DAP-U.V - Xpel Technologies

[KJP]

One note of caution is that a significant part of the recent growth has come from China, and it's unclear (to me at least) how tariffs would affect that.

 

Here's the Q1 management commentary I was referring to:

 

"Looking forward, we would expect the strong revenue growth to continue this year, although I'd expect the rate of year-over-year growth to moderate slightly in the balance of the year, mainly due to strength of the Q1 that we just had and the fact that Q1 of the prior year of '17 was a weak quarter. So it was a relatively easy comp. But that said, we're set up to have a very strong year at this point with continued significant revenue momentum like what we've seen historically over the past many quarters. So we're excited about that."

 

 

 

Raj Taijirian

 

I was just wondering if you had any more color on your expected sales growth for the rest of the year.

 

Ryan Pape

 

Yes. So we've historically not given specific guidance on where we think revenue growth will be, in large part because it's just very difficult for us to forecast. We've got lots of customers and lots of different channels. But that said, we've had quarter after quarter with really, I think, one exception being maybe Q1 of 2017, which was less than a 20% revenue growth, with substantial revenue growth. And so we're expecting substantial revenue growth for the rest of the year. And there's nothing that's happened in this quarter that's driving revenue growth that we wouldn't expect to continue. I think Canada was probably the only area that just benefited slightly from some timing on some sales. But in the grand scheme of things, that wasn't overly material. So hard to say exactly where we'll be for all those factors, but we expect really strong revenue growth for the balance of the year.

 

 

 

 

Adam Goldstein

 

I guess, my first question is, on the gross margin, you've got 29.7%, which is a huge improvement from where it's been. Is 29.7% a reasonable expectation going forward or would you say that's higher than you'd expect going forward?

 

Ryan Pape

 

Adam, good to hear from you. Thanks for the question. Yes, I don't -- there's nothing in this quarter which we see as an aberration that says gross margin or anything else was impacted in an abnormal way. That wouldn't sort of be reproducible going forward. So the actual gross margin in any period is a function of a lot of things that are happening, currency, mix, et cetera. But we've done a lot of work to start moving that number in the right direction, and we have in the first quarter. And there's nothing that happened in the first quarter that is an aberration that made that happen. So we think we'll continue on a positive trend there going forward.

 

https://seekingalpha.com/article/4176629-xpel-technologies-corp-xplt-ceo-ryan-pape-q1-2018-results-earnings-call-transcript?part=single

[A Dhandho Investor]

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

 

I think it is indeed general discovery combined with cheap + growing. It is not unlikely that they will do 10m net income in FY 2018. Given growth profile and the long runway left, a 30PE is not unwarranted. That alone would mean about 100% upside potential from the current price.

 

I also invite everyone to watch the following video

 

The most interesting part, that partially explains Xpel's moat, starts at 3.15.

 

Xpel is a combination of:

- a distributer (distributing PPF and window tint film)

- facilitator (organising trainings, sale of PPF and window film cutting software)

- Franchisor (of film cutting software)

- Marketer (organising events, bringing leads to their customers)

- installer (installing PPF and window film via their company owned install centers)

 

Other interesting aspects:

- high insider ownership (about 40%)

- clean capital structure (no options, warrants, almost no debt)

- only raised capital once over the last 5 years (dilution of less than 10%), despite growing revenues at a CAGR of more than 35%

- the CEO, who owns 6% of the shares, receives a base salary of 230k (total salary package of 320k in 2017), definitely not exceptional for a company like this

- no analyst coverage

- planning to uplist to a major exchange in the near future

 

 

 

[chrispy]

This does look to be trading at PE=12-20x moving forward(lots of moving pieces). The company appears to be growing more then that.

 

Peter Lynch always mentioned fast growing companies in a non-growth industry as desirable. Margins are above average, insider ownership, very little coverage, PEG<1

 

I am not a car enthusiast which is holding me back but all the other qualities are spot on for a small position holding

 

[snowball82]

69 % growth for Q2 and better margins

 

https://business.financialpost.com/pmn/press-releases-pmn/business-wire-news-releases-pmn/xpel-reports-record-second-quarter-revenue-growth-of-69-3-to-28-9-million-and-eps-of-0-09

[Libs]

69 % growth for Q2 and better margins

 

https://business.financialpost.com/pmn/press-releases-pmn/business-wire-news-releases-pmn/xpel-reports-record-second-quarter-revenue-growth-of-69-3-to-28-9-million-and-eps-of-0-09

 

Snowball

 

Kudos on some great work and a 4-bagger from your first post.

[snowball82]

69 % growth for Q2 and better margins

 

https://business.financialpost.com/pmn/press-releases-pmn/business-wire-news-releases-pmn/xpel-reports-record-second-quarter-revenue-growth-of-69-3-to-28-9-million-and-eps-of-0-09

 

Snowball

 

Kudos on some great work and a 4-bagger from your first post.

