XPEL, Inc. (NASDAQ:XPEL) Q3 2022 Earnings Conference Call November 9, 2022 11:00 AM ET
Company Participants
Jen Belodeau – Investor Relations
Ryan Pape – President and Chief Executive Officer
Barry Wood – Senior Vice President and Chief Financial Officer
Conference Call Participants
Steve Dyer – Craig-Hallum
Jeff Van Sinderen – B. Riley
Tim Moore – EF Hutton
Operator
Good day ladies and gentlemen, and welcome to the XPEL’s Third Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode and we will open up the floor for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host, Jen Belodeau. Ma’am, the floor is yours.
Jen Belodeau
Thank you. Good morning and welcome to our conference call to discuss XPEL’s financial results for the 2022 third quarter. On the call today, Ryan Pape, XPEL’s President and Chief Executive Officer; and Barry Wood, XPEL’s Senior Vice President and Chief Financial Officer, will provide an overview of the business operations and review the company’s financial results. Immediately after the prepared comments, we will take questions from our call participants. I’ll take a moment now to read the safe harbor statement.
During the course of this call, we will make certain forward-looking statements regarding XPEL, Inc. and its business, which may include that are not limited to anticipated use of proceeds from capital transactions, expansion into new markets and execution of the company’s growth strategy.
Often, but not always, forward-looking statements can be identified by the use of words such as plans, is expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes or variations, including negative variations of such words and phrases or state that certain actions, events or results may, could, would, might or will be taken, occur or be achieved. Such statements are based on the current expectations of management of XPEL.
The forward-looking events and circumstances discussed in this call may not occur by certain specified dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting the company, performance, and acceptance of the company’s products, economic factors, competition, the equity markets generally and many other factors beyond the control of XPEL.
Although XPEL has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking statement can be guaranteed.
Except as required by applicable securities laws, forward-looking statements speak only as of the date on which they are made and XPEL undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
With that, I’ll turn the call over to Ryan Pape. Go ahead, Ryan.
Ryan Pape
Thanks, Jen, and good morning, everyone and welcome from me also to our third quarter 2022 call. Clearly, we had another great quarter. Solid top and bottom line performance. Revenue for the quarter grew 31% to 89.8 million, which was another record quarterly revenue for us. In the U.S., we had good results. New car sales for the quarter were pretty much flat from a year ago, but when you dig a little deeper into the numbers, some of the manufacturers had substantially better results than others, including Tesla as one example, so that was helpful to us.
U.S. new car inventories are improving, but they’re doing so off of record lows. Some manufacturers saw significant increases in inventory in September from September a year ago, while others didn’t. We do see benefit of that in terms of our dealership services revenue and gross margin as these inventories recover. Our [stay pay] [ph] costs for some of our employees declined and we expect the inventory recovery will continue into the fourth quarter and that that’s positive for the business.
In China, we saw some incremental improvement in the third quarter from the second when some of the larger lockdowns occurred. Q3 revenues in China grew 39% sequentially, but just 4.1% compared to Q3 2021. While China posted good September new car sales, we still see significant uncertainty going into next year. If you just look at the news today from [indiscernible] based on – and based on the current forecast, keeping in mind, we have a sell-in versus sell-through dynamic in China.
We’re probably expecting lower sales in Q4, not to the Q2 levels, but probably [$2 million] [ph] plus less than we saw in Q3 or China in Q4. We saw strong performance in most of our other regions, including Canada, Middle East, and Latin America, which also saw record revenues for each quarter, for each region rather.
We’ve reorganized our sales structure in the Middle East and are selling more directly to customers, which is certainly helping our performance there both in terms of revenue and gross margin and is in keeping with our overall strategy on how we want to go to market and how we want to position the brand.
Like in Q2, we saw increasing strength of the U.S. dollar against the euro and pound and then ultimately in Q3, unlike Q2 against the Canadian dollar during the quarter, which impacts our revenue and gross margin performance in those regions. So, on a constant currency basis, revenue and gross margin were negatively impacted by approximately $2 million for the quarter that is this year, compared to prior year exchange rates.
