Good day, ladies and gentlemen, and welcome to the XPEL, Inc. Fourth Quarter and Year-End 2021 Earnings Call [Operator Instructions]. It is now my pleasure to turn the floor over to your host, John Nesbett, Investor Relations for XPEL. Sir, the floor is yours.

Good morning, and welcome to our conference call to discuss XPEL's financial results for 2021. On the call today, Ryan Pape, XPEL's President and Chief Executive Officer; and A - 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 out to the prepared comments, we'll take questions from our call participants. I'd like to take a moment to read the safe harbor statement. During the course of this call, we'll make certain forward-looking statements regarding XPEL 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 a 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. 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 could 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 in which they're 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'll now turn the call over to Ryan. Go ahead, Ryan.

Thanks, John. Appreciate it. Good morning, everyone, and like John said welcome to our 2021 year-end conference call. 2021 was another outstanding year for the company. I was very pleased with all that we were able to accomplish. For the year, revenue grew a little over 63% and despite challenges with new vehicle availability, our organic growth was still very strong, coming in at almost 53% for the year. We closed on and integrated the most acquisitions we've ever done in one year in terms of both quantity and purchase price, and we made great progress on growing and expanding our product line. All of these accomplishments have positioned us to have a great 2022. Looking at the fourth quarter 2021, revenue grew 44.3% to $70.1 million, which was a record quarter and the first time we exceeded $70 million in our history. Q4 organic revenue growth was 27%, which was solid in light of continuing new car inventory constraints, particularly in the US. And in the US, we had a great quarter, revenue growing 69% and 37% on an organic basis in the US, again, great growth. Now Q4 was pretty poor in terms of US new car sales similar to what we saw in Q3. Many domestic brands down double digits year-over-year. And our sales mix is becoming a bit more nuanced as our window film and dealership services business expands, and we see more attachment across makes and a range of price points. Historically, we would have been -- we would have had even higher exposure to premium makes which generally held up better as OEMs prioritized manufacturing those vehicles like Tesla, which did have a record quarter for deliveries in the fourth quarter. As we talked about on the third quarter call, our biggest acquisitions last…

Thanks, Ryan, and good morning, everyone. Ryan already covered the overall revenue growth metrics. So I'll move directly to the revenue components. Product revenue grew 34.9% to approximately $56 point million in the quarter and 59.5% to approximately $217.3 million for the year. And in this product revenue category, paint protection film grew 31.2% to $45.6 million in the quarter and 53.3% to $169.9 million for the year. Our window film product line had another solid quarter, growing 55.6% to $8.7 million. And for the year, window film grew 83.1% to $38.4 million and represented 14.8% of our total revenue. So it's just a great overall performance for this product line. Q4 2021 service revenue grew 104.2% for the quarter and 85.2% for the year. And as you know, this revenue category contains software and cutbank credits and training and installation labor. And this installed labor component is not only from our company-owned facilities but also from our newly acquired sublet labor businesses and OEM operations. So if you factor out for the acquisition, service revenue grew approximately 25% for the quarter and approximately 36% for the year. Our total installation revenue grew 177% and represented 15.3% of our total revenue for the quarter. And if you exclude acquisition-related growth, total installation revenue grew 24.4% for the quarter. For the year, total installation revenue grew 122%. And again, excluding acquisition impacts, total installation revenue grew 36.4% year-over-year. And again, we like -- we talk about our total installation revenue in our company-owned facilities because we believe it's a nice surrogate for what many of our customers are experiencing. Ryan also spent some time on gross margin, so I'll just move straight on to SG&A here. Our Q4 2021 SG&A expense grew 87.3% versus Q4 2020 to $16.2 million and represented…

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

Just a couple of points of clarification. Ryan, you had talked about the first half of the year, China being relatively flat. Just to make sure, are you talking about sort of absolute revenue numbers kind of quarter-over-quarter or are you talking about year-over-year?

When we're talking about China being flat, we're saying more year-over-year compared to 2021 for the first half of the year. That's correct.

So I have -- I mean, because it took a pretty big step up in the back half of the year. I have them only at like $7 million and change,7.6 million in the first half. That's sort of the number-ish we should think about?

Yes, that's where it will be there or slightly higher, but it's definitely going to be at that lower level on the lower range of those two.

