Greetings. Welcome to the XPEL First Quarter 2020 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to John Nesbett with IMS. Thank you. You may begin.

Good morning, and welcome to our conference call to discuss XPEL's financial results for the 2020 first quarter. On the call today we have 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 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. Okay. With that, I'll now turn the call over to Ryan. Go ahead, Ryan.

Thanks John and good morning, everyone. Again welcome to our first quarter 2020 conference call. Overall, I was quite pleased with our performance in the first quarter in light of some fairly significant headwinds due to Covid-19 in China early in the quarter. And in the rest of the world at the end of the quarter. Revenue for the quarter grew 14.8% over Q1, 2019 to $28.4 million. Our revenue from China declined 55% while our non-China growth was about 30%. As we mentioned last quarter there was around $2 million in pull ahead in China revenue out of Q1 back into Q4, 2019 even with that there was a significant impact in China from Covid-19, if you compare Q1 to Q4 run rate obviously. Our Q2 forecast from China is encouraging and it seems at least for now we may be on the other side of the pandemic in China. China auto sales were up in April as some of you may follow ending a 21-month decline streak. We've certainly seen that positive impact in our business and expect that to continue. We should be up significantly year-over-year in China for Q2 and it could be as much as a 100% plus year-over-year revenue growth. Again this has been expected due to weakness in Q2 last year as a result of inventories build prior to that quarter and then as a result of coming out of the other side of Covid-19 in China. So I think very good news there. We also saw some Covid-19 impact in our Asia Pacific region where revenue declined 11.7% quarter-over-quarter. That was certainly less than our initial more pessimistic assumptions for those markets, which again is good news. Looking at our other regions, we really didn't see any impact from Covid-19 until the…

Thanks Ryan and good morning, everyone. As Ryan mentioned, Q1, 2020 revenue grew 14.8% to $28.4 million. Included in this amount is approximately $200,000 or so of revenue from customers participating in our Annual Dealer Conference. And also as Ryan mentioned that was out of period. In addition, we added approximately $250,000 revenue related to our February acquisition of Protex Centre in Montréal. So if you normalize for those items, Q1 revenue would have grown right around 13%. Q1, 2020 product revenue increased 12.8% to $23.7 million and in this category Paint Protection Film grew 7.1% to % to $19.8 million and our Window Film Product line grew 68.6% and this growth in window film is really consistent with some of the outstanding growth we saw in previous quarters. This product line grew 55% in 2019 on an annual basis and we were certainly off to a great start in 2020 pre-Covid-19. Our Installation revenue, combining product and labor increased 55.6% and represented 8.5% of our total revenue this quarter. This increase was due primarily to increase revenue from our OEM projects in Europe. The new revenue from our acquisition of Protex Centre and of course the increased sales in our other company-owned installation facilities. Gross margin for the quarter grew 26.3% to $10.3 million and our gross margin percentage finished at 36.3% versus 33% in Q1, 2019. This gross margin percentage was the highest in our history, but with lower China mix and it wasn't totally unexpected obviously. Our Q1, 2020 SG&A expense grew 37.6% versus Q1, 2019 and represented 27.5% of total revenue. Now including this was approximately $670, 000 of expenses related to our Annual Dealer Conference, which was out of period. So if you normalize for that, SG&A expenses would have grown 25.6% representing 25.1% of…

[Operator Instructions] Our first question is from Jeffrey Van Sinderen with B. Riley FBR. Please proceed.

Good morning, everyone. Can you speak a little bit more about the sales progression you've seen in China in recent weeks during the reopening? And I guess what you anticipate in that region for Q2?

Yes. I think we've obviously been following it very closely both because the China business is so important to us and then just trying to understand a; how that recovery could be a proxy for the rest of the world. And some of the things that we tried to understand is, is the return to normal there really slow and gradual or is it moves a lot quicker? Does it seem like it's sustainable or is it kind of trying to meet backlog demand? And then [Indiscernible] out and really everything that we're seeing is that the recovery in China by all respects have happened quickly. And it looks pretty deep and sustainable. And so as we're looking at forecasting out through the rest of Q2, all indications are that we're seeing real movement there. So for us, obviously, we had a tremendous Q4, 2019 with China. One it was a great quarter based on the momentum last year, but then we pulled ahead some of the sales from Q1 like we've talked about then we have Q1 which was down 55% really painful with China shut down between the Lunar New Year and Covid, it really shut down for most of the quarter. So for Q2 now we're conceivably at 100% plus growth year-over-year which is really good. It's off of the low base in Q2, 2019 but it's huge growth. That way it's huge sequential growth from Q1. It still puts us off of that peak that we had in Q4 but I think under the circumstances we're really happy to be able to see that for Q2.

Okay. Good. And then I understand you aren't providing guidance but can you give us more color on what you're seeing in your business in North America, in regions that have eased lockdown measures? And how are you thinking about reopening for your business both in your own shops and are dealers are reopening? Maybe just touch on Covid measures that you're taking in your own facilities and what your dealers are doing around Covid? What's your sales progression?

