Greetings. Welcome to XPEL's First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. I will now turn the conference over to John Nesbett with IMS. Thank you. You may begin.
Good morning. 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, who 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. Let me take a moment 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 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 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 the current expectations of the management of XPEL. Forward-looking events and circumstances discussed in this call may not occur by certain specified dates or at all and could differ materially as results of known and unknown risk factors and uncertainties affecting the company's 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, 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 securities laws. Forward-looking statements speak only as of the date in 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 will now then turn the call over to Ryan. Go ahead, Ryan.
Thanks, John, 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. Our revenue for the quarter grew 14.8% over Q1 2019 to $28.4 million. Our revenue from China declined to 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 on 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 100% plus year-over-year revenue growth. This has been expected due to weakness in Q2 last year as a result of inventory build prior to that quarter and then as a result of coming out of the other side of COVID-19 in China. 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 last 7 - 10 days of March or so. Our U.S. region finished the quarter with 24% growth, which is good performance for our largest region. In Canada, our Canada US dollar revenue grew 35% for the quarter, which was helped somewhat by two months of new revenue resulting from our Protex Centre acquisition. Organic growth in Canada was around 25%, still very good results there.
In Europe, we had a very strong quarter with US dollar revenue growth of 96.5% as we continue to execute and gain traction in Continental Europe. As we mentioned on the last call, the Continental Europe business did quite well even during the initial COVID-19 stages, which hit Europe earlier than, say, U.S. and Canada. We did see more slowdown later in the quarter, but it really did outperform. U.K. posted US dollar growth of 26.4%, which is lower than recent quarters, but still good results. Our Latin America region was essentially flat in Q1, but that masked the 120% year-over-year growth in Mexico, which is our primary focus within LatAm.
Mexico is now over 60% of the total LatAm revenue, and this is direct revenue where we're selling to dealers and installers, whereas the remainder of that LatAm revenue is to various small distributors through the rest of the region and is inherently more volatile. Continue to be really proud of our team in Mexico and a real affirmation of our direct, get close to the customer approach, is viable in many, many markets. Overall, our gross margin improved 330 basis points compared to Q1 2019, 36.3%. Clearly, our lower China mix during the quarter contributed to that increase in gross margin as we would expect given the margin profile of the China business.
Our EBITDA finished at $2.6 million for the quarter, which was down from $2.8 million in Q1 2019, while net income finished at $1.6 million or $0.06 a share, which was down from $1.9 million in Q1 2019. We held our 2019 dealer conference in May of 2019, while we held this year's conference in February. The net cost of that was around $450,000. We had a record number of participants with well over 300 customers in attendance, which was up around 50% in terms of attendees from the prior year. I don't believe we've ever grown that conference attendance 50% year-over-year in recent years anyway. That was really nice. We're still planning to hold our 2021 conference.
If you normalize for the conference since it was out of period comparatively and factor out the negative FX impact that we experienced from COVID-19, we posted strong growth in EBIT and net income. All in all, I was pretty happy with the Q1 performance as I mentioned. As you can imagine though, Q1 feels like it was a really long time ago. Like other companies, we had to quickly shift our focus to managing through the crisis created by and uncertainty created by the COVID-19 pandemic. Our response really centered around four main objectives. First, ensure the safety of our team. Second, ensure we can continue to operate and serve our customers. Third, we wanna maximize liquidity given the immense uncertainty.
Certainly, that was a priority in the very early days where we just really didn't know what we were dealing with. Then fourth, minimize the impact and the financial impact to our employees and our partners as much as possible. To that end, we took a very early position with our team that we were not anticipating any reduction in our workforce, and we would adopt other shared sacrifice in a variety of ways before that was necessary, if it was necessary. We worked really hard to build the team we have to allow us to get to this point, and I think we would all agree we're not, certainly not overstaffed in any area. We've been able to live up to that commitment to our team and expect that to continue.
You know, we certainly do not underestimate the cost of recruiting, training, and hiring a winning team. I think some companies do, and it's a big mistake. That was very important. As I mentioned on our last call, we had performed a detailed review on supply chain risk. This is really down to suppliers of suppliers of suppliers, just looking at the impact of really a global supply chain. Consistent with what we said last time, there's no disruption and really no impact to the supply chain, and we do not expect any. I know a question on everyone's mind is what will the overall impact of the COVID-19 pandemic be to us, you know, in the future and particularly in Q2?
