XPEL, Inc. (NASDAQ:XPEL) Q3 2023 Earnings Call Transcript

XPEL, Inc. (NASDAQ:XPEL) Q3 2023 Earnings Call Transcript November 8, 2023

XPEL, Inc. reports earnings inline with expectations. Reported EPS is $0.56 EPS, expectations were $0.56.

Operator: Good day, everyone, and welcome to the XPEL, Inc. Third Quarter 2023 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, John Nesbett, IMS Investor Relations. Sir, the floor is yours.

John Nesbett: Good morning, and welcome to our conference call to discuss XPEL’s financial results for the third quarter of 2023. On the call today, Ryan Pape, XPEL’s President and Chief Executive Officer; and 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 after the prepared comments, we’ll take questions from our call participants. A transcript of this call will be available on the company’s website after the call. I’ll take a moment to read the safe harbor statement. During the course of this call, we’ll 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.

Such statements are based on current expectations and assumptions, which are subject to known and unknown risk factors and uncertainties that could cause actual results to materially differ from those expressed in these statements. Some of these factors are discussed in detail in our most recent Form 10-K, including under the Item 1A Risk Factors filed with the Securities and Exchange Commission. XPEL undertakes no obligation to publicly update or revise any forward-looking statement, 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.

Ryan Pape: Thank you, John, and good morning, everyone, and welcome from me also to our third quarter of 2023 conference call. We had another strong quarter. Overall revenue growing 14.4% to $102.7 million. This was in line with our expectations for revenue and what we discussed on our Q2 call. Also, as expected, China did have a nice sequential increase from Q2 or still a 7% decline from Q3 2022, which impacted the quarter-over-quarter growth rate and our non-China revenue growth in the quarter was 17.4%. Our U.S. region grew 14.5% compared to Q3 2022 to $59 million. Sequentially, this was essentially flat to Q2, which itself was a record quarter. Our U.S. business is now 57% of our overall revenue, so it’s performance serves as a significant driver of our overall results.

U.S. new car sales continued to be solid despite the higher interest rate environment. We did see a slight reduction in the rate of growth in our aftermarket channel this quarter versus Q2. But overall, Q3 2022 was the peak quarter for last year. And as you know, we watch the front lines of our marketing customers very closely. And our customers tell us their business has been relatively consistent this summer, but probably off the fever pace we saw in Q3 of 2022. I know that each of you covers many of you cover our business and the industry closely, so I want to take the opportunity to step back for a minute and discuss our channel strategy and how our multiple channels, in our view, complement each other and enable us to reach an expanding customer base.

So as many of you know, paint protection film started almost exclusively in the aftermarket. And the consumer had to first find out about PPF then he would take his or her car into an independently owned shop to have the product applied. So this consumer still represents a large portion of the channel and of the buyer. Enthusiast buyers dominate this channel, and we estimate an enthusiast buyer to be around 15% of all new car buyers. Over time, as dealerships saw their customers purchase PPF in the aftermarket dealerships began to move to adopt PPF. And the reason for adoption is simple to generate gross profit. And many dealerships outsource the installation to the aftermarket because they don’t want to have to hire their own internal staff.

And as you know, hiring internal staff in a dealership or a service center model can be challenging. Consumers demand product excellence and to be effective, dealerships need a technical skill set for installation yet they may only need a small team of installers or in some cases, just one person. This reality can make it challenging for dealerships to recruit, train and staff around time off, absences and other things. So some dealerships choose to build internal teams and are able to do this themselves successfully and they’ll continue to do it. At the same time, there are other businesses that have no retail presence whatsoever who provide PPF services to dealerships. In our case, you’re not going to find these customers on our dealer locator or likely even though they exist.

We refer to these customers as dealership services. We’ve acquired several of them over time for paint protection film and window tint and so we’re in that business ourselves. As you analyze our industry, it’s important to understand that scaling to meet high penetration rates in dealerships is something a few of the aftermarket installers are interested in as this scaling requires substantially more human capital and a constant reinvestment of cash flow into the business. Likewise, you don’t really see dealership groups universally scale installation internally across their enterprise in a consistent way. It’s typically locally decided, and it’s very much a patchwork in its implementation. So even still, as dealerships continue to sell more PPF and ultimately create more awareness for PPF, on the whole, this is not disruptive to the aftermarket in our view, for several reasons.

