing has changed in terms of our outlook regarding opportunities for that gross margin expansion. We still expect to conclude the year at or near a 42% gross margin and anticipate further expansion in 2024 and beyond. Regarding other business updates, we closed two acquisitions in the fourth quarter, which had a combined purchase price of around $13 million. One was a Canadian-based installation chain of six locations that came to market; the other was a European-based business that installs product for two OEMs at a small scale. Both acquisitions will complement our go-to-market strategy nicely and should contribute around $11 million in total revenue for the full year of 2024. We also have two acquisitions to complete within the remainder of the year, one in the U.S. and one in Australia, to support our direct model in that market that commenced last year with the acquisition of our distributor. Our acquisition pipeline remains healthy, and we plan to allocate all excess cash towards this strategy; we still believe this is the best utilization of our cash. Our acquisition strategy focuses on three core targets: first, expanding our distribution into other key markets globally by acquiring our distributors where it makes sense; our Australia acquisition from last year exemplifies this, where we achieved three times the revenue we had prior to the acquisition and the highest margin profile in the system enabled by our direct execution of all facets of the market approach in-country. As we've discussed before, the closer we are to the end customer, the more successful we are in that market as product awareness grows. Secondly, we consider investments in dealership services, targeting an underserved part of the market, connecting to my earlier remarks. Finally, we're always on the lookout for adjacent product or service lines that complement our current portfolio, such as colored films. This market attracts much interest; it's evident with the use of vehicle wraps for marketing and color changes. Historically, this market has been vinyl-films driven. Recently, however, the presence of more TPU-based colored films has risen, as TPU is what paint protection films are made of. These are more similar to paint protection film in construction. There are likely half a dozen to a dozen TPU-based color products available alongside many cast vinyl products, which have been the traditional leaders in this business. Wrapping an entire vehicle with colored film via vinyl or TPU poses similar challenges as a PPF installation due to the current manual application process. It is more complicated to install than PPF since disassembly of parts of the vehicle may be necessary to ensure that all painted surfaces are adequately covered, avoiding any gaps or seams. However, with the cost, quality, and complexity of full vehicle installations, alongside the lack of reliable automated application capabilities and necessary repairability of installed products in the fleet, it seems impractical that we will see these films replace paint in mass production anytime soon, if at all. It is more probable that they will retain their current usages for bespoke designs not offered during regular manufacturing processes and for specific vehicle components painted off-line and integrated into the final build. Many of our aftermarket installers transitioned to the paint protection film business from the traditional colored wrap market because they deemed it more attractive, possessing a larger potential customer base. We have adopted a wait-and-see strategy for this market relative to our overall priorities and its future relevance. Should we opt to engage in it, the colored wrap business should be viewed as an opportunity to expand XPEL's total addressable market, not as one that threatens to reduce it. Across all product lines, our suppliers are crucial to us, and we've cultivated a broad base of raw materials and converting suppliers, particularly for our paint protection film business, over the years. Despite diversifying our manufacturing approach using the asset-light model and outsourcing manufacturing since our inception, we've maintained a strong and long-standing 15-year relationship with Entrotech. Earlier this year, it was announced that PPG formed a joint venture with Entrotech focused on colored film products that Entrotech has developed over many years. We welcome the PPF joint venture with Entrotech and see numerous potential collaboration opportunities with PPG, and we're actively discussing ways to achieve this with their senior leadership. Next, I'd like to offer a brief update regarding our leadership team. As many of you know, Mat Moreau has decided to retire after serving as our Senior Vice President of Sales and Product. He rejoined the company in 2015 after we acquired his business in Canada and has held positions of escalating responsibility ever since; he will be missed, and we wish him all the best. I'm also pleased to announce two recent additions: Tony Rimas has joined us as our Vice President of Revenue with commercial revenue and strategy responsibilities, including our partnerships. Tony has extensive automotive industry experience, including time spent running a top 50 dealership group and later in automotive venture capital, making him a valuable addition to the team. Lastly, we've brought on Kim Steiner as our Vice President of People and Culture. With nearly 1,000 employees now and growing, this position is critical. We're eager to have her on board as our culture focuses on doing what's best for the customer with an attitude that leaves no room for procrastination, and Kim will play a pivotal role in furthering that across the organization. Additionally, we are tackling various internal changes to reflect our organization, emphasizing key operational functions and just as crucially, key regions such as Asia, the Middle East, and India moving forward to ensure we have robust leadership in those areas, enabling a sufficiently decentralized decision-making process to sustain the agility our business has demonstrated and needs to maintain. Finally, we just participated in the annual SEMA show, the largest aftermarket automotive event in existence and one of the largest trade exhibitions overall. I'm incredibly proud of our outstanding display there, which you may have seen through social media via the X-BELT House, showcasing all our products innovatively. Our presence there was universally well received. We have numerous additional exciting marketing initiatives planned for 2024, including more sponsorships and targeted marketing programs designed to attract non-enthusiast car buyers to the paint protection film market, as previously discussed. Additionally, we are set to launch a new global web platform next year that will enhance our e-commerce capabilities for selling car care products, thereby increasing the number of touchpoints with our customers over the lifetime ownership of their vehicle. Before turning it over to Barry, I want to address the external noise and speculation that has surrounded the quarter. This noise has been predicated on considerable conjecture. We are on track for a strong year and remain dedicated to delivering exceptional service to our customers. I've never felt more optimistic about the longer-term possibilities for our business. At XPEL, we are a robust and industry-leading enterprise, and our strength stems from having the best team in the business, along with our diverse operations by geography, customer type, channels, and product lines, all underlined by a steadfast commitment to executing our go-to-market strategy. So with that, I'll turn it over to Barry.

