XPEL (XPEL) Q3 2025 Earnings Call Transcript

Motley Fool Transcribing11-06

Image source: The Motley Fool. DateWednesday, Nov. 5, 2025, at 11 a.m. ETCall participantsChief Executive Officer — Ryan L. PapeChief Financial Officer — Barry R. WoodNeed a quote from a Motley Fool ...

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WoodNeed a quote from a Motley Fool ...</p>\n\n<a href=\"https://www.fool.com/earnings/call-transcripts/2025/11/06/xpel-xpel-q3-2025-earnings-call-transcript/\">Source Link</a>\n\n</div>\n","source":"stock_motley_transcript","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>XPEL (XPEL) Q3 2025 Earnings Call Transcript</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nXPEL (XPEL) Q3 2025 Earnings Call Transcript\n</h2>\n\n<h4 class=\"meta\">\n\n\n2025-11-06 09:32 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.fool.com/earnings/call-transcripts/2025/11/06/xpel-xpel-q3-2025-earnings-call-transcript/><strong>Motley Fool Transcribing</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Image source: The Motley Fool.\n\nDateWednesday, Nov. 5, 2025, at 11 a.m. ETCall participantsChief Executive Officer — Ryan L. PapeChief Financial Officer — Barry R. WoodNeed a quote from a Motley Fool ...</p>\n\n<a href=\"https://www.fool.com/earnings/call-transcripts/2025/11/06/xpel-xpel-q3-2025-earnings-call-transcript/\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"XPEL","symbol_name":"XPEL Technologies Corp.","start_time":0,"source_url":"https://www.fool.com/earnings/call-transcripts/2025/11/06/xpel-xpel-q3-2025-earnings-call-transcript/","article_id":"2581808791","we_media_id":null,"thumbnails":[],"rights":{"source":"stock_motley_transcript","url":"https://www.fool.com/earnings/call-transcripts/2025/11/06/xpel-xpel-q3-2025-earnings-call-transcript/","rn_cache_url":null,"directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2581808791","pubTimestamp":1762392757,"columns":[],"sourceInfo":{"source_id":"stock_motley_transcript","name":"Motley Fool Transcribing"},"weMediaInfo":null,"summary":"DateWednesday, Nov. 5, 2025, at 11 a.m. ETCall participantsChief Executive Officer — Ryan L. PapeChief Financial Officer — Barry R. WoodNeed a quote from a Motley Fool analyst?","collect":0,"end_time":0,"defaultTopTitle":"fool.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"XPEL":"XPEL Technologies Corp."},"translate_title":"XPEL(XPEL)2025年第三季度收益看涨期权成绩单","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XPEL":1.5},"content_text":"Image source: The Motley Fool.\n\nDateWednesday, Nov. 5, 2025, at 11 a.m. ETCall participantsChief Executive Officer — Ryan L. PapeChief Financial Officer — Barry R. WoodNeed a quote from a Motley Fool analyst? Email [email protected]RisksCanada revenue declined, with \"broad-based slowness across the whole portfolio of customers,\" according to Ryan L. Pape and Q3 performance was weaker than Q2.Net income decreased 11.8% to $100,000 in Q3 2025, with management citing \"bottom line performance from our existing programs has missed our expectations. And it's certainly a drag on results.\"SG&A expenses increased 20.8% to $35.7 million, representing 28.4% of revenue, with $1.3 million from acquisition fees and $800,000 related to bad debt and other non-recurring costs.Gross margin was negatively impacted by 170 basis points from unfavorable supplier price increases, with partial recovery expected beginning in the next quarter.TakeawaysTotal revenue -- $125.4 million, representing 11.1% growth; the US region matched with 11.1% growth to $71.7 million, both achieving record highs.Europe (EU) revenue -- $16.5 million, up 28.8%, reflecting both a record quarter and easier comparable due to prior-year headwinds.Window film product line -- 22.2% growth, identified as a significant driver.Installation revenue -- Over 21% increase in total installation revenue, including dealership, corporate stores, and OEM channels; all contributed positively despite OEM choppiness.Canada revenue -- Declined year-over-year, with Q3 performance below Q2 and Q1 described as \"really slow.\"Latin America revenue -- Flat, with weakness in Mexico and operational shift to a direct model in Brazil.China acquisition -- Closed in early September; transaction added approximately $22 million in inventory and involved a new entity with 76% ownership; little immediate revenue impact, but $5 million in annual SG&A and expected to generate $10 million in run-rate operating income from China annually once inventory cycles through.Gross margin -- Decreased by 170 basis points due to supplier price increases; not related to tariffs; pressure expected to abate in Q4. Gross margin is expected to improve as higher-margin China inventory is sold, with full potential reached by the end of Q1 2026.SG&A expenses -- $35.7 million, up 20.8% year-over-year; 28.4% of total revenue, with $1.3 million in acquisition-related fees and $800,000 in bad debt and non-recurring costs.Inventory -- Increased by approximately $22 million in inventory related to the China acquisition; management described this as favorable due to future cash flow and improving inventory turns.Operating margin target -- Goal to achieve 52%-54% gross margin and mid to high 