 

Thanks Libs

[pcm983]

Great quarter. One thing that is kind of interesting is Xpel seems really popular with Tesla owners - check out tesla motors club search to see. Whatever happens with TSLA stock / valuation, if they keep ramping production seems bullish for Xpel given the popularity.

[Liberty]

Congrats to XPEL owners. I owned it a few years ago, but sold when I couldn't underwrite the risk from the 3M patent lawsuit... Those who have been patient (and better analysts than me) have been well rewarded.

[snowball82]

The last private placement at $ 1.42 had been a great one. The good thing with those small compagnies is we can learn from them early and see how management does before the institutions buy. I like to own largecaps and smallcaps. More opportunities to learn..

[Libs]

How long can these big growth numbers go on?

If the attached numbers are correct, the global market for PPF will be about 440MM in 2025. XPEL already has a 100MM revenue run-rate, or 25%.

 

Let's say XPEL gets to 40% market share - that's ~170MM revenue in 2025. That's only ~8% CAGR from here.

 

Is a slowdown coming?

 

https://www.grandviewresearch.com/press-release/global-paint-protection-film-market

 

 

Edit: XPLT has 100MM revenue run rate on current 300MM global market = 33% share. If it goes to 40%, revenue will be 170MM in 2025.

[KJP]

How long can these big growth numbers go on?

If the attached numbers are correct, the global market for PPF will be about 440MM in 2025. XPEL already has a 100MM revenue run-rate, or 25%.

 

Let's say XPEL gets to 40% market share - that's ~170MM revenue in 2025. That's only ~8% CAGR from here.

 

Is a slowdown coming?

 

https://www.grandviewresearch.com/press-release/global-paint-protection-film-market

 

 

Edit: XPLT has 100MM revenue run rate on current 300MM global market = 33% share. If it goes to 40%, revenue will be 170MM in 2025.

 

I don't have access to the full Grand View report.  Here are three other analyses that appear to present much higher estimates of market size: 

https://www.ameriresearch.com/product/paint-protection-film-market-size-analysis/

https://www.zionmarketresearch.com/news/uncoated-paint-protection-film-market

https://www.marketresearchstore.com/report/global-paint-protection-film-market-2017-production-sales-164867

 

I don't know the credibility of any of the sources linked to above (or the credibility of Grand View).

 

I cannot tell whether the estimates include installation costs or just the price of the film.  In addition, the GrandView report is based on 2014 data.  Has it held up?

[Hielko]

How long can these big growth numbers go on?

If the attached numbers are correct, the global market for PPF will be about 440MM in 2025. XPEL already has a 100MM revenue run-rate, or 25%.

 

Let's say XPEL gets to 40% market share - that's ~170MM revenue in 2025. That's only ~8% CAGR from here.

 

Is a slowdown coming?

 

https://www.grandviewresearch.com/press-release/global-paint-protection-film-market

 

 

Edit: XPLT has 100MM revenue run rate on current 300MM global market = 33% share. If it goes to 40%, revenue will be 170MM in 2025.

I think those market numbers can't be correct: XPEL is simply growing too fast for it too be true. There is no way you can grow 80% YoY if you already have 25% market share of 2025 (!) market size.

[writser]

Yeah, that seems sensible. Apart from that, I don't know anything about the market but a very simple approach: lets say it costs a few thousand dollars to cover a car: then the implied number suggests ~100k cars will be covered annually with plastic in 2025. The number of new cars produced worldwide annually is ~80m so that suggests ~1 in 1000 new cars worldwide gets a cover. That doesn't sound completely unreasonable - the stuff is probably useful and (relatively) cheap if you buy a luxury car. Penetratrion might grow and customers might put the stuff on old / secondhand cars too as well as replace it every few years. It's not that hard to imagine that the worldwide addressable market is much larger if you want to be optimistic. Add to that that that (three times repetition!) the company also sells aftercare products, training programs and might penetrate other markets sideways.

[snowball82]

"There is a long thread about it on CoBF"? Really ?

 

https://alphavulture.com/2018/09/07/xpel-anything-but-your-classic-value-stock/?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+AlphaVulture+%28Alpha+Vulture%29

[s8019]

Highly discretionary consumer fad in more or less competitive cyclical industry, at P/Е of 37? What may possibly go wrong?

[gfp]

I'm not commenting on the current valuation, which could be due to buyout speculation, but I wouldn't call automotive paint protection film a "fad."  And, yes, the stock price could certainly go down from $7.

 

Highly discretionary consumer fad in more or less competitive cyclical industry, at P/Е of 37? What may possibly go wrong?

[s8019]

It may very well go higher of course.

 

It may be not a consumer fad, but what is it then? I may be mistaken of course, I never used such product and I did not read all the 17 pages of comments, sorry about that.

 

Is it an investment? What is the return on investment for the owner? Taking into account average car ownership lenght etc.?

[A Dhandho Investor]

It may very well go higher of course.

 

It may be not a consumer fad, but what is it then? I may be mistaken of course, I never used such product and I did not read all the 17 pages of comments, sorry about that.

