XPEL Inc

Previous wording

Product Revenue. Product revenue increased 20.6% during the year ended December 31, 2023 as compared to 2022 and represented 78.6% of our consolidated 2023 revenue. Within this category, revenue from our paint protection film product line increased 19.5% as compared to the prior year and represented 58.0% of total consolidated revenue for the year ended December 31, 2023. This growth was due mainly to increases in demand for our film products across multiple regions. This increase was driven by both new customer additions and revenue growth in existing customers.

Current wording

Product Revenue. Product revenue increased 2.4% during the year ended December 31, 2024 as compared to 2023 and represented 75.8% of our consolidated 2024 revenue. Within this category, revenue from our paint protection film product line decreased 1.4% as compared to the prior year and represented 53.9% of total consolidated revenue for the year ended December 31, 2024. This decrease was primarily the result of a decline in sales into China offset by increases in most other operating regions. Sales into China were negatively impacted as our distributor continued to sell through excess inventory levels during the year.

Previous wording

Revenue from our window film product line grew 25.0% in the year ended December 31, 2023 and represented 17.1% of our consolidated annual 2023 revenue. This product line includes both automotive and architectural window film. Automotive window film grew 20.2% to $58.5 million for the year ended December 31, 2023. This increase was due to continued channel focus, increased product adoption in multiple regions and increased demand. Architectural window film revenue increased 65.9% to $9.5 million. This increase was due mainly to increased product awareness and adoption in most of our regions.

Current wording

Revenue from our window film product line grew 14.3% during the year ended December 31, 2024 and represented 18.5% of our consolidated annual 2024 revenue. This product line includes both automotive and architectural window film. Automotive window film revenue grew 12.5% to $65.8 million for the year ended December 31, 2024 and represented 84.7% of total window film revenue and 15.7% of total consolidated revenue for the year ended December 31. 2024 . This increase was due to continued channel focus, increased product adoption in multiple regions and increased demand. Architectural window film revenue increased 9.4% to $10.4 million and represented 13.4% of total window film revenue and 2.5% of total consolidated revenue for the year ended December 31, 2024. This increase was due mainly to increased product awareness and adoption in most of our regions.

Previous wording

Other product revenue for the year ended December 31, 2023 grew 18.8% to $13.6 million and represented 3.5% of total consolidated revenue. This increase was driven by an increase in demand for our non-film related products such as ceramic coating, plotters, chemicals and other film installation tools and accessories. Our FUSION ceramic coating product revenue grew 51.7% to $6.2 million. This increase was driven primarily by increased channel focus and increased demand for our ceramic coating products.

Current wording

Other product revenue for the year ended December 31, 2024 grew 6.6% to $14.5 million and represented 3.4% of total consolidated revenue. This increase was driven by an increase in demand for our non-film related products such as ceramic coating, plotters, chemicals and other film installation tools and accessories. Our FUSION ceramic coating product revenue grew 4.1% to $6.4 million. This increase was driven primarily by increased channel focus and increased demand for our ceramic coating products.

Previous wording

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. During 2023, service revenue grew 29.0% over service revenue for the year ended December 31, 2022.

Current wording

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, labor revenue from our dealership services business, and revenue from training services provided to our customers. During 2024, service revenue grew 19.6% over service revenue for the year ended December 31, 2023.

Previous wording

Within the service revenue category, software revenue increased 25.0% from the year ended December 31, 2022. This increase was due primarily to increases in customers subscribing to our software. Cutbank credit revenue grew 8.0% from the year ended December 31, 2022. This increase was due primarily to the aforementioned increases in demand for our products and services. Installation labor revenue increased 36.5% from the year ended December 31, 2022, due mainly to strong demand across our dealership service and OEM businesses and at our Company-owned installation facilities. Training revenue increased 55.1% from the year ended December 31, 2022 as we continue to grow our global training presence.

Current wording

Within the service revenue category, software revenue increased 23.7% from the year ended December 31, 2023. This increase was due primarily to increases in customers subscribing to our software. Cutbank credit revenue decreased 3.5% from the year ended December 31, 2023. This decrease was due primarily to the decrease in paint protection film revenue. Installation labor revenue increased 27.4% from the year ended December 31, 2023, due mainly to strong demand across our dealership service and OEM businesses.

Previous wording

Total installation revenue (labor and product combined) at our Company-owned installation centers for the year ended December 31, 2023 increased 36.5% over the year ended December 31, 2022. Adjusted product revenue, which combines the cutbank credit revenue service component with product revenue, increased by 19.9% from the year ended December 31, 2022 due mainly to the same factors described previously.

Current wording

Total installation revenue (labor and product combined) at our Company-owned installation centers for the year ended December 31, 2024 increased 27.4% over the year ended December 31, 2023. Adjusted product revenue, which combines the cutbank credit revenue service component with product revenue, increased by 2.1% from the year ended December 31, 2023 due mainly to the same factors described above.

