XPEL, Inc.: Form 10-Q for the period ended Mar 31, 2026

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess the financial condition and results of operations of XPEL, Inc. (“XPEL” or the “Company”). Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “Forward-Looking Statements” in this Report and under “Business," "Risk Factors,” "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements and Supplementary Data" in the Annual Report which is available on the SEC’s website at www.sec.gov (http://www.sec.gov).

Forward-Looking Statements

This quarterly report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to the safe harbor created by those sections. In addition, the Company or others on the Company’s behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on the Company’s internet web site, or otherwise. All statements other than statements of historical facts included in this Report or expressed by the Company orally from time to time that address activities, events, or developments that the Company expects, believes, or anticipates will or may occur in the future are forward-looking statements, including, in particular, the statements about the Company’s plans, objectives, strategies, and prospects regarding, among other things, the Company’s financial condition, results of operations and business, and the outcome of contingencies, such as legal proceedings. The Company has identified some of these forward-looking statements in this Report with words like “believe,” “can,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate,” “outlook,” or “continue” or the negative of these words or other words and terms of similar meaning. The use of future dates is also an indication of a forward-looking statement. Forward-looking statements may be contained in the notes to the Company’s condensed consolidated financial statements and elsewhere in this Report, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on current expectations about future events affecting the Company and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to the Company. These uncertainties and factors are difficult to predict, and many of them are beyond the Company’s control. Factors to consider when evaluating these forward-looking statements include, but are not limited to:

Operational Risks

• A material disruption from our contract manufacturers or suppliers, or our inability to obtain a sufficient supply of products from alternate suppliers, could cause us to be unable to meet customer demands or increase our costs.
• Any continued reliance on contract manufacturers and suppliers exposes us to product quality and variable cost risks.
• Our results depend on the timely availability of raw materials, components, and commodities at acceptable prices.
• If we do not manage or control the quality of our products, we may be unable to meet customer demands and incur higher costs.
• Our planned investment in manufacturing and supply chain assets exposes us to execution risks.

Risks Related to Our Business in China

• Failure to meet the PRC government’s complex regulatory requirements on and significant oversight over our business operation could result in a material adverse change in our operations and the value of our securities.
• We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our business.

Risks Related to Our Business and Industry

• We are highly dependent on the automotive industry. A prolonged or material contraction in automotive sales and production volumes could adversely affect our business, results of operations and financial condition.
• Our operating results can be adversely affected by inflation, changes in the cost or availability of raw materials, labor, energy, transportation and other necessary supplies and services.
• The after-market automotive product supply business is highly competitive. Competition presents an ongoing threat to the success of our Company.

Strategic Risks

• We depend on our relationships with independent installers and new car dealerships and their ability to sell and service our products. Any disruption in these relationships could harm our sales.
• We may not be able to identify, finance and complete suitable acquisitions and investments, and any completed acquisitions and investments could be unsuccessful or consume significant resources.
• If we are unable to maintain our network of sales and distribution channels, it could adversely affect our net sales, profitability and the implementation of our growth strategy.

Legal, Regulatory and Compliance Risks

• We may incur material losses and costs as a result of product liability and warranty claims.
• Violations of the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside the U.S. could have a material adverse effect on us.
• Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on us.
• Changes in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international relations, could adversely affect our financial performance.

Liquidity Risks

• We may seek to incur substantial indebtedness in the future.
• We cannot be certain that additional financing will be available on reasonable terms when required, or at all.
• Our variable rate indebtedness exposes us to interest rate volatility, which could cause our debt service obligations to increase significantly.

Risks Relating to Common Stock

• If research analysts issue unfavorable commentary or downgrade our Common Stock, the price of our Common Stock and its trading volume could decline.
• Short sellers of our stock may be manipulative and may have driven down and may again drive down the market price of our Common Stock.
• Our stock price has been, and may continue to be, volatile.
• We may issue additional equity securities or engage in other transactions that could dilute our book value or affect the priority of our Common Stock, which may adversely affect the market price of our Common Stock.

