XPEL, Inc. (XPEL) Q4 2022 Earnings Call Transcript

XPEL, Inc. (NASDAQ:XPEL) Q4 2022 Earnings Conference Call February 28, 2023 11:00 AM ET

Company Participants

John Nesbett - IMS Investor Relations

Ryan Pape - President and CEO

Barry Wood - Senior Vice President and CFO

Conference Call Participants

Steve Dyer - Craig-Hallum

Jeff Van Sinderen - B. Riley

Tim Moore - EF Hutton

Operator

Greetings. Welcome to nan XPEL, Inc. Fourth Quarter and Year End Conference Call. At this time, each participants are successful a listen-only mode. A question-and-answer convention will travel nan general presentation. [Operator Instructions]

Please note, this convention is being recorded. I will now move nan convention complete to your host, John Nesbett of IMS Investor Relations. You whitethorn begin.

John Nesbett

Good morning. And invited to our convention telephone to talk XPEL’s financial results for 4th fourth and afloat twelvemonth 2022. On nan telephone today, Ryan Pape, XPEL’s President and Chief Executive Officer; and Barry Wood, XPEL’s Senior Vice President and Chief Financial Officer, will supply an overview of nan business operations and reappraisal nan company’s financial results. Immediately aft nan prepared comments, we will return questions from telephone participants.

Take a infinitesimal to publication nan Safe Harbor statement. During nan people of this call, we will make definite forward-looking statements regarding XPEL, Inc. and its business, which whitethorn include, but not beryllium constricted to, anticipated usage of proceeds from superior transactions, description into caller markets and execution of nan company’s maturation strategy.

Often, but not always, forward-looking statements tin beryllium identified by nan usage of words specified arsenic plan, is expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes aliases variations, including antagonistic variations of specified words aliases phrases aliases authorities that definite actions, events aliases results may, could, would, mightiness aliases will beryllium taken aliases will beryllium taken to halfway beryllium achieved.

Such statements are based connected existent expectations of guidance of XPEL. Forward-looking events and circumstances discussed successful this telephone whitethorn not hap by definite specified dates aliases astatine each could disagree materially arsenic a consequence of known consequence factors and uncertainties affecting nan company, capacity and acceptance of nan company’s products, economical factors, competition, nan equity markets mostly and galore different factors beyond nan power of XPEL.

Although XPEL has attempted to place important factors that could origin existent actions, events, results to disagree materially from those described successful forward-looking statements that made nan different factors that origin actions, events, results to disagree from those anticipated, estimated aliases intended.

No forward-looking connection tin beryllium guaranteed, isolated from arsenic required by applicable securities laws, forward-looking statements speak only arsenic of nan day of which they are made and XPEL undertakes nary responsibility to publically update aliases revise immoderate forward-looking statement, whether arsenic a consequence of caller information, early events aliases otherwise.

Okay. With that, I will now move nan telephone complete to Ryan Pape. Go ahead, Ryan.

Ryan Pape

Thanks, John, and bully morning, everyone. And invited from maine to our 2020 (sic) [2022] twelvemonth extremity convention telephone arsenic well. Overall, 2022 was a awesome twelvemonth for america astatine XPEL. Revenue grew 25%, we accomplished our extremity of exiting nan twelvemonth to gross separator tally complaint of 40%, nett income grew 31% and EBITDA grew 39%. We want to ever thrust operating leverage arsenic we turn and we were capable to execute that this year.

Clearly, we ran into immoderate unexpected headwinds successful Q4 successful China, which I will talk astir successful a minute, but almost each different region had a very coagulated 4th led by nan U.S., which continues to execute exceptionally good astatine 31.6% maturation successful nan quarter.

Overall, Q4 gross grew 11.9% to $78.5 million, nett income grew 34.7% and EBITDA grew 32.4%. So bully operating leverage there. And arsenic we discussed during nan past call, our forecast for China successful Q4 was little than Q3 and normally, Q4 is simply a beardown 4th for China and a slower 4th for nan remainder of nan world sequentially. So we expected little maturation wide for Q4.

The abrupt reversal of COVID policies and nan reopening successful China, which we judge yet is very affirmative news, was intelligibly disruptive to nan quarter. In operating nan business, we require costs upfront from our supplier successful China. However, our supplier extends position successful state to our dealers.

So nan imaginable of reduced economical activity, which was benignant of wide feared astatine nan reopening, but didn’t materialize needfully to nan grade that was feared could person posed important rate travel constraints connected nan distributor.

And past similarly, for illustration us, distributors support higher inventory passim COVID, going connected 3 years, concerned some astir nan broader proviso concatenation issues arsenic we person been, but besides nan China circumstantial rumor of nan threat of unplanned larboard closures that would forestall merchandise from arriving moreover if it was disposable from us.

