Greetings, and welcome to the XPEL Technologies Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jen Belodeau of IMS. Please go ahead.

Thank you. Good morning and welcome to our conference call to discuss XPEL Technologies’ financial results for the 2015 second quarter and first six months. On the call today Ryan Pape, XPEL’s President and Chief Executive Officer, who will review the company’s financial results and provide an overview of the business operations and future growth strategies. Immediately after this prepared comments, we’ll 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 Technologies Corp. and its business, which may include but not are not limited to anticipated use of proceeds from capital transactions, expansions 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 planned, is expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes or variations including negative variations of such words and phrases or state or statements that perceives that certain actions, events or result may, could, would, might, or will be taken, occur or be achieved. Such statements are based on the current expectations of the 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 risks 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 the 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 in which they are made and XPEL undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. With that done, I will turn the call over to Ryan. Go ahead, Ryan.

Thank Jen and good morning and welcome to our quarterly earnings conference call. I hope you’ve all had a chance to review our second quarter 2015 earnings that we released earlier this morning. The second quarter performance was strong, characterized by solid revenue growth and profitability as we built upon the momentum we developed in the first quarter of the year. We continued to take market share and attract new customers to the market and the industry from across the world. Revenue in the second quarter grew to 11.3 million, which was a 35% increase as compared to the second quarter of 2014, and a sequential increase of 40% as compared to the first quarter of 2015. This was our first full quarter, including Parasol Canada and our strategy to increase our presence directly in key markets is paying off. We saw very strong revenue growth in Canada and Europe. Both revenue and net income were impacted by weakness and the currencies were exposed too in these subsidiaries, but our direct presence was invaluable in being able to drive growth. In a more traditional distribution model, the foreign currency pressure on distributors in Canada and Europe would have been immense. While we did suffer reduction in gross margin in those markets as a result, traditional distributors would have been in the much harder and less sustainable position, which ultimately would have impacted us, even greater. Overall, we are very pleased and very committed to this strategy While we achieved substantial revenue growth in the quarter, the growth was not quite at the level we anticipated due to a few factors. The growth rate of our business outside Canada, Europe, and the US was reduced significantly in the quarter from the previous sequential and year-over-year comparisons. Our growth rate in Q2…

[Operator Instructions] Our first question today comes from Adam Goldstein, a private investor. Please proceed with your question.

I’d like to try to understand a little better the reason for the deceleration in the growth rate to 35% this quarter. You mentioned two reasons, one was the year-over-year decline in China and the other one was foreign exchange. Which one of these reasons is, are those roughly equal reasons or is one of those much more significant that the other.

Sure. The overall change in the growth rate from the fourth quarter of 2014 and the first quarter of 2015 till the second quarter, the overall change is a result in really all of our -- as we would call it, our rest of the world international sales. So everything outside of US, Canada, and Europe, and China of course is included in that rest of the world number. But the weakness we saw internationally included China, but was not limited to China. So if we had maintained the similar rest of the world growth rate that we saw in the first quarter of this year and the fourth quarter of 2014, we’d maintain that similar rest of the world growth rate. We would have seen topline revenue growth increase by about 15%.

So from 35 up to 50 I mean.

Approximately.

Okay. That’s quite interesting. It’s hard for me to understand how the foreign exchange rate could be causing such a dramatic change in revenues since you said that there was a $300,000 hit to net income as a result of exchange rates. So even if we added that 300,000 on to the quarterly revenue, it wouldn’t have had nearly that kind of impact.

Sure. No, and you are absolutely correct. So when we look at the $300,000 impact to net income, that’s an impact directly from our international subsidiaries. So that’s a result of the currency pressure in Canada and Europe, reducing the margins out of Canada and Europe. If you’re an international distributor of ours located anywhere else, where you have currency pressure, what you will experience really in essence are higher costs from us and reduced margins. So that’s not currency exposure to us directly in those cases, but essence it’s a de facto price increase do our distributors which results in lower demand.

Okay, so when there’s a fluctuation like that, you don’t immediately lower your prices, you basically try to get the distributors to take the hit fully.

At end of the day, it’s a mixture of both depending on circumstances. But when you look at the rate of decline in various foreign currencies we’ve seen over the past six, nine, or 12 months, we are not necessarily in a position to just lower prices to match that decline, so in most cases that has to be shared with the international distributor, and ultimately that can affect demand. In our case where we have our own distribution in Canada and Europe, we can insulate our end customers more from the impact of the currency, but it still comes at a cost to us which is in the form of reduced margins.

