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 logistics availability. That comes at the expense of Q1 obviously, but ultimately, it's a product availability and logistics driving these decisions and not a desire to make our sales on nice quarterly boundaries.

Even with that benefit, we really outperformed our expectations for Q4 with China. Obviously, the COVID-19 situation has taken an enormous toll on China in Q1.

We expect to see our China revenue decline substantially in Q1, over 60% from our 2019 number including the impact of that $2 million pull ahead from Q4. February auto sales in China were down 80% due to the mitigation efforts around COVID-19 in China.

There's also been substantial disruption in logistics, including port delays and other congestion issues. As I mentioned earlier, our new product launches in China have been quite successful as we saw in Q3 and Q4 last year, and we had the next product launch originally planned for Q1.

This has been delayed to Q2. The news out of China, however, has improved fairly consistently over the past several weeks.

Our current forecast for China into Q2 shows substantial and significant growth over Q2 2019, but it will be off the peak Q4 number we just posted, even with the adjustment from the pull-ahead sales. But we're certainly in the most optimistic position relative to China compared to the last few months.

Our U.S. business grew 21.5% in Q4 to $50 million -- $50.7 million, which was relatively flat sequentially from Q3.

The U.S. is our largest region by far, at -- around double China and around 6x U.K.

plus Continental Europe combined. Our Canadian business posted a healthy 44% growth rate in Q4.

Canada is one of the oldest and most mature markets, one of the most highly penetrated, yet it continues to post great growth numbers due to increasing penetration rates in the region and our continued focus on the market. Our European business grew almost 85% in Q4.

While we're continuing to experience great demand in the region, we were helped in Q4 by a low comp. As you may recall, our European revenue was impacted in Q4 2018, owing to a change in emission standards that impact a lot of the automotive sector and pulled automotive sales forward into Q3 2018 from Q4 2018 -- Q4 2018.

But either way, really good performance in Europe, and we've seen that continue into 2020. Our Asia Pacific business almost doubled in Q4 -- from Q4 2018 and grew a little under 10% sequentially.

Our success here is just another example that supports our overarching strategy of Get Close to the Customer, clearly been aided by our office and our team in Taiwan and working with and assisting all of our distributors in the region. There was some negative impact to date in Q1 2020 in the APAC region from COVID-19, but not nearly to the same extent as we've seen in China.

So clearly, we have great momentum going into the beginning of the year. Like every other company, we're assessing the potential impact from the COVID-19 outbreak, which is unprecedent and clearly hard to forecast.

In spite of the weakness in China through February, our other regions have performed well, and we're forecasting overall Q1 revenue growth of 8% to 10%, with China down over 60%. So good performance in spite of that.

Europe to date has performed remarkably well in Q1 despite the COVID-19 impact starting earlier in Europe. We're really not in much position to fully assess the impact of the COVID-19 in Europe or the U.S.A.

We continue to monitor it day by day. We made good progress on our gross margins in 2019 with overall gross margin finishing at 33.5%, which is up 300 basis points over 2018.

Q4 gross margin was a bit lower than our previous quarterly trend, mainly due to the large acceleration in China in the quarter as we would expect. So while we expect variability in our gross margin due to that China mix, continued margin expansion remains a top focus for us going forward.

SG&A for the year represented 20.3% of total revenue, which was up slightly from 2018. We continue to experience good operating leverage, and we expect that to continue into 2020.

Clearly, strong operating leverage was demonstrated in our EBITDA and net income results for the year as both showed tremendous growth and EBITDA, net income margins showed great improvement. As we announced earlier this year, we closed on acquisition of Protex Center in Montréal, Canada.

This Protex was the largest franchisee in our Protex network and one of the largest wholesale-focused installers of paint protection film in the world. We expect acquisition will add over CAD 2.5 million incremental Canadian revenue this year, and that is net of all the product that we would have already sold that customer.

And it further solidifies our footprint in Montreal and fits perfectly with our acquisition strategy. In December last year, we announced our multiyear partnership with Team Penske.

