Greetings. Welcome to the XPEL, Inc. Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Further instructions will be given at that time. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference to your host, John Nesbett, Investor Relations. You may begin.

Good morning and welcome to our conference call to discuss XPEL’s financial results for the 2019 third quarter. 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 remarks, we’ll 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’ll make certain forward-looking statements regarding XPEL, Inc. and its business which may include but are 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 the words 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 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 cause actions, events, or results to differ from those anticipated estimated or intended. No forward-looking statements can be guaranteed. Except as required by applicable securities 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. Okay. With that done, I’d now like to turn the call over to Ryan Pape. Go ahead, Ryan.

Thanks, John, and good morning, everyone. Welcome to our third quarter 2019 conference call. Clearly, Q3 was a great quarter for us. I’m very pleased with our progress and our results. Revenue grew 21.9% to a record $35.6 million. We saw continued improvement in the quarter-over-quarter gross margin which finished at 34.5%. SG&A was 18.5% of revenue, which end to close to our mid-term target of 18%. EBITDA grew almost 83% and EBITDA margin was 16.8%. And finally, our net income more than doubled to $4.5 million, finishing at 12.7% of revenue with EPS of $0.16 a share. So, we can really see what revenue growth does for us now when combine with improved gross margins in terms of creating operating leverage for the business. So, if you look at our business by region, our U.S. business growth finished at 18% for the quarter, which was off our amazing 55% growth in Q2. We had some reports of sluggishness during the quarter in the U.S. compared to Q2. We also had a non-automotive account shift timing of their purchasing on a year-over-year basis that reduced -- that shift reduced U.S. growth by about 7%, so not insignificant. So, all-in-all, it was a good result for us in the quarter. And we saw a very strong October for the U.S. business. So, that’s about our only visibility into Q4 so far in terms of the U.S. business, but it was very positive. China returned to growth in Q3. Having worked through the inventory build we’ve discussed in previous calls and previous quarters, with revenues growing 16.5% for the quarter. So, our new products we rolled out in China are being well received and all indications are that growth will continue in Q4. And so, we’re really pleased with that, really pleased…

Thanks, Ryan, and good morning, everyone. Q3 2019 revenue increased 21.9% to $35.6 million, which Ryan mentioned, which was another record-breaking quarter for us. Sequentially Q3 2019 revenue grew $5.5 million or 18.4% versus Q2 2019, which was our previous record quarter. China growth came in at 16.5%, represented 26.3% of our total revenue for the quarter while non-China growth was right at 24%. Q3 2019 product revenue increased 21.2% to $30.8 million. In the product revenue category paint protection film grew 17.7% to $26.5 million. And our window film product line grew 65% to -- in that category, which was also a record revenue quarter in our window film line. Total service revenue grew 26.4% to $4.8 million. And as you know, our service revenue consists of access fees for our DAP software; cutbank credits revenue, which represents cut fees charged for the use of our DAP software; installation labor revenue from the labor portion of our installation sales at our company owned installation centers; and training fee income resulting primarily from fees charged for attendance at our training classes. Software revenue increased 31.6% as we continue to increase the amount of our DAP users. Cutbank credits revenue increased approximately 19.2% due mainly to strong product sales, up primarily in the U.S. and Canada. Installation labor grew 30.4% and our total installation revenue which we combine product and labor, increased 30.4% as well and represented 6.4% of our total revenue. So, we’re continuing to see strong performance in our company owned installation facilities. And finally, training revenue increased 56.5% quarter-over-quarter, which as mentioned on previous calls is a great leading indicator for us in terms of health of the business. Gross margin for the quarter grew 38.7% to $12.3 million and our gross margin percentage finished at 34.5% to…

We are now prepared to take questions from professional investors and analysts. [Operator Instructions] Our first question comes from the line of Steve Dyer of Craig-Hallum. Please proceed with your question.

Hey, guys. Ryan Sigdahl on for Steve. Congrats on the really, really solid quarter there. First off, Ryan, you mentioned in your prepared remarks a few headwinds in the U.S. business. Can you elaborate on what the auto softness was related to? Was it just industry sales of new vehicles or it something Company-specific, paint protection, et cetera?

No. I think, it’s -- I wouldn’t even necessarily characterize it as headwind. Just obviously, when we kind of look at the growth rate year-over-year by quarter, if we see that change at all, we’re asking questions of our team. And I think the answers that we get are August, September just kind of felt slow. And that’s a very sort of anecdotal feedback. And it’s not like this is the first time you get feedback like that. That happens periodically. But, we just thought it’s obviously worth mentioning. And then, alongside that saying, October was a really, really good month of growth in the U.S. So, I wouldn’t call it headwinds per se, just sort of the talk on the street.

So, nothing structural in the industry or with you guys or anything else, just kind of a couple months that were a little bit slower and then we’ve reverted back to better trends here in October?

Yes. That’s exactly what we’ve seen.

Great. Then, you also mentioned the non-auto business had a timing shift. Can you elaborate on what that was, was it a specific customer? And then, has that shipped Q4, what’s the timing I guess of recognizing that?

Yes. It was a specific customer, and really it kind of ended up split between Q2 and Q4. So, it’s just really timing relative to Q3 in general. We’ve got a handful of non-automotive uses for the product that ended up themselves, aren’t overall that large relative to business. But, in this particular case, just based on the timing of the orders, moved up and back kind of split, we just felt would call it out, because it wasn’t insignificant.

And then, a quick one on China, so really strong recovery there. Based on what you’re hearing from your master distributor on inventory levels and retail activity. Was Q3 a reasonably normal sell-in versus sell-through, was there any lumpy kind of restocking or anything else in the quarter? And then, secondly, the commentary on expected growth in Q4, is that on a year-over-year or quarter-over-quarter basis?

Yes. So, relative to China, we think that things are pretty normalized in terms of sell-in versus sell-through. Obviously, when comparing to last year, we think -- we pay a lot of attention to that. So, we don’t have perfect visibility but we have a lot more. So, it felt sort of very normal from that respect. And certainly, if we think we’re building inventory at any point in the future, we’re going call that out, which may be a reason for -- to do that if that happens, but certainly not what we’re seeing now. And then, we’re looking at year-over-year growth for Q4 at 20% plus or minus for Q4 2019 over 2018, similar to Q3 in that respect.

And just to clarify, the 20% is the overall business, correct? And then, you just expect growth of some sort in China, year-over-year in Q4?

That’s correct. That’s correct.

Great. One last one for me, then I’ll turn it over. But, impressive gross margin despite the mix headwind from China. Is there anything onetime to call out in the quarter or is structurally margins just going up into right here?

No. There is no onetime hit or improvement to gross margin. We’ve talked about it for a long time. It’s a very important area for us and one that we’ve attacked on every side. So, we’re really, really pleased to see that especially with the quarter like Q3 where we had China pick back up and just really slightly off that Q2 high. So, I think, we’re certainly seeing the fruits of our effort to manage that number higher over the past several years, seeing that come to fruition now.

Great. Thanks, guys. Good luck.

Thanks, Ryan.

[Operator Instructions] We have reached the end of the question-and-answer session. I will now turn the call back over to management for any closing remarks.

We thank everybody for your time and look forward to speaking again next year. Thank you.

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.