So are your main competitors all US based or do you have some competitors that are not facing this currency problem.

The majority of the product sold globally is made in the US, non-exclusively, but the majority. So this is not a unique phenomenon to us.

Okay, so in that rest of world, where there are other regions, you mentioned Canada actually had a year-over-year decline, was that also true for all of the rest of the world.

No. Just so we are clear, Canada did not have a year-over-year decline. Canada had a very strong volume growth.

I meant to say China, not Canada.

Sure, China. So China had a year-over-year decline which principally is related to the changes we’ve made in the distribution and the strength of China last year. On the Q2-Q3 last year, China was incredibly strong, so we have a really strong comp and then we’ve made changes to distribution. So combination results in a decline. When you look at the other international markets, it’s a bit more mixed. We’ve seen a decline in some, we’ve seen flattened growth in others where we historically had growth and then we still have growth in yet other markets internationally, but the net effect is that that blended rest of the world growth rate was really cut dramatically from the fourth quarter and the first quarter into the second quarter.

Okay. On China, how long do you think it will take to see - do you feel like your new distribution strategy is working or does it need to get more time or perhaps try something different?

No we know it’s working, we are 100% confident in it, and what we’re seeing out of China while impactful is not unanticipated. Previously, we had arguably too many distribution points, and that created a really challenging market for the distributors in country, which ultimately would not be good for us, would not be good for our brand. So by reducing the number of distribution points, it creates a much more orderly and structured market which positions us where we need to be as a premium product. So what we are seeing now is yes, while we have decline in China revenue in the second quarter, we had it in the first quarter, we had in the fourth quarter, we’ll have it in the third quarter. We see that decline moderating. So it’s too soon to say when we expect to return to growth, could be in the fourth quarter, could be into 2016. A lot of that may depend on some of the macroeconomic climate in China which everyone’s familiar with now and changes to the currency there. But we do see that happening.

Okay, my last question. I’m on the website; I don’t see this new window tint product. Is it not on the website yet?

No, it’s not on the website and that’s principally as I mentioned because we are in a soft launch phase with that. So we are just working exclusively with our existing customers as we move in to a more full scale launch.

Do you expect this to be kind of a significant, I mean window tint is an enormous market compared to paint protection films so do you expect this to be a significant revenue driver or not really.

We think it will be significant. We are very methodical in our approach, and it’s important that we do it right and we do it as well, and we do it as uniquely as we do paint protection film. So that will be measured growth as we make sure we have all those things right. But at the end of the day, what we know is that a large portion of our customers buy window film. We know that we have great relationships with the majority of our customers. We know a lot of them would prefer to consolidate purchasing with us. But for window film, paint protection film and whatever else may come next. So we think over time it will be a very important line of business for us.

And what about the next generation paint protection film, you had mentioned that was coming.

Sure. So we are on probably the 7th or 8th version of film in about six years, and we have several enhancements planned and really we are in a phase where we are doing targeted testing on new products and getting customer feedback and then seeing how that will work in to the product mix as we get in to next year.

[Operator Instructions] Our next question today is coming from Tony Pollock from Aegis Capital. Please proceed with your question.

Just to window tint film, is that a net cash outflow to the company right now, and if so what was that in the quarter.

There’s no net cash requirement for the window film program aside from inventory requirements and allocating a portion of our inventory for that product line.

You talked about a next generation of different products, could you expand on that a little more.

Not specifically aside from saying that we’ve had a lot and we’ve been known for a lot of innovation in the paint protection film, and our paint protection film line. And we don’t intend to stop where we are. So we have enhancements to that product that we are working and testing. But as those things go, we get a lot of customer feedback and do a lot of testing before making any changes, because we want to make sure we get them right. So we are engaged in that and that should translate in to new products and updates for the products in 2016.

Be it due to the story, could you go over your competition?

Sure. There’s three or four main competitors that we have and you’ll certainly find a lot about them if you look in to it. I think where we look at ourselves is different, is we are focused on this, and we are trying to create a differentiated business model and provide exceptional value and exceptional customer service. And we think that we can do that successfully and we do that successfully by dealing directly with the installer and the dealerships and the purchasers of this product in key markets and by having a really focused marketing strategy which brings awareness to XPEL and drives sales for our customers.