Previous wording

Cost of sales consists of product costs and the costs to provide our services. Product costs consist of material costs, certain personnel costs, shipping costs, warranty costs and other costs related to providing products to our customers. Cost of service includes the labor costs associated with installation of product in our Company-owned facilities and across our dealer-service network, costs of labor associated with pattern design for our film-cutting software and the costs incurred to provide training for our customers. Product costs in the year ended December 31, 2023 increased 16.5% over the year ended December 31, 2022 commensurate with the growth in product revenue. Cost of service revenue grew 35.0% during the year ended December 31, 2023. The increase was due primarily to increased labor costs associated with our expanding installation business.

Current wording

Cost of sales consists of product costs and the costs to provide our services. Product costs consist of material costs, certain personnel costs, shipping costs, warranty costs and other costs related to providing products to our customers. Cost of service includes the labor costs associated with installation of product in our Company-owned facilities and across our dealer-service network, costs of labor associated with pattern design for our film-cutting software and the costs incurred to provide training for our customers. Product costs in the year ended December 31, 2024 increased 0.9% over the year ended December 31, 2023, commensurate with the growth in product revenue. Cost of service revenue grew 20.6% during the year ended December 31, 2024, commensurate with the related serviced revenue growth. Refer to the Gross Margin section below for discussion of this cost relative to revenue.

Previous wording

Product gross margin for the year ended December 31, 2023 increased approximately $25.1 million, or 28.5%, over the year ended December 31, 2022 and represented 36.4% and 34.2% of total product revenue for the years ended December 31, 2023 and 2022, respectively. The increase in product gross margin percentages was primarily due to decreases in product costs, favorable changes in product mix and improved operating leverage.

Current wording

Product gross margin for the year ended December 31, 2024 increased approximately $5.7 million, or 5.0%, over the year ended December 31, 2023 and represented 37.3% and 36.4% of total product revenue for the years ended December 31, 2024 and 2023, respectively. The increase in product gross margin percentages was primarily due to decreases in product costs, favorable changes in product mix and improved operating leverage.

Previous wording

Service gross margin increased approximately $9.8 million for the year ended December 31, 2023, and represented 57.7% and 59.6% of total service revenue for the years ended December 31, 2023 and 2022, respectively. The decrease in service gross margin percentage was primarily due to a higher percentage of lower margin installation labor revenue relative to other higher margin service revenue components.

Current wording

Service gross margin increased approximately $9.3 million for the year ended December 31, 2024, and represented 57.4% and 57.7% of total service revenue for the years ended December 31, 2024 and 2023, respectively. The decrease in service gross margin percentage was primarily due to a higher percentage of lower margin installation labor revenue relative to other higher margin service revenue components.

Previous wording

Sales and marketing expenses for the year ended December 31, 2023 increased 25.3% compared to 2022. These expenses represented 8.0% and 7.8% of consolidated revenue for the years ended December 31, 2023 and 2022, respectively. This increase was due mainly to increased personnel, and additional marketing projects intended to increase awareness of our brand globally.

Current wording

Sales and marketing expenses for the year ended December 31, 2024 increased 34.7% compared to 2023. These expenses represented 10.2% and 8.0% of consolidated revenue for the years ended December 31, 2024 and 2023, respectively. This increase was due mainly to increased personnel, and additional marketing projects including sponsorships and increased marketing efforts to dealerships and end customers.

Previous wording

General and administrative expenses grew approximately $15.4 million, or 32.0%, during the year ended December 31, 2023. These costs represented 16.1% and 14.9% of total consolidated revenue for the years ended December 31, 2023 and 2022, respectively. The increase was due mainly to increases in personnel, occupancy costs, information technology costs, research and development costs and professional fees to support the ongoing growth of the business.

Current wording

General and administrative expenses for the year ended December 31, 2024 increased 18.4% compared to 2023. These costs represented 17.9% and 16.1% of total consolidated revenue for the years ended December 31, 2024 and 2023, respectively. The increase was due mainly to increases in personnel, occupancy costs, depreciation and amortization, and information technology costs to support the ongoing growth of the business.

Previous wording

Our provision for income taxes was $13.2 million in the year ended December 31, 2023 as compared to $10.6 million in the year ended December 31, 2022. Our effective income tax rates for the years ended December 31, 2023 and 2022 were 20.0% and 20.4%, respectively. See Note 14 of the Notes to our Consolidated Financial Statements for further information.

Current wording

Our provision for income taxes was $11.3 million in the year ended December 31, 2024 as compared to $13.2 million in the year ended December 31, 2023. Our effective income tax rates for the years ended December 31, 2024 and 2023 were 19.9% and 20.0%, respectively. See Note 14 of the Notes to our Consolidated Financial Statements for further information.