One, the aftermarket participates in this work by doing work for dealerships in some cases, as I mentioned a minute ago. And then enthusiast buyers who are still the largest part of this channel who were the original PPF buyers, will often opt out of the dealership channel and take their new car directly into the aftermarket, seeking a more bespoke installation from someone they trust. And then third, obviously, the PPF market overall has continued to grow. So net-net, the dealership’s offering is increasing attach rates by finding people that would never take their car into the aftermarket. And as dealerships continue to adopt PPF, we’ve seen interest from the OEMs begin to develop. And again, this interest is profit motivated. Installing PPF at or near the point of manufacturer delivery is attractive because the vehicles are located together for efficiency.

The downside is you need a substantial physical footprint and a human capacity to do a considerable number of vehicles as installation is still done manually without any currently available automated installation processes. So there’s a limit ultimately to the scale that can be achieved in that environment. Additionally, OEM programs are susceptible to be usurped by dealerships who would prefer to internalize their programs and not select the manufacturer’s option for the product because they believe they can generate more profit and have more control. And it’s important to note, again, that the original and predominant enthusiast buyer may always prefer their local installer whom they know and trust and whose quality and workmanship they prefer, yet like dealerships, OEMs still have the ability to reach consumers, not captured by any other element of the channel and those that don’t know about the product, which is helping to grow consumer awareness overall.

So when you look at it in totality, we see the mix of channel activities as healthy and mandatory to the development of the PPF market. And we don’t see direct aggregate cannibalization of the business from one segment to another. As an example, even as you have seen more dealership participation in PPF over the past few years, the aftermarket is bigger than it’s ever been for XPEL. In XPEL, we have various internal measures, including our DAP software for estimating our vehicle attach rates for our products and the related revenue mix. In particular, we can look at this attach rate as it relates to traditional paint protection, which would be the front end of a vehicle or the full car of the vehicle, separate from, say, mini kits or wear-and-tear applications that would be additional.

So as an example, in the case of Rivian, with whom we have a factory program, our U.S. XPEL aftermarket attach rates are higher than many other makes. In this case, the OEM program is incremental and is helping to grow attach rates overall. It’s our view that initial buyers of a new model or a new brand like the recent development of the EV manufacturers are more likely to skew towards enthusiasts. So we would expect attachment rates to be higher initially, but over time, if there’s more mass market appeal, particularly if the price point is more accessible, the buyer profile will change to be more similar with the overall industry dynamics. So put simply, the incremental buyer of this type is less likely to be an enthusiast. This means, over time, we might expect to see attach rates go down on a new vehicle as they expand production and their mass market appeal.

So today, as an example, our U.S. attach rate into Rivian is substantially higher than Tesla, for example, even excluding our OEM operation, and this is likely due to the early presence of the enthusiast buyer dominating the channel for a new vehicle. That said, as an example, our U.S. Porsche attach rate is substantially higher. And actually, multiples higher, yet again, because a large percentage of that core buyer are enthusiasts and because Porsche has a dealer network that exists and is very effective at selling the product. Other enthusiasts dominated and higher average price point makes follow similar trends. Overall, it will take a range of approaches to continue to expand the market, the paint protection film beyond the 15% enthusiasts that I mentioned earlier and into the mainstream.

We estimate 25% of consumers will never buy the product and they probably wouldn’t take it for free because the pride of ownership of their vehicle is just not there. Those consumers simply don’t care. But that leaves 50% to 60% of the new car buyer and our estimation that are open to the product if they learn about it, if they can access it easily before, during or after the sale process, and if we can meet them with an appropriate price point to provide good value. To do that, we’ll take a variety of sales channels and marketing activities to reach this group over time. So I know that’s a lot to digest on the U.S. on our U.S. go-to-it but to summarize, our channel strategy uniquely positions us to be there wherever the demand takes us and is a key part of our ability to drive sustained growth.