Could you tell me what you spend in R&D and capital expenditures?

Yeah, so you will see a lot of that in financials. Our largest R&D expense is related to the creation of our templates that go in to our software program, and that’s few hundred thousand dollars a year. In terms of R&D in to the film, we do incur some costs in developing and testing the film. But they are significantly less than the R&D cost associated with our templates. When you look overall from a capital expenditure standpoint, we outsource manufacturing of the product. So it’s really fairly asset-light business in that respect.

[Operator Instructions] Our next question comes from (inaudible) from a private investor. Please proceed with your question.

Can you discuss US specific operating performance?

Yeah, the US business continues to be strong. Historically, we’ve seen a lower growth rate in the US than we have internationally. That spread was not quite as wide in this quarter, but it’s strong and we’re seeing good growth. We’ve really focused on two ways, we have to continue to acquire new customers in the US and we also have to find ways to help increase the growth rate from our existing customers. And those are really two different things, but long term for us, they are equally important.

Okay and just another one. In Canada, what would you say is your short to mid-term strategy with regards to pricing and how you do plan on adjusting to the FX impact in Canada specifically?

Yeah, the FX impact in Canada is strong, as I know you know. And we really have one primary option which is to raise prices in Canada. We did a small price increase, about mid-way through the second quarter. When you look at the overall decline in the Canadian dollar that ends up relatively modest. I think what happens with that remains to be seen. We know that our customers cannot necessarily increase their prices infinitely, immediately, especially if they are seeing any challenges in the local economy. So we have very much sort of the wait and see attitude. Thank fully in the position we are, where we are operating directly, we are able to take that approach. If we were still operating solely through distribution in Canada, it would be a really tough scenario. So we have a wait and see approach, some of that we obviously monitor what our competitors do. But ultimately if the Canadian dollar stays at the current level for an extended period of time, there’s going to be more price increases, that’s just unavoidable.

Okay, so do clarify on if any of your competitors have increased prices in Canada yet.

We have mixed reports and it’s something we track, but not something that I really want to discuss publicly what we know they are doing or not. But we do look at that, that’s not the only factors, but it certainly is a factor we consider when looking how best your approach is.

Your next question today is coming from Paras (inaudible), a private investor. Please proceed with your question.

Couple of questions, one about Europe; in Germany you got signed a deal, an exclusive deal, but I haven’t heard much in terms of distribution. I haven’t heard much about it, and obviously recently with the UK expansion you’ve gone with a different strategy. So can you talk a little bit more about Germany, what’s happening and is there any plan to potentially changing that deal?

We do have a strong distributor in Germany. We do not have any exclusive distribution arrangements anywhere in Europe. We may sort of act as if we do in the best interest of developing distribution, but we are really open and flexible in Europe to whatever the appropriate strategy needs to be.

And then the other thing is in last quarter’s conference call you talked about an expansion in Europe potentially opening another site or another location, can you talk a little bit more about that.

Yeah, we still have that plan and we are anticipating having a presence in the Netherlands by year-end, and we expect we’ll still likely meet that timing. That’s just a further expansion upon the strategy. The UK was our first sort of landing spot in Europe and that’s principally because we knew people there, we knew great additions to our team, and the UK itself is a large market, twice the population in Canada. So that’s why we started in the UK. And at the same time, we recognize that the UK is not the best entry point for the rest of Europe. So we know we need to be in continental Europe and we’ve really embarked on a similar strategy that we had in the UK, which was to take our time and find the best people that we could employ to open that operation and that’s what we intend to do.

And then last question is, with the company business small as is mentioned is asset-light and with the cash building up, is there any plans to deploy that cash in terms of any in the main strategy or expanding with company-owned stores.

Obviously we are looking at all possible ways to expand the business. We have no shortage of initiatives to sort of identify overtime the best strategy. So I can’t comment specifically, but it’s something that we are actively engaged in and our desire as we stated multiple times is to build a business that’s substantially larger. And so in order to that we are going to do more and different things overtime and we actively look to do that.

We’ve reached the end of our question-and-answer session. I’d like to turn the floor back over to management for any further or closing comments.

I want to thank everybody for your support and for attendance on the call today, and we look forward to talking next quarter. Thank you.

That does conclude today’s teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.