xpel-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-38858

XPEL, INC.

(Exact name of registrant as specified in its charter)

Nevada

20-1117381

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3251 I-35

San Antonio

Texas

78219

(Address of Principal Executive Offices)

(Zip Code)

Registrant's telephone number, including area code: (210) 678-3700

618 W. Sunset Road, San Antonio, Texas 78216

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	XPEL	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had 27,612,597 shares of common stock outstanding as of May 10, 2022.

TABLE OF CONTENTS


			Page
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets			1
Condensed Consolidated Statements of Income			2
Condensed Consolidated Statements of Comprehensive Income			3
Condensed Consolidated Statement of Changes in Equity			4
Condensed Consolidated Statement of Cash Flows			5
Notes to Condensed Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27

Part II - Other Information
Item 1. Legal Proceedings			28
Item 1A. Risk Factors			28
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 3. Defaults Upon Senior Securities			28
Item 4. Mine Safety Disclosures			29
Item 5. Other Information			29
Item 6. Exhibits			29
Signatures			29

Part I. Financial Information

Item 1. Financial Statements

XPEL, INC.

Condensed Consolidated Balance Sheets


	(Unaudited)		(Audited)
	March 31, 2022		December 31, 2021
Assets
Current
Cash and cash equivalents	$	10,595,557	$	9,644,248
Accounts receivable, net	15,178,627		13,159,036
Inventory, net	74,486,843		51,936,164
Prepaid expenses and other current assets	3,749,690		3,671,657
Income tax receivable	—		617,141
Total current assets	104,010,717		79,028,246
Property and equipment, net	11,364,205		9,898,126
Right-of-use lease assets	14,443,369		12,909,607
Intangible assets, net	31,977,505		32,732,771
Other non-current assets	851,431		790,339
Goodwill	25,614,110		25,655,428
Total assets	$	188,261,337	$	161,014,517
Liabilities
Current
Current portion of notes payable	$	351,674	$	375,413
Current portion lease liabilities	3,732,825		2,977,794
Accounts payable and accrued liabilities	42,357,330		32,914,615
Income tax payable	656,090		—
Total current liabilities	47,097,919		36,267,822
Deferred tax liability, net	2,702,639		2,748,283
Other long-term liabilities	2,429,332		2,630,486
Borrowings on line of credit	33,000,000		25,000,000
Non-current portion of lease liabilities	10,790,979		9,830,128
Non-current portion of notes payable	—		75,717
Total liabilities	96,020,869		76,552,436
Commitments and Contingencies (Note 11)
Stockholders’ equity
Preferred stock, $0.001 par value; authorized 10,000,000; none issued and outstanding	—		—
Common stock, $0.001 par value; 100,000,000 shares authorized; 27,612,597 issued and outstanding	27,613		27,613
Additional paid-in-capital	10,651,532		10,581,483
Accumulated other comprehensive loss	(685,240)		(590,446)
Retained earnings	82,246,563		74,443,431
Total stockholders’ equity	92,240,468		84,462,081
Total liabilities and stockholders’ equity	$	188,261,337	$	161,014,517

See notes to condensed consolidated financial statements.

XPEL, INC.

Condensed Consolidated Statements of Income (Unaudited)


	Three Months Ended March 31,
		2022		2021
Revenue
Product revenue		$	58,097,446	$	44,931,353
Service revenue		13,766,321		6,934,761
Total revenue		71,863,767		51,866,114

Cost of Sales
Cost of product sales		38,193,987		31,546,547
Cost of service		5,953,347		2,033,136
Total cost of sales		44,147,334		33,579,683
Gross Margin		27,716,433		18,286,431

Operating Expenses
Sales and marketing		6,311,220		3,387,830
General and administrative		11,369,291		6,351,491
Total operating expenses		17,680,511		9,739,321

Operating Income		10,035,922		8,547,110

Interest expense		219,726		52,719
Foreign currency exchange loss		5,126		35,612

Income before income taxes		9,811,070		8,458,779
Income tax expense		2,007,938		1,611,720
Net income		7,803,132		6,847,059

Earnings per share
Basic		$	0.28	$	0.25
Diluted		$	0.28	$	0.25
Weighted Average Number of Common Shares
Basic		27,612,597		27,612,597
Diluted		27,612,597		27,612,597

See notes to condensed consolidated financial statements.