And you usually sort of guide for Q1 and you had given some commentary on a few moving parts. You talk about faster revenue growth in the back half of the year, but you have a fair amount of acquired revenue in the first quarter such that my guess is that might actually be one of the fastest overall quarters when you consider that. Are you talking organic or you expect -- or am I missing something there? I just want to make sure I get the revenue cadence right?

No, I think you're thinking about it the right way. I mean we usually see in Q1, we've seen it from year-to-year. Q1 is the weakest quarter seasonally, and we've seen revenue down Q1 from Q4 in a number of years, and then occasionally, we've seen it up. And we're not looking right now for Q1 really based on that impact from just China on a year-over-year basis. We're not looking for a big step-up in Q1 from Q4, like we've seen. So we're looking for that to be closer to and then continue to accelerate Q2 and beyond, both as we see the impact from the China business and then also just as we see the impact from dealership services because we're at a reduced level with those even from where they were in Q1 and Q2 2021.

I guess sort of 30,000-foot type question. Much of your product line, PPF, et cetera, has been around for some period of time and you guys have sort of grown nicely throughout and added some products and so forth. But things sort of went parabolic this year in a really challenged year for vehicles. And I guess as you take a step back, what do you attribute that to? Is it an attach rate or what sort of finally clicked or a number of things sort of finally clicked that this year was start of the year, just given the difficulty that really took off.

Yes, I think you have a lot of different dynamics that are coming to play that as we see it. So paint protection film overall, we really have just continued to see increasing adoption and increasing awareness. And I think going into 2021, we really got the benefit of that, which you'd been building over years, and you saw that throughout the first half of the year for sure and then into Q3. And I think that really speaks to the strength of brands. It speaks to the strength of paint protection film. And I think an indicator of that, just like we mentioned with the dealer conference, I mean, 500 attendees versus 300 versus very little international, that speaks to the overall momentum. And that was happening in the first half of the year, really even as inventory was declining in the channel, and we were really, I would say, immune to that. And then what you saw really with the second half is as inventory was more constrained, you started to feel that. And that -- I think that's why you saw things a little bit -- some of that momentum a little bit slower in the second half of the year entering into Q1 because finally, as that inventory is depleted, and it impacts sales, it does become that much harder for our customers and for us to grow at that same rate when the cars just aren't there. But I think that as you saw that coming into the year, it's really the culmination of a lot of the things we've been doing and really strength of the market and the recognition that the PPF is a great product.

Last one for me, and I'll pass it along. Just with respect to acquisitions, it was you noted a very active year, most active in the company's history. As you look to 2022, should we anticipate this is a bit more of a digestion year or are you guys still looking for additive pieces to this?

It's definitely a digestive process here in the first half of the year. I mean, we did a lot last year. We pushed the team really hard. And there's a number of pieces that just getting now to the beginning of the year that we're finalizing, integrating and still costs we're trying to take out. And so we've got a little bit of work to do there over the first quarter to finalize that. We've also committed a lot of cash to inventory and expect to do more of that, just looking at our overall world view of where things are. But then as we get through that and as we see what we expect to see with new car inventories return and how that will impact our cash flow as well as peaking with inventory and then releasing some of that from the balance sheet as cash. Then as we get into the second half of the year, we look to resume that acquisition cadence.

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

I know it's early in the year, but any more color you can give us on kind of the latest that you're hearing and seeing regarding what the ramp-up might look like in dealer inventory?

Jeff, I mean, you have kind of two core data points on that. You've got big picture, what is the industry saying in terms of their production estimates. And then you have what do we see on the ground in the particular markets, in particular makes that we're most exposed to. And I'll tell you, it's been really challenging to square those two feeds of information even over the past quarter. Our view is that overall, the sentiment of what's going to happen has turned more positive, big picture. And then we've seen pockets of some of our dealership customers getting inventory at levels that they hadn't individually received in a year. But that's been very scattered. And so from that alone, it's difficult to extrapolate. But when you start to see that on a one-off basis and then you see sort of the guidance from the Toyotas and the GMs on production numbers that's what gives us the position that we think that there is that substantial improvement. But I can't tell you January and February that you've seen a massive change with that thus far. I don't think we've seen that, but we've seen more individually positive data points than we've had. And so hopefully, those aggregate together to be meaningful like we expect them to be.

