DAP-U.V - Xpel Technologies

[KJP]

You asked Travis not me but I agree that it looks like xpel is infringing since they pretty much imply as much. If you aren't infringing you say - "we spent millions of dollars on R&d developing a novel solution and our product does not infringe." Saying we question the validity of the patent, to me, implies that yes we are infringing but there is nothing special here so why the hell was this patent granted.

 

Now that doesn't mean they will loose or their odds are bad - parents get thrown out as invalid by the courts on a not infrequent basis (as I understand it) so it may well be a valid defense but its not we aren't infringing.

 

More interesting question is what the end game is if patent is found to be valid.  Would guess its an agreement to pay a reasonable royalty.. Courts don't like putting companies out of business if they can avoid it and xplt should have an argument to avoid a lost profits judgement by pointing to its own software patents, marketing efforts, training programs etc.

 

All in all i got to say I completely missed the possibility of a patent issue here. I could come up with scenarios where they struggle and its a bad investment but didn't think of this one. Oh well the joys of investing in microcap land. live and learn I guess

 

Thanks for explaining your reasoning.  Having written these types of press releases before, I don't read as much into it.  As you note, it's almost impossible for an outsider to have any real sense of the strength of 3M's claims. 

[Travis Wiedower]

From a high level it appears they are in deed infringing and showing the patent as invalid is their best chance to win.

 

What makes you think that?

 

Comparing 3M's patent and what details Xpel has made public about their own film, the two appear to be very similar.

[Sharad]

From a high level it appears they are in deed infringing and showing the patent as invalid is their best chance to win.

 

What makes you think that?

 

Comparing 3M's patent and what details Xpel has made public about their own film, the two appear to be very similar.

 

 

Hi, I'm a long-time avid reader of this website, but first time poster. For those who like read patent reports, here is the one in question:

 

http://www.google.ca/patents/US8765263

 

Here is XPEL's website for technical details of all products:

 

http://www.xpel.com/support/techdata.asp

 

In looking at the balance sheet, the company has been capitalizing new design templates that are being created (per the 2014 annual report):

 

"Development costs deferred to date are related to design templates. During the year the Company deferred $368,698 (2013 - $281,818) of costs associated with the design templates. These costs are being amortized over a period of two years from commencement of commercial use."

 

I don't know much about patents either, but thought I'd provide the information I see.

 

Long XPEL, but this does make me question whether I should stay long. I'll be very interested to see what 2015's annual report states about their future Going Concern and accruals against litigation. Also, any indication of doubts to viability could come in the form of an auditor resignation (if the company vehemently disagrees with going concern issues).

 

I hope I can contribute to discussions on the site. Your collective intellect can be intimidating.  :-\

[KJP]

From a high level it appears they are in deed infringing and showing the patent as invalid is their best chance to win.

 

What makes you think that?

 

Comparing 3M's patent and what details Xpel has made public about their own film, the two appear to be very similar.

 

Thanks for explaining the basis for your view. 

[LesPaul]

Very interesting situation here. And 3M's timing doesn't seem like a mistake.

 

I believe XPEL when they say they had no idea this was coming. There was an insider purchase on Dec 29th at $1.97 after all. I'm not sure whether that means we can imply that licensing/buy-out talk has never happened between the two but I'm sure more details will be uncovered over time.

 

 

[henrysalt]

Anyone have an update on Xpel? I can't seem to find an update on the lawsuit anywhere.

[Travis Wiedower]

Anyone have an update on Xpel? I can't seem to find an update on the lawsuit anywhere.

 

Not much has happened yet. I just checked PACER and the most recent filing is Xpel denying the claims from 3M. The only notable point in that document (in my opinion) is paragraph 12: "XPEL denies the allegations in paragraph 12, which do not accurately describe the structure of XPEL ULTIMATE paint protection film. For example, 3M asserts that “[t]he first layer of XPEL’s ULTIMATE Paint Protection Film is a polyester-based polyurethane top coat.” Contrary to 3M’s allegation, the top coat layer within the XPEL ULTIMATE paint protection film is not a polyester-based polyurethane."