XPEL, INC.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended March 31,
		2022		2021
Other comprehensive income
Net income		$	7,803,132	$	6,847,059
Foreign currency translation		(94,794)		(210,135)
Total comprehensive income		7,708,338		6,636,924

See notes to condensed consolidated financial statements.

XPEL, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)


Stockholders' Equity - Three Months Ended March 31
	Common Stock			Additional Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2020	27,612,597	$	27,613	$	10,412,471	$	42,876,569	$	66,215	$	53,382,868
Net income	—	—		—		6,847,059		—		6,847,059
Foreign currency translation	—	—		—		—		(210,135)		(210,135)
Balance as of March 31, 2021	27,612,597	27,613		10,412,471		49,723,628		(143,920)		60,019,792

Balance as of December 31, 2021	27,612,597	27,613		10,581,483		74,443,431		(590,446)		84,462,081
Net income	—	—		—		7,803,132		—		7,803,132
Foreign currency translation	—	—		—		—		(94,794)		(94,794)
Stock-based compensation	—	—		70,049		—		—		70,049
Balance as of March 31, 2022	27,612,597	$	27,613	$	10,651,532	$	82,246,563	$	(685,240)	$	92,240,468

See notes to condensed consolidated financial statements.

XPEL, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net income	$	7,803,132	$	6,847,059
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation of property, plant and equipment	756,344		383,090
Amortization of intangible assets	1,076,466		262,606
(Gain) loss on sale of property and equipment	(14,277)		2,031
Stock compensation	70,049		—
Bad debt expense	65,599		93,030
Deferred income tax	(38,477)		23,655
Accretion on notes payable	2,659		8,945

Changes in assets and liabilities:
Accounts receivable	(2,125,248)		(124,628)
Inventory, net	(22,584,492)		(2,612,306)
Prepaid expenses and other current assets	(77,949)		(685,955)
Income taxes receivable and payable	1,281,199		270,946
Other assets	74,262		(113,145)
Accounts payable and accrued liabilities	9,401,254		4,571,640

Net cash (used in) provided by operating activities	(4,309,479)		8,926,968
Cash flows used in investing activities
Purchase of property, plant and equipment	(2,270,513)		(1,405,376)
Proceeds from sale of property and equipment	42,141		238

Development of intangible assets	(363,837)		(114,048)
Net cash used in investing activities	(2,592,209)		(1,519,186)
Cash flows from financing activities
Net borrowings on revolving credit agreement	8,000,000		—
Repayments of notes payable	(107,954)		(723,236)

Net cash provided by (used in) financing activities	7,892,046		(723,236)
Net change in cash and cash equivalents	990,358		6,684,546
Foreign exchange impact on cash and cash equivalents	(39,049)		(96,193)
Increase in cash and cash equivalents during the period	951,309		6,588,353
Cash and cash equivalents at beginning of period	9,644,248		29,027,124
Cash and cash equivalents at end of period	$	10,595,557	$	35,615,477

Supplemental schedule of non-cash activities
Non-cash lease financing	$	2,388,964	$	1,377,579

Supplemental cash flow information
Cash paid for income taxes	$	769,802	$	1,356,299
Cash paid for interest	$	216,007	$	45,003

See notes to condensed consolidated financial statements.

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. INTERIM FINANCIAL INFORMATION

The accompanying (a) condensed consolidated balance sheet as of December 31, 2021, which has been derived from audited financial statements, and (b) unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2022 and 2021 have been prepared by XPEL, Inc. (“XPEL” or the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Pursuant to these rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of results to be expected for the full year or for any other interim period, due to variability in customer purchasing patterns and seasonal, operating and other factors.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s Annual Report on Form 10-K as filed with the SEC on February 28, 2022 (the "Annual Report"). These condensed consolidated financial statements also should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section appearing in this Report.

2. SIGNIFICANT ACCOUNTING POLICIES

Nature of Business - The Company is based in San Antonio, Texas and sells, distributes, and installs protective films and coatings, including automotive paint protection film, surface protection film, automotive and architectural window films and ceramic coatings. The Company was incorporated in the state of Nevada, U.S.A in October 2003.

Basis of Presentation - The condensed consolidated financial statements are prepared in conformity with United States Generally Accepted Accounting Principles ("U.S. GAAP") and include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated.