General Risk Factors

• General global economic and business conditions affect demand for our products.
• A public health crisis could impact our business.
• Economic, political and market conditions can adversely affect our business, financial condition and results of operations.

We believe the items we have outlined above are important factors that could cause estimates included in our financial statements to differ materially from actual results and those expressed in a forward-looking statement made in this Report or elsewhere by us or on our behalf. We have discussed these factors in more detail in the Annual Report as supplemented in this Report. These factors are not necessarily all of the factors that could affect us. Unpredictable or unanticipated factors that we have not discussed in this Report could also have material adverse effects on actual results. We do not intend to update our description of important factors each time a potential important factor arises, except as required by applicable securities laws and regulations. We advise our shareholders that they should (1) be aware that factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution when considering our forward-looking statements.

Company Overview

We are a supplier of protective films, coatings and related services primarily to the automobile aftermarket, new car dealerships and automobile original equipment manufacturers, or OEMs. The majority of our revenue is derived from the sale of our automotive products and related services while the remainder of our revenue is derived from non-automotive products including architectural window film and marine and flat surface protection films.

The Company began as a software company designing vehicle patterns used to produce cut-to-fit protective film for headlights and painted surfaces of automobiles. In 2007, we began selling automotive paint protection film products to complement our software business. As paint protection film technology improved and became more durable, awareness and adoption of paint protection film has continued to increase, driving significant industry growth over the last several years. Initial adoption of paint protection film came primarily from luxury car enthusiasts in the United States and Canada. These enthusiasts were primarily served by a growing automotive aftermarket of independent installers of automotive paint protection and window films. Internationally, nascent demand began to build as awareness and adoption in the United States and Canada continued to increase. Over the last few years, new car dealership interest in the product has increased due to their exposure to the aftermarket installer network, while OEM interest in the product increased through their exposure to the new car dealerships who were selling the product.

Strategic Overview

Our strategy initially centered on how best to serve and grow our network of independent installers in the US and Canada and to sell products internationally through independent distributors while simultaneously building and enhancing the XPEL brand. This “best-in-class” service strategy was then extended to new car dealerships and OEMs. Internationally, while our initial market entry has primarily been through indirect distribution, we desire to ultimately sell directly to the majority of the top 25 car markets in the world, which is an important element of our acquisition strategy. To that end, we have acquired distributors in several international markets including India, Thailand, Japan and, most recently, China.

To complement our channel network and distribution, we are investing in manufacturing and the supply chain with a goal to be a high quality, low cost producer for our products which we expect will significantly improve our operating margin and allow more control over the end-to-end manufacturing process.

Key Business Metric - Non-GAAP Financial Measures

Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that the most important measure to the Company is Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”).

EBITDA is a non-GAAP financial measure. We believe EBITDA provides helpful information with respect to our operating performance as viewed by management, including a view of our business that is not dependent on (i) the impact of our capitalization structure and (ii) items that are not part of our day-to-day operations. Management uses EBITDA (1) to compare our operating performance on a consistent basis, (2) to calculate incentive compensation for our employees, (3) for planning purposes including the preparation of our internal annual operating budget, (4) to evaluate the performance and effectiveness of our operational strategies, and (5) to assess compliance with various metrics associated with the agreements governing our indebtedness. Accordingly, we believe that EBITDA provides useful information in understanding and evaluating our operating performance in the same manner as management. We define EBITDA as net income plus (a) total depreciation and amortization, (b) interest expense, net, and (c) income tax expense.

The following table is a reconciliation of Net Income to EBITDA for the three months ended March 31, 2026 and 2025 (in thousands):

(Unaudited)

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Use of Non-GAAP Financial Measures

EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. It is not a measurement of our financial performance under GAAP and should not be considered as alternatives to revenue or net income, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our operating results as reported under GAAP.

EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations; and other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

Results of Operations

The following tables summarize the Company’s consolidated results of operations for the three months ended March 31, 2026 and 2025 (dollars in thousands):

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The following tables summarize revenue results for the three months ended March 31, 2026 and 2025 (dollars in thousands):

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 summarized geographic regions based on our understanding of ultimate product destination based on customer interactions, customer locations and other factors for the three months ended March 31, 2026 and 2025 (dollars in thousands):

Product Revenue. Product revenue for the three months ended March 31, 2026 increased 12.7% over the three months ended March 31, 2025. Product revenue represented 75.6% of our total revenue compared to 75.9% in the three months ended March 31, 2025. Revenue from our paint protection film product line increased 9.3% over the three months ended March 31, 2025. Paint protection film sales represented 52.5% and 54.4% of our total consolidated revenues for the three months ended March 31, 2026 and 2025, respectively. The total increase in paint protection film sales was due to increased demand for our film products across multiple regions.

Revenue from our window film product line grew 24.8% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. Window film sales represented 19.8% and 18.0% of our total consolidated revenues for the three months ended March 31, 2026 and 2025, respectively. This increase was driven by continued demand resulting from increased product adoption in multiple regions for automotive window film led by our China and APAC regions resulting primarily from increasing our direct presence is these regions.

Geographically, we experienced continued growth in most of our regions during the three months ended March 31, 2026 including 44.4%, 25.1%, 19.0%, and in China, Asia-Other, and EU/UK/Africa, respectively. The increase in China was driven primarily by increased demand and incremental direct revenue resulting from the completion of our acquisition of our China distributor late in the third quarter of 2025. The increases in Asia-Other and EU/UK/Africa were driven primarily by increased product adoption and increased demand. Revenue from our Canada region declined 10.9% primarily due to timing of distributor sales. Normalizing for this timing, revenue would have grown 5.7%.

Service revenue. Service revenue consists of revenue from fees for DAP software access, cutbank credit revenue, which represents the value of pattern access provided with eligible product revenue, revenue from the labor portion of installation sales in our Company-owned installation centers, revenue from our dealership services business and revenue from training services provided to our customers.

Service revenue grew 14.1% over the three months ended March 31, 2025. Installation labor revenue increased 23.9% over the three months ended March 31, 2025 due mainly to increased demand across our dealership services and OEM networks. Cutbank credit revenue declined due primarily to a reduction in the estimated fair value of a cutbank credit.

Total installation revenue (labor and product combined) increased 24.3% over the three months ended March 31, 2025. This represented 23.7% and 21.5% of our total consolidated revenue for the three months ended March 31, 2026 and 2025, respectively. These increases were primarily due to increased demand across our dealership services and OEM networks. Adjusted product revenue, which combines the cutbank credit revenue service component with product revenue, increased 10.2% over the three months ended March 31, 2025.

Cost of Sales

Cost of sales consists of product costs and the costs to provide our services. Product costs consist of material costs, personnel costs related to warehouse personnel, shipping costs, warranty costs and other related costs to provide products to our customers. Cost of service includes the labor costs associated with installation of product in our installation facilities, costs of labor associated with pattern design for our cutting software and the costs incurred to provide training for our customers.

Product costs for the three months ended March 31, 2026 increased 8.1% over the three months ended March 31, 2025. Cost of product sales represented 44.6% and 46.7% of total revenue in the three months ended March 31, 2026 and 2025, respectively. Cost of service revenue grew 20.0% during the three months ended March 31, 2026. Refer to the Gross Margin section below for discussion of this cost relative to revenue.

Gross Margin

Gross margin for the three months ended March 31, 2026 grew approximately $7.3 million, or 16.7%, compared to the three months ended March 31, 2025. For the three months ended March 31, 2026, gross margin represented 43.7% of revenue compared to 42.3% for the three months ended March 31, 2025.

The following tables summarizes gross margin for product and services for the three months ended March 31, 2026 and 2025 (dollars in thousands):

Product gross margin for the three months ended March 31, 2026 increased approximately $6.1 million, or 20.1%, over the three months ended March 31, 2025 and represented 41.0% and 38.5% of total product revenue for the three months ended March 31, 2026 and 2025, respectively. The increase in gross margin percentage was due primarily to decreases in product costs, favorable changes in product mix and improved operating leverage.