So arsenic a consequence of this uncertainty and pinch inventory to spare fixed nan reopening, our supplier requested and we agreed toward nan extremity of nan twelvemonth to destruct respective orders that were planned, and ultimately, it’s easier and amended for america to sorb that than to inquire them to return it into nan circumstances.

So arsenic a result, Q4 gross was reduced by astir $3.5 cardinal from our estimate successful Q3. Q4 China income came successful astatine $6.2 million, which was a 50% diminution from Q4 2021, and obviously, that’s important considering Q4 has historically been nan highest 4th for China, while it’s seasonally a little 4th for astir different regions, which usually highest successful Q2 aliases Q3.

So each that said, I deliberation there’s a batch to beryllium affirmative astir regarding nan China market. Removing nan uncertainty of these restrictions is bully news arsenic we spot it and our supplier is arsenic affirmative successful their outlook.

As an example, they will now beryllium hosting their ample trader convention this spring. Our squad will beryllium successful attendance for and for illustration ours successful nan U.S., these conferences are historically good attended and important and person not been held successful a meaningful measurement since COVID started.

It’s been difficult for america successful conjunction pinch nan supplier to determine erstwhile is nan correct clip to put further successful nan marketplace up to now. We person had plans to grow our firm squad into China to amended support nan distributor, to get america amended marketplace intelligence, to support nan car dealership successful 4S groups and our OEM relationships, which are asking america astir China. But pinch nan uncertainty complete nan past respective years, we not move guardant connected those plans, but we scheme to now.

We person besides held disconnected connected merchandise introductions successful China, for illustration our architectural movie successful its entirety for akin reasons, uncertainty that prevented our supplier from hiring further staff, from taking connected further inventory, things that you conscionable were unwilling aliases was unwise to do nether nan circumstances, but we do scheme to execute connected those successful 2023.

So, overall, I americium encouraged astir our opportunities present for China successful 2023 and beyond, and astir our team’s expertise to reengage nan recreation to support nan cognition arsenic we person ever done. I scheme to sojourn arsenic soon arsenic applicable and I deliberation we tin usage this arsenic a awesome opportunity to spell overmuch deeper connected nan existent authorities of nan marketplace and make judge we are providing nan supplier and each of nan dealers successful China what they need.

So absent nan challenges successful China, astir of our different regions had coagulated quarters. As I mentioned, nan U.S. market, which is our largest market, continues to beryllium a agleam spot. Revenue grew 31.6% successful nan 4th to $47.6 million.

New car inventory continues to amended and it remains to beryllium seen nan eventual effect of higher liking rates will beryllium connected caller car sales, but caller car buyers look to still beryllium resilient astatine this constituent astir apt because of pent-up demand.

And we proceed to spot caller car dealerships trading down what is 100% margin, marketplace value accommodation to much tangible products specified arsenic ours. And arsenic a result, we person seen immoderate of nan highest gross from dealership services we person ever seen successful January and February of this year, which is not ever nan strongest months of nan year. So that’s bully news.

Canada, Europe, U.K. region saw continued maturation for nan quarter. Most of nan different regions extracurricular of nan U.S. did spot little maturation connected a percent ground than they did successful Q3. Q3 was conscionable reddish basking crossed nan Board. So you consciousness that a small bit. But overall, very coagulated capacity successful really each of those different regions.

Our revenue, for illustration Q3, successful Canada, U.K. and Europe continues this ongoing FX effect that we person seen each of past twelvemonth owed to nan ongoing spot of nan dollar. So connected a changeless rate basis, we are valuing this twelvemonth aliases past twelvemonth astatine anterior year’s speech rates. For nan quarter, gross and gross separator were some impacted by astir $2 million. Latin America region had a awesome quarter, arsenic mentioned connected nan call.

We person gone nonstop -- overmuch much nonstop successful nan Middle East and eliminated different furniture of distribution. We are excited astir nan opportunity there. There was a 4th -- flimsy quarter-over-quarter diminution successful nan Middle East, but this is really astir timing of ample orders into distribution versus smaller orders nonstop to customers. So arsenic we are prone to do, we cognize that that exemplary tends to activity amended for america and truthful we are happy to proceed to grow that there.

Our past acquisition of Consequence [ph] were done successful Q4 2021. So we person afloat lapped those now. So effectively, moreover successful nan U.S. business, while you wouldn’t cognize it from 36%-plus growth, there’s a flimsy resistance connected Q4 pinch nan dealership attraction TintNet, 1 manus nan business really being down versus nan anterior twelvemonth fixed caller conveyance readiness successful nan markets that it serves. So that whitethorn person costs america arsenic overmuch arsenic 200 ground points of gross really successful nan U.S. for Q4.

So reasoning astir Q1, we are still seeing momentum particularly successful nan U.S. contempt this uncertain environment. Automakers still look to beryllium optimistic moreover successful nan look of recessionary fears and rising liking rates. In January, caller conveyance income were disconnected to a bully start, and successful immoderate respects, January and February for america beryllium a small spot stronger than nan extremity of nan year. So, obviously, we for illustration that inclination to continue.

