Matthew Raab

Matthew Raab, representing Steve Dyer from Craig-Hallum Capital Group, asked if government payments were starting to flow through to farmers and their impact on the quarter or order books. He also inquired about the financial contribution of the German operations to the Europe segment's top and bottom line, and whether its divestiture would significantly impact next year's sales.

Answer

President and CEO Bryan Knutson explained that farmers received some payments earlier in the year and a final 15% recently, but a larger $10 billion soybean assistance package is still pending. He expressed skepticism about significant additional government assistance in late 2025 and noted that current commodity prices are still pressuring farmer profitability, making 2026 potentially challenging. CFO Bo Larsen stated that Germany averaged roughly $40 million in top-line revenue and a pre-tax loss of $4-$6 million annually over the last several years, indicating that its divestiture would be beneficial to the bottom line but not a massive impact on total whole goods revenues.

Matthew Raab, on behalf of Craig-Hallum Capital Group LLC, asked about the company's line of sight on OEM incentives for the second half of the year and requested color on the expected business cadence between Q3 and Q4.

Answer

CFO Bo Larsen responded that second-half incentives are already established and factored into guidance. He projected that Q3 and Q4 revenues would be similar, but Q3 would be more profitable due to a stronger parts and service mix. He also highlighted a significant dynamic in Europe, with ~100% YoY growth expected in Q3 due to expiring stimulus, followed by a ~20% YoY decline in Q4. He confirmed the full-year outlook for flat parts and service revenue remains.

Matthew Raab of Craig-Hallum Capital Group inquired about the outlook for service gross margins and requested an update on parts and service traffic trends for the year.

Answer

Executive Bo Larsen confirmed that the company still expects a slight year-over-year increase in service gross margins. He reported that Q1 parts and service revenue declined by a low-single-digit percentage, which was better than the anticipated mid-single-digit decline, and the full-year forecast remains flattish. He emphasized the segment's stability and its significant contribution to gross profit, representing over half of gross profit dollars for the year.

Matthew Raab, on for Steve Dyer at Craig-Hallum, asked for an update on the Parts and Service business, specifically confirming the outlook for service gross margins and inquiring about customer traffic trends during the quarter.

Answer

Executive Bo Larsen confirmed that the expectation for slightly positive year-over-year service gross margins remains intact. He reported that Q1 Parts and Service revenue declined by a low-single-digit percentage, which was better than internal expectations, especially given a difficult prior-year comparison. The full-year outlook is for flattish revenue, which management views as a significant positive given the steep decline in equipment sales, underscoring the stability and importance of the customer care strategy.

Matthew Raab of Craig-Hallum Capital Group inquired about the performance of the parts and service business, specifically asking about customer traffic trends, ticket size, and any notable variations across their footprint.

Answer

Executive Bo Larsen reported that they are guiding for flattish parts and service revenue for fiscal 2026. He noted that Q1 is expected to be down against a very strong prior-year comparison where Ag same-store sales grew 22%. Larsen acknowledged a slower start to the year but remains confident in the long-term, mid-single-digit growth trajectory for the business.

On behalf of Steve Dyer, Matthew Raab of Craig-Hallum asked for clarification on whether the high single-digit service growth outlook was for the full fiscal year and requested an outlook for the parts business.

Answer

Executive Bo Larsen confirmed the high single-digit service growth outlook is for the full fiscal year on a same-store basis, continuing the trend from the first half. Executive Bryan Knutson added that the company's long-term focus on its customer care strategy, particularly on parts fill rates, is paying dividends and they believe their performance is industry-leading.

Matthew Raab, on behalf of Steve Dyer, questioned the slight year-over-year increase in legacy product sales, seeking credit for the improved performance and the strategy for reducing legacy product inventory in the back half of the year. He also asked about the expected promotional activity cadence for the remainder of the year, comparing it to the previous year.

Answer

President and CEO Mark Smith attributed the strong legacy product performance to brand strength and market share gains, indicating further runway for growth. He acknowledged higher-than-desired internal inventory at the end of the last fiscal year but emphasized that firearms have no expiration date, allowing for production adjustments. He stated that promotional activity would remain thoughtful and measured, not expecting a significant increase in the back half compared to the summer, leveraging brand strength and a strong balance sheet.

Matthew Raab inquired about the slight year-over-year increase in legacy product sales during the quarter, seeking an explanation for the improved performance and the strategy for managing and reducing legacy product inventory in the second half of the fiscal year. He also asked about the expected promotional activity cadence for the back half, specifically whether it would accelerate to aid inventory reduction or remain rational compared to the previous year.

Answer

Mark Smith, President & CEO, attributed the strong performance of legacy products to the brand's strength and market share gains, indicating further growth potential. He stated a strong focus on reducing internal inventories, acknowledging higher-than-desired levels at the end of the last fiscal year, but emphasized that these products have no expiration date, allowing for production run rate adjustments. Regarding promotions, he does not foresee a need for increased activity beyond current thoughtful participation, expecting ASPs to hold steady due to brand strength and a strong balance sheet, enabling a more measured approach than a significant increase in the back half.

