Greetings, and welcome to XPEL Technologies Fourth Quarter and Year End 2017 Earnings 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. I would now like to turn the conference over to your host, Jen Belodeau.

Good morning and welcome to our Conference Call to discuss XPEL Technologies Financial Results for 2017. On the call today Ryan Pape, XPEL’s President and Chief Executive Officer; and Barry Wood, XPEL’s Chief Financial Officer, will provide an overview of the business operations and review the company’s financial results. Immediately after the prepared comments, we will take questions from our call participants. I’ll take a moment to read the Safe Harbor statement. During the course of this call, we’ll make certain forward-looking statements regarding XPEL Technology Corp. and its business, which may include, they are not limited to, anticipated use of proceeds from capital transactions, expansion into new markets and execution of the company’s growth strategy. Often, but not always, forward-looking statements can be identified by the use of words, such as plans, as expected, expects, scheduled, intends, contemplates, anticipates, believes, proposes or variations, including negative variations of such words or phrases; or state of certain actions, events or results may, could, would, might, or will be taken, occur, or be achieved. Such statements are based on the current expectations of the management of XPEL. The forward-looking events and circumstances discussed in this the call may not occur by certain specific dates or at all and could differ materially as a result of known and unknown risk factors and uncertainties affecting the company, performance and acceptance of the company’s products, economic factors, competition, the equity markets generally and many other factors beyond the control of XPEL. Although XPEL has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. No forward-looking statement can be guaranteed, except as required by applicable securities laws. Forward-looking statements speak only as of the date on which they are made, and XPEL undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that out of the way let me turn the call over to Ryan. Go ahead, Ryan.

Thanks, Jen, and good morning everyone. Welcome to our year-end fourth quarter conference call. As I said previously last quarter 2017 was a transformational year for us. I think we accomplish the lock and put up pretty good growth while overcoming some of the optimism challenges from the previous year. So, we ended the year with revenues of just under 68 million, which was 30.9% growth rate over 2016. We also saw rapid increases in our 2017 sequential quarterly growth. So that I think represents reflect strong revenue momentum. So, while some of our strongest growth last year occurred in markets where we have the lowest margins, we have begun to address this mix phenomenon to a combination of targeted price increases -- price increases and reduction in other non-product costs and in our cost of goods sold due to efficiency. So, we’re already seeing these efforts payoff in 2018, which is a great thing. For the fourth quarter revenue grew 52.7% to 20.2 million, which was by far the highest revenue quarter in our history. We’re seeing strong growth across all of our regions, which is a little bit different in earlier in the year or it was a little bit more a spotty, but particularly in Asia and China specifically. So, China revenue grew to just over 20% of our total revenue for the fourth quarter. so obviously that’s a nice development it’s been building over the year for us. And it’s obviously a new dynamic for us. So, we’re building strong revenue and during the year and we’re seeing that momentum on revenue growth continue into Q1. So, we executed on several major initiatives during the third and fourth quarter as we started discussing last quarter. They included consolidation of several facilities and our major restructuring our…

Thanks, Ryan, and good morning everyone. For the quarter, revenues increased 52.7% to $20.2 million. As Ryan mentioned, our fourth quarter revenues crossed our previous record quarter of $17.8 million which occurred in third quarter of 2017. We experienced robust growth in all of our regions, but the growth was particularly significant [in Asia] as demand has continued to accelerate in this region. For the year, revenues grew 30.7% to $67.8 million. As a point of reference, our revenue growth in 2016 was 24.8%. Gross margin for the quarter grew 44.4% to $4.6 million and declined as a percent of sales to 22.9% versus prior year quarter of 23.9%. We did incur around $0.5 million in non-recurring costs related to the continuation of our SKU consolidation initiative that began in Q3, but normalizing for those additional costs, gross margin for the quarter would have been 24.9%. Gross margin was further affected by higher mix of sales through lower margin distribution channels as Ryan alluded to earlier. But however, we do believe that we have offset future impacts of this potential mix effect with price increases within the channels as we move forward. On a year-to-date basis, gross margin grew 19.7% to $16.8 million and decreased as a percent of sales from 27.1% to 24.8%. Normalizing for the year-to-date impacts of our product consolidation initiatives, gross margin would have been 26.3% for the year and again this lower margin is really due to -- mainly to the sales mix. SG&A expenses for the quarter increased 26.2% versus prior quarter and 35.1% on a year-to-date basis. As a percent of sales, SG&A costs declined to 21.1% versus 25.6% in 2016. So, we began to see some leverage there. We did incur approximately $125,000 of non-recurring costs related to our sales and operation,…

At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from the line of Adam Goldstein of Private Investor. Please proceed with your question.

Hi. Obviously, the revenue growth was pretty fantastic this quarter. And you mentioned China was a main reason for that. I was just wondering have you guys consider going to the direct model in China rather than through a distributor?