 

Is it an investment? What is the return on investment for the owner? Taking into account average car ownership lenght etc.?

 

The return on investment is that a car that has been wrapped in PPF will not suffer from damage of rock chips, scratches, etc, given the self-healing nature of the film.

 

In that sense, I would say that the ROI is higher than a lot of other options people frequently buy like chrome finishing, nicer rims, etc.

 

Btw, your reaction that you do not know the ROI of PPF shows that the product still has a large runway left in terms of growth / market penetration. I would invite you to ask friends and family about it, they will probably don’t know it either. But I definitely believe it is not a fad.

[Sharad]

Highly discretionary consumer fad in more or less competitive cyclical industry, at P/Е of 37? What may possibly go wrong?

 

Given the company made 90% of its profit in the last two quarters, and has not indicated any slowdown of its business, I don't think its P/E is the only metric you can use to value the business (by year's end, should the business continue at its current pace of earnings, the P/E will be 21). Its return on assets is now returning to pre-lawsuit levels of mid-20%, which is a good sign that its growth isn't at a cost to its profitability.

 

Who knows where the future goes with any business? Nobody, but this business at least appears to have a product that will grow into the future.

 

FWIW they also do window tinting for cars and commercial/residential properties. I don't believe they have broken out how much those businesses contribute to their overall results thus far.

 

 

[spartansaver]

I'm not commenting on the current valuation, which could be due to buyout speculation, but I wouldn't call automotive paint protection film a "fad."  And, yes, the stock price could certainly go down from $7.

 

Highly discretionary consumer fad in more or less competitive cyclical industry, at P/Е of 37? What may possibly go wrong?

 

Why do you think there is buyout speculation?

 

Who would buy this out?

[gary17]

I'm not commenting on the current valuation, which could be due to buyout speculation, but I wouldn't call automotive paint protection film a "fad."  And, yes, the stock price could certainly go down from $7.

 

Highly discretionary consumer fad in more or less competitive cyclical industry, at P/Е of 37? What may possibly go wrong?

 

Why do you think there is buyout speculation?

 

Who would buy this out?

 

3M.

[A Dhandho Investor]

Buying a stock because you think it will be bought out is foolish imo, especially in this case, where insiders own 40% of the stock and there is a relatively low float.

 

I believe the recent run-up is just broader investor awareness and the market catching up with the fundamentals.

[gary17]

Agreed

[Hielko]

FWIW they also do window tinting for cars and commercial/residential properties. I don't believe they have broken out how much those businesses contribute to their overall results thus far.

Yes, they have. Check the MD&A of the 2nd quarter for the latest revenue breakdown. Last three months:

 

Paint protection film: 79.8%

Window film: 8.3%

Film installation: 5.5%

Software: 3.7%

Other products: 2.8%

[A Dhandho Investor]

Glad to see Xpel hiring a more renowned external auditor than RSM Canada. Shows that they are probably preparing for a US listing:

http://www.xpel.com/news/xpel-inc-retains-u-s-based-auditor-baker-tilly/

 

San Antonio, TX – October 17, 2018 –  XPEL, Inc. (TSXV: DAP.U), (“XPEL” or “the Company”) a leading supplier of automotive paint protection and window film, has announced the appointment of Baker Tilly Virchow Krause LLP (“Baker Tilly”) as its auditor, replacing RSM Canada LLP. 

 

Baker Tilly is a nationally recognized, full-service accounting and advisory firm headquartered in Chicago with approximately 2,800 employees across the United States. Baker Tilly is ranked as one of the 15 largest accounting and advisory firms in the country and is an independent member of Baker Tilly International, a worldwide network of independent accounting and business advisory firms in 147 territories, with 33,600 professionals.

 

The Company’s Board of Directors and its Audit Committee approved the appointment of Baker Tilly.  RSM Canada LLP indicated there were no reservations or modified opinions on any of the Company’s financial statements since RSM Canada LLP was appointed auditor of the Company.

 

Barry Wood, Chief Financial Officer commented, “Given that our headquarters and a substantial part of our operations are based in the U.S. and the fact that the majority of our shareholders reside in the U.S., it makes sense for us to align with a quality U.S.-based auditor.  We are excited to be working with a nationally recognized firm like Baker Tilly.  I would like to thank RSM Canada LLP for their service to XPEL over the years.”

 

About XPEL, Inc.

 

XPEL leads the industry in designing, manufacturing and distributing high-performance automotive paint and headlamp protection film technologies. Using XPEL’s proprietary software and materials, our professional design team develops products that deliver the ultimate in vehicle protection, meeting the demands of a broad range of makes and models. With more than 70,000 vehicle-specific applications and a global network of trained installers, XPEL is dedicated to exceeding customer expectations in providing high-quality products, customer service and technical support. XPEL, Inc. (TSXV: DAP.U) is publicly traded on the TSXV Exchange. Visit www.xpel.com for more information.