We don’t expect overmuch alteration successful China gross successful Q1. Q1 is typically nan slowest 4th of nan twelvemonth for China, because of Chinese New Year vacation and arsenic they person expressed their desire to return to little days connected manus of inventory connected a go-forward ground arsenic we do.

So putting that together, we expect Q1 gross to beryllium successful nan $83 cardinal to $84 cardinal range. That’s astir 17% year-over-year maturation successful aggregate pinch China down astir 20% year-over-year and astir of our different regions for illustration nan U.S., evidently increasing 20%, 20% plus.

One area wherever I was peculiarly pleased pinch our gross separator capacity during nan year. We person been talking this full twelvemonth and moreover anterior astir our expertise to exit pinch Q4 pinch nan 40% gross separator tally rate. We were capable to do that. We had a one-time $400,000 inventory write-off, otherwise, we would person been correct astatine 40% for nan 4th actually.

A mates of different points connected gross margin. We did put a value summation successful immoderate of our regions during nan 4th for product, really not for services, which helped offset immoderate of nan costs increases we person seen and immoderate of nan non-build worldly COGS items.

And erstwhile our China measurement is low, historically, it’s been much accretive to gross separator percentage, because China is simply a little separator marketplace for america pinch distribution. But arsenic China has go a smaller percent of income and arsenic nan U.S. has continued to person grown, that effect is surely overmuch little pronounced coming and you don’t really spot it.

And we have, complete nan short term, fixed costs embedded successful gross separator for illustration accumulation labor, nan costs of designing patterns for nan VAP, instrumentality depreciation, et cetera, that person to beryllium earned through, particularly erstwhile you person an abnormally debased gross 4th for illustration Q4.

So implicit successful that benignant of 40% exit tally complaint is really immoderate antagonistic effect to gross margin, otherwise, we would person been moreover somewhat higher successful a much normal quarter. So good, awesome progress. Good activity by nan team. We are very pleased pinch that.

So Q4 gross separator grew 25.7% to $31 million. It translated, arsenic I said, nan gross separator percent 39.6% and positive that $400,000 correct astatine 40%. I will besides statement that our Q4 2021 gross separator percent was 35.2%, truthful tremendous betterment successful 2022 and our 2022 afloat twelvemonth gross separator percent vanished astatine 39.4% versus 2021 astatine 35.7%. So, obviously, a tremendous betterment there.

And we still person runway to amended this, really driving from each nan things that we person discussed, nan attraction connected costs merchandise mix, transmission mix, et cetera. It’s an unfastened mobility based connected wherever we spot nan astir maturation of really precocious it tin spell successful coming years, but different 200-basis-point betterment by nan extremity of 2023 is surely not beyond nan realm of anticipation and what we are really expecting to exit nan twelvemonth on.

We spot higher SG&A arsenic a percent of gross this 4th and little gross surely contributes to that arsenic we person built-in fixed costs, obviously. We did incur astir $300,000 successful severance costs and we besides incurred $400,000 successful compensation costs related to nan erstwhile acquisition.

Technically, it was not eligible to beryllium paid connected nan earn-out arsenic nan targets were not achieved nether nan position of nan original acquisition statement for various reasons. However, we accomplished a batch of different things benignant of tangential to nan acquisition. So successful nan tone of nan deal, we thought it was nan correct point to do for nan business. So we person incurred that expense.

We person traded immoderate gross separator for SG&A costs, but we cognize we tin gain done nan SG&A complete clip and successful nan higher gross quarters. As an illustration of really this works, erstwhile we do acquisitions specified arsenic our supplier we acquired successful Australia, shipping disbursal to Australia that was antecedently a lavation successful costs of goods, because nan erstwhile supplier paid it, is now afloat coming successful SG&A arsenic it’s an soul transportation shipment. So you spot that turn arsenic SG&A, but really offset successful nan shape of improved gross margin.

So each of these things that we do, there’s a flimsy collateral effect wherever to a mini grade we waste and acquisition gross separator -- accrued gross separator for higher SG&A expense, but nan nett effect is still that we tin turn nan leverage of nan business.

Now Q4 EBITDA grew 32.4% to $13.2 million, reflecting an EBITDA separator of 16.8%. So bully leverage successful nan 4th moreover pinch each nan different things we mentioned that impacted us.

Our year-end inventory vanished astir $80 million. This was really up astir $11 cardinal from Q3. Our reduced China measurement evidently contributed to that, but location is still momentum successful our inventory purchasing, and overmuch arsenic I person pushed nan squad to trim nan stays connected manus faster.

We person honored galore handshake commitments to our vendors who person accelerated their accumulation for america erstwhile we were much concerned astir proviso concatenation and full inventory dollars complete nan past fewer years.