20% operating margin by 2028, with projected total investment of $75-$150 million in manufacturing, supply chain, and M&A by 2028.EBITDA -- $19.9 million, an 8.1% decline; EBITDA margin was 15.9%.Net income -- Decreased 11.8% to $100,000, resulting in a 10.5% margin; EPS fell to $0.47; Year-to-date net income grew 3.7%, with EPS at $1.37 per share.Cash flow from operations -- $33.2 million, up from $19.6 million in Q3 2024.Q4 revenue guidance -- $123-$125 million revenue guidance for Q4, maintaining standard cyclicality; implies 13%-14% full-year growth for 2025 if achieved.Capital allocation -- Board reconfirmed focus on core business investment over expansion into adjacent markets; share repurchases considered attractive due to excess cash and healthy balance sheet.Product line strategy -- Focus shifted to driving greater sales and efficiency of existing products, including color films and windshield films, rather than launching entirely new offerings.SaaS (DAP) platform -- Continued investment, with temporary resource reallocation to the referral personalization platform; management sees long-term efficiency and volume opportunity through digital channel optimization.SummaryXPEL (XPEL +0.94%) reported record revenue in Q3 2025, with double-digit growth in the US and EU, offset by continued weak results in Canada and flat performance in Latin America. Strategic execution included closing the acquisition of its Chinese distributor—expected to meaningfully benefit gross margin beginning in Q1 and Q2 2026 as acquired inventory cycles through and the full-margin benefit is realized. Management restated its intention to achieve 52%-54% gross margin and mid to high 20% operating margin by 2028, coupled with disciplined capital allocation prioritizing core business and operating efficiency. In addition, leadership highlighted robust operational cash flow, supported by improved inventory turns.Management emphasized, \"After a thorough review, our board decided that continuing to invest in the core of the business is really the best strategy,\" reiterating focus on current products and operational improvements.The China integration is structured for minimal risk on excess inventory, with payment only required for inventory sold at a profit and no penalty for unsold or loss-making excess stock.Window film and installation services were highlighted as main growth contributors, while the company projected limited near-term product launches, focusing instead on maximizing returns from current lines.Discussion of the DAP SaaS platform and digital referral partnerships indicated ongoing development initiatives expected to drive aftermarket and OEM channel engagement.The company expects operating leverage improvement as front-loaded SG&A investments in new markets mature, with initial margin pressure expected to diminish beginning in Q1 2026.Industry glossaryOEM: Original Equipment Manufacturer; refers to XPEL’s business with global car manufacturers, particularly providing products or services directly integrated into new vehicles.4S business: A dealership model in China encompassing Sales, Spare parts, Service, and Surveys; a priority focus in XPEL’s expansion strategy.DAP: XPEL’s proprietary SaaS platform for patterning and cutting paint protection film, enabling more efficient and accurate product installation.SG&A: Selling, General, and Administrative expenses; non-production costs related to running the business, including sales, marketing, and overhead.Full Conference Call TranscriptRyan L. Pape: Thank you, John. And good morning also. Welcome to our third quarter call. Q3 was a record quarter for us. Revenue grew 11.1% to $125.4 million. Performance was led by the US region, which also grew 11.1% to a record $71.7 million. We saw double-digit revenue growth in both our independent and dealership channels in the quarter. So that's encouraging. That's good momentum. Our EU region had a good quarter, with revenue growing 28.8% to $16.5 million, which was a record there as well. As you recall, we saw headwinds in Q3 last year, so it was also an easier comp, but good performance.And as you likely know, we completed our long-contemplated acquisition of our Chinese distributor in early September. Given the acquisition closed late in the quarter, we didn't see much material financial impact, but you will see elevated SG&A from acquisition-related professional fees in the quarter. And then, of course, added SG&A expense for the month of September under our ownership. We've hit the ground running on the integrations underway. I was with our team two weeks ago. I can tell you that we've added amazing people to the team. Both our team and our customers are very excited about this and what it means for our business in the country. The customers were very receptive.And so it was incredibly encouraging. We have a lot of work to do from the integration perspective. But obviously, we see huge opportunity and will continue our focus to pursue OEM and 4S business in China. With this acquisition, along with our acquisitions of Japan, Thailand, and then India prior to that, we really rounded out our footprint that we see in APAC, but then beyond. We continue to see