Adam, thanks for the question. So, I think that we, I think we have been pretty clear that our overall operating preference is to be as direct as possible where it makes sense. Because we think that, that’s how we can deliver the greatest value proposition and position the brand most effectively. So, I think ultimately that’s obviously something to consider in China as it would be elsewhere. But I think at this point given the totality of all the factors and all the things we have to work on, that’s not something to operate in Mainland China directly that is under any near-term consideration. But I think we would all agree that it hits our overall strategy, but it’s not something that we’re contemplating at this time.

Okay. You mentioned that due to some targeted price decreases and some operating efficiencies you’re going to improve, hope to improve the profit margin going forward. Could you quantify that at all in terms of what kind of impact you could see as a percentage of sales?

Yes. We’re not able to quantify it yet. I mean obviously, timing wise, we’re in the position where, we’re nearing the end of the first quarter. So, we’re confident enough in the direction that we’re seeing in momentum to talk about the improving characteristics that we see. But that said, March is typically should be busiest month of the first quarter and it tends to be backend loaded in the month. So, as we warned in the past, we need to get through March and have the opportunity to close the quarter. But given that we are at this point in the quarter, I think it shows us, we’re headed in the right direction and on margin improvement and that performance and revenue growth.

Okay. Just maybe focusing not so much on the particular quarter. But just overall even over say trend of past couple of years. This has clearly been a decline in the gross profit percentage. So now according to, you’re using like your adjusted numbers, the adjusted gross margin for this most recent quarter was 24.9%. And then the SG&A as a percentage of revenue is 20.3%. So, the operating margin is getting pretty skinny, we’re down to 4.6% of revenue. So just in terms of our business model going forward is that kind of emergency 4.6% operating margin somewhere around what we should expect of this business going forward?

No. I think we’re aiming for higher margins in that. I think we said that pretty consistently, it just a question of the exact timing and where and how we grow and where and how we invest. I think we talked about last quarter, our investment in the European operation added the equivalent of $1 million in annual SG&A. But now as a result, we’re seeing that as one of our highest growth areas, revenue growth areas by percentage. So that should quickly burn through that fix sort of SG&A there. So, it's a constant decision of where to invest and where not to, I think we've been happy with those investments and as the business scales, and it continues get larger growing at the rates we've been growing last year that helps you grow through the SG&A. We’ve need to make sure that our level of investment in areas going forward is targeted and intentional and then help managed to the final number.

Okay. Now back to an issue I brought up last quarter which was some disclosure on the reporting. I notice now it looks like you've changed the reporting from what used to be Europe to now it's called International Other, I'm a little confused. Can you explain how your reporting has changed?

Yeah, Adam. This is Barry. Thanks for the question. So basically, what we did -- since Mexico got started so late in the year and it really didn't have a significant impact as a separate line item or anything in terms of regional disclosures which we put in that international, other column and that was really the only change. now as we move forward obviously as we said in the past we're going to continue to evaluate that part of the disclosures that we have and try to mirror up what we think is useful, most useful for the investors.

Okay. Well as an investor here's my suggestion, I think at least based on my understanding, the business breaking it out into U.S., Canada, Europe and then all other, those four buckets seem to make sense, doesn’t it?

Yeah. That's certainly an option for us and well certainly, again as I said, we'll be evaluating that as we continue to move forward in 2018.

Okay. I'm curious since it wasn't broken out in the filing, Europe had been discussed earlier as a very fast-growing region. Could you say how Europe did in Q4 of 2017 compared to the prior year?

Yeah, Adam. It’s Ryan, again. So, we saw very high revenue growth in Europe year-over-year. It was approaching 100% doubling the revenue there. Yeah.

Wow. That’s pretty impressive. So, Europe is going as well as you hoped, I guess?

Yeah, I think that it's always a challenge to know exactly what to expect because the dynamics in any of these markets are different. I would say that certainly being in a position where you have or close to double revenue year-over-year we weren't expecting more. So, I would say we're very happy with that and that shows strong fundamentals there, it shows a value of having our team there and it shows how well the teams are executing. And this is with the backstop of prior to that -- prior to establishing those operations over the past two years and relying solely on third-party distribution before that, and we weren't doing, but a fraction of the revenue. And so I think for us it really validates for me that where we invest if we do it smartly and we bring everything we have to bear and we try and bring all the value that we offer to our customers say in North America and elsewhere that we can really grow faster and be more successful overall in other key geographies where we’re able to operator ourselves and I think. And I think Europe was a big test for that and I think it's proving that, you know our overall level of investment there was a bit higher than we initially thought just once you get into it and realize what we really need but with the type of growth rate we’re seeing, you know you get through those SG&A in a hurry. So, we’re very happy with it.

Our next question comes from the line of Jason Hershman, a Private Investor. Please proceed with your question.

A little disappointed you didn’t do triple digit topline growth and there is always a goal for the next quarter I guess. So overall, it’s a fantastic quarter and I have two questions for you today. Since China is becoming so important maybe you can give a little bit more color on what is driving the growth in China’s qualitatively. Was it the new film that you’ve released Zeus or is this the overall acceptance of PPF or some combination, whatever color you can provide will be appreciated.

