XPEL Inc

Previous wording

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. 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.

Current wording

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 and 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.

Previous wording

The Company began as a software company designing vehicle patterns used to produce cut-to-fit protective film for the painted surfaces of automobiles. In 2007, we began selling automotive surface and paint protection film products to complement our software business. In 2011, we introduced our

Current wording

The Company began as a software company designing vehicle patterns used to produce cut-to-fit protective film for the painted surfaces of automobiles. In 2007, we began selling automotive surface and 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 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 our products 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 had been selling the product.

Previous wording

The following table is a reconciliation of Net income to EBITDA for the three and nine months ended September 30, 2024 and 2023 (in thousands):

Current wording

The following table is a reconciliation of Net income to EBITDA for the three months ended March 31, 2025 and 2024 (in thousands):

Previous wording

The following table summarizes the Company’s consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Current wording

The following table summarizes the Company’s consolidated results of operations for the three months ended March 31, 2025 and 2024 (in thousands):

Previous wording

The following table summarizes revenue results for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Current wording

The following table summarizes revenue results for the three months ended March 31, 2025 and 2024 (in thousands):

Previous wording

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 ultimate product destination based on customer interactions, customer locations and other factors for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Current wording

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 ultimate product destination based on customer interactions, customer locations and other factors for the three months ended March 31, 2025 and 2024 (dollars in thousands):

Previous wording

Revenue from our window film product line grew 20.6% for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Window film sales represented 20.1% and 18.3% of our total consolidated revenues for the three months ended September 30, 2024 and 2023, respectively. This increase was driven by continued demand resulting from increased product adoption in multiple regions. Architectural window film revenue increased 6.2% compared to the three months ended September 30, 2023, to $2.9 million, and represented 12.6% of total window film revenue and 2.5% of total revenue for the three months ended September 30, 2024. This increase was due mainly to increased product awareness and adoption in multiple regions.

Current wording

Revenue from our window film product line grew 28.1% during the three months ended March 31, 2025 and represented 18.0% of our consolidated first quarter 2025 revenue. This product line includes automotive, architectural and windshield protection films. Automotive window film revenue grew 16.2% to $15.0 million for the three months ended March 31, 2025 and represented 80.8% of total window film revenue and 14.5% of total consolidated revenue for the three months ended March 31, 2025. This increase was due to continued channel focus, increased product adoption in multiple regions and increased demand. Architectural window film revenue for the three months ended March 31, 2025 increased 9.6% to $1.7 million and represented 9.3% of total window film revenue and 1.7% of total consolidated first quarter revenue. Our windshield protection film revenue for the three months ended March 31, 2025 was $1.8 million and represented 9.9% of total window film revenue and 1.8% of total consolidated first quarter revenue. Our windshield protection film product was launched during the fourth quarter 2024.

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.

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 and OEM businesses, and revenue from training services provided to our customers. During the three months ended March 31, 2025, service revenue grew 7.9% compared to the three months ended March 31, 2024.

Previous wording

Total installation revenue (labor and product combined) increased 27.4% over the three months ended September 30, 2023. This represented 20.0% and 17.2% of our total consolidated revenue for the three months ended September 30, 2024 and 2023, respectively. These increases were primarily due to increased demand across our dealership services and OEM networks. Total installation revenue increased 31.9% over the nine months ended September 30, 2023. This represented 21.0% and 17.1% of our total consolidated revenue for the nine months ended September 30, 2024 and 2023, 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 6.8% over the three months ended September 30, 2023. Adjusted product revenue increased 3.2% over the nine months ended September 30, 2023.

Current wording

Total installation revenue (labor and product combined) for the three months ended March 31, 2025 increased 11.6% over the three months ended March 31, 2024. Adjusted product revenue, which combines the cutbank credit revenue service component with product revenue, increased by 16.2% from the three months ended March 31, 2024 due mainly to the same factors described above.

Previous wording

Geographically, we experienced continued growth in most of our regions including 9.4% growth in the US region. These increases were primarily due to increasing product awareness and adoption.

Current wording

Geographically, we experienced continued growth in most of our regions including 11.6% growth in the US region, our most mature market. These increases were primarily due to increased sales of automotive window film in the US and increased sales in China as our distributor continued to work through its prior excess inventory levels.

Previous wording

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.

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 three months ended March 31, 2025 increased 15.0% over the three months ended March 31, 2024, commensurate with the growth in product revenue. Cost of service revenue grew 13.6% during the three months ended March 31, 2025.

Previous wording

The following table summarizes gross margin for product and services for the three and nine months ended September 30, 2024 and 2023 (dollars in thousands):

Current wording

The following table summarizes gross margin for product and services for the three months ended March 31, 2025 and 2024 (in thousands):

Previous wording

Product gross margin for the nine months ended September 30, 2024 increased approximately $3.9 million, or 4.5%, over the nine months ended September 30, 2023 and represented 37.8% and 37.4% of total product revenue for the nine months ended September 30, 2024 and 2023, respectively. The increases in product gross margin and gross margin percentage were primarily due to decreases in product costs and improved operating leverage.

Current wording

Product gross margin for the three months ended March 31, 2025 increased $5.6 million, 22.5% compared to the same period in the prior year. The increase in product gross margin percentages was primarily due to decreases in product costs and improved operating leverage.

Previous wording

Service gross margin increased approximately $2.7 million, or 21.6%, over the three months ended September 30, 2023. This represented 57.7% and 57.0% of total service revenue for the three months ended September 30, 2024 and 2023, respectively. These increases in service gross margin and service gross margin percentage were primarily due to operating leverage across our installation networks.