So turning back to our quarterly results. Most of our other regions had solid quarters, led by European region, which posted 43.5% growth over the prior year quarter and our Latin America region, which grew 58.4% over the prior year quarter. Canada’s growth rate was impacted a bit by FX using Q3 2022 exchange rates. Canada revenue would have grown approximately 10% as the Canadian dollar weakened substantially in that time. And as I mentioned previously, China’s Q3 performance was consistent with our expectations and that we saw sequential growth over Q2 of this year, but still a 7% decline over Q3 2022, which was the highest quarter for last year. The Q4 forecast we received from our distribution in China is positive and assuming we can ship all the product as forecast would indicate our Q4 revenue from China would be one of our highest quarters in recent years.

Of course, things can change and they have in the past, but we’re optimistic that this will be a good quarter for China. I also want to update you that we remain on track to have our initial team in country at the end of the year as we assess a variety of aspects on our overall go-to-market in China. And of course, one of our goals as we work on this project is to eliminate the lumpiness of our China business in terms of sell-in versus sell-through. And as we’re doing with China, we’re also establishing our first facility in India which will be opened at the beginning of the year and looking at a more direct approach for that market as it develops and as it’s in its infancy. As we’ve discussed in the past, our U.S. business does have some seasonality in Q1, which is our lowest quarter.

Q2 and Q3 trade-off being our highest quarters and then we typically see a drop-off in Q4. Given that in our expectations for China, as I mentioned earlier, assuming we can deliver on the forecast, we expect Q4 revenue to be in the $98 million to $100 million range, which would put our annual revenue growth rate toward the lower end of the 20% to 25% range we’ve discussed this year. On margin, our gross margin for the quarter finished at 40.4%, which is a bit lower than our year-to-date run rate. We did have around $1 million of onetime adjustments in inventory for the quarter. And as we moved off our supply chain concerns we’ve had coming into the year and years prior, and we’ve improved the manufacturing throughput. We have remnants and offcuts and other material that is more commercially challenging to process that no longer needs to be retained as a safety stock.

And so that’s sort of the adjustment that you see here. Our processes in this area will continue to improve and already has. So perhaps some of that adjustment is probably out of period. And if you normalize for that, our gross margin would have been a little less choppy from quarter-to-quarter this year. But I certainly don’t want to take away from the big picture where our improving gross margin profile has been terrific. So nothing’s changed in terms of our outlook related to the opportunities for that gross margin expansion. We still expect to close the year at/or near 42% gross margin. I still expect our gross margin profile to continue to expand in 2024 and then beyond. In other business updates, we closed on two acquisitions in the fourth quarter with the combined purchase price of around $13 million.

One was a Canadian-based installation chain of six locations that came to market. The other was a European-based business and installing product for two OEMs at a small scale. Both of these will nicely complement our go-to-market strategy that we’ve discussed, and you should add around $11 million in full year 2024 revenue. We also have two acquisitions to close in the remainder of the year, one in the U.S. and one in Australia to supplement our direct model in that market that started last year with the acquisition of our distributor. Our acquisition pipeline remains healthy, and we expect to deploy all of our excess cash into this strategy, and we still think that this is the best use for our cash. The acquisition strategy focused on three core targets.

First, we’re looking to expand our distribution to other key markets globally, we’re acquiring our distributors might make sense. Our Australia acquisition from last year that I mentioned a second ago, is a great example of this, where we have 3x the revenue we had prior to the acquisition, highest margin profile in the system, and we can directly execute on all facets of the go-to-market in country. As we’ve discussed before, the closer we are to the end customer, the more successful we are in that particular market as product awareness propagates. Secondly, we’re looking into the channel for things like dealership services, where we can invest in a part of the market that we don’t think is well served to tie into my remarks earlier. And finally, we’ll always look at adjacent product or service lines that complement our current portfolio.

as a possible acquisition target. But one example of an adjacent market is colored films. We get asked a lot about this. Today, you’ll see vehicle wraps used for marketing purposes and for color change. Historically, that market is driven by vinyl films. And now over the past few years, you’ve seen the presence of more TPU-based colored films where TPU is what paint protection films made of. And this is obviously the more similar in its construction to paint protection film. There are probably half a dozen to a dozen TPU-based color products on the market today and then a dozen or two or more sort of cast vinyl products, which have been the traditional mainstay of that business. Wrapping an entire vehicle with colored film via vinyl or TPU, have some of the same challenges as a PPF installation, given the current manual application process.