Barry Wood, CFO

Thanks, Ryan, and good morning, everyone. Just a little bit more color on our revenue. If you look at the product lines, combined paint protection film and cutbank revenue grew 8.4% in the quarter and was up sequentially a little under 4%. Our window film product line revenue grew 21.9% quarter-over-quarter to $18.8 million, which represented 18.3% of our revenue. This was the second highest quarter for the window film product line in our history, following a record quarter in Q2. The Vision product line revenue, which is included in total window film, grew 50% to $2.7 million, representing approximately 14% of total window film revenue and 2.6% of overall revenue. Sequentially, this was up approximately 12% over our previous high in Q2. Our OEM business also had a good quarter, with revenue growing just under 62% versus Q3 2022 to $3.9 million, though this was down sequentially a little due to production stops in August for most of our European OEMs, which was normal and expected. Our Fusion ceramic coating product revenue, included in our other revenue line, grew 35% for the quarter to $1.5 million, representing 1.5% of total revenue for the quarter. Total installation revenue, combining product and service, grew 34.2% in the quarter and represented 17.2% of total revenue. Year-to-date, total revenue grew 18.4%. Our Q3 SG&A expense rose 29.5% to $23.9 million, representing 23.3% of total revenue. Within our Q3 SG&A, we included approximately $0.6 million of costs related to one-time executive relocation and legal fees associated with acquisitions we discussed earlier. We also incurred approximately $0.5 million in one-time costs tied to some research and development around new product development. If normalized, SG&A would have increased by approximately 25% for the quarter, representing approximately 22% of total revenue. EBITDA for the quarter saw a growth of 4.1% to $19.7 million, reflecting an EBITDA margin of 19.2%. If normalized for the previously mentioned items, EBITDA would have grown 16.7%, with an EBITDA margin of 21.5%. Net income for the quarter rose by 2.5% to $13.7 million, resulting in a net income margin of 13.3%. Normalizing for the earlier items mentioned, net income would have increased 16.9%, with a net income margin of 15.2%. EPS finished at $0.49 per share for the quarter, and normalized EPS finished at $0.56 per share. Year-to-date, EBITDA has increased 23.4% to $59.2 million, and net income climbed 23.6% to $40.8 million. During the quarter, we faced an issue with one of our suppliers experiencing abnormal quality problems. This came to our attention in late Q2 and early Q3, and they were unable to identify the cause or timeline for resolution. Ryan has emphasized that we should never run out of product for our customers, as stockouts would significantly impair their operations since most of them operate on a just-in-time inventory basis. In light of the quality issues and a lack of visibility into their resolution, we increased our orders with alternative suppliers to ensure we could meet demand later in the quarter and in Q4. Thankfully, the issue was resolved relatively quickly without any customer-facing impact. However, by that time, we had more raw materials flowing into the pipeline. Consequently, we concluded the quarter with higher inventory than anticipated. Our days on hand remained flat to Q2, but we expect an increase in days on hand in Q4 and an eventual return to normal levels in Q1 as our inventory sells through. Even with this variance, our cash conversion cycle improved slightly in the quarter. Cash flow from operations for the quarter was $11.1 million. We did encounter an anomaly in our cash flow reporting related to the acquisitions we closed after the quarter ended. We had put approximately $7.4 million in escrow ahead of these closings, which is reflected as a prepaid expense on our balance sheet and is accordingly shown in our operating cash flows. This amount will switch to investing in Q4 when the acquisition is recorded. Excluding this anomaly, operating cash flows would have been about $18.5 million. Compared sequentially to Q2, it was slightly down due to the inventory increase prompted by the quality issue. Regardless, we're in solid shape from a cash perspective, having paid off a line of credit during the quarter, and we expect to generate enough cash to fulfill our immediate acquisition plans. Naturally, that depends on the size of the deals, and we are open to some modest leverage where fitting. Generally, we still observe deal multiples in the 4x to 6x range, so from a capital allocation standpoint, these deals are judicious and continue to add solid value for us. Overall, it was another positive quarter, and we are eager to finish the year strongly. With that, operator, we'll now open the call for questions.