 

I wrote two blog posts about Xpel a few weeks ago. The second one (linked here) covers my thoughts on the lawsuit: https://traviswiedower.com/2016/05/04/xpel-technologies-part-2-the-lawsuit/

[henrysalt]

Great write-up...thank you!

[matthewd98]

Q2 will out this month. It should be another record quarter given the impressive results in Q1 and the fact that Q2 is seasonally their strongest quarter. "Salem" made a great post outlining the investment thesis at the moment on another forum:

 

While I have a tendency to be more optimistic than alarmist/pessimistic, I'd think that the malaise in the stock price is likely to dissipate as stronger operating results are announced. The thing about Xpel –and any other branding company / distributor– is that operating expenses tend to be highly fixed in nature. Of the ~$9.7MM LTM SG&A, I estimate that ~85% to 90% is fixed in nature. We've also heard Ryan comment that they can grow sales by several $10s of millions with the current infrastructure – and that makes sense given the outsourced manufacturing and 3PL setup they have. The Branding co / distributor model is known to be highly scalable and I believe we are facing imminent margins expansion, which overtime, should overshadow the lawsuit risk.

 

Barring any unpleasant surprise, assuming Xpel is able to maintain contribution margins ~30%; Q2 results could show a meaningful step-up in operating income (EBIT) on account of the stepwise increase in run rate sales that occurs every Q2. Historically, run rate quarterly sales increased from $3MM to $5MM to $8MM to $11MM in a stepwise function with Q2 always being the catalyzing quarter. We have no reason to believe this should be different this year around as we have seen evidence from Q1 that 3M's lawsuit has not had an impact on the business (Q1 was a record sales quarter) – and by now mom & pop installer doesn’t remember or care about the lawsuit and the larger wholesale accounts have gotten comfortable (remember tintworld). If Xpel is able to show good sales growth above the $11MM mark – this will likely translate into rapidly expanding EBIT margin as we were signaled that SG&A expenses have plateaued – and finally investors may take a cue that 1) management's time is not being overly diverted to fight the lawsuit at the expense of growing the franchise, 2) more FCF generated should provide a comfortable buffer to fund rising legal fees (if this ends up being a protracted fight), and 3) more FCF to fund legal risk reduces share dilution risk. Altogether, this should be positive to the stock price.

 

Ultimately, Xpel lost its rich valuation multiple as a result of the lawsuit which was succeeded by the Q2/15 earnings miss. Understandably, investors went from valuing the shares on an NTM adjusted basis to a LTM unadjusted basis. Xpel is currently trading at ~10x unadjusted LTM EBIT, which is probably fair value for a zero growth company. If you ask me, I'll tell you that its trading at a ~4x NTM adjusted EBIT – but let's not fool ourselves … LTM unadjusted EBIT has been stagnant between ~$2.8MM to $3MM since Sep/14 (albeit for completely understandable reasons unrelated to management's ability to execute) – so it's only natural for investors to demand tangible proof of EBIT growth before revaluing Xpel upward in the current context. Most investors focus on the obvious. Today it's the lawsuit … tomorrow it may be operating leverage, EBIT growth, FCF generation, improving liquidity, etc – whatever it is, that will take away the spotlight from the suit. Then you start realizing that Xpel hasn't modified its film composition since the suit, you start giving more credit to the CEO's language that the suit is non-threatening, and you start to forget about the suit altogether (probably not prudent, but if the stock price is rising ... you somehow get more confident). I mean, Uber is widely unprofitable and literally getting sued all over the world and yet valuation keeps increasing at every round, which is only accessible to sophisticated institutional investors. Who cares about existential legal risk?

[matthewd98]

A settlement is likely to be reached before March before trial begins. Anyone with access to the court documents (you need to pay for access to these) can see that they are in settlement talks with 3M. Also, insiders (new CFO and 1 director) have bought ~40k shares in the last 2 weeks and may still be buying. Even if a settlement isn't reached, the insider buying is at minimum indicative of positive developments in the lawsuit.