It’s a bit more difficult to install than PPF in some cases, because you may want to disassemble part of the vehicle to ensure all painted surfaces are covered, so you don’t have any gaps or scenes in coverage. However, given the cost quality and difficulty of full car installation, including the lack of reliable automated installation capability and the need for repairability of what’s installed in the fleet, it’s unlikely, in our opinion, we’ll see films replace paint and mass anytime soon, if ever. It’s more likely to continue to be used as they are now or bespoke colors, not offered through a manufacturing process, for things like contrast roofs, for graphics and marketing and then for select vehicle parts that are painted off-line today and integrated into a final build.

Many of our aftermarket installers came to paint protection film business from the traditional colored wrap business because they found the PPF business more attractive and a larger potential customer base. So we’ve had a wait-and-see approach to this market relative to our overall priorities and its future with us, even though it’s probably one of the next most adjacent markets in terms of product. In that context, should we decide to participate in it, the colored wrap business should be seen as something that can expand the TAM of XPEL, not something that threatens to reduce it. Across all our product lines, our suppliers are very important to us, and we’ve developed an extended base of raw materials and converting suppliers in particular, for our paint protection film business over the years.

Even as we’ve diversified that manufacturing using the asset-light model and outsourced manufacturing model that we’ve used since inception, we’ve had a strong and long-standing 15-year relationship with Entrotech. Earlier this year, it was announced that PPG had formed a joint venture with Entrotech around colored film products. Entrotech had developed over a period of many years. We welcome the PPF joint venture with Entrotech. And there are many possible opportunities for collaboration with PPG. We’re actively discussing ways in which we might do that with their senior leadership. Next, let me turn to our leadership team here and provide a brief update. As many of you know, Mat Moreau has decided to retire from the business after serving as our Senior Vice President of Sales and Product.

Rejoined the company in 2015 after we acquired his business in Canada and has held positions of increasing responsibility ever since. He will be missed. We wish him all the best. I’m also excited about two additions recently, Tony Rimas has joined us as our VP of Revenue and commercial revenue and strategy responsibility, including our partnerships. And Tony has a wealth of automotive industry experience, including time running a top 50 dealership group and then later in automotive venture capital. So he’s a great addition to the team. And finally, we brought on Kim Steiner, is our Vice President of People and Culture. And we have nearly 1,000 employees now and growing as we operate on the diverse business model. It’s a critical role. Really excited to have her on board.

And our culture centers around doing what’s best for the customer with a no tomorrow attitude, and Kim will be integral in helping drive that even further across the organization. We’re also working on a number of internal changes to reflect our organization both around key operating functions but even as importantly around key regions, Asia, as we mentioned earlier, in Middle East and India going forward to ensure that we’ve got leadership in the region and that we have a sufficiently decentralized decision-making process to remain the agile company that we have been and need to be. Finally, we just attended the annual SEMA show, which is the largest the aftermarket automotive event of its kind and one of the largest trade shows in existence.

I’m really proud of our amazing display there, which you may have seen on social media through the X-BELT House, which showcased all of our products in an innovative way. I know our presence there was universally well received. We’ve got a lot of other great marketing initiatives going into 2024, including additional sponsorships and targeted marketing programs to drive more of that non-enthusiast car buyer to the market for paint protection film, as I discussed earlier. And then additionally, we have a new global platform launching next year, a global web platform launching next year with enhanced e-commerce for selling car care products to increase the number of touch points we have with our customers over the lifetime ownership of their vehicle.