similar trends affect all the regions at different times, similar to the slowness we saw in the US to start 2024. Canada revenue declined from the prior year, continuing a trend of a slow market in Canada for this year. We saw a really slow Q1. Q2 was better.Q3 was not as good as Q2. I wouldn't call out anything in particular except just broad-based slowness across the whole portfolio of customers. And then, as I mentioned, Europe was up meaningfully. India and the Middle East grew modestly, but this market's more tied to distributor sales. There's a little bit of sell-in, sell-out noise there. We're really bullish on what's happening there. It's a priority market for us, and there's a lot more to come. Latin America was flat due to weakness in Mexico, but really from a switch to a direct model in Brazil from a distribution model.Our expectation for Q4 revenue is to be in the $123 to $125 million range, with sort of the normal cyclicality we see in the US and North America. Assuming we hit those numbers, that would take us to year-over-year annual growth for 2025 in the 13% to 14% range. On the gross margin front, we did see a little pressure to gross margin in the quarter relative to our overall trend. We had unfavorable price increases that were out of line with the market, which cost us about 170 basis points of gross margin in Q3. Absent this specific impact, we have actually seen gross margin grow from the prior year.These aren't tariff-related, and we've mitigated that going forward. And we expect to see that reverse starting in Q4 and into Q1. The other item that has an impact on gross margin in the near term is the nature of our China distributor transaction. We're selling through inventory acquired in the acquisition. And as we do that, we're only recognizing roughly the former distributor's portion of the margin as the inventory is now on our books at an amount that approximates the distributor's former cost. So, obviously, a key rationale to buy your distribution is to increase gross margins, which it will do for us in a meaningful way, but only as we sell through existing inventory.Barry will discuss a little bit more the unique structure of the transaction relative to inventory. But we did add on the order of $22 million plus or minus in inventory as part of the purchase. So you'll see inventory increase on our balance sheet, but really, that's a function of this transaction, and it's structured in a way that's very favorable for us. So our underlying inventory trend and our improving inventory turns remain solid and would not interpret the balance sheet on face value to say anything else relative to inventory. With that said, we'll have great cash flow as we sell through that inventory.Because the turn times to replace it and the total needed to supply the customers, both on our side and the former distributor side, will reduce. So we'll start to see relief from that in Q1. When we have both halves of the margin as both the supplier and distributor for the first time. So as we get into Q1 and Q2 of next year, we'll see record gross margins for the business at the consolidated level based on these investments and changes. The SG&A continues to run hot as we invest in the channel. It supports these new countries.We've got some optimization to do in our corporate cost structure, but most of the cost added in the past eighteen months is in the channel and in the distribution business. And now that we've really completed the build-out of those, save a little bit more investment in Brazil, we'll start to see leverage on that. China, as an example, with this acquisition, will add $5 million plus or minus in annual SG&A, including intangible amortization. But once we see the full gross margin, we'll pick up approximately $10 million in operating income from China on an annual run rate basis.So, you know, I just remind everyone that you have to consider the SG&A and the gross margin interface together when looking at the trajectory of the business. Especially as we start to realize that gross margin into next year. And I think from our perspective, there's no better time in history to make these really final investments in these countries where we want to operate the most. This is a very tough environment for many people, for many of our competitors. You see a lot of folks pulling back. Where we're investing. And I think that's what you want for the long term.The investments in SG&A in these countries are very much front-end loaded, but these are the best markets in the world. And they're ones that are impossible to develop in any meaningful way without our direct participation. So investing now sets up perfectly for going forward. And, certainly, as you see demand in the environment recover and you know, we see different performance in different places, obviously. We spent the better part of eighteen months on our capital allocation strategy, which we've discussed pretty freely in these calls. And this does include evaluation of a number of approaches, including expansion via M&A into adjacent products and really in the broader industry in which we participate.And this is looking at things that aren't directly related to what we do, but