Obviously, we're very excited about this. This is a great way to continue to expand our brand and build relationships with Penske and with the other partners of Team Penske.

So really excited about this for 2020 and beyond. Also, we're happy with our product expansion in 2019.

As I mentioned earlier, successfully launched several new products, including our ceramic coating product, FUSION PLUS, which has been very well received, and we also introduced our interior protection solution that applies film to protect interior surfaces and vehicles, such as center console, touchscreens. And this is really to protect from damage from scratches from keys and rings and all the other damage that can happen inside the vehicle.

And I think one of the great things about this product is not only is it applicable to new vehicles, but it opens us up to opportunities in the used car market as part of vehicle restoration process for pre-owned vehicles. So we'll certainly be working on that this year as well.

Both these products are indicative of our mindset around the product development strategy. These products provide tremendous value for the end customer, which is critical.

But they really provide the opportunity for our direct customers, our installers and dealers to increase their average ticket per vehicle, which is very valuable to them. So in that sense, everybody wins.

2019 was obviously a great year. I'm very proud of the results.

I'm very proud of our team. We saw just absolutely tremendous performance from our entire team for the year.

It just couldn't have been better. So I can't state that enough.

With that, I'll turn it over to Barry to run through the numbers, and then we'll take some questions. Barry?

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 2018 and represented 18.9% of revenue.

Sales and marketing expenses for the year grew 11.5% to $7.6 million, and Q4 sales and marketing expenses grew 13.3% to $2.1 million. We previously talked about increasing our marketing budget for 2020 with our IndyCar sponsorship with Penske just being one part of that.

In 2019, general and administrative expenses grew 27% to $18.8 million and Q4 general and administrative expenses grew 35.2% to $5.4 million. And part of that higher growth rate, we had some incremental occupancy costs that we incurred in the second half of the year that kind of influence that growth rate, but still really good performance and really good leverage there.

We've talked before that we target our SG&A expenses to be around 18% of revenue, and we're going to oscillate around that quarter-to-quarter, but that still remains our target, and we think that strikes the right balance between controlling expenses and investing in the business. And while we continually look for ways to drive down expenses, we're pleased to see the significant operating leverage realized during the year.

On the income tax front, our effective tax rate for the year was 17.4% and was 8.9% for Q4. During Q4, we recorded a onetime true-up tax adjustment in the -- to the tune of around $0.5 million related to Tax Reform Act, which lowered our effective rate for the quarter.

We expect our future effective rate to be around 21% as we move forward into 2020. The 2019 EBITDA grew 43.9% to $18.7 million, and our EBITDA margin finished at 14.4%, which was up from 11.9% in 2018.

Q4 2019 EBITDA grew 91.7% to $5.6 million, reflecting EBITDA margin of 14.1%. 2019 net income grew 60.5% to $14 million, reflecting net income margin of 10.8% while our Q4 2019 net income grew 143% to $4.6 million, reflecting net income margin of 11.7%.

And we did have a little bit of tax help on the Q4 net income. But even with that, the overall performance in our net income line item was really good in Q4.

EPS was $0.51 per share for the year and $0.17 per share for Q4. 2019 cash flow from ops grew through 61.3% to $11 million, and we ended the year with $11.5 million of cash on the balance sheet.

The debt we carry on our balance sheet is unsecured debt with very favorable interest rates held, and it's held by the sellers of the businesses in which we purchase. So our balance sheet overall is really strong.

As we've mentioned in the past, we anticipate using our excess cash primarily on acquisitions in 2020 as we continue to execute our strategy. By almost every measure, 2019 was an outstanding year for XPEL.

As Ryan mentioned, we're well positioned operationally and financially to face whatever challenges the COVID-19 situation brings us. Despite that, we look forward to continue to deliver value for our shareholders and most importantly, our customers in 2020 and beyond.

And with that, operator, we'll now open the call up for questions.

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.

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.

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.

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.

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