So we person been fortunate to person had nan support of these vendors to prioritize our business, sometimes astatine nan disbursal of others complete nan past 3 years, down from each constituent of nan merchandise down to nan corrugated suppliers, which resulted successful america efficaciously ne'er being retired of banal connected anything, which is thing our competitors couldn’t needfully claim.

So arsenic we trim nan days of inventory connected hand, it’s imperative that we support nan relationships that person helped get america there. So nan squad has slowed maine down a small spot connected that, which conscionable intends this conscionable takes a spot longer to activity through, but it’s nan correct move.

And fixed nan gross maturation we expect this year, inventory astir apt doesn’t spell little than $75 million, but it still intends we do not expect to perpetrate important rate travel to inventory this twelvemonth for illustration we did successful 2021 aliases 2022 and we are readying crossed each merchandise categories aliases trim days connected hand. So complete nan people of nan year, this should much than offset nan summation usually required to support nan maturation successful revenue, albeit connected a somewhat slower schedule than we had initially hoped.

We person had really bully occurrence pinch nan acquisition of our Australian business. Revenue is now trending astatine much than double from nan anterior twelvemonth play erstwhile looking period complete anterior twelvemonth month.

We person besides reduced trading prices successful nan state by double digits connected our overgarment protection films to amended align pinch nan marketplace value and thrust maturation complete portion economics, which sometimes distributors tin prioritize.

So it’s a awesome illustration of wherever our nonstop attack pays dividends, and again, we are looking astatine a marketplace for illustration Australia, which is simply a fraction of nan gross of Canada, but only 10 cardinal less people. So I deliberation we spot why this will beryllium successful.

So pinch that, we are looking astatine respective different countries pinch akin dynamics to participate for 2023 pinch a akin strategy successful mind. We intend to complete a number of acquisitions successful 2023, akin to those we person done before, particularly arsenic reducing our days connected manus of inventory and extremity committing our rate travel to moving superior astatine nan aforesaid complaint we have.

We released a caller type of our DAP platform, DAPNet. This is successful beta to each of our customers now. As we talked astir previously, this is simply a rewrite of our halfway DAP strategy that will support much of nan business operations of our customers pinch nan extremity of making them much businesslike and providing incrementally that overmuch much worth to them.

So updates rotation retired play and will proceed going forward. Much of nan activity arsenic portion of this information merchandise is astir updating halfway functionality and past move connected to much of nan caller features arsenic we spell forward, but squad has done a awesome occupation and a batch of effort put into this and a batch much to come.

We person done immoderate things successful nan 4th fourth that are achy today, arsenic I discussed, but they are nan correct point for nan business semipermanent and we wouldn’t person it immoderate different way. Overall, I think, there’s a batch beautiful affirmative astir this coming twelvemonth moreover successful ray of benignant of nan macro uncertainty.

As I said, each of our regions proceed to show momentum, particularly nan U.S. There’s affirmative news coming retired of China arsenic we get done Q1 and we should commencement to spot a batch of bully things happening, peculiarly merchandise description plans there.

Our architectural model movie business continues to grow. We person a agelong runway successful that merchandise segment, OEM business, which is astir 3% of gross coming had a bully twelvemonth mounting up for a awesome 2023 and we person a assortment of description opportunities wrong nan existent book of business and nan caller projects that are contemplated.

Much of our position into nan early is extrapolating trends we spot successful nan present, which is constricted to our forecasting. But astatine this point, we are looking astatine 20% to 25% integrated gross maturation for nan year.

As I mentioned earlier, we afloat lapped our important acquisition. So there’s nary inorganic constituent to our maturation astatine this constituent without considering early acquisitions that we whitethorn do this year. Of course, thing tin change, we person had a bully commencement to nan year.

As I mentioned earlier, we expect gross separator to amended astir 200 ground points passim nan twelvemonth to get america to that benignant of ending tally complaint again, a 200-basis-point betterment and we expect SG&A successful nan 22% range, that’s positive aliases minus 1% probably. This should springiness america important leverage and thrust net maturation for nan year, while allowing america to put successful nan business substantially. We are expanding our trading walk connected a percent of gross basis, but we tin do that wrong that scope and still make important leverage for 2023.

So, overall, 4th fourth notwithstanding, I americium very pleased pinch our capacity this year. The squad has worked incredibly hard. You tin ideate nan number of moving pieces pinch everything we are doing and I really convey them and we are excited astir this coming year.

So, pinch that, I will move it complete to Barry and past we will return immoderate questions. Barry, spell ahead.

Barry Wood

Thanks, Ryan, and bully morning, everyone. I conscionable want to screen disconnected a mates much items connected our topline performance. If you look astatine nan merchandise lines, overgarment protection movie was level during nan quarter. But arsenic we person discussed successful nan past, cutbank gross is conscionable to require accounting reclassification.