could ultimately bring more demand by bringing other customers into the fold. After a thorough review, our board decided that continuing to invest in the core of the business is really the best strategy. There may be other adjacencies in the future, but there are plenty of opportunities in our core today, and we've yet to hit the full operating potential of the existing business. So once we hit that full potential, we can reevaluate those concentric rings that surround our business. But to do so today is premature.And at the end of the day, much as we like those other opportunities for growth and our desire to build a bigger business, we don't like them better than our core business. And that will guide our near-term decisions. So to that end, we will be investing more in our manufacturing and supply chain via varying approaches, direct CapEx, M&A, or JV relationships. We have a goal of increasing gross margin by approximately 10 percentage points to around 52% to 54% by 2028 through those activities. Running through our various businesses, particularly where we control our own distribution and get full margin, we have a goal of realizing operating margins in the mid to high twenties.Commensurate with that, even with the cost of any of those things we'll do. We would consider investment in the range of $75 to $150 million over this period. Pretty wide range, but we've got a number of options about how we do this. And it's, either way, it's a very favorable return. Without the risk or complexity of adding additional lines of business. Relative to our overall strategy decision. Secondly, we will continue to pursue service business acquisitions within our core. With a focus on dealership services with our current product set. Those opportunities are comparatively few in number, and relatively small in scale for the most part.But as we can identify and acquire them, this will remain a core part of the strategy. Finally, even with the aforementioned investments, we do expect to have excess cash considering a healthy balance sheet and strong cash flow. And an appetite for modest leverage. Assuming all that remains true, there'll likely be an opportunity to return cash to shareholders. Share repurchases look particularly attractive at the moment given our view. We've talked in the past year about our product line additions, color films, windshield films. And we'll spend the next year getting these to their full potential.We have a very robust product line now, and our focus will be less on adding additional products and more on selling more of what we already have and iterating to the next generation of the products that we already have. Like, entering new channels, new products, and the launch of new products and development of new products are expensive. And our focus will be getting a return on the investments that we've made. Our OEM business interest is strong with the global car manufacturers. Although our bottom line performance from our existing programs has missed our expectations. And it's certainly a drag on results.Due to disruptions that plague the manufacturers or creating consistent spikes in demand, which challenge us on the cost side. We get better at how we manage this environment with each passing month and in each subsequent project, and it remains an important focus for us and an important growth driver of the business going forward. Part of that is our referral personalization platform. Where we're selling installations online to consumers on behalf of our partners, namely some of the OEMs. We've been driving increased volume to our aftermarket network for installations in a model that no one's ever done before. We continue to have more interest from others in expanding this program.And it's become quite valuable to many of our installer partners as a source of volume while the retail aftermarket remains very sluggish. We expect to continue to expand this going into next year and beyond. And finally, discussion of our investments in DAP, our SaaS platform, have taken a backseat to other initiatives that work on this continues unabated. We redirected some of our team to our personalization platform as we've launched that in earnest, but we continue to advance on DAP in a way that we know will make our customers more efficient and ultimately sell more products benefiting them and us.Our view is even in the aftermarket channel due to the friction and inefficiency of how the channel operates, there is substantial consumer demand that just slips through the fingers of the collective industry. And our goal with this project is to solve for that. So I think a really important time for us. A lot of moving pieces and different things going on, but we feel very good about the decisions we've made. And about our strategy going forward. We're really pleased to have this acquisition in China complete. It was a tremendous amount of work.Obviously, more work to come, but it really helps cement our direct distribution model in the most important global car markets of the world. And so it's quite an accomplishment, and it will pay tremendous dividends for us. And I thank everybody on our team and everybody else who's been involved in getting that