 

I remember first buying the stock at $1.45 CAD 2 years ago when the dollar was at parity. The business has improved much since then and we still have the same stock price today. IMO, it's clear that when the lawsuit is resolved, the stock could be an immediate double or triple, the stock previously hit a high of $3.90USD.

 

Long common shares and have added to my position.

 

Matthew

[GroupePretoria]

XPEL Technologies Announces Private Placement Financing

SAN ANTONIO--(BUSINESS WIRE)--January 23, 2017--XPEL Technologies Corp. (TSXV: DAP.U) is pleased to announce that it intends to issue, by way of a

non-brokered private placement up to 2,097,903 of its Common Shares at a purchase price of $1.43 per share for gross proceeds of up to $3,000,000. The securities to

be issued will be offered and sold in each of the Provinces of Canada, pursuant to exemptions from the prospectus delivery requirements under applicable securities

laws. The net proceeds of the offering will be used for future acquisitions, capital expenditures and general corporate purposes. .

 

Maybe it is for the settlement?

[KJP]

The patent case has been settled.  Xpel will license the patent.  No information yet on terms of the license.

[matthewd98]

The patent case has been settled.  Xpel will license the patent.  No information yet on terms of the license.

 

No but the CEO said in an email to another large investor that it's not material, although he obviously couldn't discuss the terms.

 

Also, Q4 results will be out on the 28th so we will hear more.

 

There is a good chance it is a no or nominal fee license:

 

"Xpel's interest in accepting those terms is to move on faster and not have to wait 1-2 years for the results of an IPR. Might even make sense for them to pay a few hundred thousand dollars in one-time fee if that accelerates the process - knowing that the company would be paying that anyway in legal fees to defend itself over the next few months.

As far as 3M, it allows the company to save face and be able to potentially use the patent against other competitors.

The recent large insider purchase could also be a hint. Board member, he must have known the general terms that were discussed (in theory the board should have given Ryan, or at least agreed on the general parameters of a potential deal). Guess we will have to see - and in the meantime have faith (or not) in Xpel legal position and Ryan's negotiation skills."

[snowball82]

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aDAP-2454974&symbol=DAP&region=C

 

I participated in this private placement. $ 1.43 was too cheap to ignore the opportunity. Let see if the company can continue to growth like last years.

[KJP]

Q2 will out this month. It should be another record quarter given the impressive results in Q1 and the fact that Q2 is seasonally their strongest quarter. "Salem" made a great post outlining the investment thesis at the moment on another forum:

 

While I have a tendency to be more optimistic than alarmist/pessimistic, I'd think that the malaise in the stock price is likely to dissipate as stronger operating results are announced. The thing about Xpel –and any other branding company / distributor– is that operating expenses tend to be highly fixed in nature. Of the ~$9.7MM LTM SG&A, I estimate that ~85% to 90% is fixed in nature. We've also heard Ryan comment that they can grow sales by several $10s of millions with the current infrastructure – and that makes sense given the outsourced manufacturing and 3PL setup they have. The Branding co / distributor model is known to be highly scalable and I believe we are facing imminent margins expansion, which overtime, should overshadow the lawsuit risk.

 

This has been the thesis for years, but it continues to be just out of reach.  The first question on today's call went right at the lack of operating leverage (actually, operating deleverage despite massive revenue increase) over the past few years.  The answer wasn't particularly compelling.  Moreover, the CFO's breakdown of SG&A suggests that much less than 85-90% is fixed.

 

[spartansaver]

Q2 will out this month. It should be another record quarter given the impressive results in Q1 and the fact that Q2 is seasonally their strongest quarter. "Salem" made a great post outlining the investment thesis at the moment on another forum:

 

While I have a tendency to be more optimistic than alarmist/pessimistic, I'd think that the malaise in the stock price is likely to dissipate as stronger operating results are announced. The thing about Xpel –and any other branding company / distributor– is that operating expenses tend to be highly fixed in nature. Of the ~$9.7MM LTM SG&A, I estimate that ~85% to 90% is fixed in nature. We've also heard Ryan comment that they can grow sales by several $10s of millions with the current infrastructure – and that makes sense given the outsourced manufacturing and 3PL setup they have. The Branding co / distributor model is known to be highly scalable and I believe we are facing imminent margins expansion, which overtime, should overshadow the lawsuit risk.