Service gross margin increased approximately $1.3 million, or 9.2%, over the three months ended March 31, 2025. This represented 52.0% and 54.3% of total service revenue for the three months ended March 31, 2026 and 2025, respectively. The decrease was primarily due to the reduction in the estimated fair value of a cutbank credit. Excluding this reduction, service gross margin was 54.6%.

Operating Expenses

Sales and marketing expenses for the three months ended March 31, 2026 increased 27.7% compared to the same period in 2025. This increase was primarily due to increased personnel and marketing costs associated with ongoing growth in multiple markets as the Company increased the number of sponsorships and increased marketing efforts to dealerships and end customers. These expenses represented 12.9% and 11.4% of total consolidated revenue for the three months ended March 31, 2026 and 2025, respectively.

General and administrative expenses grew approximately $2.2 million, or 10.3% over the three months ended March 31, 2025. This increase in cost was due primarily to increases in personnel, occupancy costs and professional fees. Total General and Administrative expenses represented 19.6% and 20.1% of total consolidated revenue for the three months ended March 31, 2026 and 2025, respectively.

Income Tax Expense

Income tax expense for the three months ended March 31, 2026 increased $0.1 million from the three months ended March 31, 2025. Our effective tax rate was 20.9% for the three months ended March 31, 2026 compared with 23.9% for the three months ended March 31, 2025. The decrease in our effective rate was primarily due to a higher proportion of foreign earnings taxed at lower rates.

Net Income

Net income for the three months ended March 31, 2026 increased 22.4% to $10.5 million.

Liquidity and Capital Resources

Our primary sources of liquidity are available cash and cash equivalents, cash flows provided by operations and borrowing capacity under our credit facilities. As of March 31, 2026, we had cash and cash equivalents of $45.1 million. For the three months ended March 31, 2026, cash provided by operations was $7.4 million and as of March 31, 2026 we had $128.2 million in funds available under our credit facilities. We expect to continue to have sufficient access to cash to support working capital needs, pay for capital expenditures (including acquisitions), and to pay interest and service debt. We believe we have the ability and sufficient resources to meet these cash requirements by using available cash, internally generated funds and borrowings under committed credit facilities. We are focused on continuing to generate positive operating cash to fund our operational and capital investment initiatives. We believe we have sufficient liquidity to operate for at least the next 12 months from the date of this quarterly report.

Operating activities. Cash provided by operations totaled $7.4 million for the three months ended March 31, 2026, compared to $3.2 million during the three months ended March 31, 2025. This increase in cash flows from operating activities was mainly due to the timing of income tax payments and increases in accounts payable and other accrued liabilities offset by increases in inventory related to planned seasonal volume increases.

Investing activities. Cash used in investing activities totaled approximately $9.9 million during the three months ended March 31, 2026 compared to $1.6 million during the three months ended March 31, 2025. This increase was due primarily to an increase in deposits related to our supply chain initiatives.

Financing activities. Cash used in financing activities during the three months ended March 31, 2026 totaled $3.6 million compared to $0.2 million during the same period in the prior year. This change was due primarily to the purchase of treasury shares during 2026.

Debt and contingent obligations as of March 31, 2026 and December 31, 2025 totaled approximately $18.2 million and $20.0 million, respectively.

Future Liquidity and Capital Resource Requirements

We expect to fund ongoing operating expenses, capital expenditures, acquisitions, interest payments, tax payments, credit facility maturities, future lease obligations, and payments for other long-term liabilities with cash flow from operations and borrowings under our credit facility. In the short-term, we are contractually obligated to make lease payments and make payments on contingent liabilities related to certain completed acquisitions. In the long-term, we are contractually obligated to make lease payments, for contingent liabilities, and for repayment of borrowings on our line of credit. In addition, if an opportunity presents itself, we may increase our borrowing under available credit arrangements or sell debt or equity securities, although we may not be able to complete any such financing on terms acceptable to us or at all. We believe that we have sufficient cash and cash equivalents, as well as borrowing capacity, to cover our estimated short-term and long-term funding needs.