done. So very pleased with that. So with that, I'll turn it over to Barry.Barry R. Wood: Thanks, Ryan, and good morning, everyone. Just a couple more bullet points on our top-line performance. Our total window film product line grew 22.2% in the quarter, and this continues really to be a nice growth driver for us. Our total installation revenue increased a little over 21% in the quarter, and this includes product and service for our dealership services business, our corporate-owned stores, and our OEM business. All had solid performance in the quarter, notwithstanding the OEM choppiness Ryan mentioned. On our corporate store performance that we've said in the past is a decent indicator of how the aftermarket is doing. On a year-to-date basis, our total revenue grew 13.1%.Our total SG&A expenses grew 20.8% in the quarter to $35.7 million, and this was 28.4% of total revenue. We did have approximately $1.3 million in added acquisition-related SG&A, and approximately $800,000 in bad debt and some other costs that are not expected to reoccur. On a year-to-date basis, SG&A grew 18.2% to $102.7 million. Our EBITDA did decline in the quarter to 8.1% to $19.9 million, and our EBITDA margin finished at 15.9%. On a year-to-date basis, our EBITDA grew 4.6% to $57.8 million, and our year-to-date EBITDA margin was 16.3%. Net income for the quarter decreased 11.8% to $100,000, reflecting a 10.5% net income margin, and EPS for the quarter was $0.47 per share.On a year-to-date basis, net income grew 3.7%, reflecting a 10.7% net income margin, and our year-to-date EPS was $1.37 per share. I thought it'd be useful to give a brief overview of the structure of the China transaction given its complexity. We first formed a new entity in which we have a 76% interest. This new entity then acquired the assets of our Chinese distributor. The purchase consideration for this totaled just under $53 million before discounting for time value of money. And there are essentially three components to the consideration. First, obviously, there was cash upfront. Second, there was deferred consideration or really cash payable over a four-year period.And thirdly, there was consideration contingent on future sales of what we considered as excess inventory as of the close date. This excess inventory was part of the inventory acquired. And the contingency is structured such that we pay some consideration if the excess inventory is sold at a profit, but we effectively are not penalized if any of the excess inventory is sold at a loss or is never sold and needs to be written off. And as Ryan mentioned in the overall transaction, we effectively added approximately $22 million in inventory if you consider inventory acquired, inventory contributed by minority holders.The first two items, the cash upfront and the deferred consideration, are about 75% of the total consideration. And for various customary legal reasons unique to the transaction, only a portion of the cash paid upfront was actually remitted, and the rest of the upfront payment will be paid very soon. And this is important to understand when you look at our balance sheet as we've broken these components out there. The remaining upfront payment still payable and the contingent consideration is reflected in the short term in other short-term liabilities on the balance sheet. The deferred consideration, the cash payable over a four-year period, is reflected in other long-term liabilities.So as Ryan mentioned, we're certainly happy to get this deal behind us. It was a somewhat complicated deal, and there was a lot of hard work done by several people to make this happen. We have a great team in the region, and we are really looking forward to watching them grow that market. Our cash flow provided by ops was $33.2 million for the quarter compared to $19.6 million in Q3 last year, which was a record for us. And you may notice, if you're looking at our balance sheet, a decent-sized increase in our AP and accrued liabilities line. There's nothing unusual there. It's just related primarily to timing.We've got extended terms with most of our raw material suppliers. So timing of payments can create some fluctuation. But it's all in the normal course of business. I'll also add that we did see a slight improvement in our cash conversion cycle in the quarter. So all in all, a solid quarter for us, and we look forward to closing out the year strong. And with that, operator, we'll now open the call up for questions.Operator: Certainly. Ladies and gentlemen, the floor is now open for questions. If you wish to join the queue to ask a question at this time, please press 1 on your telephone keypad. We do ask if listening on speakerphone today that you pick up your handset while asking your question. Once again, please press 1 on your keypad at this time if you wish to join the queue to ask a question. Please hold a moment while we poll for questions. And your first question is coming from Jeff Van Sinderen from B. Riley. Jeff, your line is live. Please go ahead.Jeff Van Sinderen: Hi. Good morning, everyone. Just curious if we could circle back to one of the things you touched on in the prepared comments. I think you pointed out that there were some