As the vast majority of our product costs are in U.S. dollars, the FX impacts to revenue fall through to gross margin for the most part. So, despite that, the strong demand, which we attribute to our performance in the market and to the increasing penetration rates for products in general allowed us to overcome these FX impacts, but that would have been – that would have taken us to well over 90 million in revenue for the quarter. We had last year’s exchange rate. So, really good quarter.
Looking to the rest of the year, U.S. revenue typically declined sequentially in Q4 from Q3 due to seasonality with holidays, etcetera. Conversely, China had historically been stronger in Q4 than in Q3. And as I previously mentioned, we expect China to be $2 million, plus lower in Q4 than Q3. So, given this and the stronger U.S. dollar in Q3, we expect total Q4 revenue to be slightly less than Q3 on the $83 million or $84 million range. This would put our estimated 2022 annual revenue growth at higher end of the 25% to 27% range we discussed on our last call.
Looking beyond Q4, we watched the macro environment like everyone. And for us, it’s a set of takes inputs. Clearly, all things equal, rising interest rates impact new vehicle affordability, which could impact new car sales at some point in the future. On the other hand, the manufacturers have been relatively consistent talking about their view of the market, which is that there’s pent-up demand from the past two years of low inventory and high new vehicle mark-ups.
So that would be an offset to the positive for us. And additionally, we’re seeing evidence that as inventories recover dealerships need to trade down from exorbitant market adjustments to tangible and physical ads as a way to generate additional profit and that’s a positive for us as well.
So, in many respects, we’ve been competing against an accessory with 100% gross margin in the form of these market adjustments that dealerships have been able to impose over the past two years. So, a reversal from that trend is also a positive for us.
Overall, our view remains the same that those predisposed to buy new cars are still going to buy our products for their car in almost any environment. And we see that time and time again through the repeat rate at which we see people buy our products from one card to the next. And alongside that, our products continue to be attached to a greater percentage of new cars each month.
So, that dynamic in no way decouples us from the world around us, but it does give us some margin. And then especially when you add to that within the space that we’re in, we’re executing very well. And our business has continued with the same momentum in October. We continue to make good progress on our overall gross margin initiative, which came in at 39.8% for the quarter, really a good number when you’ve seen cost increase in certain areas and then the FX impact, which I mentioned before, which is a direct hit to margin.
So, if we were on a constant currency basis using last year’s exchange rate, it would have been over 40% gross margin for Q3. We haven’t taken any pricing this year, although we will begin to phase in some pricing adjustments in the order of 3% to 4% towards the end of the year and the rest of the year. It won’t impact all markets and all currency pairs equally.
Obviously, there’s some areas that have a lot more [paying] [ph] than others with the U.S. dollar, particularly where we have distributor markets, where they bear the brunt of that FX risk, but we will start to do that in the balance of the year. We did finish, as I mentioned, right under our 40% goal for gross margin. So, to exit the year, we’re right on track to hit that goal like we’ve been talking about.
So, very happy about that. We finished Q3 18.9 million in EBITDA, reflecting a 21.1% EBITDA margin, both of these are records for the company. Sequentially EBITDA grew 10.2% and 66% quarter-over-quarter. So, really pleased with this. Q2, Q3 are the strongest quarters of the year for us typically and then Q4 depending on what happens in China, you can see Q2 and Q3 come out so similar in a positive way and Q3 beating Q2 is really what we want to see.
We’re seeing SG&A run higher as a percentage of sales and in some ways we’re over performing on gross margin as a result of some of our SG&A investments. So, there’s a little bit of a trade there, but either way, I think we’re pretty happy with that because we’re seeing good leverage in the operation as you could see with that operating margin that we posted this quarter.