Matthew Raab from Craig-Hallum Capital Group LLC inquired about the company's exposure to tariffs, particularly on steel, and asked for a quantification of the potential impact on gross margin. He also asked about the expected cadence of inventory reduction throughout the upcoming fiscal year.

Answer

President and CEO Mark Smith addressed the questions, describing the tariff situation as volatile. He noted that while the company is 100% American-made, it has some exposure through foreign-sourced components and raw materials, and that increased domestic demand could also drive up prices. He stated they are monitoring the situation but did not provide a specific gross margin impact beyond the guidance given. Regarding inventory, Smith explained that Q1 will see a seasonal inventory build due to level-loaded production, followed by a significant reduction over the remainder of the fiscal year as sales pick up.

Matthew Raab of Lake Street Capital Markets inquired about the outlook for Average Selling Prices (ASPs) in Q4 for both handguns and long guns, and also asked for a broader strategic framework for fiscal 2026, including the company's focus on new products, market share, and margins.

Answer

Mark Smith, President and CEO, responded that Q4 ASPs are expected to be similar to Q3 for both handguns and long guns, with the product mix remaining relatively stable. For fiscal 2026, Smith stated that the company anticipates a steady market and plans for modest growth driven by new product innovation and expansion into new firearm categories, leveraging its flexible manufacturing model to maintain profitability.

Matthew Raab inquired about the outlook for Average Selling Prices (ASPs) in the second half, asking if Q2 levels could be maintained, and questioned the company's confidence in reducing inventory amid a cooling firearms market.

Answer

CEO Mark Smith stated that while promotional activity will create pressure, he expects new product launches to offset this. He projected Q3 handgun ASPs to be flat, with a slight increase for the second half overall. Smith also expressed confidence in reducing inventory through a robust S&OP process, noting the company's strong balance sheet allows for a measured approach without needing to 'jerk the manufacturing plants around'.

Matthew Raab of Craig-Hallum Capital Group questioned the company's confidence in its full-year revenue growth forecast, which implies a significant second-half ramp, and inquired about the capital allocation strategy regarding the new $50 million share buyback program.

Answer

President and CEO Mark Smith expressed confidence in the revenue outlook, citing historical seasonality, strong early Q2 demand, and new production capacity coming online. CFO Deana McPherson provided specific Q2 guidance and elaborated on the capital allocation priorities, which are investing in the business, managing leverage, and opportunistically executing buybacks, noting they are also renegotiating their revolver for more flexibility.

Matthew Raab, on behalf of Craig-Hallum Capital Group LLC, asked about M&A strategy given the record cash balance, the outlook for the U.S. market amid SAAR uncertainty, and growth expectations for the China region following recent revenue normalization.

Answer

Ryan Pape, Chairman, President & CEO, confirmed that M&A is a top focus, targeting international distribution consolidation (e.g., China, Brazil) and downstream dealer service businesses, with both meaningful and bolt-on deals being considered. Regarding the U.S. market, Pape emphasized focusing on controllable factors like increasing attach rates and market share rather than trying to predict the SAAR. For China, he projected low double-digit growth for the core business, with substantial long-term upside from pursuing the OEM and 4S dealership channels.

Matthew Raab, on behalf of Steve Dyer from Craig-Hallum Capital Group LLC, asked about M&A plans given the record $50 million cash balance, the outlook for the U.S. market amid SAAR uncertainty, and future growth expectations for the China market.

Answer

Chairman, President & CEO Ryan Pape stated that M&A focus remains on consolidating international distribution (like in Brazil) and acquiring dealer service businesses. He emphasized that the company is looking at both meaningful and smaller bolt-on deals. Regarding the U.S. market, Pape said the focus is on controllable factors like increasing attach rates and taking market share. For China, he projected low double-digit growth for the core business, with substantial upside potential from pursuing the OEM/PDI channel.

Matthew Raab of Craig-Hallum Capital Group LLC questioned the company's M&A strategy given its $50 million cash balance, the outlook for the U.S. market amid varying SAAR forecasts, and future growth prospects for the China region.

Answer

Ryan Pape, Chairman, President & CEO, stated that XPEL's M&A focus remains on consolidating international distribution and expanding its dealership services footprint, pursuing both bolt-on and more significant acquisitions. Regarding the U.S. market, Pape emphasized focusing on controllable factors like market share and attach rates rather than unpredictable SAAR forecasts. For China, he projected low double-digit growth from the core business, with substantial long-term upside expected from new initiatives in the OEM and 4S channels.