 

This has been the thesis for years, but it continues to be just out of reach.  The first question on today's call went right at the lack of operating leverage (actually, operating deleverage despite massive revenue increase) over the past few years.  The answer wasn't particularly compelling.  Moreover, the CFO's breakdown of SG&A suggests that much less than 85-90% is fixed.

 

While 1 quarter is a poor sample size, net income margins within the U.S. segment were flat YOY. The largest detractor from margins was within the European segment where the business lost 362k in the quarter. Management continued to stress that they are putting the infrastructure in place by investing in SG&A. Management has sung this song for a couple years so hopefully at some point, the actual infrastructure is in place. It is good to see stable margins within the U.S. segment YOY in a relatively clean quarter.

 

 

[matthewd98]

Good video which explains the investment opportunity today:

[matthewd98]

Looks like XPEL put up a page on their website regarding their new vision film, that is the architectural and security film. http://www.xpel.com/vision/

[snowball82]

XPEL Reports Record First Quarter Revenue Growth of 99.5% to $25.2 Million and EPS of $0.07

 

SAN ANTONIO--(BUSINESS WIRE)--May 23, 2018--XPEL Technologies Corp. (TSXV: DAP.U), a leading supplier of automotive paint protection and

window films, announced results for the first quarter ended March 31, 2018.

 

First Quarter Highlights:

Revenues increased 99.5% to $25.2 million compared to first quarter 2017; Sequential revenue growth of 24.5% compared to fourth quarter of

2018

Gross margin improved to 29.7% compared to 26.4% in first quarter 2017

Selling, general and administrative expenses decreased to 19.4% as a percentage of revenue

Earnings per share of $0.07 compared to a loss of ($0.002) per share in first quarter 2017

Revenues for the quarter grew 99.5% to $25.2 million. Gross profit as a percentage of sales was 29.7% as compared to 26.4% in the prior quarter. Selling,

general and administrative expenses increased to $4.9 million, or 19.4% of revenue, as compared to $3.3 million, or 26.3% of revenue, in the prior year

quarter. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased $2.7 million to $3.1 million compared to $0.4 million in the

prior year quarter. Net income was $2.0 million or $0.07 per basic and diluted share, compared to a net loss of ($.06) million or a loss of ($0.002) per basic

and diluted share in the prior year quarter.

Mr. Ryan Pape, President and Chief Executive Officer of XPEL, commented, “First quarter 2018 is the strongest quarter in our Company’s history, with

record revenues reflecting strong demand across all of our product lines. Revenue grew by almost 100% over the first quarter of 2017 and by 25%

sequentially, illustrating considerable momentum in our business. We also saw strong improvement in our gross margin percentage as the margin

enhancement initiatives we began in Q3 last year have started to take hold.

“We are energized by the tremendous growth achieved in the first quarter and the increased demand for our products and unique services. We remain

focused on continuing to drive profitable growth as we expand our presence in both domestic and international markets, capture new customers and grow our

market share,” Mr. Pape concluded.

For the Quarter Ended March 31, 2018:

Revenues. Revenues increased approximately $12.6 million to $25.2 million, or 99.5% over the prior year period.

Gross Margin. Gross profit for the quarter grew 124.85% vs prior year quarter and increased as a percentage of sales to 29.7% from 26.4%.

Expenses. Selling, general and administrative expenses increased $1.6 million or 47.7% vs. prior year period but decreased as a percentage of sales to 19.4%

of sales from 26.3% of sales in the prior year. This increase was due mainly to increases in personnel, occupancy, sales and marketing and information

technology related costs to support the ongoing growth of the business.

EBITDA. EBITDA increased $2.7 million to $3.1 million vs prior year quarter.

Net income. Net income for the quarter increased to $2.0 million versus a loss of $.06 million in the prior year quarter.