There are a lot of good things happening in the business beyond just the good numbers this quarter. We’re making a large investment in software and we have our version of our DAP software, that will begin rolling out to customers in December. And as we mentioned before, this is the platform upon which we’ll be adding a lot of new features for all our different customer types to really extend what we’re offering deeper into their business and to provide them that much value for being an XPEL dealer.
Our vision line has been doing quite well. We’ve also been able to secure some accounts, some national retailers for work using our national footprint in the U.S. and the amount of our dealer network to do work all around the country. So, hope that trend continues, but that’s a promising opportunity for us.
And then lastly, our previously announced paint protection film factory direct program with Rivian began accepting orders and started last month in October. As we previously mentioned, the launch of that was delayed, but it has now started. So, really excited about that. We’re happy to showcase one of those vehicles in our booth at the SEMA Show last month in Las Vegas.
On the acquisition front, we closed the acquisition of the paint protection film business of our Australian distributor in October. A great example of the continuation of our overarching get close the customer strategy as we’ve discussed many times before. We’re already seeing great progress in momentum in Australia in a short time since we acquired the business. And we know from our history that under our leadership and our willingness to invest, we can grow the market in Australia to be many, many times that size and it today performs at a fraction of another market relatively close in size, which is Canada. So, we hope to close that gap over time.
We continue to have other acquisitions in the pipeline, including some that we would have hoped to close already this year, but for one reason or another haven’t closed yet, so continue to work on that. We’ll continue to monitor the macro. Our acquisitions have been modest. Our cadence is measured. Our debt load is low. So, we don’t really expect significant change to how we go forward with that at this point.
We’re still interested in pursuing these acquisitions and putting our cash to work. And obviously, we’ll be on the lookout if that outlook needs to change, but it certainly has not changed at this point. So, all-in-all, really good quarter for us. Thanks to our whole team. I think outside of some underlying positive trends, have to attribute a lot of the success here to just excellent performance by our team. There’s really no other more fundamental explanation than that.
So, thank you to all of them. So, with that, we’ll turn it over to Barry and then take some questions. Barry, go ahead.
Barry Wood
Thanks, Ryan, and good morning, everyone. And just a couple more things to highlight in our top line performance. Our window film revenue grew 35% quarter-over-quarter to 15.4 million. Our vision line, which is our commercial residential window film product that Ryan mentioned earlier, was about 11.5% of our total window film revenue and this product segment more than doubled compared to Q3 2021. And on a year to date basis, our total revenue grew 29.8% to 245.5 million.
Total installation revenue combining product and labor increased a little over 63% and represented 14.7% of total revenue. As we previously discussed, we believe our company-owned installation store performance acts as a nice surrogate for what our aftermarket customers are seeing. So this, coupled with our overall product revenue results indicates demand is strong.
Our Q3 SG&A expense grew 31% versus Q3 2021 to 18.5 million and represented 20.6% of total revenue. Sequentially, SG&A was up a little over 7%. And we’ve talked previously about our internal target for SG&A being 18% of revenue. And in addition to Ryan’s point earlier about how some of our SG&A investment is contributing to our gross margin success, another contributing factor to the higher percentage of revenue number is that we have acquisition related costs like amortization of intangibles acquired that still need to be earned through.
So, as we move forward and given these factors, we expect the higher percentage of revenue level to continue into next year. Our pre-tax operating income for the quarter grew 66.9% to 17.3 million, reflecting 19.3% net operating margin. Our net income grew 59.9% to 13.3 million, which was a record for the company, reflecting the net income margin of 14.8%. EPS for the quarter finished at $0.48 per share.
On a year-to-date basis, EBITDA grew 40.6% to 48 million. Net income grew 30.2% to 33 million and EPS finished at $1.20 per share. And incidentally, our Q3 year-to-date EBITDA, net income, and EPS have exceeded our annual 2021 totals. Now, as we discussed in Q2, our inventory level moderated in Q3, finishing at 69.4 million, which was down sequentially about 5 million from Q2. And this coupled with our strong operational performance made for a very solid cash flow quarter.