The functional currency for the Company is the United States ("U.S.") Dollar. The assets and liabilities of each of its foreign subsidiaries are translated into U.S. Dollars using the exchange rate as of the balance sheet date. Revenues and expenses are translated at the average exchange rates for the period. Gains and losses from translations are recognized in foreign currency translation included in accumulated other comprehensive loss in the accompanying consolidated balance sheets. Foreign currency exchange gains and losses are presented as foreign currency exchange loss in the accompanying condensed consolidated statements of income. The ownership percentages and functional currencies of the entities included in these condensed consolidated financial statements are follows:

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Subsidiaries

Functional Currency

% Owned by XPEL, Inc.

XPEL, Ltd.

UK Pound Sterling

100%

XPEL Canada Corp.

Canadian Dollar

100%

XPEL B.V.

Euro

100%

XPEL Germany GmbH

Euro

100%

XPEL de Mexico S. de R.L. de C.V.

Peso

100%

XPEL Acquisition Corp.

Canadian Dollar

100%

Protex Canada, Inc.

Canadian Dollar

100%

Apogee Corp.

New Taiwan Dollar

100%

XPEL Slovakia

Euro

100%

XPEL France

Euro

100%

PermaPlate Film, LLC

US Dollar

100%

1 One Armor, Inc.

US Dollar

100%

TintNet, Inc.

US Dollar

100%

North 1 Technologies, Inc.

Canadian Dollar

100%

1716808 Alberta, Ltd. o/a Shadow Tint

Canadian Dollar

100%

6873391 Canada, Ltd. o/a Shadow Shield

Canadian Dollar

100%

invisiFRAME, Ltd.

UK Pound Sterling

100%

Segment Reporting - Management has concluded that our chief operating decision maker (“CODM”) is our chief executive officer. The Company’s CODM reviews the entire organization’s consolidated results on a monthly basis to evaluate performance and make resource allocation decisions. Management views the Company’s operations and manages its business as one operating segment.

Use of Estimates - The preparation of these condensed consolidated financial statements in conformity to U.S. GAAP requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and underlying assumptions are reviewed on an ongoing basis. Actual outcomes may differ from these estimates under different assumptions and conditions.

Accounts Receivable - Accounts receivable are shown net of an allowance for doubtful accounts of $238,736 and $250,082 as of March 31, 2022 and December 31, 2021, respectively. The Company evaluates the adequacy of its allowances by analyzing the aging of receivables, customer financial condition, historical collection experience, the value of any collateral and other economic and industry factors. Actual collections may differ from historical experience, and if economic, business or customer conditions deteriorate significantly, adjustments to these reserves may be required. When the Company becomes aware of factors that indicate a change in a specific customer’s ability to meet its financial obligations, the Company records a specific reserve for credit losses. The Company had no significant accounts receivable concentration as of March 31, 2022 or December 31, 2021.

Provisions and Warranties - We provide a warranty on our products. Liability under the warranty policy is based on a review of historical warranty claims. Adjustments are made to the accruals as claims and data experience warrant. Our liability for warranties as of March 31, 2022 and December 31, 2021 was $152,365 and $75,329, respectively. The following tables present a summary of our accrued warranty liabilities for the three months ended March 31, 2022 and the twelve months ended December 31, 2021:

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)


	2022
Warranty liability, January 1	$	75,329
Warranties assumed in period	137,517
Payments	(60,481)
Warranty liability, March 31	$	152,365


	2021
Warranty liability, January 1	$	52,006
Warranties assumed in period	398,075
Payments	(374,752)
Warranty liability, December 31	$	75,329

Recent Accounting Pronouncements Issued and Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments — Measurement of Credit Losses on Financial Instruments”, which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company beginning January 1, 2023 and is required to be applied prospectively. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements.

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

3. REVENUE

Revenue recognition

The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods and services to a customer, in an amount that reflects the consideration that it expects to receive in exchange for those goods or services. This is achieved through applying the following five-step model:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

•Recognition of revenue when, or as, the Company satisfies a performance obligation

The Company generates substantially all of its revenue from contracts with customers, whether formal or implied. Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes, with the exception of taxes assessed during the procurement process of select inventories. Shipping and handling costs are included in cost of sales.