So it makes consciousness erstwhile you look astatine PPF to harvester cutbank gross pinch our PPF statement and our outer reporting to get a afloat image of PPF. Combined, overgarment protection movie and cutbank gross grew a small complete 4% successful nan quarter. So nan important China diminution quarter-over-quarter had a bully size effect here.

Our model movie merchandise statement continued to execute good pinch gross increasing 33.7% quarter-over-quarter astatine $11.7 million. This is down sequentially from Q3, which is expected arsenic this merchandise statement does person immoderate reasonably accordant seasonality pinch Q2 and Q3 being nan highest quarters. On a year-to-date basis, our model movie merchandise statement grew 41.7%.

Our Q4 imagination merchandise line, which is our architectural model film, gross grew 95% to $1.2 million, and connected a year-to-date basis, imagination gross grew 98% to $5.7 million. And also, arsenic Ryan mentioned, our OEM business had a awesome twelvemonth pinch gross increasing astir 64% to $10.2 million.

Our installation -- our full installation revenue, mixed merchandise and service, grew 27% successful nan 4th and represented 17.4% full revenue. On a year-to-date basis, full installation gross grew 77% and represented 15.7% of revenue. Same-store income maturation for nan 4th was 18% and 40% connected a year-to-date basis.

Our Q4 SG&A disbursal grew 25% to $20.2 cardinal and represented 25.7% of revenue, arsenic we talked astir before. And I would echo Ryan’s comments connected SG&A that location is nary uncertainty that we person definite fixed costs built into our SG&A infrastructure that erstwhile we person a down gross 4th for illustration Q4 we surely consciousness it.

Despite that, and Ryan mentioned this also, we still saw immoderate bully operating leverage successful nan 4th and stay very assured that our disbursal cadence will proceed to supply awesome early returns.

Our Q4 EBITDA grew 32.4% to $13.2 million, reflecting EBITDA separator of 16.8%. And if you presume China would person been expected tally complaint and normalizing for nan items Ryan mentioned, EBITDA separator would person been astir 18%, and connected a year-to-date basis, EBITDA grew 38.7% [ph] and our EBITDA separator was 18.9%.

Our Q4 nett income grew 34.7% to $18 -- $8.4 million, reflecting nett income separator of 10.6%, and our EPS was $0.30 per share. If you facet successful China and normalize for nan different items, nett income separator would person been astir 12.1% erstwhile EPS would person been $0.36 per share.

Cash travel from ops for nan 4th was $2.4 million, which was a bully consequence successful ray of nan inventory summation we saw successful nan 4th and we expect to proceed to make beardown rate travel successful nan long-term, but near-term rate travel could mean arsenic inventory successful nan transmission continues to level out. But sloppy of each that and really coagulated capacity for nan year, we are group up to person a awesome capacity successful 2023.

And pinch that, Operator, we will move nan telephone complete for questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] The first mobility is coming from Steve Dyer pinch Craig-Hallum. Steve, please proceed.

Steve Dyer

Thanks. Good morning, guys. A batch of bully item successful nan prepared remarks, which is arsenic ever appreciated. Within nan car space, successful general, it sounds for illustration a trader business continues to do really, really well. I conjecture could you thief america benignant of spot aliases what you are seeing location successful position of adding dealers aliases are they conscionable benignant of buying successful much to benignant of nan profitability opportunities successful trading this stuff? Are you seeing greater connect rates, are you seeing greater number of pre-loaded vehicles versus not, immoderate colour location would beryllium great?

Ryan Pape

Sure. Steve, yeah, I think, it’s a small spot of each of nan above. The dealership business, particularly nan extremity of nan twelvemonth into nan opening of this twelvemonth has really been a agleam spot for us, and by a batch of nan metrics, we are seeing immoderate of nan champion capacity that we have.

And truthful immoderate of that is related to conscionable nan return of inventory wherever we person gross successful immoderate parts of nan business. Preload, arsenic you mentioned, it’s much coupled to inventory, truthful we guidelines to use from that. But we are adding for -- each of nan various merchandise lines we are adding a ample number of dealers, and we person seen very bully momentum pinch this.

And it’s not nan exclusive reason, but 1 of nan reasons we person heard much than erstwhile is that arsenic you are successful this situation wherever nan marketplace adjustments are nether unit and person to spell away, because nan inventory is back, that’s trim retired this 100% gross separator opportunity for these dealers and they request to waste and acquisition that down to still make nan gross separator dollars, but to springiness nan customer thing for it alternatively of conscionable that. So that’s -- we are decidedly seeing that successful rather a fewer of those cases.

And past we person besides had occurrence and really, this has been existent since we did nan acquisition of PermaPlate successful 2021 of adding much products and much contented per conveyance excessively wrong nan existent relationships that we person and that could beryllium introducing overgarment protection movie astatine immoderate level that location was only a model movie before. It could beryllium upsell to higher statement of model film. It could beryllium doorway cups and doorway separator defender protection and things for illustration that, that mightiness beryllium preloaded. So it is simply a agleam spot and it’s really each of nan above, each nan things that you mentioned.