Sure. Yes. It's been really kind of mixed and when you look at the different regions. If you were to compare even Canada to the US when Canada was in the depths of their lockdown, it was I would say implemented much more effectively much deeper and you felt it. Whereas in the U.S, the level of activity is kind of ebbed and flowed and sort of bottom there in mid-April. But it was never as clean cut and never is sort of just shutting off the spigot entirely. And I think as I mentioned what we're seeing with our average daily revenue trend for our installation businesses, anecdotally we're hearing that echoed from a lot of our customers where it's not uncommon for or we have customers this month that are that are fully booked that would say they're operating in a normal way. Now it does vary by geography, but I think it's - there's more of that than maybe we would have expected. What we're doing and what we are helping to guide our customers to do is looking at things obviously safety of our team. So this is temperature checks, these are masks and shields, disinfection procedures and then also procedures around how do you ensure that the customers' vehicles are disinfected as they come in and as they leave. And we're trying to help our customers adopt best practices with that too. And they all have sort of the same concerns but I think given our position is really understanding that part of the business since we do it also, we're in a really good position in helping.

Okay. Great and then if I can just squeeze in one more. How are you thinking about perhaps evolving your acquisition strategy during this Covid period?

Yes. I think that's a very important question. And I think that we're not looking at fundamentally pausing that or suspending that. I think it will change. I think what we're going to find is that market by market even within North America or within another country some of the dynamics are going to be different out of this. So it may change what we prioritize. It may change what we're willing to pay. I think it may increase the number of interested parties we have. I think companies of every size realized with something like this that's so unprecedented how vulnerable really all companies are. And particularly the smallest companies are just that much more vulnerable. And the prospects of business going to zero due to government mandate are really a frightening thing. So I think it really opens up a window as we plan to do as part of that strategy to get more engage like we've been talking about and then obviously we did the last transaction in Canada earlier this year. I think it really gives us an opportunity to double down there, but I think there will be things different. I think that the mix may shift; the economics may shift and we may be looking for different deals, but it's not going to slow us down at all. I don't think.

Our next question is from Steven Dyer with Craig-Hallum. Please proceed.

Hey. Thanks. Good morning, guys. You've given a lot of great color about sort of what you've seen in China versus here. And I know it's very, very early days here some dealerships aren't even open, but I think typically back of the house has been open through some of this. Are you able to sort of compare and contrast at all sort of what you saw in China in terms of reopening to what you're seeing early days here? Is one of them sort of responding better bouncing back better?

Well the one main difference I would say is like some of the other countries, the shutdown in China was certainly either more absolute or more effective. So China activity went zero for a period of time or close to whereas in the US, we really didn't see that. So I think that's going to be a key differences, you're not ramping off of the same low because it just didn't - it didn't get to that level. But I think so far and I'm really basing this on the past 10 business days or so in May, but we're seeing a lot of instances where things have ramped quite quickly. Now it may be too soon to say that across the board say within the US, but in pockets and with certain customers we've seen that and that resemble China to some extent so.

That's great, Ryan. Thanks. In terms of Europe, I thought - had really strong Q despite sort of being on the leading edge of the curve relative to us. What have you sort of seen there in the second quarter so far?

We've been off of our sort of peak rate that we saw in Q1. We saw some slowdown in Europe really very end of March and into April sort of like you saw in the US, but we're seeing that pick up really commensurate with sort of what we're seeing in the US and Canada now. So I don't think that Europe's situation where the impact of that would say fundamentally delayed and that's why we didn't see it more in Q1. I think it's just for us been a bit more muted compared to some other markets.

Sure. In Q2 would you anticipate just sort of the relative higher mix of China vis-à-vis sort of China's bouncing back and the US will probably have its worst quarter? Would you anticipate any sort of material swing in gross margin on that or am I over thinking that?

Well, I think we will see depending on what that mix is, we will see gross margin swing. I mean we're at Q1 36 plus percent we're at the highest that we've ever been, if you go back and look at Q4, 2019 where China was a much bigger percent of the mix, we were significantly off from 36. So I think we're going to be closer to that range probably in Q2, if we see China really outperform relative to rest of the world which right now, I think is our best guess. But the exact mix of that to be determined. So, yes, I think from the Q1 run rate with gross margin we will see that decline potentially and sequentially into Q2.

Got it. And then lastly just sort of a one-off the face shields, is that something you anticipate of doing for some time yet and is there any sort of material contribution from that? That's it for me. Thanks guys.

Sure. No, Steve, thanks. Yes, I think what we early on we said how can we help and many of the raw materials use for face shields and other things for just in short supply. And we said, well, we can create a face shield using raw materials that we have. And it's going to be a premium nicer higher cost of construction product, but we have an ample supply and it was a good way to really get our team rallied. And we're seeing that demand continue and people think about PPE relative to medical facilities and whatnot. But I think what's lost in that is that there are all sorts of businesses that need PPE they never needed it before, who are just trying to protect their workforce. So it's not material from a revenue sense. It does allow us to keep inventory moving that sort of a just cash flow from that standpoint is a nice side benefit. But we do intend to continue doing it as long as there's demand and then if that ends, we'll stop doing it. But it's a good project and something we can help just a little bit with. So we're happy to do it.

We have reached the end of our question-and-answer session. I would like to turn the call back over to management for closing remarks.

Yes. I want to just make one correction earlier. I think Barry stated that we had $665,000 our FX losses realized. It's actually $265,000 out of the approximately $400,000 FX loss. So just so that's clear. Thank you everybody for your time. And we look forward to speaking with you next quarter. Thank you.

This concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.