Revenue from product and services sales is recognized when control of the goods, or benefit of the service, is furnished to the customer. This occurs at a point in time, typically upon shipment to the customer or completion of the service. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.

Based upon the nature of the products the Company sells, its customers have limited rights of return and those present are immaterial. Discounts provided by the Company to customers at the time of sale are recognized as a reduction in sales as the products are sold.

Warranty obligations associated with the sale of our products are assurance-type warranties that are a guarantee of the product’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract. Warranty expense is included in cost of sales.

We apply a practical expedient to expense direct costs of obtaining a contract when incurred because the amortization period would be one year or less.

Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the Company has no performance obligations under its contracts until its customers submit a purchase order. The Company does not enter into commitments to provide goods or services that have terms greater than one year. In limited cases, the Company does require payment in advance of shipping product. Typically, product is shipped within a few days after prepayment is received. These prepayments are recorded as contract liabilities on the condensed consolidated balance sheet and are included in accounts payable and accrued liabilities (Note 9). As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has applied the practical expedient under the Accounting Standards Codification Topic 606 ("ASC 606") to omit disclosures regarding remaining performance obligations.

When the Company transfers goods or provides services to a customer, payment is due, subject to normal terms, and is not conditional on anything other than the passage of time. Typical payment terms range from due upon receipt to 30 days, depending on the type of customer and relationship. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient under ASC 606 to not adjust for the effects of a significant financing component. As such, these amounts are recorded as receivables and not contract assets.

The following table summarizes transactions within contract liabilities for the three months ended March 31, 2022:


Balance, December 31, 2021	$	817,955
Revenue recognized related to payments included in the December 31, 2021 balance	(556,422)
Payments received for which performance obligations have not been satisfied	180,901
Balance, Effect of foreign currency translation	(1,690)
Balance, March 31, 2022	$	440,744

The table below sets forth the disaggregation of revenue by product category for the periods indicated below:


	Three Months Ended March 31,
		2022		2021
Product Revenue
Paint protection film		$	43,960,520	$	35,784,433
Window film		11,533,740		7,159,291
Other		2,603,186		1,987,629
Total		58,097,446		44,931,353

Service Revenue
Software		$	1,206,636	$	978,019
Cutbank credits		2,929,885		2,635,835
Installation labor		9,255,739		3,114,502
Training		349,778		206,405
Other		24,283		—
Total		13,766,321		6,934,761

Total		$	71,863,767	$	51,866,114

Because many of our international customers require us to ship their orders to freight forwarders located in the United States, we cannot be certain about the ultimate destination of the product. The

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

following table represents our estimate of sales by geographic regions based on our understanding of ultimate product destination based on customer interactions, customer locations and other factors:


	Three Months Ended March 31,
		2022		2021
United States		$	41,586,791	$	25,604,612
China		8,858,744		10,705,495
Canada		7,850,256		4,946,175
Continental Europe		5,662,921		4,324,510
United Kingdom		2,427,777		1,785,796
Middle East/Africa		2,049,348		1,962,630
Asia Pacific		2,032,635		1,591,575
Latin America		1,205,967		916,578
Other		189,328		28,743
Total		$	71,863,767	$	51,866,114

Our largest customer accounted for 12.3% and 20.6% of our net sales during the three months ended March 31, 2022 and 2021, respectively.

4. PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following:


	March 31, 2022		December 31, 2021
Furniture and fixtures	$	2,380,478		$	2,146,522
Computer equipment	2,451,520			2,201,462
Vehicles	857,663			821,678
Equipment	4,232,513			3,571,517
Leasehold improvements	5,316,338			5,137,705
Plotters	2,325,327			2,132,930
Construction in Progress	581,104			117,505
Total property and equipment	18,144,943			16,129,319
Less: accumulated depreciation	6,780,738			6,231,193
Property and equipment, net	$	11,364,205		$	9,898,126

Depreciation expense for the three months ended March 31, 2022 and 2021 was $756,344 and $383,090, respectively.

