Jeff Van Sinderen: I just wanted to touch on gross margin for a minute, running really strong there. And just wondering if you could speak a little more about the long-term outlook for gross margin, the drivers you’re seeing around that. Maybe touch on what you’re seeing with some of the new products that have higher margin. And then also a lot of — I apologize, there’s a lot of questions and one question here. The new dealer software as part of that discussion and perhaps the — maybe also if you could just delve more into the service revenue component?
Ryan Pape: Sure, Jeff. Yes. So, what we’ve seen in terms of gross margin, it’s really broken into a couple of buckets. One is the channel mix. So, like I mentioned just as an anecdote, the business in Australia, it’s now growing much faster than it was since we bought it and also at a much higher gross margin. So, we’re seeing growth in geographies and elements of the channel with higher gross margin. And then as we’ve added new products, some of our subproduct lines with paint protection film, in terms of our ULTIMATE FUSION product or elements of our architectural film line or coatings line and things like that, these products are accretive to gross margin. So, as they become a larger percentage of revenue still benefiting from that.
And then more broadly speaking, the service revenue tends to be accretive to gross margin as well. So you’ve got the channel mix and you’ve got the product mix. And then simultaneously, we’ve been working very hard on the supply chain elements across all of our products in terms of the actual bill of material cost of the products and then also the ancillary costs that go into gross margin that are related to making, buying, shipping, converting, whatever it might be, the — all of our products. And so, all three of those things are driving it. The last item in terms of managing the bill of material costs and other components of cost of goods, probably the most consequential at present, just [Technical Difficulty] room to run as we get in next year and the year after.
Part of where — what we don’t know is, relatively speaking, what do we see in terms of growth in the different geographies and what do we see, relatively speaking, in the product lines. And so that makes it a little harder for us to pin that down. But I kind of think we’ve got three avenues to win in terms of continuing to increase the gross margin beyond the fiscal year ‘23, we really only need two out of the three to work in order to be able to do that. So while we don’t know exactly what that means, I think it sets us up pretty well to do that. And you asked about the software, the DAP software. Software for us years ago was not inconsequential portion of our revenue, and obviously, that’s changed as the business has grown. One of our questions and objectives as we do continue to enhance the DAP platform is, can we get software revenue growing from that again?
Is there a payments revenue or ancillary revenue we can get from that, so where it’s not only helping our customers and helping the business, but it’s also another source of high gross margin revenue? I think a little bit premature to try and characterize that, but that’s an obvious conclusion — obvious question to draw from thinking about what we’re doing. So, that will be a factor, too. I think you had one last question, but I don’t remember what it was, Jeff.
Jeff Van Sinderen: No, that’s okay. I actually just wanted to follow up on the software. What kind of feedback are you getting from dealers on the benefits that they’re seeing to their business?
Ryan Pape: Well, I think it’s — I think what — the feedback we’re getting now is, wow, this is great. This is the largest investment, the largest set of chains that we’ve ever seen XPEL doing, and if we’ve been a customer for a long time. So, they’re clearly noticing the change, and they’re noticing our investment in something that’s very important to us. I think that’s probably the extent of the feedback that we have, and it’s probably going to take a little bit longer to get the feedback that says, hey, I used — I used sort of the playbook that you guys have instituted here on how to run my business, and I’ve seen my business grow as a result. That’s the outcome that we want, but I would probably check back in a year for that type of story to start to come through.
Jeff Van Sinderen: Okay. Fair enough. And then one thing that we noticed is that some dealers — we talk a lot about pre-loading PPF, but noticed that some dealers are pre-loading ceramic coating more? I’m just wondering what you’re seeing there.
Ryan Pape: Well, I think it’s similar to the broader question on pre-loading. You have some dealers that like that as a business model and some that don’t. And then of those that do, they might like it for one type of product or another, ceramic coating being one or window tint being one or paint protection being one, could depend on their prior experience or their customer base or what lines they’re carrying. So, that is an element of it. And I think part of the broader push there is that these are real, tangible products that we’re selling that provide demonstrable value, and they aren’t predicated upon having a warranty or insurance attached to them to be useful. And in many respects, in our view, that makes them better products than a lot of the other things that are sold or preloaded.