Before turning it over to Barry, just want to take note, obviously, there’s been quite a bit of external noise and conjecture during the quarter. And this noise has been built on a great deal of speculation. We’re on track for a strong year and remain focused on providing outstanding service to our customers. And I’ve never been more optimistic about the long-term opportunity for our business. XPEL, we are a strong and industry-leading business and our strength is based first on having the best team in the business. And then on the fact that we have a very diverse business, diverse by geography, by customers, by channels and by product lines and an intense focus on executing the go-to-market strategy. So with that, I’ll turn it over to Barry.

Barry Wood: Thanks, Ryan, and good morning, everyone. Just a little bit more color on our revenue. If you look at the product lines, combined paint protection film and cutbank revenue grew 8.4% in the quarter and was up sequentially a little under 4%. Our window film product line revenue grew 21.9% quarter-over-quarter to $18.8 million which represented 18.3% of our revenue. And this was the second highest quarter for the window film product line in our history, coming off a record quarter in Q2. Revenue for the Vision product line, which included the total window film – which is included in total window film grew 50% to $2.7 million, and this represented approximately 14% of total window film revenue and 2.6% of overall revenue.

And sequentially, this was up approximately 12% over our previous high in Q2. Our OEM business also had a nice quarter with revenue growing a little under 62% versus Q3 2022 to $3.9 million, and this was down sequentially a little bit as production stops in August for most of our European OEMs for vacation. So the sequential decline was normal and expected. Our Fusion ceramic coating product revenue, which is included in our other revenue line, grew 35% for the quarter to $1.5 million and represented 1.5% of total revenue for the quarter. Our total installation revenue, combining product and service grew 34.2% in the quarter and represented 17.2% of total revenue. And on a year-to-date basis, total revenue grew 18.4%. Our Q3 SG&A expense grew 29.5% to $23.9 million and represented 23.3% of total revenue and included in our Q3 SG&A was approximately $0.6 million of costs related to onetime executive relocation and legal fees related to acquisitions that we discussed earlier.

We also incurred approximately $0.5 million in onetime costs related to some research and development around some new product development. If you normalize for that, SG&A would have grown approximately 25% for the quarter, representing approximately 22% of total revenue. EBITDA for the quarter grew 4.1% to $19.7 million, reflecting an EBITDA margin of 19.2%. And if you normalize for the items I mentioned previously, EBITDA would have grown 16.7% and EBITDA margin would have been 21.5%. Net income for the quarter grew 2.5% to $13.7 million, reflecting net income margin of 13.3%. And again, normalizing for those items that I mentioned, net income would have grown 16.9% and net income margin would have been 15.2%. EPS finished at $0.49 per share for the quarter and normalized EPS finished at $0.56 per share.

On a year-to-date basis, EBITDA has grew 23.4% to $59.2 million and net income grew 23.6% to $40.8 million. We did have an issue during the quarter where one of our suppliers began experiencing some abnormal quality issues. And this — we start seeing this in late Q2, early Q3, and they were unable to pinpoint the issue or really know when it was going to be resolved. And one thing that Ryan has been very clear about with our team is that we should never run out of product for our customers. If we were to be out of stock on something that our aftermarket customers need, it would really be devastating for them because most of them operate on a just-in-time inventory basis. And because of this, we do everything we can to not let stockouts happen.

So when we saw these quality issues and not really having any visibility into when they would be resolved. We had to increase our orders with alternate suppliers to ensure we were able to meet demand later in the quarter and Q4. Ultimately, the issue ended up getting resolved relatively quickly, which was good without any customer-facing impact. But by that time, we had more raw materials in the pipeline. Consequently, we ended the quarter with higher inventory than planned. Our days on hand were flat to Q2, but we’ll see an increase in days on hand in Q4 and we should be back to normal in Q1 as the inventory sells through. Even with that, our cash convergence cycle did improve slightly in the quarter. Cash flow from ops for the quarter was $11.1 million.

