Greetings. Welcome to the XPEL Inc. Fourth Quarter 2019 Earnings Call. [Operator Instructions]. I will now turn the conference over to your host, Jennifer Belodeau. You may begin.

Good morning, and welcome to our conference call to discuss XPEL's financial results for 2019. On the call today, Ryan Pape, XPEL's President and Chief Executive Officer; and Barry Wood, XPEL's Chief Financial Officer, 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 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 security 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. With that out of the way, I'll turn the call over to Ryan.

Thanks, Jen, and good morning, everyone. Welcome to our year-end 2019 conference call. 2019 was a transformational year for XPEL, and we successfully executed in a lot of areas. First, as most of you know, we completed our listing on NASDAQ, which was a huge and important achievement for not only our shareholders but for our customers and to the benefit of our corporate identity. We also entered into an important partnership with Team Penske to expand our brand and expose us to a large network of dealerships and other partners. And on the product front, we introduced several new and important products like our FUSION PLUS Ceramic Coating and our interior protection solutions. These provide great opportunities for our customers to increase their revenue per vehicle. I'm very proud of our financial performance in 2019, and it was another record year for us. Revenue for the year grew 18.2% to $129.9 million. Q4 revenue grew by 47% to $39.5 million, which again was a record quarter for us. So all in all, really good top line results, especially in light of the headwinds we experienced during the first half of the year in China. We continue to see strong growth in all of our regions in Q4, led by China. China grew almost 93% in Q4 compared to the prior year quarter to $13.5 million in revenue and represented approximately 34% of our total Q4 revenue, which was, by far, a record quarter for the region. As you may recall, we introduced new product -- new products in the market in Q2, Q3 last year, and we've seen a great response to those products. From a timing perspective, we pulled forward approximately $2 million in sales to China in Q4 '19 from Q1 2020, just based on timing and…

Thanks, Ryan, and good morning, everyone. As Ryan mentioned, overall, 2019 revenue grew 18.2% for the year and 47.4% for the quarter. Breaking the revenue down in its components, product revenue grew 17.5% for the year to $112.2 million, and Q4 product revenue grew 51.6% to $34.9 million. In the product revenue category, paint protection film grew 13.9% for the year to $97.3 million and Q4 paint protection revenue grew 49.8% to $31.2 million, with strong growth in all of our regions led by China. Window film was a great growth story for us this year. Window film revenue for the year grew 55.7% to $11.4 million, representing 8.8% of total revenue. In Q4, window film revenue grew 73.5%, $2.9 million and represented 7.2% of revenue, which is still a large percentage, given the record revenue quarter that we had. Total service revenue for the year grew 23.2% to $17.7 million. Q4 service revenue grew 21.8% to $4.6 million. In this category, software revenue for the year grew 27.1% to $3.3 million and Q4 software revenue grew 29.9% to $0.9 million. Installation labor revenue, which is the revenue from the labor component of our total installation revenue for our company-owned installation centers grew 27% to $6.6 million for the year and in Q4 grew 34.8% to $1.8 million. I'll also note here that overall installation revenue, which combines product and labor grew 27% for the year and 34.8% in Q4. And as Ryan mentioned, I'll echo his comments. We're very pleased with our margin performance in 2019, and we look forward to continuing to improve on that performance as we roll into 2020. On the SG&A front, our 2019 SG&A expenses grew 22.1% versus 2018 and represented 20.3% of total revenue. In Q4, our SG&A expenses grew 28.2% versus Q4…

[Operator Instructions]. Our first question is from Steve Dyer from Craig-Hallum.

Just a question, I guess, on maybe what you're seeing I guess, real-time. In other words, how has China trended, I guess, the last couple of months? And have you ever -- have you seen anything sort of on a POS perspective that leads you to believe -- have you seen anything in the last week or so?

Sure, Steve. Yes. No, relative to China, I think the news through a few weeks ago was pretty negative. But since then, kind of as we talked about, I think the sense is that we're definitely moving in the right direction in China. And that's based on all the feedback we get on the ground. And so I think we're -- at this point, we're expecting to see substantially better conditions in China as we move into April and beyond.

Got it. And maybe talk a little bit about sort of how you feel like your inventory is positioned there as well as domestically here. I know a lot of it is fairly just in time less so maybe in China. But how are you feeling sort of inventory in the channel as things truly do sort of shut down for a period of weeks or a month?

I think that relative to China, clearly through the end of the year and then into Q1 on depressed sales, the distribution channel in China has built some inventory. And that's why we see even as we anticipate further recovery in China into April, that's going to reduce our sell-in from what we had thought last year. But even at current forecast, that still would represent substantial growth year-over-year in Q2 just because our Q2 last year was so depressed. So I think that you have built some inventory, and that's going to push things out a little bit further in China as they begin to recover. But based on what we're -- the information we're getting now, we expect to have a relatively decent Q2 in China.