Steve Dyer

Got it. Thank you. It sounds for illustration acquisitions are benignant of backmost much beforehand burner this year. Can you benignant of thief laic retired directions aliases generalities arsenic to what we should expect?

Ryan Pape

Yeah. No. We -- I deliberation we person sewage a beautiful bully carryover from past twelvemonth connected things we were moving connected that conscionable couldn’t travel to fruition for 1 logic aliases another. But nan things we are going to spot really astatine nan apical of nan database are world distribution.

We utilized nan illustration connected nan telephone coming of Australia and really we spot successful a lawsuit astatine almost nary responsibility of anyone, but wherever nan third-party distribution, you tin tally retired of alignment pinch nan goals of nan supplier versus our goals and our extremity is not to maximize each portion of profit successful a marketplace that immoderate independent business mightiness be.

So decidedly much world activity for different cardinal markets we mightiness want to enter. That would beryllium one. Dealership services and everything that you conscionable asked about, Steve, location are different smaller companies doing immoderate of these things for illustration what PermaPlate did and we deliberation it makes consciousness to adhd to that business, we get immoderate economies of standard by doing so. So that’s intelligibly connected nan table.

And then, lastly, benignant of looking astatine installation and successful nan broader context, installers and things and looking astatine this acquisition an due measurement to capable what we comprehend to beryllium gaps successful our web markets pinch little capacity and things for illustration that wherever you request immoderate type of inorganic activity to alteration that, which has been halfway to that strategy. So really nan 3 of those is what we are focused connected and that’s what I would expect to spot this year.

Steve Dyer

Perfect. Helpful. And then, I guess, conscionable arsenic a measurement of benignant of pursuing up connected that successful position of really to salary for it, a small spot of that indebtedness correct now, thing big, but pinch liking rates going up and it doesn’t sound for illustration there’s a batch of rate you tin ringing from moving superior per se. How do you deliberation astir benignant of backing that roadmap this year?

Ryan Pape

Well, obviously, we will beryllium looking astatine our wide indebtedness situation, it’s a bully clip to reevaluate that, truthful that’s ongoing. So there’s immoderate opportunity to amended that conscionable successful position of nan costs of superior connected that side.

And then, for america really without immense CapEx commitments and we are astir apt group moreover for america to person a little CapEx twelvemonth than we person had successful nan past few, moreover though nan number is not great. But nan large 1 is, if we extremity investing successful inventory for nan type of deals we do and past pinch humble leverage, we should person ample rate to do a number of these things. That’s really nan key.

It doesn’t -- it’s not predicated upon reducing inventory dramatically, and arsenic we mentioned, you person sewage $5 cardinal to $10 cardinal max of inventory simplification we could spot this year. It’s much astir conscionable not committing nan remainder of nan rate travel to inventory. And that pinch a small indebtedness and if we tin do that pinch a spot much charismatic building than we person coming pinch our existent facilities, past I think, we are successful bully style for what we want to do.

Steve Dyer

Got it. All right. Thanks arsenic ever guy. Best of luck.

Ryan Pape

Thanks, Steve.

Operator

[Operator Instructions] The adjacent mobility comes from Jeff Van Sinderen pinch B. Riley. Please proceed.

Jeff Van Sinderen

Hi. Good morning, everybody. I wanted to just, I guess, get your consciousness connected nan one-time items, are those astir apt down america astatine this point? I cognize you can’t spot excessively acold successful nan future, but arsenic acold arsenic nan adjacent mates of quarters wherever nan P&L should beryllium cleanable of those?

Ryan Pape

Yeah. Jeff, I mean, they are. I deliberation if you look astatine america from a humanities standpoint, erstwhile we person called things retired historically is 1 time, we thin to mean it. We don’t hide each 4th pinch a laundry database of onetime things that individually are, but successful aggregate are. So erstwhile -- taxable to what we don’t know, right, but we telephone those retired because that’s genuinely what they were.

Jeff Van Sinderen

Okay. And past conscionable thoughts astir nan acceleration of PPF successful 2023?

Ryan Pape

Well, I mean, nan cardinal for america is really China, right? That’s what drives nan -- each nan numbers you are saying much than thing and nan oscillations successful that. Over time, pinch acquisitions, we person immoderate of our merchandise income pinch nan businesses we bought into work revenue.

So if you look astatine it complete benignant of a longer play of time, you really spot that we person done that rather a bit, because we thin to person an affinity to bargain our existing customers versus group that aren’t customers of ours, correct aliases wrong.

So really, nan -- if you look astatine nan 4th quarter, I think, our U.S. PPF income were up $6.3 million, $6.4 cardinal year-over-year. China was down $6.5 cardinal positive aliases minus. So that benignant of for illustration that out, but ignoring moreover nan installation constituent of nan business, which, arsenic Barry mentioned, has now grown to beryllium a important percentage.