We had a bit of an anomaly on our cash flow reporting for the quarter related to our acquisitions that we closed subsequent to the quarter end. We had put approximately USD 7.4 million in escrow in advance of the closing — these closings. This amount sits in our prepaid expense on our balance sheet and accordingly, is reflected in our operating cash flows. And this will flip to investing in Q4 when we booked the acquisition. So absent this anomaly, operating cash flows would have been approximately $18.5 million. And if you compare that sequentially to Q2, it was slightly down due to the inventory we added related to the quality issue. Even with that, our cash we’re in really good shape from our cash perspective. And we did pay off line of credit during the quarter, and we expect to be able to generate enough cash to execute on our immediate acquisition plans.

And of course, this will always depend on deal size, and we’re certainly not opposed to some modest leverage where appropriate. And generally, we’re still seeing deal multiples in the 4x to 6x range. So from a capital allocation perspective, these deals are the right thing to do and remain solid value adds for us. So another good quarter for us, and we look forward to closing out the year strong. With that, operator, we’ll now open the call up for questions.

Operator: Certainly. [Operator Instructions] Your first question is coming from Steve Dyer from Craig Hallum. Your line is live.

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Q&A Session

Steve Dyer: Thanks. Good morning. Just, I guess, first, on the inventory, do you anticipate any more inventory write-downs and then, I guess, even backing that out in the quarter, gross margin was a touch lighter than I think I would have expected. Anything else kind of to call out there in the quarter in terms of sort of things that caught you by surprise in the gross margin line?

Ryan Pape: No, Steve, I think we don’t expect any more adjustments like that. I mean, obviously, over a longer period of time, there’s always things would happen, but sort of nothing planned. In the quarter, you’ve got China mix, you’ve got a little FX. You’ve got lower labor utilization with some of the OEM August shutdowns and things like that. So nothing of consequence to point out, probably just a few incremental pieces like that.

Steve Dyer: Okay. And then your gross margin guidance for Q4 implies a pretty strong quarter even with a little bit lower revenue and the China mix, et cetera. Kind of help me understand – kind of what sort of gives you that continued confidence that gross margins will really be pushing that 42% number.

Ryan Pape: Well, I mean, we knew going into the year looking at it on a full year basis, what our expectations were, and we’re really kind of running hot on that to start the year. And we’ve had planned what we expected in terms of a strong Q4 for China all year. We’ve talked about that we expected the year to be back-end loaded. So that’s what our modeling continues to suggest. And then obviously, revenue mix, currency, these things will matter for the fourth quarter like they did for the third. But in aggregate, the whole year has been relatively consistent aside from, say, Q2 where we were really running hot on gross margin, pushing above that 42%.

Steve Dyer: Yes. A couple of more questions, I guess, just on the quarter. I guess I’ve not heard you call out onetime R&D expense for new product development before. Can you give any more detail sort of what that is? Is that product still in development? Any color there?

Ryan Pape: Steve, we’ve built over the past five years, a substantial internal R&D team, R&D, quality and adjacent functions, both by people and then investment in equipment. But we also utilize third parties for certain projects that either we don’t have the internal expertise for that we’re trying to move faster on. So some of that happens and it’s not really noteworthy based on the timing of the expense and when it occurs. In this case, it just kind of happened to hit in this quarter with a slightly larger amount alongside these other sort of onetime expenses. So we called it out. But it really reflects sort of the continuing cadence of things we’re doing, not a one-off, looking at how do we make our existing products better in the markets we’re in. And then as we look at adjacencies, where else might we want to go. So I wouldn’t call it out to any specific area we’re focused on. I think we just really call it out due to the timing of how it presented.

Steve Dyer: Got you. Okay. And then I guess as you look forward to next year, I know you only guide one quarter out, but you’ve typically kind of been running in that 20-plus percent range for a long time, maybe that’s aggressive in a year that it feels like we’re going into a recession, et cetera. But I guess any interest in taking a big picture swipe at how you’re thinking about next year?