We won't be providing any overall guidance related to Q2 because there's just too much uncertainty and it's so unprecedented in many ways. We'll tell you what we know so far. Our overall April revenue was down 21% versus April of last year. Our April US revenue was down 36%, which was significant, less than we saw car sales decline for the U.S. Our DAP usage declined quite a bit less than 21%. It suggests some deferred restocking and that perhaps there's better underlying demand performance than revenue alone indicates. I think, you know, we wouldn't be too surprised if as the pandemic escalated in the U.S., that there was some deferred reordering by our customers.
We've seen a definite pickup in order volume and customer service phone call metrics in the last 10 days or so as more of our customers are coming back online. I would say it certainly feels like we've turned a corner. China obviously, which I mentioned, U.S. and Canada. Mexico and the U.K. are behind in their timing, we expect them to follow a similar path. We've also had some great wins on the sales side. You know, even when you're selling a product that will make your customer money or make them more successful, they still have to make time to engage with you. In the slowdown that we've felt, it's really allowed our team to spend time with some key prospects and also significantly more time with various dealership accounts and dealership groups.
You know, when things are blowing and going at 100%, it's a lot harder to get that needed face time. We're actually quite optimistic on our current customer pipeline, particularly with our dealership initiatives. I believe we'll see the impact of that over the next two quarters. Finally, we track our average daily installation revenue through our company-owned locations, principally in the U.S. and Canada. For May so far, we're back around March daily averages. It's too early to say whether that's back to trend or if it's addressing pent-up demand, but it's certainly a very positive departure from April's significantly reduced average daily installation numbers. While that only represents our corporate-owned locations, there's nothing to expect fundamentally that our customers are faring indifferently.
Our training classes are opening back up next week, starting in the United States with enhanced safety protocols. We have plenty of new interest from customers across our regions. We also have customers who we had to cancel as we closed down training in March and April who are looking to reschedule. That's encouraging. We'll reopen Europe next, followed by the U.K. and then Mexico. We're encouraged by that trend and continue to monitor that. We can't know whether all these positive signs represent a return to the new normal or a result of pent-up demand, unfinished jobs or deliveries prior to the shutdowns. Time will tell, but we're certainly feeling fairly optimistic at this point. Finally, I'd be remiss if I didn't mention how proud I am of the attitude of our team during this uncertain time.
We asked many on our team to help with our face shield project, where we've been supplying tens of thousands of face shields to meet some unmet demand for PPE and doing that in all the countries in which we operate. We also asked some on our team to work unusual shifts for social distancing at significant disruption to their routine and personal lives, and really everyone delivered and delivered without complaint. Our attitude and dedication to providing outstanding service to our customers is what sets us apart, and our team continues to rise to the occasion. In light of the circumstances, I feel very good about where we are as a company and firmly believe that we will be even better coming out the other side of the COVID-19.
With that, I will turn it over to Barry, and then we will take some questions. Barry, go ahead.
Thanks, Ryan, 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. 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 Montreal. 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. In this category, paint protection film grew 7.1% to $19.8 million. Our window film product line grew 68.6%.
This growth in window film is really consistent with, you know, 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 increased 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, with lower China mix, 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. Included in this was approximately $670,000 of expenses related to our annual dealer conference, which was out of period. If you normalize for that, SG&A expenses would have grown 25.6% and represented 25.1% of revenue. Sales and marketing expenses grew 71% versus Q2 2019 to $2.7 million. Normalizing for the dealer conference costs there, sales and marketing would have grown 29%. This normalized increase is due to our decision last year to increase our marketing spend by 90 basis points, part of which was our INDYCAR sponsorship.
Q1 2020 general administrative expenses grew 24.3% versus Q1 2019 as we continue to support the growth needs of the business. We also picked up some increased SG&A with installation acquisition of Protex Centre that, you know, have facilities, utilities, and other support staff. You'll also note that we incurred approximately $416,000 in FX loss during the quarter. As you're likely aware, most of the functional currencies in our foreign locations weakened substantially during a period of intense FX volatility in the last week of March in response to the growing pandemic. Approximately $655,000 of this loss was realized based on the actual movement of cash in response to the pandemic, while the remainder was unrealized.