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

5. INTANGIBLE ASSETS, NET

Intangible assets consists of the following:


	March 31, 2022		December 31, 2021
Trademarks	$	503,350	$	500,136
Software	3,791,035		3,431,276
Trade name	2,523,159		2,578,877
Contractual and customer relationships	31,350,376		31,325,826
Non-compete	463,237		458,655
Other	698,120		692,862
Total at cost	39,329,277		38,987,632
Less: Accumulated amortization	7,351,772		6,254,861
Intangible assets, net	$	31,977,505	$	32,732,771

Amortization expense for the three months ended March 31, 2022 and 2021 was $1,076,466 and $262,606, respectively.

6. GOODWILL

The following table summarizes goodwill transactions for the three months ended March 31, 2022 the twelve months ended December 31, 2021:


	2022
Balance at December 31, 2021	$	25,655,428
Open period adjustments for 2021 acquisitions not yet finalized	(37,585)
Foreign Exchange	(3,733)
Balance at March 31, 2022	$	25,614,110

	2021
Balance at December 31, 2020	$	4,472,217
Additions	21,284,381
Foreign Exchange	(101,170)
Balance at December 31, 2021	$	25,655,428

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

7. INVENTORIES

The components of inventory are summarized as follows:


	March 31, 2022		December 31, 2021
Raw materials	$	7,684,430	$	2,698,512
Work in process	3,720,554		180,009
Finished goods	63,081,859		49,057,643
	$	74,486,843	$	51,936,164

8. DEBT

REVOLVING FACILITIES

The Company has a $75,000,000 revolving line of credit with Texas Partners Bank (which does business as the Bank of San Antonio). The facility is utilized to fund the Company's working capital needs and other strategic initiatives, and is secured by a security interest in substantially all of the Company's current and future assets. Borrowings under the credit agreement bear interest on at the Wall Street Journal U.S. Prime Rate less 0.75% per annum if the Company's EBITDA ratio (as defined in the Loan Agreement governing the facility) is equal to or less than 2.00 to 1.00 or the Wall Street Journal U.S. Prime rate less 0.25% if the Company's EBITDA ratio is greater than 2.00 to 1.00. The facility also includes a fee of 0.25% of the unused capacity on the facility. The interest rate for this credit facility as of March 31, 2022 and December 31, 2021 was 2.75% and 2.50%, respectively. The Company paid interest charges on borrowings under this facility of $216,007 during the three months ended March 31, 2022, and had a balance of $33,000,000 and $25,000,000 as of March 31, 2022 and December 31, 2021, respectively. This facility matures on July 5, 2024.

The Loan Agreement governing the facility contains customary covenants relating to maintaining legal existence and good standing, complying with applicable laws, delivery of financial statements, payment of taxes and maintaining insurance. The Loan Agreement contains two financial covenants:

(1) Senior Funded Debt (as defined in the Loan Agreement) divided by EBITDA (as defined in the Loan Agreement) at or below 3.50 : 1.00 when tested at the end of each fiscal quarter on a rolling four-quarter basis, and

(2) A minimum Debt Service Coverage Ratio (as defined in the Loan Agreement) of 1.25 : 1.00 at the end of each fiscal quarter when measured on a rolling four-quarter basis.

The Company also has a CAD $4.5 million revolving credit facility through HSBC Bank Canada, and is maintained by XPEL Canada Corp., a wholly-owned subsidiary of XPEL. This Canadian facility is utilized to fund the Company's working capital needs in Canada. This facility bears interest at HSBC Canada Bank’s prime rate plus 0.25% per annum and is guaranteed by the parent company. As of March 31, 2022 and December 31, 2021, no balance was outstanding on this line of credit.

As of March 31, 2022 and December 31, 2021, the Company was in compliance with all debt covenants.

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTES PAYABLE

As part of its acquisition strategy, the Company may use a combination of cash and unsecured non-interest bearing promissory notes payable to fund its business acquisitions. The Company discounts the promissory note to fair value using market interest rates at the time of the acquisition.

Notes payable are summarized as follows:


	Weighted Average Interest Rate	Matures	March 31, 2022		December 31, 2021
Face value of acquisition notes payable	2.81%	2023	$	355,918	$	458,188
Unamortized discount			(4,244)		(7,058)
Current portion			(351,674)		(375,413)
Total long-term debt			$	—	$	75,717

9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The following table presents significant accounts payable and accrued liability balances as of the periods ending:


	March 31, 2022		December 31, 2021
Trade payables	$	36,177,802	$	25,174,805
Payroll liabilities

SEC Form 10-Q filed by XPEL Inc.