xpel-20240930

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 September 30, 2024


☐			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.)

711 Broadway St., Suite 320

San Antonio

Texas

78215

(Address of Principal Executive Offices)

(Zip Code)

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

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 27,647,640 shares of common stock outstanding as of November 8, 2024.

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			28

Part II - Other Information
Item 1. Legal Proceedings			29
Item 1A. Risk Factors			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			29
Item 3. Defaults Upon Senior Securities			29
Item 4. Mine Safety Disclosures			29
Item 5. Other Information			29
Item 6. Exhibits			30

Signatures			30

Part I. Financial Information

Item 1. Financial Statements

XPEL, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


	(Unaudited)		(Audited)
	September 30, 2024		December 31, 2023
Assets
Current
Cash and cash equivalents	$	20,986	$	11,609
Accounts receivable, net	29,583		24,111
Inventory, net	101,592		106,509
Prepaid expenses and other current assets	6,296		3,529
Income tax receivable	264		696
Total current assets	158,721		146,454
Property and equipment, net	17,851		16,980
Right-of-use lease assets	18,380		15,459
Intangible assets, net	33,601		34,905
Other non-current assets	1,141		782
Goodwill	43,347		37,461
Total assets	$	273,041	$	252,041
Liabilities
Current
Current portion of notes payable	$	66	$	62
Current portion lease liabilities	4,820		3,966
Accounts payable and accrued liabilities	31,634		32,444

Total current liabilities	36,520		36,472
Deferred tax liability, net	1,252		2,658
Other long-term liabilities	1,077		890
Borrowings on line of credit	—		19,000
Non-current portion of lease liabilities	15,205		12,715
Non-current portion of notes payable	260		317
Total liabilities	54,314		72,052
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; 27,647,223 and 27,630,025 issued and outstanding, respectively	28		28
Additional paid-in-capital	14,700		12,546
Accumulated other comprehensive loss	(1,216)		(1,209)
Retained earnings	205,215		168,624
Total stockholders’ equity	218,727		179,989
Total liabilities and stockholders’ equity	$	273,041	$	252,041

See notes to condensed consolidated financial statements.

XPEL, INC.

Condensed Consolidated Statements of Income (Unaudited)

(In thousands, except per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Revenue
Product revenue	$	86,950	$	81,125	$	237,002	$	229,339
Service revenue	25,902		21,552		75,871		61,416
Total revenue	112,852		102,677		312,873		290,755

Cost of Sales
Cost of product sales	53,967		51,876		147,376		143,613
Cost of service	10,969		9,272		31,840		25,660
Total cost of sales	64,936		61,148		179,216		169,273
Gross Margin	47,916		41,529		133,657		121,482

Operating Expenses
Sales and marketing	10,637		7,730		31,308		22,554
General and administrative	18,892		16,170		55,547		46,180
Total operating expenses	29,529		23,900		86,855		68,734

Operating Income	18,387		17,629		46,802		52,748

Interest expense	97		85		962		946
Foreign currency exchange (gain)/loss	(332)		398		216		419

Income before income taxes	18,622		17,146		45,624		51,383
Income tax expense	3,730		3,490		9,033		10,553
Net income	$	14,892	$	13,656	$	36,591	$	40,830

Earnings per share
Basic	$	0.54	$	0.49	$	1.32	$	1.48
Diluted	$	0.54	$	0.49	$	1.32	$	1.48
Weighted Average Number of Common Shares
Basic	27,642		27,623		27,636		27,620
Diluted	27,644		27,644		27,639		27,634

See notes to condensed consolidated financial statements.

XPEL, INC.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Other comprehensive income
Net income	$	14,892	$	13,656	$	36,591	$	40,830
Foreign currency translation	1,150		(731)		(7)		24
Total comprehensive income	$	16,042	$	12,926	$	36,584	$	40,854

See notes to condensed consolidated financial statements.

XPEL, INC.