Previous wording

The primary sources of liquidity for our business are available cash and cash equivalents, cash flows provided by operations, and borrowings under our credit facilities. As of December 31, 2023, we had cash and cash equivalents of $11.6 million, for the year ended December 31, 2023, cash flows provided by operations were $37.4 million, and as of December 31, 2023 we had approximately $109.4 million in funds available under our credit facilities. We expect to continue to have sufficient access to cash to support working capital needs, 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 borrowing 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 filing this Annual Report.

Current wording

The primary sources of liquidity for our business are available cash and cash equivalents, cash flows provided by operations, and borrowings under our credit facilities. As of December 31, 2024, we had cash and cash equivalents of $22.1 million, and we had approximately $128.1 million in funds available under our credit facilities. For the year ended December 31, 2024, cash flows provided by operations were $47.8 million. We expect to continue to have sufficient access to cash to support working capital needs, 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 borrowing 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 filing this Annual Report.

Previous wording

Operating activities. Cash flows provided by operations totaled approximately $37.4 million for the year ended December 31, 2023, compared to $12.1 million for the year ended December 31, 2022. The increase in operating cash flows for the year ended December 31, 2023 was driven primarily by an increase in operating earnings and a reduction in inventory purchases.

Current wording

Operating activities. Cash flows provided by operations totaled approximately $47.8 million for the year ended December 31, 2024, compared to $37.4 million for the year ended December 31, 2023. The increase in operating cash flows for the year ended December 31, 2024 was driven primarily by a reduction in inventory purchases partially offset by a decline in net income and other changes in working capital.

Previous wording

Investing activities. Cash flows used in investing activities totaled approximately $26.4 million during the year ended December 31, 2023 compared to cash use of $14.2 million for the year ended December 31, 2022. This increase in cash used was due mainly to additional cash outlay for acquisitions in 2023.

Current wording

Investing activities. Cash flows used in investing activities totaled approximately $18.4 million during the year ended December 31, 2024 compared to cash use of $26.4 million for the year ended December 31, 2023. This decrease in cash used was due to a reduction in expenditures for acquisitions in the year ended December 31, 2024.

Previous wording

Financing activities. Cash flows used in financing activities during the year ended December 31, 2023 totaled approximately $7.3 million compared to cash provided by financing activities of $0.6 million in the prior year. This use of cash was due primarily to net repayments on our credit facilities.

Current wording

Financing activities. Cash flows used in financing activities during the year ended December 31, 2024 totaled approximately $19.3 million compared to cash use of $7.3 million in the prior year. This use of cash was due primarily to net repayments on our credit facilities.

Previous wording

Debt obligations, including balances outstanding on committed credit facilities and contingent liabilities, as of December 31, 2023 and December 31, 2022 totaled approximately $19.9 million and $27.0 million, respectively.

Current wording

Debt obligations, including balances outstanding on committed credit facilities and contingent liabilities, as of December 31, 2024 and December 31, 2023 totaled approximately $2.1 million and $20.2 million, respectively.

Previous wording

The Company has a revolving credit facility providing for secured revolving loans and letters of credit in an aggregate amount of up to $125.0 million, which is subject to the terms of a credit agreement dated April 6, 2023 (the "Credit Agreement"). As of December 31, 2023, the Company had an outstanding balance of $19.0 million under this agreement. As of December 31, 2022, the Company had an outstanding balance of $26.0 million under a prior credit agreement which was subsequently repaid and terminated.

Current wording

The Company has a revolving credit facility providing for secured revolving loans and letters of credit in an aggregate amount of up to $125.0 million, which is subject to the terms of a credit agreement dated April 6, 2023 (the "Credit Agreement"). As of December 31, 2024, the Company had no outstanding balance under this agreement. As of December 31, 2023, the Company had an outstanding balance of $19.0 million under the Credit Agreement.

Previous wording

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 December 31, 2023, these rates were 6.5% and 6.4%, 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 April 6, 2026. 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.

Current wording

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 December 31, 2024, these rates were 7.5% and 5.6%, 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 April 6, 2026. 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.

Previous wording

XPEL Canada Corp., a wholly-owned subsidiary of XPEL, Inc., also has a CAD $4.5 million revolving credit facility through HSBC Bank Canada. This facility is utilized to fund our 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 December 31, 2023 and December 31, 2022, no balance was outstanding on this facility.

Current wording

XPEL Canada Corp., a wholly-owned subsidiary of XPEL, Inc., also has a CAD $4.5 million revolving credit facility. This facility can be utilized to fund our 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 December 31, 2024 and December 31, 2023, no balance was outstanding on this facility.