Cash flow from ops for the quarter was 12.2 million, which was a record for the company. So, absent closing on any additional acquisitions, we’ll use our excess cash to reduce our debt levels as we move forward. So, obviously very pleased with the quarter and we look forward to closing out the year strong.
And with that operator, we’ll now turn the call over for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question for today is coming from Steve Dyer at Craig-Hallum.
Steve Dyer
Thanks, guys. That was a very thorough update. Initially quick housekeeping item. Barry, did you talk about a breakout architectural film as a percentage of that segment?
Barry Wood
Yes, Steve, I did and that number was about let’s say, 11.5% of our total window film revenue.
Steve Dyer
Got it. Okay. Thank you. Taking a step back, when you look at the new car channel, inventory obviously improving sort of slowly as you talked about, but sort of into the teeth of maybe a wobbly consumer depending what you read, are you guys continuing to win dealers? And are you doing window film at that level as well or is it primarily paint protection film at point in time? Any color around the mix there or initiatives would be helpful?
Ryan Pape
Yes. Steve, we are and we’re doing both and the window film portion of our dealership business has probably grown to maybe match in many respects the paint protection film business by virtue of the different acquisitions we did last year. So, the window film is a really big part of that dealership business for us now. A lot of that’s preloaded on the units as they arrive. So, that’s where we have this extra exposure to the inventory, you know in many respects we’re generating revenue as inventory recovers to some extent even before the vehicles are sold for that segment.
Steve Dyer
Got it. And then I’m just curious, I bought a vehicle this last summer where the paint protection film came preloaded and a lot of the sense I got is the vehicle was selling at [MSRP+] [ph] and there was not a lot of choice that the consumer necessarily had, just given the pricing of vehicles and the consumer and things like that, are you seeing sort of any indication that there might be sort of less preloading on these vehicles just from an ASP or average transaction price perspective?
Ryan Pape
Well, I think you could probably argue that both ways. Paint protection film is not – still not one of the most common preload. So, I’m glad that you were exposed to that. Window film is much more [often a] [ph] preload and also at a lower price point, but as I mentioned in the remarks earlier, while you could say that we benefited if the dealers could preload paint protection film in the environment we’ve been in and we would have suffered from that now if it was harder to do.
The other thing that’s been happening though is, rather than put the paint protection film on the addendum, which you had to buy in that case. You’ve seen these market adjustments driving price way above MSRP. And in many respects, that’s impossible for us to compete with because it’s a 100% gross margin add for the dealer and they don’t have to do anything.
So, I think we’re more likely and we’ve seen some evidence of this from the dealerships we work with that that’s probably the first thing to unwind. And as that happens, we may be the beneficiary of that because instead of a $10,000 market adjustment where the consumer gets nothing, we could trade them down to a $2,500 paint protection film package where the customer gets something tangible.
So, I think that it’s a double-edged sword, but I think at least for where we are, we’re more likely to benefit from that than not at least in the mid-term.
Steve Dyer
Yes. That makes sense. As you look at acquisitions, looking forward, and you talked about there’s a lot of stuff in the hopper, any sort of difference or variations in terms of where you’re looking? Are you still – I mean, where should we anticipate you guys spending your time and money? Is it the installation centers or technology anything, any help there would be great?
Ryan Pape
Yes. I think we’re going to be pretty consistent there where the highest and best use for us is in the channel and that includes installation, that includes international distribution like we did in Australia. And that’s most of what we’ve done in our history and that’s where we start with this because we know that’s where we do our best work. And then I think the second piece to that is product or product technology or product adjacencies, but that’s definitely second to further investment in the channel in terms of our priorities.
Steve Dyer
Got it. One more and then I’ll turn it over. As you look, I know you guys don’t guide for next year and there’s probably more uncertainty than most quarters even, but I think just can you give us any [guardrails] [ph] or generally how you think about the puts and takes going into the next year from a revenue perspective?