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

(In thousands)


Stockholders' Equity - Three Months Ended September 30
	Common Stock			Additional Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance as of June 30, 2023	27,620	$	28	$	11,730	$	142,998	$	(1,448)	$	153,308
Net income	—	—		—		13,656		—		13,656
Foreign currency translation	—	—		—		—		(731)		(731)
Stock-based compensation	9	—		320		—		—		320
Balance as of September 30, 2023	27,629	28		12,050		156,654		(2,179)		166,553

Balance as of June 30, 2024	27,638	28		13,926		190,323		(2,366)		201,911
Net income	—	—		—		14,892		—		14,892
Foreign currency translation	—	—		—		—		1,150		1,150
Stock-based compensation	9	—		774		—		—		774
Balance as of September 30, 2024	27,647	$	28	$	14,700	$	205,215	$	(1,216)	$	218,727


Stockholders' Equity - Nine Months Ended September 30
	Common Stock			Additional Paid-in-Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance as of December 31, 2022	27,616	$	28	$	11,073	$	115,824	$	(2,203)	$	124,722
Net income	—	—		—		40,830		—		40,830
Foreign currency translation	—	—		—		—		24		24
Stock-based compensation	13	—		977		—		—		977
Balance as of September 30, 2023	27,629	28		12,050		156,654		(2,179)		166,553

Balance as of December 31, 2023	27,630	28		12,546		168,624		(1,209)		179,989
Net income	—	—		—		36,591		—		36,591
Foreign currency translation	—	—		—		—		(7)		(7)
Stock-based compensation	17	—		2,154		—		—		2,154
Balance as of September 30, 2024	27,647	$	28	$	14,700	$	205,215	$	(1,216)	$	218,727

See notes to condensed consolidated financial statements.

XPEL, INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities
Net income	$	36,591	$	40,830
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment	4,308		3,229
Amortization of intangible assets	4,327		3,660
Gain on sale of property and equipment	(35)		(11)
Stock compensation	2,329		1,144
Provision for credit losses	279		216
Deferred income tax	(1,414)		(844)

Changes in assets and liabilities:
Accounts receivable, net	(5,475)		(9,483)
Inventory, net	5,174		(11,583)
Prepaid expenses and other current assets	(2,785)		(7,288)
Income taxes receivable and payable	370		320
Accounts payable and accrued liabilities	(2,172)		18,311
Net cash provided by operating activities	41,497		38,501
Cash flows used in investing activities
Purchase of property, plant and equipment	(5,085)		(4,741)
Proceeds from sale of property and equipment	40		20
Acquisition of businesses, net of cash acquired	(6,520)		(4,697)
Development of intangible assets	(1,421)		(798)
Net cash used in investing activities	(12,986)		(10,216)
Cash flows from financing activities
Net payments on revolving line of credit	(19,000)		(26,000)
RSUs withheld in lieu of payroll taxes	(175)		(167)
Repayments of notes payable	(44)		(77)
Net cash used in financing activities	(19,219)		(26,244)
Net change in cash and cash equivalents	9,292		2,041
Foreign exchange impact on cash and cash equivalents	85		277
Increase in cash and cash equivalents during the period	9,377		2,318
Cash and cash equivalents at beginning of period	11,609		8,056
Cash and cash equivalents at end of period	$	20,986	$	10,374

Supplemental schedule of non-cash activities
Non-cash lease financing	$	6,210	$	1,847
Issuance of common stock for vested restricted stock units	$	900	$	874
Supplemental cash flow information
Cash paid for income taxes	$	10,256	$	11,144
Cash paid for interest	$	995	$	1,000

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, 2023, which has been derived from audited financial statements, and (b) unaudited interim condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024 and 2023 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 for the year ended December 31, 2023 as filed with the SEC on February 28, 2024 (the "Annual Report") and with the Management's Discussion and Analysis of Financial Condition and Results of Operations section appearing elsewhere 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 commercial/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 wholly-owned foreign subsidiaries are translated into U.S. dollars using the exchange rate at the end 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.