Operator, Operator

Certainly. Your first question is coming from Steve Dyer from Craig Hallum. Your line is live.

Steve Dyer, Analyst

Thanks. Good morning. Just, I guess, first, on the inventory, do you anticipate any more inventory write-downs and then, I guess, even backing that out in the quarter, gross margin was a touch lighter than I think I would have expected. Anything else kind of to call out there in the quarter in terms of sort of things that caught you by surprise in the gross margin line?

Ryan Pape, President and CEO

No, Steve, I think we don't expect any more adjustments like that. Obviously, over a longer time frame, various things might happen, but nothing planned. In the quarter, you've got the China mix, a bit of FX, and reduced labor utilization due to some of the OEM August shutdowns. So nothing significant to point out, just a few minor incremental impacts like that.

Steve Dyer, Analyst

Okay. And then your gross margin guidance for Q4 implies a pretty strong quarter even with a little bit lower revenue and the China mix, et cetera. Can you help me understand what gives you that continued confidence that gross margins will be pushing that 42% number?

Ryan Pape, President and CEO

Well, we understood our expectations for the full year and have been exceeded on that to start the year. We anticipated a robust Q4 from China all year and indicated we expected the year to be back-end loaded. That's what our modeling suggests. Revenue mix and currency factors will certainly play into Q4, as they did in Q3. However, as an aggregate, this year has remained relatively consistent outside of Q2, where we were exceeding 42%.

Steve Dyer, Analyst

Yes. A couple more questions, I guess. I haven't heard you note one-time R&D expenses for new product development before. Could you provide any more detail regarding that? Is that product still in development? Any further insight there?

Ryan Pape, President and CEO

Steve, over the past five years, we've built a substantial internal R&D team, along with quality and adjacent functions through both hiring and investment in equipment. Yet we also engage third parties for certain projects where we lack internal expertise or wish to expedite. In this case, the larger expense coincided with this quarter alongside the other one-off costs we mentioned. It really reflects our ongoing commitment to enhancing our existing products while exploring new adjacent markets. This isn't a one-off initiative.

Steve Dyer, Analyst

Got you. Okay. And then as you look forward to next year, knowing you only guide one quarter out, you have typically been running in that 20%+ range for a prolonged period. Given the potential recession backdrop, do you have any thoughts on your overall outlook for next year?

Ryan Pape, President and CEO

I agree with you. We had macro questions last year and ended up stronger than expected in 2023. Anticipating the current momentum, we project a 2024 organic growth rate of approximately 15% to 20%. However, that is subject to change due to potential inorganic acquisitions or risks from the macro environment affecting the auto market. Nonetheless, we see sufficient opportunity for organic growth to maintain a sustained rate. Consistently achieving compounded organic growth at 20% may be challenging as we approach larger numbers, but if we can reach 15% or above, that would be commendable in this economic climate.

