XPEL Reports Second Quarter Results

Published 

XPEL REPORTS SECOND QUARTER RESULTS

– Record-Breaking Revenue Quarter –
– 45% Growth in Design Access Program Revenues –
– Nearly 54% Growth in Design Access Revenues For First 6 Months –
– 60% Overall Gross Margins –

SAN ANTONIO, TEXAS, August 29 2006…XPEL Technologies Corp. (TSXV: DAP.U) announced today results for the three and six months ended June 30, 2006, as compared to the three and six months ended June 30, 2005.

XPEL’s Chairman and CEO, W. Rege Brunner, commented, “Quarter over quarter our Design Access Program (DAP) revenues grew at a brisk rate. The DAP revenue stream, which we refer to as our ‘value-driver,’ continues to reflect the increasing interest in the Paint Protection Film (PPF) industry and specifically XPEL’s robust PPF solution. As XPEL moves into the third quarter, we continue focusing on growth, yet at the same time taking steps to control expenses, targeting primarily our substantial legal and professional fees that we have incurred over the previous 18 months. We believe that eliminating these large and unusual costs will lead us to profitable operations.”

Three Months Ended June 30, 2006 Compared to the Three Months Ended June 30, 2005

Revenues. Revenues increased to US$925,328, a 12.2% increase over the previous year’s quarter setting an all-time record quarter. The increase in revenues is primarily a result of the significant increases in Design access fees. Design access fees increased by US$134,714 or 45.1% between quarters. The growth in Design access fees continues the momentum the Company has experienced for approximately two years in its most important revenue stream. As mentioned in previous quarters, the margins generated by XPEL Design access fees are higher than those of the Company’s other revenue streams.

Cost of Sales. Cost of sales decreased slightly from US$388,524 to $371,559 and decreased as a percentage of revenues from 47.1% to 40.1%, quarter to quarter. Cost of sales is primarily related to the re-selling of third-party enabling equipment such as plotters and bulk paint and headlight film, which are used by the Company’s DAP Dealers for the production of products using the DAP software utility. As the Design access fees, which are higher margin revenues, continue to grow, and the mix of revenues continues to evolve, management believes XPEL’s cost of sales, as a percentage of revenues may continue to improve as well.

Expenses. Total expenses increased approximately 43% from US$620,231 to US$886,770 between years. The increased expenses were a result of increased general and administrative expenses, sales and marketing and research and development expenses. General and administrative expenses increased from US$473,504 to US$686,472, or 45.0% between periods. This increase was due to increased legal and professional fees, and increased personnel costs. In the second quarter of 2006 the Company continued to incur legal fees associated with lawsuits it filed in the first half of calendar year 2005. The increased personnel costs resulted from an increase in the number of full and part-time employees from 18 to 22 between periods, and the expensing of stock options granted to the Company’s employees and directors through June 2006. The options are being expensed over the three-year vesting of the options beginning with the date of grant. Research and development costs, related to continuing efforts to increase the quality and quantity of XPEL designs, increased slightly from US$46,149 to US$54,649 between years.

Net earnings (loss). The Company had a net loss of US$333,001 for the quarter ended June 30, 2006 as compared to a net loss of US$184,357 for the quarter ended June 30, 2005. When adjusted for non-recurring legal and professional expenses incurred during the quarter and non-cash expenses such as depreciation, amortization and the expensing of stock options, the cash loss for the 2nd quarter of 2006 would have been approximately US$65,000. As discussed previously, the increased net loss was due primarily to increased general and administrative expenses, sales and marketing and research and development expenses. The Company may continue to incur a net loss during the remainder of 2006. However, management believes its sales and marketing activities, its hiring of key personnel and its increased research and development costs will translate into additional revenues, and when coupled with the elimination of necessary, non-recurring legal and professional fees, will lead to profitable operations.

Six Months Ended June 30, 2006 Compared to the Six Months Ended June 30, 2005

Revenues. Revenues increased from US$1,455,632 to US$1,722,273. The increase in revenues between years continues to be largely driven by the increases in our Design access fees. Design access fees increased US$280,324 or 53.6% between years.

Cost of Sales. Cost of sales decreased slightly from US$689,102 to US$679,598 and decreased as a percentage of revenues from 47.3% to 39.5%, period to period.

Expenses. Total expenses increased from US$1,157,597 to US$1,635,904, or approximately 41.3% between years. The increased expenses were primarily a result of increased general and administrative expenses, research and development expenses and increased amortization expense. General and administrative expenses increased 54.6% to US$1,302,061, between periods. This increase was due to increased legal and professional fees, and increased personnel costs. In the first half of 2006 the Company continued to incur legal fees associated with the lawsuits filed during the first half of calendar year 2005. Additionally, as noted in the notes to the financials, the Company successfully obtained a listing on the TSX Venture Exchange and began trading on February 27, 2006. Costs associated with the move were expensed in the 4th quarter of 2005 and the 1st quarter of 2006. Research and development costs, related to our continuing efforts to increase the quality and quantity of XPEL’s product designs, increased slightly from US$91,649 to US$110,444 between periods.

Net earnings (loss). The Company had a net loss of US$593,229 for the period ended June 30, 2006 as compared to a net loss of US$391,067 for the period ended June 30, 2005. When adjusted for non-recurring legal and professional expenses incurred during the six months ended June 30, 2006, and non-cash expenses such as depreciation, amortization and the expensing of stock options, the cash loss for the six months ended June 30, 2006 would have been approximately US$140,000.

XPEL Technologies Corp. (www.xpel.com), publicly traded on the TSXV Exchange, is the worldwide leader in the electronic delivery of top automotive aftermarket products, utilizing the Internet as an integral component for its design, manufacturing, distribution and customer relationship strategies. The Company’s DAP software utility offers Dealers the industry’s most efficient and productive tool set for better serving customers with “best of breed” solutions in real-time. XPEL has clear advantages over the competition through its proprietary corporate framework consisting of an expansive library of installation-friendly window tint, paint and headlight protection products, coupled with a unique web-based remote manufacturing and distribution software, superior installation training curriculum and facilities, and established and growing sales distribution channels.

Certain statements contained herein (“As XPEL moves into the third quarter, we continue focusing on growth, yet at the same time taking steps to control expenses, targeting primarily our substantial legal and professional fees that we have incurred over the previous 18 months. We believe that eliminating these large and unusual costs will lead us to profitable operations.” and “As the Design access fees, which are higher margin revenues, continue to grow, and the mix of revenues continues to evolve, management believes XPEL’s cost of sales, as a percentage of revenues may continue to improve as well.” and “However, management believes its sales and marketing activities, its hiring of key personnel and its increased research and development costs will translate into additional revenues, and when coupled with the elimination of necessary, non-recurring legal and professional fees, will lead to profitable operations.” are considered “forward-looking statements.” These statements are based upon the belief of the Company’s management, as well as assumptions made beyond information currently available to the Company’s management. Because “forward-looking statements” are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to, price competition, the inability to obtain additional capital, loss of key personnel, unavailability of leased facilities, technological changes, service interruptions, equipment failures, customer attrition, general economic conditions, relationships with vendors, government supervision and regulation, changes in industry practices, the inability to settle legal disputes, and other factors.

The TSXV has not reviewed and does not accept responsibility for the adequacy and accuracy of this information.

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Company Contact:

Ryan Pape
Chief Executive Officer
210-678-3700

Investor Relations:

John Nesbett/Jennifer Belodeau
Institutional Marketing Services (IMS)
(203) 972-9200
[email protected]