Q1 2020 EBITDA decreased approximately $267,000 quarter-over-quarter to $2.6 million, reflecting an EBITDA margin of 9.1%. If you normalize for the dealer conference and the FX loss, EBITDA would have grown 21.8%, and EBITDA margin would have been right around 12.2%. Q1 2020 net income declined 13.4% versus Q3 2019 to $1.6 million, and represented 5.7% of total revenue. EPS for the quarter was $0.06 per share. Again, if you normalize for the dealer conference and the FX loss, net income would have grown 24.3% and represented 8.1% of revenue. EPS would have been $0.08 per share.
As Ryan alluded to in his comments, one of our key objectives in response to the unprecedented uncertainty related to COVID-19 was to maximize liquidity. To meet that objective, we took several steps. In March, we drew $6 million on our US line of credit. In April, we drew CAD 4 million on our Canadian line of credit. This week, we closed on a $6 million, three-year term debt facility with The Bank of San Antonio. We're also proactively taking advantage of government programs when eligible in all jurisdictions where we operate. Most of these consist of deferrals of tax payments and/or delays in transactional filing deadlines. We believe these measures provide liquidity to effectively accomplish our objectives in managing through the crisis, and it also provides us some flexibility should acquisition opportunities arise in the future.
We're really on a war footing when it comes to this crisis. Fortunately, the good news on this so far has been the business has continued to generate positive cash flow since the middle of March when the crisis ramped up as a result of our focus, discipline and micromanagement of the details of our business that, you know, we implemented. We're still in a very uncertain time and hopefully the recent trends in our business that we're seeing are indicators that we are in fact coming out of this. Time will tell. With that, operator, we'll turn the call over for questions.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Jeff 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?
I think, you know, 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, you know, how that recovery could be a proxy for the rest of the world. You know, some of the things that we tried to understand is, you know, is the return to normal there really slow and gradual, or did it move a lot quicker? Does it seem like it's sustainable, or is it kind of trying to meet backlog demand and then Peter out? Really everything that we're seeing is that the recovery in China, by all respects, has happened quickly, and it looks pretty deep and sustainable.
As we're looking at forecasting out through the rest of Q2, you know, all indications are that, you know, we're seeing real movement there. For us, obviously we had a tremendous Q4 2019 with China. One, it was a great quarter based on the momentum last year. We pulled ahead some of the sales from Q1 like we've talked about. We have Q1, which was down 55%, really painful with China shut down between the Lunar New Year and COVID-19 really shut down for most of the quarter. For Q2 now, you know, we're conceivably at 100%+ growth year-over-year, which is really good. You know, it's off of the low base in Q2 2019, but it's huge growth that way.
It's huge sequential growth from Q1. You know, it still puts us off of that peak that we had in Q4. I think under the circumstances, we're really happy to be able to see that for Q2.
Okay, good. 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? How are you thinking about reopening for your business, both in your own shops and how 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. Yeah, it's been, it's been really kind of mixed. When you look at the different regions, you know, if you were to compare even Canada to the U.S., when Canada was in the depths of their lockdown, you know, it was, I would say implemented much more effectively, much deeper, and you felt it. Whereas in the U.S., the level of activity has kind of ebbed and flowed and, you know, sort of bottomed there in mid-April, it was never as clean cut and never as sort of just shutting off the spigot entirely.
I think, as I mentioned, what we're seeing with our average daily revenue trend, for our installation businesses, you know, anecdotally, we're hearing that echoed from a lot of our customers, you know, where it's not uncommon or we have customers, you know, this month that are fully booked, you know, that would say they're operating in a normal way. It does vary by geography, but I think 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
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. You know, we're trying to help our customers adopt best practices with that too, and they all have the sort of the same, the same concerns. 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 to help them.
Okay, great. If I can just squeeze in one more. How are you thinking about perhaps evolving your acquisition strategy during this COVID period?