Ryan Pape
Yes. I mean, I think the uncertainty exists everywhere, but I would tell you today, if you talk to our teams, and [who’s] [ph] talking to the field and you look at how we’re looking at it, we’re still bullish going into next year at this point. We do think there’s pent-up demand for new cars and we continue to see increased attachment of our products into the units sold. We see and we firmly believe that if you’re pre-disposed to buy our product and you buy a car, you’re going to buy our product.
We don’t think among our buyer who’s buying a new car that our product is discretionary. Now, if you don’t buy the car and we see material reduction in the SAAR for next year at some level that hurts us, but within that we think our buyer of paint protection film and window film keeps buying the product. So, we have to be cautious looking at this, but I think where we stand today is, we’re still pretty optimistic and we’ve had continued good feedback from the field so far.
Steve Dyer
Got it. Very helpful. As always, I’ll turn it over. Thanks guys.
Operator
Your next question is coming from Jeff Van Sinderen at B. Riley.
Jeff Van Sinderen
Great. Thanks. Hi, everyone. So, I know you talked about preloading a little bit by the dealers, but just I’m wondering if there’s more you can share about the drivers of the attach rate continuing to move up? Are there specific brands maybe that are driving that more than others? I think you mentioned Tesla, just any more granularity, I guess, if you can share there in terms of also maybe the size of the reps? In other words, are you seeing more full reps versus partial reps? Just any other granularity there would be helpful?
Ryan Pape
Yes, Jeff, I mean, the trends that we see in the quarter are really the same trends we’ve seen for some time, which is growing attach rate in general, higher attach rates among EV buyers. And again, we don’t necessarily know why that is or how that plays out as EVs become a widespread, but that has been a trend, Tesla included, but not limited to Tesla, and we have seen growing amounts of film in the paint protection film business per car. And then we’ve seen more product content across all of our products, paint protection film, window film, the coatings per car. And we’ve seen that in the aftermarket over time that continues.
We’ve also seen that in the dealership space where we’ve done the acquisitions and pushed aggressively. And we’ve actually seen higher content growth in that segment of the market. The dealership since we did the acquisitions probably been in the rest of the channel and that was part of the thesis for doing those dealership acquisitions last year that we could start to introduce paint protection film and other products in addition to predominantly the window film.
So, you know there’s really – there’s nothing new about any of that for Q3. These are, sort of the long-term trends that we see playing out. And then we’re still able to take competitive share in some products and win customers that way. And we’re doing that now across more than one product to paint protection film.
We’re also doing that mindful that we want to build a very high value-add dealer base. And so, we want the best customers, not the most. And so, all of those trends have been present and they continue in Q3 and we expect them to continue going forward as well.
Jeff Van Sinderen
Okay. And then I’m just wondering if you are – since you have your own shops and then obviously a lot of dealer shops that you sell to are you hearing anything different from the dealer shops by and large versus what you’re seeing in your own or hearing in your own shops from customers or just demand profiles, things like along those lines?
Ryan Pape
No, we’ve found and we’ve talked about it, but we found that, you know what we’ve seen in the other businesses that we own is a very good proxy for what our customers see in terms of demand and consumer sentiment and what they’re interested in. So, we haven’t seen that diverge in any way.
Jeff Van Sinderen
Okay, good. And then I just wanted to touch on the new features on the DAP software upgrades, just any other color you can give us there?
Ryan Pape
Yes. Well, we’ve had really kind of two projects. One, just the core of the DAP software, which is something that our customers of every type used day-in, day-out to just cut film and [indiscernible] film and run their business. We have a complete new version of that that’s upgraded and modern that is sort of loses some of the ties, because these two things are many years old and that’s sort of just the type upgrades you want to do over time to stay current. But then as that new platform has been built, that’s really where we are extending the reach of what we can offer much deeper into the operations of these business because – businesses, because we know that in the aftermarket in particular, but not exclusively, they’re really technology starved and our customers are missing a lot of things that they could use to run their business better.
