XPEL, Inc. Q3 FY2025 earnings call

• Q3 was a record revenue quarter at $125.4 million, up 11.1%. U.S. region grew 11.1% to $71.7 million, EU region grew 28.8% to $16.5 million.
• Saw double-digit growth in independent and dealership channels in the U.S. and EU.
• China acquisition closed in early September with minimal financial impact but elevated SG&A. Integration is underway.
• Gross margin had pressure in Q3 due to unfavorable price increases (170 basis points drag), but expected to reverse in Q4 and Q1. China acquisition's inventory sale impacts gross margin in near term but will boost it long-term.
• Focus shifting to selling more existing products and iterating on current products rather than adding new ones.
• OEM business interest is strong but current performance has missed expectations due to manufacturer disruptions. Working to manage this environment better.
• Personalization platform driving increased volumes to aftermarket network. Expected to expand going forward.
• Investments in DAP platform continue, aiming to solve channel inefficiencies.

Revenue for Q3 was a record $125.4 million, up 11.1%. The U.S. region led with 11.1% growth to $71.7 million. The EU region saw 28.8% revenue growth to $16.5 million. Canada revenue declined, Latin America was flat. The U.S. region's independent and dealership channels had double-digit growth. The EU region also had a record quarter. The China acquisition closed late in Q3 with minimal financial impact but elevated SG&A from acquisition-related fees.

• Q4 revenue expected to be in $123 million to $125 million range. Annual growth for '25 expected 13%-14%.
• Gross margin expected to reverse starting in Q4 and into Q1, with record gross margins in Q1 and Q2 '26 as China inventory is sold through.
• Goal to increase gross margin to 52%-54% by end of 2028 through manufacturing and supply chain investments.
• Goal to realize operating margins in mid-to-high 20s by 2028. Expect to have excess cash for potential shareholder returns, including share repurchases.

• Unfavorable price increases in Q3 impacted gross margin by 170 basis points. Though mitigated going forward, was a risk in Q3.
• Complexity of the China transaction, including inventory structure and contingent consideration related to excess inventory.
• Slowness in some markets like Canada and challenges in the aftermarket with stress signs like bad debt from bankrupt chains.
• Competition in the space, which could impact market positioning if not managed properly.

Q: Curious about out-of-line price increases and leaning into manufacturing in-house A: Price increases were due to market challenges, mitigated with robust suppliers. Plan to invest in supply chain to be highest quality and lowest cost provider, with multiple ways to achieve this without discrete focus on one method Q: Rollout of colored films and dealer embracement A: Rollout has been great and well-received. Initial view was to take share in the aftermarket color change space, expecting market growth and more engagement from dealership and OEM channels going forward Q: Revenue assumptions underpinning mid-to-high 20% operating margin by 2028 A: Expect low double-digit organic revenue growth midterm, which supports margin expansion Q: Sentiment across aftermarket in dealer channel and Q4 guidance A: Mixed sentiment globally; U.S. retail automotive has headwinds but positive for XPEL as dealers seek extra gross profit. Q4 guidance is $123-125M revenue Q: Gross margin drag in Q4 and improvement in Q1/Q2 '26 A: Q4 expected to have some gross margin improvement vs prior year, with full potential realized in Q1/Q2 '26 leading to record gross margins as China inventory is sold through