Current wording

Service gross margin increased approximately $0.5 million, or 3.5%, over the three months ended March 31, 2024. This represented 54.3% and 56.6% of total service revenue for the three months ended March 31, 2025 and 2024, respectively. The decrease in service gross margin percentage was primarily due to a higher mix of dealership related installations.

Previous wording

Sales and marketing expenses for the three months ended September 30, 2024 increased 37.6% compared to the same period in 2023. This increase was primarily due to increased personnel and marketing costs including additional sponsorships and increased marketing efforts to dealerships and end customers. These expenses represented 9.4% and 7.5% of total consolidated revenue for the three months ended September 30, 2024 and 2023, respectively.

Current wording

Sales and Marketing expenses for the three months ended March 31, 2025 increased $1.5 million, or 14.3%, compared to 2024. These expenses represented 11.4% and 11.5% of consolidated revenue for the three months ended March 31, 2025 and 2024, respectively. This increase was due mainly to increased personnel costs and costs associated with your annual dealer conference held during the first quarter 2025.

Previous wording

General and administrative expenses grew approximately $2.7 million, or 16.8% over the three months ended September 30, 2023. This increase in cost was due primarily to increases in personnel, occupancy costs and professional fees. These costs represented 16.7% and 15.7% of total consolidated revenue for the three months ended September 30, 2024 and 2023, respectively.

Current wording

General and administrative expenses grew approximately $2.6 million, or 14.5%, during the three months ended March 31, 2025 over the three months ended March 31, 2024. These costs represented 20.1% and 20.3% of consolidated revenue for the three months ended March 31, 2025 and 2024, respectively. The increase in these expenses was due mainly to increases in severance-related personnel, occupancy, and information technology costs.

Previous wording

Income tax expense for the three months ended September 30, 2024 increased $0.2 million from the three months ended September 30, 2023. Our effective tax rate was 20.0% for the three months ended September 30, 2024 compared with 20.4% for the three months ended September 30, 2023.

Current wording

Income tax expense for the three months ended March 31, 2025 increased $0.9 million from the three months ended March 31, 2024. Our effective tax rate was 23.9% for the three months ended March 31, 2025 compared with 21.4% for the three months ended March 31, 2024. The increase in our effective rate was primarily due to an increase in foreign taxes associated with our China operations.

Previous wording

Net income for the three months ended September 30, 2024 increased 9.1% to $14.9 million.

Current wording

Net income for the three months ended March 31, 2025 increased by $1.9 million, or 28.8%, to $8.6 million.

Previous wording

Our primary sources of liquidity are available cash and cash equivalents, cash flows provided by operations, and borrowings under our credit facilities. As of September 30, 2024, we had cash and cash equivalents of $21.0 million. For the nine months ended September 30, 2024, cash provided by operations was $41.5 million. We currently have $128.3 million of credit available to us under our U.S. and Canadian credit facilities. We expect available cash, internally generated funds, and borrowings from our committed credit facilities to be sufficient to support working capital needs, capital expenditures (including acquisitions), and other obligations. 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 report.

Current wording

The primary source of liquidity for our business is available cash and cash equivalents, cash flows provided by operations and borrowing capacity under our credit facilities. As of March 31, 2025, we had cash and cash equivalents of $23.5 million. For the three months ended March 31, 2025, cash provided by operations was $3.2 million, and as of March 31, 2025 we had approximately $128.1 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.

Previous wording

Operating activities. Cash provided by operations for the nine months ended September 30, 2024 was $41.5 million compared to $38.5 million during the nine months ended September 30, 2023. This increase in cash flows from operating activities was mainly due reductions in inventory purchases during the year offset by other changes in working capital.

Current wording

Operating Activities. Cash provided by operations totaled approximately $3.2 million for the three months ended March 31, 2025, compared to operating cash outflows of $5.0 million for the three months ended March 31, 2024. This increase in cash flows from operating activities was mainly due to an increase in net income and other changes in working capital.

Previous wording

Investing activities. Cash used in investing activities totaled approximately $13.0 million during the nine months ended September 30, 2024 compared to $10.2 million during the nine months ended September 30, 2023. This increase was due primarily to higher acquisition-related payments during 2024.

Current wording

Investing Activities. Cash used in investing activities totaled approximately $1.6 million during the three months ended March 31, 2025 compared to $3.1 million during the three months ended March 31, 2024. This decrease was due primarily to a reduction in fixed asset purchases and acquisitions during the three months ended March 31, 2025 compared to the three months ended March 31, 2024.

Previous wording

Financing activities. Cash flows used in financing activities during the nine months ended September 30, 2024 totaled $19.2 million compared to $26.2 million during the same period in the prior year. This change was due primarily to the timing of repayments on our credit facility, which was fully repaid at September 30, 2024.

Current wording

Financing Activities. Cash used in financing activities during the three months ended March 31, 2025 totaled approximately $0.2 million compared to cash inflows of $5.0 million in the prior year. This decrease was due to additional borrowings under our credit facility during the three months ended March 31, 2024.

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 million, which is subject to the terms of a credit agreement dated April 6, 2023 (the "Credit Agreement"). As of September 30, 2024, no balance was outstanding under the Credit Agreement. At December 31, 2023, the Company had an outstanding balance of $19 million under the Credit Agreement.

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 million, which is subject to the terms of a credit agreement dated April 6, 2023 (the "Credit Agreement"). As of March 31, 2025 and December 31, 2024, the Company had no outstanding balances under this 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 September 30, 2024, these rates were 8.0% and 6.3%, 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 Agreement that are not otherwise defined in this report have the meaning assigned to them in the Credit Agreement.

Current wording

1.00% to 1.50% for Adjusted Term SOFR Loans. At March 31, 2025, these rates were 7.5% and 5.4%, 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.

Previous wording

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. The Credit Agreement provides for 2 financial covenants, as follows:

Current wording

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.