You go into the average restaurant or coffee shop and they have 10x the technology that our customers do because they’ve been catered to through this tech cycle we’ve been going through and our customers don’t. And so, we have a big initiative to take that to them, to help them run better businesses, and then by extension, that should be good for us because we’re going to make them more efficient.
We’re going to hopefully help them close deals faster and provide us feedback around lead generation and other things. They’re going to make us more effective and it’s going to help them and help us. So, we needed that updated platform to exist so that we can then start to layer those features on and the first part of that is going out in December that our customers will see.
Jeff Van Sinderen
Okay. Thanks for taking my questions. I can take the rest offline. Best of luck for the rest of Q4.
Ryan Pape
Thank you, Jeff.
Operator
Your next question is coming from Tim Moore at EF Hutton.
Tim Moore
Thanks and congratulations on the great execution and top line growth and continued margin expansion, despite the China lockdowns impact. So, just turning to my questions that weren’t answered yet. My first one is, are your installers seeing improved lead generation over the last few quarters, making roads more with the non-car enthusiastic category, those were possibly receptive to PPF and tinting that make up half the car buyers, are you able to kind of track that non-enthusiastic customer base to see if they’re growing faster lately?
Ryan Pape
Yes, I think to categorize our customers as a whole, I think would be difficult, but one of the things that we try to look at is how much of our customer base is doing wholesale work for dealerships and that’s where the dealerships selling product that our customer in the aftermarket is installing it.
And we don’t have great data on that, but we have some. And that doesn’t exclude the enthusiast buyer by any stretch, but it does probably represent a broader swath of the buyer when you have the dealership involved. And we continue to see the growth in our overall aftermarket dealer base in doing more dealership work.
We’re certainly trying to encourage that because that’s critical, kind of to where your question was going about growing the overall size of the market. I think based on the data we have, we’re seeing some success in them doing that, but it’s – we don’t have perfect data. But I certainly think that that is the trend to some extent.
Tim Moore
That’s helpful color. And I appreciate that indicator snippet. So, Ryan or Barry, what is the OEM channel maybe as a percentage of sales year to date? I think it was 3% last year in your 10-K is it above 5% now? Is it running something like that?
Ryan Pape
We haven’t broken it out subsequently, but it’s probably gone up modestly, but I don’t think it’s at 5% at this point.
Tim Moore
Okay. That’s good to know. What about – when can you kind of now that Rivian is up and running, when do you think you’ll see material sales contribution from them, could it be something like 20 million next year from them, you know considering you’re on-site as a factory and consensus has a $6 billion sales forecast for next year, which of course might not be achieved, but do you have any kind of rough guidance or thoughts around maybe what the sales contribution can be? Given your [indiscernible] there.
Ryan Pape
Obviously, internally, we have a range of estimates that I would tell you is quite wide based on take rate based on vehicle deliveries and the pace of that. And then there’s also a timing factor because all the vehicles can’t be delivered at once if they need paint protection film installed. So, no, we don’t have any more color on that yet except to say that with these programs like we talked about before, the goal is to start modestly and be successful and deliver on them and then grow them, and better to do that and overpromise and underdeliver.
So, I think and I would say, we try to make that the case and everything we do, but certainly in this realm. So, with that in mind, we’ve designed the program to start in a modest way and then be able to grow it over time if we’re successful and as they’re successful in selling the product more. So, the exact cadence of that though just kind of remains to be seen.
Tim Moore
Fair enough. That makes sense. What about on training capacity for new installers that come to your training centers, is that – if you look out to next year and if sales keep growing strongly as they have in [indiscernible] good trajectory, is that a constraint next year or do you have enough ample training capacity available at [your centers] [ph]?