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 with 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 allowances for expected credit losses of $0.2 million and $0.2 million as of September 30, 2024 and December 31, 2023, 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

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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.

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 September 30, 2024 and December 31, 2023 was $0.7 million and $0.4 million, respectively. The following tables present a summary of our accrued warranty liabilities for the nine months ended September 30, 2024 and the twelve months ended December 31, 2023 (in thousands):


	2024
Warranty liability, January 1	$	422
Warranties assumed in period	1,246
Payments	(990)
Warranty liability, September 30	$	678


	2023
Warranty liability, January 1	$	234
Warranties assumed in period	768
Payments	(580)
Warranty liability, December 31	$	422

Recent Accounting Pronouncements Issued and Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures” which makes certain updates to segment reporting. This standard will become effective for our annual reporting for the year beginning January 1, 2024 and for our interim reporting for interim periods beginning January 1, 2025. We do not anticipate implementation of this standard will have a material impact on our financial statements.

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures”, which makes certain updates to income tax disclosures. This standard becomes effective for our fiscal year beginning January 1, 2025. We do not anticipate implementation of this standard will have a material impact on our 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 due within 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

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

customer and 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 and nine months ended September 30, 2024 (in thousands):


Balance, December 31, 2023	$	761
Revenue recognized related to payments included in the December 31, 2023 balance	(696)
Payments received for which performance obligations have not been satisfied	276
Effect of foreign currency translation	(4)
Balance, March 31, 2024	337
Revenue recognized related to payments included in the March 31, 2024 balance	(284)
Payments received for which performance obligations have not been satisfied	935
Effect of foreign currency translation	(3)
Balance, June 30, 2024	985
Revenue recognized related to payments included in the June 30, 2024 balance	(926)
Payments received for which performance obligations have not been satisfied	643
Effect of foreign currency translation	22
Balance, September 30, 2024	$	724

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Product Revenue
Paint protection film	$	60,545	$	58,977	$	166,870	$	165,016
Window film	22,627		18,762		59,195		54,055
Other	3,778		3,386		10,937		10,268
Total	$	86,950	$	81,125	$	237,002	$	229,339

Service Revenue
Software	$	2,041	$	1,652	$	5,959	$	4,656
Cutbank credits	4,500		4,524		13,300		13,253
Installation labor	18,925		14,852		55,090		41,781
Training and other	436		524		1,522		1,726
Total	$	25,902	$	21,552	$	75,871	$	61,416

Total	$	112,852	$	102,677	$	312,873	$	290,755

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 following table represents our estimate of sales by geographic regions based on our understanding of

XPEL, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

ultimate product destination based on customer interactions, customer locations and other factors (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
United States	$	64,565	$	59,002	$	181,515	$	169,228
Canada	14,415		11,471		38,769		31,914
China	9,058		10,242		14,910		24,992
Continental Europe	9,058		8,705		30,629		26,354
United Kingdom	3,548		3,499		10,723		10,220
Middle East/Africa	5,286		3,909		15,231		11,514
Asia Pacific	4,095		3,233		12,179		9,192
Latin America	2,827		2,325		8,917		6,617
Other	—		291		—		724
Total	$	112,852	$	102,677	$	312,873	$	290,755

4. PROPERTY AND EQUIPMENT, NET

Property and equipment consists of the following (in thousands):


	September 30, 2024		December 31, 2023
Furniture and fixtures	$	4,439		$	3,844
Computer equipment	5,148			4,743
Vehicles	1,012			1,141
Equipment	6,031			5,685
Leasehold improvements	11,969			10,921
Plotters	4,884			4,315
Construction in Progress	378			201
Total property and equipment	33,861			30,850
Less: accumulated depreciation

SEC Form 10-Q filed by XPEL Inc.