And then I guess I'll preface this question by saying I understand if you want to hold off on commenting. But I know you're working on a sort of a revised agreement with entrotech. And I guess just wondering if there's any progress that you can speak to or you want to speak to there? Anything you can say about what the terms of that might look like. And how that could impact, I guess, your supply and your margins going forward?

So I guess, first, just to speak to margins overall. So one of the reasons that we're really confident in this gross margin profile is that the dealership services business is going to be very accretive to us from a gross margin perspective once that new car inventory comes back. we're able to take a lot of cost out of that in terms of cost of goods that those businesses had priority being acquired. So that helps us, like we mentioned. Our overall product mix has moved in a direction that is accretive to gross margin. So both the mix, some of our new products or higher gross margin than older products like our ultimate fusion paint protection film will be accretive to gross margin. And then channel mix has been favorable, where you see US growth really growing the fastest in some of our other direct markets. These are higher margin markets overall. So from a gross margin standpoint, all of those things help. Now from a supply chain standpoint, entrotech has been a great partner of ours for a long time. I fully expect that we will have another agreement in place there just that particular form of agreement that we've had for many years is due to be updated. Certainly, there are plenty of commercial things. Anybody wants in an agreement, and that would include things around pricing and other business terms that we seek to obtain there. But I expect that that new agreement will be in place. And we've also added a lot of supply over the past the ability. We've also added the ability over the past year to get substantial supply for paint protection film from other manufacturers as needed. And we remain committed to, at this point, to an asset-light model for manufacturing. I think that, that works well for us. We want to continue to focus to put the majority of our cash flow to work in the channel. And sort of current issues with the dealership services business notwithstanding, we definitely think that that's the way to do it. So there's no risk to the supply chain as a result of renegotiating that contract with entrotech, do expect to arrive at another agreement with them. And you put all of those things together, which I mentioned, and that's what should set us up for a healthy gross margin profile going into 2022, which is what we expect.

And then just one more if I could squeeze it in. Understand that the Dealer Services segment is a little bit in transition, I guess, or whatever you want to call at this point. But if you kind of look at the core part before you really had the size of Dealer Services business that you have now, I guess, kind of more of the legacy business. What are kind of the underlying trends that you're seeing there? How are those developing for -- in the Window 10 area and then also for automotive? And then also, if you can maybe just touch on architectural for the same.

I mean if you surveyed our dealer base in the aftermarket, you would find that pretty much every customer is coming off one of their best years in history. And I think that's represented in our results. Now you might hear depending on who they are and where they are, you may hear some comments even from our dealers about the inventory situation just does it impact sales. I mean if the car is not there, you can't put product on it if the car can't be sold. But I think you would hear that they had the best year. You would hear cases of dealers being scheduled out, our installers being scheduled out potentially days, sometimes weeks, not something that we like, but it is success indicator of where we are in terms of paint protection and where the demand has been. So I think from that standpoint, the state of the industry has been very strong. And I think you would have seen to the earlier question from Steve Dyer, I think you would have seen really that momentum that we saw in the first half of the year really continue and accelerate further in the second half even outside the dealership channel, just if the inventory situation was even better, even being down 20% or 30% sales on some mix, I mean, you're going to feel that. So I think from that standpoint, it's very strong. The architectural side, like I mentioned earlier, that's still a new space for us. And our progress there to date has really been about taking that product to our existing customers, which we want to do and we want to support them, and we actually have customers interested in expanding into that. But there's a large portion of that business that is run separately from automotive. And these tend to be the larger customers. They may be more established with competitive brands. And we're now seeing interest from them and really working to deepen those relationships. So that cycle is obviously completely different than the cycle we're seeing on automotive, that's really more on our own terms about us being perceived as a helpful partner and maybe a superior brand for the folks in that business. And we'd love to have them on board, and we're working very diligently to do that.

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

I'd just like to say again to our team thank you. It's been an incredibly busy year, and we've accomplished a lot and a lot planned for 2022. And thanks, everybody, for your time today and look forward to speaking to you again soon.

Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time, and have a wonderful day. We thank you for your participation.