Ryan Pape
I would say, we have ample capacity in part because we’ve been continuously expanding it. We’re actually opening dedicated training only centers in Spain and in France something that we’ve never done before. Separate from many other type of operation just for training because we need to get that local to where the installers are, and use that to stimulate the market, particularly where we have different languages and cultures involved, but that being just one example of how we’ve continue to expand the training capacity.
At this point, we’re not limited by our physical footprint in part because we’ve grown a lot and have ample facilities, but also because we’re also doing outbound training at customer facilities and things when appropriate. So, it’s really more of a labor issue. And right now, I would say, fully staffed, we’re almost fully staffed in that, but we’ve been pretty good at getting ahead of it. So, I don’t think that’s going to be a limiting factor next year.
Tim Moore
That’s terrific to hear and thanks for the color on that. [Indiscernible] are just switching gears, you mentioned the Middle East that you’re looking to sell more directly into, what other countries do you think you could do more direct? Is it Europe in general or are there any spots that are really on the high radar near term priority focus to sell more directly?
Ryan Pape
Yes. I mean, I think if you look at our – where we get our revenue from today, I mean, China would stand out as the biggest market, but that’s not one that we’re interested in pursuing any type of direct model in the near-term. So, when you look beyond that, you’ve got markets, perhaps where we have distributors that we can acquire, that are – that we think we can improve the performance of, and then you’ve got markets where there’s just very little happening.
In Europe, we sell direct in a lot of places and we have distributors in some countries, again sort of language and culture reasons. And so, there’s definitely the opportunity to change that mix in some of those countries going forward by acquiring distributors and we would be interested in doing that. [Points] [ph] in Asia, I think as a whole are some of our most underperforming markets and would justify investment.
So that would be one area to look. And then we’ve had great success in Mexico in developing that market. And I think we would want to look at the rest of Latin America as well. So, I mean really I just kind of covered the whole world for you. So, I guess the longer sort of it is, we would look anywhere for it if it made sense. And we’re pretty well convinced that there is a decent sized market that can be developed for these products enough to support our own operation pretty much anywhere in the world. And I think Mexico proves that.
Tim Moore
And that’s helpful. I mean, the Australian acquisition, you did last month, it’s certainly early innings in infancy for that market size. It’s just decade behind. But my last question is about China actually, and it was nice to see the sequential sales improvement even though it was up maybe 4% year-over-year, but I was just wondering for your main distributor there, which generates a super majority of – I think your revenues in China, if I’m not wrong, does that distributor, they have good access and inroads to the EV manufacturers and the EV dealerships, given they have [probably electric vehicles] [ph] and comprised a lot of new vehicle growth drastically more as a percentage of new cars sold in China being EVs in the U.S?
Ryan Pape
Yes. So, I would say relative to dealership attachment in China, that’s been relatively low as an industry in terms of penetration of [indiscernible] going into dealerships, but we do see that changing. And we’ve been working with our distributor really to try and put together some unique deals and maybe even unique products to service that market because we do see a big opportunity.
I wouldn’t tell you that that is or isn’t specific to the domestic Chinese EV manufacturers because it’s really whether it’s EV or not in that context, doesn’t really make much difference from our standpoint. I think it’s inclusive of that, but it’s broader than that, but finding the right strategy to help the distributor increase the dealership attachment in China is of top importance for us.
I would say, of the things we can control in China, obviously, there’s a lot that we can’t in the present time. But of the things that we can and then we can help influence that would be number one.
Tim Moore
That’s terrific. That’s it for my questions. Thanks for answering Ryan.
Ryan Pape
Thanks Tim.
Operator
There appear to be no further questions in queue. I would like to turn the floor over to the management team for any closing comments.
Ryan Pape
I would just like to thank everyone for joining us on the call today and I look forward to talking again next year and a final thank you to all of the XPEL team who’ve done such a great job, this year and this quarter. Thank you.
Operator
Thank you, ladies and gentlemen. This does conclude today’s conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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