out-of-line price increases you experienced. Maybe you could touch on how those manifest, how you've mitigated, and also then if you could kind of dovetail that into leaning into taking more of the manufacturing in-house.Ryan L. Pape: Yeah. Jeff, sure. So we did experience some price increases that really manifest in the quarter. I think in our remarks, we called out that was about a 170 basis point impact to gross margin. Now I think that I guess the best way to characterize that is I think if you look at the industry overall, it's been a challenging time for people. And you know, a lot of decisions made on how best to run your own business and, you know, where you may want to make up margin for lack of demand. Obviously, not impacting us is the overall tariff environment. So that's been a challenge for some suppliers.And, you know, looking for extra margin in other places. So I really can't characterize it more than that except that we've got a very robust set of suppliers. And so where there's outsized price increases that don't make sense for the market, we have plenty of options on how we mitigate that. And so that happened, but it's been mitigated. We'll start to see that reverse in Q4. And I think, broadly speaking to the second point, we have a desire and see incredible opportunity to invest further to be a high-quality and lowest-cost provider of the products.And, you know, if you have the best supply chain and the best distribution and the best brand, I think you're in pretty good shape for the long term. And so I wouldn't characterize what we're doing there in a very discreet way. Certainly, there are elements of the supply chain we could take in-house and do that in a number of ways. But we also have a number of really good partners that we could form deeper partnerships with. And so we have a very broad mandate to do that, and we have a lot of ways to win by doing that. And you know, this is not an overnight thought either.This is something that's been in the works for some time in terms of our analysis. And so I wouldn't characterize just one way to do that, but what we know is that we can drive substantial gross margin improvement in this business over time by investing in it. And I think the big picture is that, until we've done that and we've maximized the business that we have, we need to prioritize those investments versus pursuing other lines of business in which we have less competitive advantage and less experience. And so that's the direction and the decision that we and the board have made. And we have a great team who will now execute on that.Jeff Van Sinderen: Okay. Thanks for that. And then curious on the rollout of your colored films. I noticed some marketing around that. It seems pretty exciting. Any color you can give us, I guess, on early dealer embracement of that? And how impactful do you expect the colored films to be to your business over the next year or two?Ryan L. Pape: Yeah. It's a great question. So the rollout has been great. It's been well received. Our team's done an amazing job, probably the best product rollout that we've ever done in our history. When you and I say that from an external-facing standpoint, but also an internal standpoint, which the rest of the world wouldn't appreciate, but I certainly do. I think it's, you know, our view on it has been relatively conservative. You know, I think the question is, what is the growth opportunity within that space given the sort of aftermarket color change business has been around for a long time.So do we see this as something where the underlying demand is we can just take share in, or do we see this as something that's going to grow? Our initial view was it was certainly a market in which we could take share. I think what we're seeing a little bit of is that I think the market's going to grow. I think as the products now are better, and they can be delivered in an even better way and marketed better, there's probably more new interest in that than I would have thought.And you see, I think you'll see more engagement too from whether it's the dealership channel and the OEM channel, wanting to offer more options to consumers that maybe you can't do with a limited color palette in a traditional automotive setup. And so I think if those get traction, you have the opportunity for substantial expansion of that. So early days for us, but I think I'm quite pleased. And we expect to see more from that going forward.Jeff Van Sinderen: Okay. Great to hear. Thanks for taking my questions. I'll take the rest offline.Ryan L. Pape: Thank you, Jeff.Operator: Thank you. And as a reminder, if you wish to join the queue to ask a question at this time, you may press 1 on your telephone keypad. Once again, that'll be 1 if you wish to join the queue to ask a question. And your next question is coming from Steve Dyer from Craig Hallum. Steve, your line is live. Please go ahead.Matthew Joseph Raab: Hey. Thanks. This is Matthew Joseph Raab on for Steve. In the PR, you called out the mid to high 20% operating margin by 2028, given the investment in manufacturing. That implies 10 points of expansion over the next few years. I guess whether it be organic or inorganic growth, what