Xpel, Inc. ((XPEL)) has held its Q3 earnings call. Read on for the main highlights of the call.
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During XPEL, Inc.’s latest earnings call, the sentiment was a mix of optimism and caution. The company celebrated record revenue growth and strategic acquisitions, but also acknowledged challenges such as gross margin pressure, a decline in the Canadian market, and increased SG&A expenses impacting profitability.
Record-Breaking Revenue
XPEL reported a record quarter with revenue increasing by 11.1% to $125.4 million, driven primarily by the U.S. region, which also saw an 11.1% growth. This achievement underscores the company’s strong market presence and effective growth strategies in its largest market.
EU Region Performance
The European region delivered an impressive performance with a 28.8% revenue increase to $16.5 million, setting a new record for the region. This growth reflects a recovery from previous challenges and highlights the potential for further expansion in the European market.
Window Film Product Line Growth
XPEL’s window film product line continued to be a significant growth driver, expanding by 22.2% during the quarter. This product line’s success is pivotal to the company’s overall growth strategy, showcasing its appeal and market demand.
Integration of Chinese Distributor
The acquisition of a Chinese distributor was completed, expected to add $5 million in annual SG&A but also contribute $10 million in operating income on a run-rate basis. This strategic move is anticipated to enhance XPEL’s market reach and profitability in the long term.
Gross Margin Pressure
The company faced gross margin pressure due to unfavorable price increases, which cost about 170 basis points in Q3. However, XPEL expects mitigation in Q4 and beyond, aiming to stabilize and improve margins through strategic initiatives.
Decline in Canadian Market
The Canadian market continued to experience a downturn, with revenue declining further in Q3 compared to Q2. This ongoing trend highlights the challenges XPEL faces in this region, necessitating strategic adjustments to regain momentum.
SG&A Increase
SG&A expenses rose by 20.8% to $35.7 million, accounting for 28.4% of total revenue. This increase includes costs related to acquisitions and bad debt expenses, impacting the company’s profitability in the short term.
EBITDA Decline
EBITDA declined by 8.1% to $19.9 million, with an EBITDA margin of 15.9% for the quarter. This decline reflects the financial pressures faced by XPEL, emphasizing the need for cost management and efficiency improvements.
Forward-Looking Guidance
Looking ahead, XPEL projects Q4 revenue between $123 million and $125 million, with a goal of achieving 13% to 14% annual growth by 2025. The company plans to enhance its gross margin to 52%-54% by 2028 through strategic investments, targeting operating margins in the mid- to high 20s. Additionally, XPEL intends to invest $75 million to $150 million in manufacturing and supply chain enhancements, focusing on sustainable growth.
In conclusion, XPEL’s earnings call highlighted a balance of record achievements and challenges. While the company celebrated significant revenue growth and strategic acquisitions, it also faced pressures on margins and profitability. Looking forward, XPEL remains committed to strategic investments and market expansion to drive sustainable growth and improve financial performance.