Got it. That's great color. And then I know you aren't giving specific Q2 guidance and things are changing a lot on daily, if not hourly basis. But I think, generally, with what you're hearing from dealers locally or in the U.S. as well as China. I mean would you anticipate you can grow year-over-year in Q2, or just too early to say at this point?

I think it's too early to say. You're trying to combine sort of the anecdotes with what we actually see. And certainly, through most of last week, everything's firing on all cylinders. And while that hasn't changed, I think you've seen sentiment change overall, more negative. And what that translates to in any impact or not relative to, say, the U.S. business, I think it's too early to say. I mean we've seen really good performance in Europe through today. And that's in spite of perhaps more impact in Europe earlier. Now I don't know if that's -- that will continue or not or if that's directly translatable to the U.S. market or not, but that's what we've seen so far.

Great. And then last one for me. Just as it relates to your supply chain, are you feeling pretty good about things there? Any bottlenecks or potential issues?

Yes. No, we feel really good on supply chain. So we don't have any direct exposure to China relative to supply chain and even going down several levels into different components that make up our products. There's no direct China exposure. And we've worked that as far as we can throughout the supply chain, even to suppliers of suppliers of suppliers, just to try and understand that impact. And as of now, we're not anticipating any supply chain impact. And we have ample inventory across all the product lines based on where we sit today.

[Operator Instructions]. Our next question is from Jeff Van Sinderen from B. Riley.

Just circling back to the China segment, anything you can tell us about what's happening with the car sales trends in the last couple of weeks there? We haven't seen that data. Just wondering how closely that metric is tracking to what your distributors are seeing. Any change in attach rate there? Just I guess any more color you can give us there in terms of what you're hearing from distributors?

No. I can't speak, Jeff, specifically to kind of March to date. I think when you looked at the -- February numbers are down 80%, I mean that certainly matched at the time the anecdotal feedback we were getting, which was that most things were just shut down. So the feedback we have now is that more and more and more of our customers are back to work and incrementally, that continues. And so I think that to a certain extent, that will kind of match with what we see in car sales. But we don't have any more hard data than that.

Okay, fair enough. And then just relevant to the EU and the U.S., how are you thinking about potentially closing down your company-owned units? And I guess the nonowned dealer potential closings around COVID?

Yes. I think I mean from the standpoint of our own operations, we're going to do anything necessary to protect the safety of our employees or communities. The -- for the most part, our operations and our customer operations, they just don't have that many people in them. So they tend not to be subject to some of the mandatory distancing and whatnot. So we're taking that location by location relative to our own operations, and I'd expect many of our customers would do the same. For the rest of our operation, we've -- just out of abundance of caution, we have, obviously, many more people working remote that can just help with the situation, and we'll continue to adjust that. But we have no specific plans for the entire organization, just manage it location by location that we have.

Okay. And if I could squeeze in one more. Any change in your thinking relative to valuation on acquisitions you might make this year? Or any change in strategy given I guess maybe some of the dealers out there could become stressed if there's closures or that sort of thing?

Yes. I think we have to reevaluate all of that. I think from that standpoint, the first thing that we're doing is just taking a breather on that. So we're -- we've kind of just paused all of that, give it 30 days and then reevaluate. But I think we would absolutely sort of reevaluate our approach based on that if more information comes to light. But I think right now, we just need to give it a little time.

And our next question is from Sean Russell from THB Asset Management.

Just a quick follow-up relating to your supply agreement with your primary supplier, I believe, the company, entrotech. Any news on the renewal of that contract, any incremental information there?

Sure, Sean. No, that automatically renews next week, and there are no changes and that will renew automatically next week, no changes to that relationship.

[Operator Instructions]. Our next question is from Jason Hirschman from Hudson 215 Capital.

I was wondering if you could just comment. You mentioned that you were seeing some particularly strong growth, let's say, in Europe year-to-date until this COVID-19 really came on strong in the past, maybe a week or so. And also, maybe if you can comment on FUSION PLUS and how you're seeing that develop and sort of the attachment rate that you're seeing in both the United States and Europe and perhaps even Asia?

Sure. Yes. No, relative to Europe, we've seen a really strong start to the year, and I'm not, at this point, even implying that, that's not continuing. Really, to date, it's been strong. So I think there's clearly uncertainty going forward with the impact from COVID-19. But Europe's been very strong, really across the board, both in our Continental Europe segment and then in the U.K. segment as well. So that's been very encouraging. Relative to FUSION PLUS, we've seen continued adoption there. And obviously, we're pushing our network and our installer base saying, hey, if you were previously using other ceramic coating products, we'd really like to win your business. And that's been successful, and our customers realize that the more that they buy from us, the more we can support them in their local markets and the more business we can drive to them. We're also planning some enhancements to that product. So some other FUSION PLUS-related products or other applications and other automotive applications and some nonautomotive applications, even with that same technology and that will be rolling out in the next quarter or so.

And we have reached the end of the question-and-answer session, and I will now turn the call over to Ryan Pape for closing remarks.

I'd like to thank everybody for making time today, and we look forward to speaking with you next quarter. Thank you very much.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.