are the revenue assumptions underpinning that margin expansion?Ryan L. Pape: Well, I think we've been pretty consistent that we think that a low double-digit sort of organic revenue growth even with all the noise and the weakness that we see that continuing out for us, certainly through the midterm. So it doesn't, we're not sort of making any change to our kind of midterm view that's a sort of revenue growth we think we should be able to generate.Matthew Joseph Raab: Okay. That's helpful. And then maybe just a couple housekeeping items. Maybe, Ryan, if you could just give an update on the sentiment across the aftermarket and dealer channel. Q4 guiding to 15% growth in the quarter. Obviously, good, but any other further detail you have there would be great.Ryan L. Pape: Yeah. I mean, it's a real challenge. I mean, if you look at sort of our peers in the aftermarket and other places, there's a real mixed sentiment. What we found interestingly is that the weakness in the sort of trough and sentiment has sort of bounced around globally. Obviously, you have the US, got sort of Canada now. You had Europe maybe at some point last year. And we've kind of seen it more negative and then recover some. I think you look at the retail automotive business in the US, they're certainly back in the mode of looking for extra gross profits.As things are tougher there and, you know, just compression in margins and challenges with affordability and tariff impacts into new car pricing and all that. And so that's negative in the sense that, you know, that's still a headwind for the consumer where you have upward pressure on pricing and affordability. You know, maybe we get some relief from sort of the interest rate situation in terms of the affordability overall. But it's positive for us in the sense that when it's tougher for dealers, there's more push to find other ways to make money, and the things that we do provide more value on a percentage basis when it's harder overall.So I think from that standpoint, that's actually quite positive. I just think it's, we've never been in an environment where you get more differing views on what's happening. I don't think there's this universal consensus that things have substantially improved or that the consumer sentiment is way better. But at the same time, there hasn't been any skies falling moment. So our approach has been that we have to power through. We've got to be mindful of those dynamics. But we've got to set the company up for long-term success and make investments where we need to make it. And we know that consumer and the demand picture, it will all settle out.And I think you've seen some stress. Barry mentioned in his remarks, bad debt. There was an aftermarket chain of some sort that filed for bankruptcy that we had some exposure to. So you see a little bit of signs of stress like that. Nothing meaningful or material to the business overall, but I think that's kind of emblematic of what's going on. And then you've also seen an influx of competitors into this space. And this current environment makes it more challenging for them, especially those trying to get rooted and footed. And that's all the more reason why we need to keep the pedal to the metal and maintain and grow our positioning.So long answer to your question, but I think it's a mixed bag overall.Matthew Joseph Raab: Understood. Thank you. And then, on gross margin, like there's a little bit of a drag expected in Q4. Given some of that China inventory, and then expect a record in Q1 and Q2 2026, you know, level of the impact there, you know, across those three quarters would be helpful.Ryan L. Pape: Yeah. The sort of drag from China with that higher-priced inventory and then sort of the tail off of some of that price increase, that will remain in Q4. However, on a comparative basis, Q4 of '24 was quite low in gross margin. So the expectation is that we should see some gross margin improvement from the prior year in Q4 on a percentage basis, even though we, to your point, will be off of that sort of full potential until we get into the end of Q1 where we're recognizing all of the margin in China and we fully remediated the cost increases that we've seen.Matthew Joseph Raab: And then any commentary on Q1 and Q2 2026? Just the level of improvement expected there?Ryan L. Pape: I think I'm hesitant to quantify it any more than we have. Only because we've got to turn the inventory and sell what we've got. But our position is that we will be seeing the highest gross margins we've seen as we get into that time frame.Matthew Joseph Raab: Understood. Thank you very much.Ryan L. Pape: Thank you.Operator: Thank you. And this does conclude today's question and answer session. I would now like to turn the floor back to management for closing remarks.Ryan L. Pape: I want to thank everybody for joining us today. And thank our team for doing an amazing job. And we've got a big contingent at the SEMA show in Las Vegas. Big annual event. And we're on great display. So thanks, everyone.Operator: Thank you. This does conclude today's conference call. You may disconnect your lines at this time, and have a wonderful day. 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