Steve Dyer, Analyst

Yes, absolutely. Lastly, I don’t necessarily want to make a comment on somebody else's business, but you touched on the PPG, Entrotech joint venture. There has been some speculation around their advancements in embedding PPF or a similar alternative within paint. We have conducted considerable research without finding evidence to support that, but I’ll afford you the opportunity to add your perspective as you see fit.

Ryan Pape, President and CEO

Sure. We closely monitor these developments. I can assure you that, to our knowledge, no existing technology embeds film within paint, and this is not something our partners at PPG are pursuing. What seems to have emerged is the idea of utilizing films to enhance or replace paint in limited scenarios, which has been developing at a slow cadence for the past decade. However, that's far from the theoretical technology suggesting embedding film in paint, which is not feasible.

Steve Dyer, Analyst

Okay. Got it. Thanks, guys. I’ll pass it along.

Ryan Pape, President and CEO

Thanks, Steve.

Operator, Operator

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

Jeff Van Sinderen, Analyst

Good morning, everyone. Could we discuss your OEM business in more detail? You mentioned acquiring a small OEM-related business. Any further insights you can provide, and what's your outlook for the OEM segment?

Ryan Pape, President and CEO

Absolutely, Jeff. We attempted to provide more insight into how we view the channel in my earlier remarks, seeing these components as supplementary rather than a zero-sum game. While individual unit sales might cannibalize from one channel to another, net-net, we perceive that awareness will grow and extend our reach beyond traditional enthusiast buyers who have characterized our business. Therefore, I see greater opportunities with the OEMs, which likely will complement all our activities despite not dominating sales entirely. It's about growing overall awareness and expanding paint protection film's appeal. It's essential to realize that any installed product must be serviceable and repairable in the real world, which intersects with the aftermarket channel if implemented centrally by the OEM. We intend to pursue more of these opportunities moving forward as we aim to expand our customer base for paint protection film.

Jeff Van Sinderen, Analyst

Understood. Can you provide any insights into your progress in China and clarify how you're evolving your approach there? Additionally, what are your plans for India?

Ryan Pape, President and CEO

Certainly, Jeff. All our past experiences reinforce the notion that we thrive by getting closer to the customer. We've applied this logic to various channels, including establishing local distributors and projects. China was historically an outlier concerning how we approached business, but now we recognize the necessity for a more adaptive go-to-market strategy. We're currently assembling our team and collaborating with our mass distributor in China to ensure we're positioned well for growth. I mentioned the need for better inventory strategy while managing sell-in versus sell-through. We must be more present in China, especially after facing challenges post-COVID. As for India, although our revenue remains minimal, we perceive great potential as their economy matures. The growth of per capita income and higher earners is on the rise. Our lesson from China will apply as we ensure we have sufficient presence in-country—hence, we're relocating a leader from Texas to India to spearhead efforts there. We've realized the importance of being on the ground and engaged from the beginning.

Jeff Van Sinderen, Analyst

That’s helpful. One last quick question: Are there any extraordinary items on the horizon for the upcoming quarters that might influence the P&L?

Ryan Pape, President and CEO

We don't foresee any extraordinary items. However, we always prioritize long-term objectives over short-term results. So, if our acquisition activity continues or accelerates, expenses like legal fees may arise—this could derive from our product development activities or third-party research. While we do not see anything imminent, expect us to remain focused on the big picture and act in our company's best interests.

Jeff Van Sinderen, Analyst

Fair enough. Appreciate you taking my questions. I'll continue offline.

Ryan Pape, President and CEO

Thanks, Jeff.

Operator, Operator

Thank you. That concludes the Q&A portion of the call. I will now hand the conference back to management for closing remarks. Please go ahead.

Ryan Pape, President and CEO

I would like to thank everyone for participating today. I also want to express my gratitude to our entire team. We've had a fantastic quarter with significant growth, and our team has shown tremendous capability through these initiatives, with many individuals taking on expanded responsibilities. Several team members are relocating to support XPEL’s vision elsewhere, and we couldn't accomplish without them. Thank you very much, and I look forward to connecting with everyone soon.