It’s really each astir China and getting nan afloat reset location and getting overmuch person to nan business and trying to region immoderate of nan volatility of it and conscionable knowing wherever we are and wherever we want to spell pinch it.

Jeff Van Sinderen

And arsenic we deliberation astir that, do you deliberation that nan maturation complaint of model movie and automotive aliases trader services and immoderate of those different things will turn astatine a akin complaint to PPF this twelvemonth aliases faster complaint aliases slower, really are you reasoning astir that?

Ryan Pape

Well, I -- it really depends, right? So we are benignant of agnostic to a definite extent, because we are trying to turn each sources of gross arsenic accelerated arsenic we cognize how. And truthful successful immoderate sense, you could person an opportunity pinch nan dealership that starts arsenic a merchandise sale, like, you are mentioning, that turns into a labour sale, because they determine that it doesn’t make consciousness for them to do labor.

So that -- and those -- nan trade-off betwixt those two, that’s really up to nan customer, we are not nan ones readying for that. So I deliberation we will spot maturation crossed each nan categories of product. Some nan smaller merchandise lines astatine a higher complaint connected nan larger merchandise lines and past taxable to immoderate adjustments to that if we bargain things and person merchandise to work revenue.

Jeff Van Sinderen

And past I deliberation you said, you are targeting 200 ground points of gross separator betterment for nan year. I americium conscionable wondering, immoderate thoughts connected benignant of what nan quarterly progression mightiness look like? Do you deliberation it’s going to beryllium smooth, do you deliberation it’s much backmost aliases 2nd half loaded?

Ryan Pape

It’s astir apt much 2nd half loaded, conscionable knowing really things typically go, because you person sewage inventory successful nan pipeline and different decisions that either person been made aliases things that return a while to spot nan use of. So, probably, 2nd half loaded is much likely. I deliberation if we were astatine that 200-basis-point exit tally rate. That would beryllium good. And if we tin do it sooner, it’s surely imaginable that I deliberation we want to make judge we get that astatine a minimum.

Jeff Van Sinderen

Okay. Thanks for taking my mobility and champion of luck for nan remainder of nan quarter.

Ryan Pape

Thanks, Jeff.

Operator

Okay. The adjacent mobility is coming from Tim Moore pinch EF Hutton. Please proceed.

Tim Moore

Thanks and I admit nan granularity connected nan 4th fourth sales, it was bully for Barry to constituent retired that nan PPF income connected standalone point and we should beryllium including cutbank gross and immoderate installation labour gross maturation it’s beautiful strong. It was safe to perceive astir nan preloaded penetration for your overgarment protection movie arsenic that keeps trending positively. Were you getting immoderate feedback aliases immoderate type of relay connected possibly much non-enthusiast customers purchasing overgarment protection movie past twelvemonth successful 2022, was location immoderate denotation that?

Ryan Pape

Yeah. Well, I mean, clearly, that’s thing that we are very focused connected arsenic a institution for our longer word future, because we cognize that there’s a immense mediate of nan marketplace that are not nan enthusiast purchaser that aren’t going to study astir overgarment protection movie themselves. We person to scope them.

We person either reaching them via advertising, which is astir apt beautiful costly and not a ace superior way to nan marketplace aliases done dealerships wherever aliases OEMs wherever they person entree to that customer.

Given nan quality of our dealership business pinch what we person acquired and past grown, it is benignant of overwhelmingly not enthusiasts makes and models, it is overmuch broader successful its scope than benignant of nan business we person done nan aftermarket conscionable by its quality and really it came to be.

So erstwhile we are talking astir those dealerships starting to adopt overgarment protection movie successful immoderate capacity, nary matter really mini aliases really large nan coverage, it’s almost surely rubbing consumers disproportionately that don’t fresh that enthusiast and that’s 1 of nan reasons that we person invested successful these businesses and 1 of nan reasons that we are doing this, because that is simply a nonstop extremity of this.

So erstwhile you perceive america talk astir immoderate benignant of trim attachment of overgarment protection movie into those dealerships we touch pinch a dealership services, it’s almost surely beyond nan scope of nan accepted enthusiast buyer.

Tim Moore

Great. That’s an colour to perceive and conscionable fixed really large that marketplace it’s conscionable gigantic. On pricing, I cognize you mentioned past 4th and you had a remark earlier astir value hikes taken. Is it adjacent to presume that you mightiness person only been capable to return pricing from possibly 50% to 60% of your markets since you astir apt couldn’t return it successful China aliases a fewer supplier markets, and what I americium getting astatine is, tin that supply an further pricing powerfulness for adjacent twelvemonth successful those different markets you are not taking it?