Ryan Pape: Well, I mean, I agree with you. We’ve had the macro question, and I guess we really had that coming into 2024, too, if you picture yourself at this time last year or we had it coming into 2023 rather, and this year, I think, by all accounts for everybody, probably ended up stronger than was thought in November 2022. So I think with that caveat in mind, if we were to see kind of the tempo that we’re in now continue, I think we would be looking in a 2024 environment at kind of a 15% to 20% sort of organic growth rate. That’s kind of how we see it. That then subject to change from sort of the inorganic acquisition components. And then obviously, to the downside, it’s the recession risk or the auto market lose a steam from the pace it’s been on, that would potentially challenge that to the downside.

But I think we see enough opportunity and we see angles for organic growth into the future to give us kind of that sustained organic growth rate? Are we going to hit 20% compounded organically year-over-year? That might be a little a little tough as you get to larger numbers. But I think if you could get to 15% to 15-plus percent, that would be good in this environment.

Steve Dyer: Yes, absolutely. And then lastly, I don’t necessarily want to ask you to comment on somebody else’s business, but you touched on the PPG, Entrotech joint venture. There’s been some chatter just around their ability or progress in embedding I guess, PPF or a PPF like alternative into the paint. We’ve done quite a bit of work around that and have not seen anything remotely that would suggest that, that’s happening, but give you an opportunity, I guess, to comment on it as you wish.

Ryan Pape: Sure. Yes. We watch these things closely. I can tell you that there’s no known technology that puts film inside paint that we’re aware of, and this is not something that our partners at PPG are doing. And so I think that what you’re seeing on a broader basis is can you use films to augment or replace paint in limited circumstances. That’s what’s been kind of developing at a slow pace, probably for the past 10 years but that’s a far cry from some theoretical technology to put film inside paint and that doesn’t exist.

Steve Dyer: Okay. Got it. Thanks guys. I’ll pass it along.

Ryan Pape: Thanks Steve.

Operator: Thank you. Your next question is coming from Jeff Van Sinderen from B. Riley. Your line is live.

Jeff Van Sinderen: Good morning, everyone. So maybe we could just touch on your OEM business a little bit more. Maybe you can kind of give us your thoughts on how you see that business developing? I think you said you mentioned that you actually acquired a small OEM-related business, if there’s any more detail you can give us on that? And just kind of overall, speak to your outlook for the OEM business.

Ryan Pape: Sure. I think, Jeff, we tried to give a lot more color to how we view the channel and our remarks this time just because we do see all of these pieces as complementary. And on an individual unit basis, you could cannibalize one unit from one channel to the other. But net-net-net, we see this as a way to grow awareness and reach beyond the traditional enthusiast buyer that has dominated our business. So from that end, I see more opportunity with the OEMs, it’s not going to come to dominate the business, but it certainly has the ability to grow on a percent of total revenue basis, and it’s really complementary to everything else we’re doing. And I think to understand about to any product that’s installed even if it’s installed, centralized in an OEM environment, you still have to be – you still have to have the ability to service and repair it in the real world.

And so that’s another area where you have the OEM business intersect the need for the aftermarket channel. So it’s something we’re going to continue to pursue in view of trying to create more awareness and expand the buyer for paint protection film, and it likely will grow on a percent of revenue basis. But it’s not going to go to dominate our revenue. It’s just going to be one piece of the overall pie.

Jeff Van Sinderen: Okay. And then maybe if you could give us any more color around what you’re seeing in China and perhaps speak to I guess, how you’re evolving the China business, a little more understanding and color around that? And then I think you also mentioned India so maybe a quick thought on approach to India.

Ryan Pape: Yes. Jeff, I think if you look at all the lessons we’ve learned in our business over the years is that we know that we do exceptionally well when we get as close to the customer as possible. And that’s led us to participate in the channel in a variety of ways, but including acquiring distributors in various countries and setting up in country. And for us, China was really always the exception to say that’s the caveat to that strategy. And I think where we are now is saying, well, we need to have a much more open mind in terms of the best go-to-market for China to support the distribution there and really set it up on an even stronger platform for growth. And so the first thing we’re doing is getting our team assembled.