[KJP]

XPEL Reports Record First Quarter Revenue Growth of 99.5% to $25.2 Million and EPS of $0.07

 

SAN ANTONIO--(BUSINESS WIRE)--May 23, 2018--XPEL Technologies Corp. (TSXV: DAP.U), a leading supplier of automotive paint protection and

window films, announced results for the first quarter ended March 31, 2018.

 

First Quarter Highlights:

Revenues increased 99.5% to $25.2 million compared to first quarter 2017; Sequential revenue growth of 24.5% compared to fourth quarter of

2018

Gross margin improved to 29.7% compared to 26.4% in first quarter 2017

Selling, general and administrative expenses decreased to 19.4% as a percentage of revenue

Earnings per share of $0.07 compared to a loss of ($0.002) per share in first quarter 2017

Revenues for the quarter grew 99.5% to $25.2 million. Gross profit as a percentage of sales was 29.7% as compared to 26.4% in the prior quarter. Selling,

general and administrative expenses increased to $4.9 million, or 19.4% of revenue, as compared to $3.3 million, or 26.3% of revenue, in the prior year

quarter. Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) increased $2.7 million to $3.1 million compared to $0.4 million in the

prior year quarter. Net income was $2.0 million or $0.07 per basic and diluted share, compared to a net loss of ($.06) million or a loss of ($0.002) per basic

and diluted share in the prior year quarter.

Mr. Ryan Pape, President and Chief Executive Officer of XPEL, commented, “First quarter 2018 is the strongest quarter in our Company’s history, with

record revenues reflecting strong demand across all of our product lines. Revenue grew by almost 100% over the first quarter of 2017 and by 25%

sequentially, illustrating considerable momentum in our business. We also saw strong improvement in our gross margin percentage as the margin

enhancement initiatives we began in Q3 last year have started to take hold.

“We are energized by the tremendous growth achieved in the first quarter and the increased demand for our products and unique services. We remain

focused on continuing to drive profitable growth as we expand our presence in both domestic and international markets, capture new customers and grow our

market share,” Mr. Pape concluded.

For the Quarter Ended March 31, 2018:

Revenues. Revenues increased approximately $12.6 million to $25.2 million, or 99.5% over the prior year period.

Gross Margin. Gross profit for the quarter grew 124.85% vs prior year quarter and increased as a percentage of sales to 29.7% from 26.4%.

Expenses. Selling, general and administrative expenses increased $1.6 million or 47.7% vs. prior year period but decreased as a percentage of sales to 19.4%

of sales from 26.3% of sales in the prior year. This increase was due mainly to increases in personnel, occupancy, sales and marketing and information

technology related costs to support the ongoing growth of the business.

EBITDA. EBITDA increased $2.7 million to $3.1 million vs prior year quarter.

Net income. Net income for the quarter increased to $2.0 million versus a loss of $.06 million in the prior year quarter.

 

You beat me to it.  They've finally shown the gross profit improvement and operating leverage that management said was coming. 

[Liberty]

Haven't look at this in a long time. Glad to see it's been working out for patient shareholders.

[snowball82]

Haven't look at this in a long time. Glad to see it's been working out for patient shareholders.

 

Doing very well indeed, new all time hight.

 

The investor presentation : http://www.xpel.com/investor-presentation/

 

 

[pcm983]

Stock doing well - curious if anyone has any thoughts on what's been driving the recent strength in the stock other than general investor discovery and this is probably one of the cheapest, growing businesses in the market more broadly

[KJP]

Stock doing well - curious if anyone has any thoughts on what's been driving the recent strength in the stock other than general investor discovery and this is probably one of the cheapest, growing businesses in the market more broadly

 

You had several years of margins going in the opposite direction of revenues.  It's hard to sit through that.  In Q1 2018, margins finally got to where management claimed they would go, and Q2 has historically been the quarter in which revenues jump.  So, alot of the "show me" occurred in Q1 and I suspect many are anticipating a very big Q2, which should be released shortly.

[pcm983]

makes sense, thank you. believe earnings are next week.