Credit Facilities

On September 11, 2025, XPEL entered into the Amendment to the Credit Agreement with Wells Fargo Bank, N.A., as Administrative Agent, and other lenders party thereto. The Amendment, among other things, extended the maturity of the Credit Agreement from April 6, 2026 to September 11, 2028. The Credit Agreement provides for secured revolving loans and letters of credit in an aggregate amount of up to $125 million, which is subject to the terms of the Credit Agreement. As of March 31, 2026 and December 31, 2025, the Company had no outstanding balances under the Credit Agreement. All capitalized terms in this description of the credit facility that are not otherwise defined in this Report have the meaning assigned to them in the Credit Agreement.

Borrowings under the Credit Agreement bear interest, at XPEL’s option, at a rate equal to either (a) Base Rate or (b) Adjusted Term SOFR. In addition to the applicable interest rate, the Credit Agreement includes a commitment fee ranging from 0.20% to 0.25% per annum for the unused portion of the aggregate commitment and an applicable margin ranging from 0.00% to 0.50% for Base Rate Loans and 1.00% to 1.50% for Adjusted Term SOFR Loans. At March 31, 2026, these rates were 6.8% and 4.7%, respectively. Both the margin applicable to the interest rate and the commitment fee are dependent on XPEL’s Consolidated Total Leverage Ratio. The Credit Agreement's maturity date is September 11, 2028.

Obligations under the Credit Agreement are secured by a first priority perfected security interest, subject to certain permitted encumbrances, in all of XPEL’s material property and assets.

The terms of the Credit Agreement include certain affirmative and negative covenants that require, among other things, XPEL to maintain legal existence and remain in good standing, comply with applicable laws, maintain accounting records, deliver financial statements and certifications on a timely basis, pay taxes as required by law, and maintain insurance coverage, as well as to forgo certain specified future activities that might otherwise encumber XPEL and certain customary covenants. The Credit Agreement provides for two financial covenants, as follows.

As of the last day of each fiscal quarter:

1. XPEL shall not allow its Consolidated Total Leverage Ratio to exceed 3.50 to 1.00, and

2. XPEL shall not allow its Consolidated Interest Coverage Ratio to be less than 3.00 to 1.00

The Company also has a CAD $4.5 million (approximately $3.2 million USD as of March 31, 2026) revolving credit facility through a financial institution in 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 the Royal Bank of Canada’s prime rate plus 0.25% per annum and is guaranteed by the parent company. As of March 31, 2026 and December 31, 2025, no balance was outstanding on this line of credit.

As of March 31, 2026 and December 31, 2025, the Company was in compliance with all debt covenants.

Critical Accounting Estimates

There have been no material changes to the Company’s critical accounting estimates from the information provided in the Annual Report on Form 10-K.

Related Party Relationships

There are no family relationships between or among any of our directors or executive officers. There are no arrangements or understandings between any two or more of our directors or executive officers, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current Board. There are also no arrangements, agreements or understandings between non-management stockholders that may directly or indirectly participate in or influence the management of our affairs.

We have operations that expose us to currency risk in the British Pound Sterling, the Canadian Dollar, the Euro, the Mexican Peso, the New Taiwanese Dollar, the Australian Dollar, the Indian Rupee, the Chinese Yuan Renminbi, the Japanese Yen, and the Thai Baht. Amounts invested in our foreign operations are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as accumulated other comprehensive income, a component of stockholders’ equity in our consolidated balance sheets. We do not currently hedge our exposure to potential foreign currency translation adjustments.

Borrowings under our revolving lines of credit subject us to market risk resulting from changes in interest rates related to our floating rate bank credit facilities. For such borrowings, a hypothetical 200 basis point increase in variable interest rates may result in a material impact to our financial statements. We do not currently have any derivative contracts to hedge our exposure to interest rate risk. During each of the periods presented, we have not experienced a significant effect on our business due to changes in interest rates.

If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could adversely affect our business, financial condition and results of operations.

Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosures.

Management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Report. Based on such evaluation, our CEO and CFO have each concluded that as of the end of the period covered by this Report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives as specified above. Management does not expect, however, that our disclosure controls and procedures will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.