Sure, I would say it’s a combination of things. So, we have a very strong distributor in China that we’ve been working with for, I believe it's close to four years the products, developments, we do have additional reflection from line as you alluded to that we are selling in China although that only represents a portion of those sales. what they’ve really done with our help over the past year just the massive of investments of the XPEL brand and you’ll see it displayed in shops and in XPEL branded locations in China in a way that really rivals anywhere in the world in terms of how well they’re executing that. And so, I give them a lot of credit and also our teams that’s helping them a manage that because we have spent a considerable amount of time and lots of miles in the airplane and various things to help support them. So, I think its broad based and is very heavily rooted in the XPEL brand and I think that that’s very important to understand as a contrast to anonymous film shipped by the container could still be great business but business that’s built around the XPEL brand is going to be far better for us long-term. So, it’s not one particular thing, it's not an overnight thing, it’s a result of very hard work that they’re doing in our support building on that incrementally over the past couple of years.

Okay, maybe if you could just switch from China to Canada then and maybe I’ll ask you similar question about Protex. Are there any other figures or colors that you provide just mainly on the size of that business? I know it is stronger in certain regions of Canada; is this a seven-figure film user in Canada or a six-figure film user in Canada, just any color you can provide.

So, I think when you look at the Protex network and the Protex franchisee so you know there is 75 franchise locations across paint protection film and window film and those are all owned independently or in a couple of cases there is an operator and there are multiple locations. So those franchisees would buy their product from XPEL Canada directly even prior to the acquisition because XPEL had a supply agreement to Protex where we were the exclusive supplier of all products to their franchisees but we would not sell them to the Protex Corporation but rather we’d sell them to the individual franchisees. So altogether you know that’s several million dollars a year in revenue to us, but that’s not net new revenue as a result of acquiring the franchisor, because we already have that revenue by selling directly to the franchisees, if that makes sense?

Sure. And just the Segway to flat glass, I know this, they start online and Instagram and on their own online marketing promote your flat glass line. I was wondering, if you give an update on how that’s still going along Canada and also in [indiscernible] and elsewhere?

Sure. So just to restate what we said before. So, we have XPEL Vision, which is a residential commercial window film, which is similar to window film for automotive that many people are aware of, but obviously for architecture purposes. And this is entirely new line of business for us, it’s not automotive, but there is customer overlap and supply chain overlap for us. And so, we’re really in a very initial soft launch of that throughout our different geographies. Protex with franchisees that are in the architecture film space. We’ve been able to accelerate that launch and target a lot of the initial marketing and initial work with them because they represent a captive audience, we can get too quickly. So that’s probably why you see more of that marketing coming out of the Protex franchisees and elsewhere. But I think over next year or the rest of this year you’ll see more of that from us outside of Protex as we work to launch and accelerate that line more fully.

Finally, one question for Barry if I may. Barry, could you quantify how much working capital was released from these specialty film discontinuations, was it 1 million, was it 1.5 million. I’m curious how much working capital you were able to take out of the business?

Yes. I’ll actually answer that Jason. So, I think that our goal was to eliminate about in excess of $2 million of inventory in other products that we wanted to discontinue. So as of year-end, exactly what percentage of that was done, we don’t have that directly. But it was a substantial percentage. So, the goal was not necessarily to permanently lower the working capital requirements of the business. But ultimate be able to shift that into product that turns faster and to build more stock of the products that sell the most obviously.

[Operator Instructions]. Our next question comes from the line of Rob [indiscernible] Private Investor. Please proceed with your question.

I was just wondering, if you could talk a little bit about listing on the Toronto Venture Exchange in U.S. currency. I know that this question come up periodically, but I think it’s been a little while and as 2017 comes to the close and it seems like momentum is just shifting in the upward direction. I was wondering, what your thoughts were and whether you could comment on, if they’re sort of near-term, medium-term or it’s not really on your radar to shift to an American listing?

I think what we’ve said and it’s remains through is it we recognize, this is important and it is a priority of ours. So, we don’t have any more specific timing to share yet.

Our next question comes from the line of Andy Preikschat from Edgebrook Partners. Please proceed with your question.

Yes, hello guys. You mentioned in the call just now that Ultimate Plus will be officially launching in April. Can you share any detail on what you're doing with this launch in terms of marketing and what the transition could look like from an Ultimate? Thank you.

Sure, Andy. Yeah we've got a marketing campaign geared around it to try and build some buzz and there's a number of other visual differences with the product and different packaging and a whole different experience to go with it that we think will really create some excitement around it and that's part of the reason why the timetable on that launch is moved back a couple times and ends up a little bit later in April or April being later than we initially targeted and we want to draw attention to the fact that we've improved the product and create an overall better experience in a splash and so we've got quite a bit of marketing to go with it and some videos and other things to highlight some of the benefits and create that splash in presentation. So, I think it will be a really good launch for us with the Ultimate Plus and then we can carry that through with other products, and some enhancements that we have in the pipeline beyond that.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to turn the call back to Ryan for closing remarks.

I'd like to thank everybody for participating and asking questions and we look forward to talking with you again in short order for Q1. Thanks a lot.

That concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.