Ryan Pape

Yeah. I deliberation you are correct successful that, it’s astir apt deed little than 50% of nan customer guidelines for nan -- successful nan 4th aliases for nan information of it successful nan quarter, but it really astir apt deed moreover little of nan revenue, because it was really merchandise oriented and not work oriented. The pricing connected nan work broadside is conscionable handled successful a wholly different way.

So from a customer base, you are astir apt directionally accurate, and past from a full gross basis, it’s astir apt moreover little than that, it’s astir apt successful nan 30s, but it really 30% of gross that it touched successful immoderate way.

So, yeah, we -- nan -- we are continuing to look astatine that. We person been much restrained successful pricing than our competitory group for a assortment of intentional reasons. So that is simply a further opportunity for america this year, but we haven’t made patient decisions on, but nan strategy to do what we did and past time off nan remainder disposable to america was intentional and it’s thing for america this year.

Tim Moore

Great. That’s helpful, Ryan. What astir -- conscionable connected nan Rivian relationship, I judge that started ramping up slow astir apt successful October. Can you conscionable possibly an update connected that, and if I remember, is location are 3 European nonstop OEM programs that you are doing, how’s that going?

Ryan Pape

Yeah. So nan Rivian programme did commencement successful position of our activity astatine our installation adjacent their works and past it’s been successful and we are successful nan ramp-up shape now and that’s a operation of getting each nan vehicles connected nan schedule that we request and past having our squad disposable to do nan installations.

I deliberation nan first feedback is rather positive, and provided we tin get nan afloat allocation of vehicles, I think, there’s liking -- imaginable liking from some sides successful expanding this. It’s had a higher than expected return complaint from nan extremity buyer. So I deliberation it’s affirmative each nan measurement astir and we conscionable request to collectively past standard it up to its afloat potential.

So I deliberation we are ace pleased pinch that relationship. There was a hold successful getting that going past twelvemonth until October and that costs america substantially pinch that delay, but we were yet happy to do it and gladsome that we did it and it’s now thing to build on.

And pinch respect to Europe, yes, we person projects coming pinch 3 different OEMs successful Europe and those are successful immoderate shape of discussions connected imaginable description and that could beryllium further vehicles aliases conscionable expanding nan number of units of nan aforesaid make aliases exemplary that we touch.

And past location are different manufacturers pinch different types of projects that we are successful nan process of talking to and these things person a agelong income rhythm conscionable arsenic nan ones we person now that usually coincide pinch a caller exemplary preamble aliases something.

So location continues to beryllium beardown liking and there’s liking successful China and different things wherever we are talking astir needing to put further location and our willingness to do that. So I deliberation it’s -- overall, it’s a agleam spot and we expect to proceed to turn that.

Tim Moore

Great. That colour is very helpful. Just arsenic a speedy follow-up mobility to Rivian. For your 20% to 25% integrated income guidance for this year. Does that see a decent chunk from Rivian aliases are you modeling that $10 cardinal aliases less?

Ryan Pape

No. I would say, we are comparatively conservative. I mean successful -- from that standpoint. Rivian has done a awesome occupation of scaling their accumulation successful a number of vehicles, but that has to proceed for america to get to our afloat imaginable location and truthful we are not -- we are being very pragmatic to opportunity nan slightest successful position of our exemplary successful there.

Tim Moore

Great. And my past mobility is just, person you seen aliases put much squad and managers devoted to cross-selling model tinting and PPF, are you seeing that benefiting you lately?

Ryan Pape

Sure. Well, I mean, nan number 1 point that we do is, nan measurement we salary our team, we don’t discriminate betwixt merchandise aliases service. We are trying to align connected increasing gross profit dollars successful each transmission and for each customer type and truthful that creates inherently a beardown inducement to cross-sell and nan squad knows that we want customer to beryllium capable to person an each XPEL acquisition pinch each of our products.

And truthful we know, particularly successful nan aftermarket that galore times, we person customers that are buying each 3 products, overgarment protection film, our coatings, model -- we want them to person an each XPEL experience. So there’s really -- erstwhile nan squad knows that arsenic thing to our halfway and to our marque and past you incentivize them wherever each of those dollars count.

And from their time, much gross dollars and much gross separator dollars retired of 1 location is much businesslike than spreading yourself successful and having much places to sojourn and it’s successful keeping pinch our strategy. So I deliberation we are 100% aligned connected that goal.

Tim Moore

Great. Thanks, Ryan, and that’s it my question.

Ryan Pape

Thank you.

Operator

We person reached nan extremity of nan question-and-answer convention and I will now move nan telephone complete to guidance for closing remarks.

Ryan Pape

I want to convey everyone. We had a awesome year, and astir importantly, I want to convey our squad who’s worked exceptionally difficult and continues to do truthful today. So convey you and we will speak to everyone adjacent quarter.

Operator

This concludes today’s convention and you whitethorn disconnect your lines astatine this time. Thank you for your participation.