Yeah, I think, you know, that's a very important question, and I think that, you know, we're not looking at fundamentally pausing that or suspending that. I think it will change. I think what we're gonna find is that, market by market, you know, even within North America or within another country, some of the dynamics are going to be different out of this. 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 realize with something like this that's so unprecedented how vulnerable really all companies are. Particularly the smallest companies are just that much more vulnerable.
That, the prospect of, you know, business going to zero due to a government mandate, you know, is really a frightening thing. I think it really opens up a window as we plan to do as part of that strategy to get more engaged like we've been talking about and, then, you know, 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 the mix may shift, the economics may shift and, we may be looking for different deals, but it's not gonna slow us down at all, I don't think.
Okay, good to hear. Thanks for taking my questions and best of luck.
Yeah. Great. Thank you.
As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Steve Dyer with Craig-Hallum. Please proceed.
Hey, thanks. Good morning, guys. You've given a lot of great color about, you know, sort of what you've seen in China versus here. I know it's very early days here. Some dealerships aren't even open. I think, you know, 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, you know, sort of responding better or bouncing back better?
Well, the one main difference I would say is like some of the other countries, you know, the shutdown in China was certainly, you know, either more absolute or more effective. You know, China activity went zero for a period of time or close to. Whereas in the U.S., you know, we really didn't see that. I think that's gonna be a key difference is you're not ramping off of the same low because it just didn't get to that level. But I think so far, and I'm really, you know, basing this on the past 10 business days or so in May, but, you know, we're seeing a lot of instances where things have ramped quite quickly.
Now, it may be too soon to say that's, across the board, say, within the U.S., but in pockets and with certain customers, we've seen that. That, you know, that resembles China to some extent.
Got it. That's great, Ryan. Thanks. You know, in terms of Europe, you know, I thought had a really strong Q1 despite, you know, sort of being on the, on the leading edge of the curve relative to us. What have you sort of seen there in the second quarter so far?
You know, we've been off of our sort of peak rate that we saw in Q1. We saw some, you know, slowdown in Europe really very end of March and into April, sort of like we saw in the U.S. We're seeing that pick up, you know, really commensurate with sort of what we're seeing in the U.S. and Canada now. I don't think that Europe's a situation where the impact of that was, 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 some other markets.
Sure. In Q2, would you anticipate just sort of the relative higher mix of China vis-a-vis, you know, sort of China's bouncing back and the U.S. will probably have its worst quarter. Would you anticipate any sort of material swing in gross margin on that, or am I overthinking that?
Well, I think we will see, you know, depending on what that mix is, you know, we will see gross margin swing. I mean, we're at Q1, you know, at 36+%. We're at the highest that we've ever been. You know, if you go back and look at Q4 2019 where China was a much bigger percent of the mix, you know, we were significantly off from 36%. I think we're gonna be closer to that range, probably in Q2, if we see China really outperform relative to the rest of the world, which right now I think is our best guess, but the exact mix of that to be determined. Yeah, I think from the Q1 run rate with gross margin, we'll see that decline substantially and sequentially into Q2.
Got it. Then lastly, just sort of a one-off. The face shields, is that something you anticipate, you know, doing for some time yet? Is there any, you know, sort of material contribution from that? That's it for me. Thanks, guys.
Sure. No, Steve, thanks. Yeah, I think, you know, early on, we said, "How can we help?" You know, many of the raw materials used for face shields and other things were just in short supply. We said, "Well, we can create a face shield using raw materials that we have, and it's gonna be a premium, a nicer, higher cost of construction product, but we have ample supply." It was a good way to really get our team rallied. We're seeing that demand continue. You know, 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 that never needed it before, who are just trying to protect their workforce.
It's not, you know, material from a revenue sense. It does allow us to keep inventory moving. That's sort of a Just cash flow from that standpoint is a nice side benefit. We do intend to continue doing it as long as there's demand. If that ends, we'll stop doing it. It's a good project and something we can help just a little bit with. We're happy to do it.
Got it. Okay. Well done. Thanks, guys.
Thanks, Steve.
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.
Yeah, I wanna just make one correction. Earlier, I think Barry stated that we had $665,000 of our FX losses realized. It was actually $265,000 out of the approximately $400K FX loss. 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.