Matthew Raab of Craig-Hallum Capital Group LLC asked about XPEL's M&A strategy given its record cash balance, the outlook for the U.S. market amid SAAR uncertainty, and the expected growth trajectory for the China region following recent adjustments.

Answer

President & CEO Ryan Pape stated that XPEL's M&A focus is on consolidating international distribution in markets like China and Brazil, as well as acquiring businesses in the dealership services space. Regarding the U.S. market, Pape emphasized a focus on controllable factors like increasing attach rates and market share rather than SAAR forecasts. For China, he projected low double-digit growth for the core business, with substantial long-term upside from expanding into the OEM and dealership channels.

Matthew Raab of Craig-Hallum Capital Group LLC asked about the company's M&A strategy given its substantial cash balance, the outlook for the U.S. market amid macro uncertainties, and the expected growth trajectory for the China business now that revenue patterns have normalized.

Answer

President and CEO Ryan Pape confirmed that M&A is a top focus, with priorities including consolidating international distribution in markets like China and Brazil and acquiring more downstream dealership service businesses. Regarding the U.S. market, Pape emphasized focusing on controllable factors like increasing attach rates and gaining market share, regardless of SAAR fluctuations. For China, he projected low double-digit growth from the core business, with substantial long-term upside expected from new initiatives in the OEM and PDI channels.

Matthew Raab, on behalf of Craig-Hallum, asked about any changes in the take rate for paint protection film in the U.S., potential headwinds from dealer inventory dynamics, and whether vehicle import holds by brands like Audi and Porsche have impacted business.

Answer

Executive Ryan Pape responded that there is no clear data indicating a change in accessory take rates due to rushed car purchases, and the company's view is that these buyers are likely not their core customers. He stated that the primary headwind from shifting dealer inventory levels occurred last year and the situation is now more stable. While contracting inventory would be a negative, it is not considered an immediate risk. Pape also confirmed that the company has not seen any business impact from reports of Audi and Porsche vehicles being held at port.

Matthew Raab, on behalf of Steven Dyer from Craig-Hallum, asked about operating expenses, particularly the sales and marketing line. He questioned whether the increased spending from 2024 would persist into 2025, where the company sees the best use for those investment dollars, and what the marketing spend might look like as a percentage of revenue. He also sought clarification on whether the new manufacturing location for tariff mitigation is in the U.S.

Answer

CEO Ryan Pape clarified that the sales and marketing line includes sales team compensation, marketing spend, and third-party agent fees, with the latter being a key driver of recent growth. He stated that the core sales force size is relatively flat and the overall line item is not expected to grow dramatically as a percentage of revenue. Pape noted a goal to increase true marketing spend from ~3% of revenue towards 3.5% over time. Regarding manufacturing, he confirmed that XPEL now has production capabilities in three countries, providing flexibility to serve both U.S. and international markets while mitigating risks from tariffs and potential retaliatory tariffs.

Matthew Raab, on behalf of Craig-Hallum Capital Group LLC, asked about the consumer impact of the all-in pricing change and whether the industry softness observed in June had persisted into the third quarter.

Answer

CFO Lawrence Fey explained that the impact of all-in pricing is still unfolding but noted that past state-level rollouts saw conversion declines that normalized after a few months. He stated the industry is currently in a 'digestion period.' Regarding recent trends, Fey reported that the month-to-month volatility continues, but July actually reverted to positive year-over-year growth, though he cautioned that July is a seasonally softer month.

Matthew Raab, on for Ryan Sigdahl, asked for more specific guardrails on the potential increase to the SG&A profile if tariffs persist, referencing the previously guided mid-60% range for 2025.

Answer

COO Dan Clara stated that a significant, tariff-driven drop in sales volume could push the SG&A profile slightly higher, into the mid-to-high 60s range, but noted that many costs are variable and can be controlled. President & CEO David Hult added that historically, when industry volume decreases, margins often sustain or improve.

Matthew Raab, on for Ryan Sigdahl, asked about the outlook for the 2025 awards backlog, the timeline for new technology applications to reach the market, and the company's strategic approach to the Chinese domestic automotive market.

Answer

CEO William Presley indicated the 2025 core automotive awards pipeline looks strong and that the company is aggressively working to identify new applications for its core technologies, expecting to define a 'hard core line of conquests' within 6-7 months. He also detailed a proactive strategy to shift the China business mix from 80% multinational JVs to 40% domestic OEMs within the next year to better align with the local market and leverage faster development cycles.

Asked for more details on the encouraging sales trends heading into Q4, including promotional intensity and bundle strength, and also requested performance metrics for the recent Snoop Dogg advertising campaign.

Answer

The executive explained that after a slow end to Q3 due to warm weather, Q4 has started stronger with increased traffic and interest both online and at retail. The Snoop Dogg campaign is part of a more comprehensive full-funnel marketing approach this year, and early results show an increase in traffic, higher average order values (AOVs), and stronger return on ad spend (ROAS).