UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 OR ☐ 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) (State or other jurisdiction of incorporation or organi ...

Financial Data and Key Metrics Changes - In Q4 2022, revenue grew 11.9% to $78.5 million, net income increased by 34.7%, and EBITDA rose by 32.4% [9][60] - For the full year 2022, revenue grew by 25%, net income increased by 31%, and EBITDA grew by 39% [7][9] - The gross margin for Q4 was 39.6%, up from 35.2% in Q4 2021, and the full year gross margin was 39.4% compared to 35.7% in 2021 [33][52] Business Line Data and Key Metrics Changes - Paint protection film (PPF) revenue was flat in Q4, but combined with cutbank revenue, it grew over 4% [55] - Window film revenue grew 33.7% quarter-over-quarter to $11.7 million, with a year-to-date growth of 41.7% [56] - Architectural window film revenue grew 95% in Q4 to $1.2 million, with a year-to-date growth of 98% [57] - Total installation revenue grew 27% in Q4 and 77% year-to-date, representing 17.4% of total revenue in Q4 [58] Market Data and Key Metrics Changes - The U.S. market showed exceptional performance with a 31.6% growth in Q4, contributing $47.6 million to revenue [8][19] - Canada, Europe, and the U.K. regions continued to grow, although at a lower percentage than in Q3 [21] - Latin America had a strong quarter, and the Middle East saw a slight decline due to timing of orders [22][23] Company Strategy and Development Direction - The company plans to expand its corporate team in China to better support distributors and enhance market intelligence [16] - There is a focus on acquisitions in international distribution and dealership services to enhance growth [71][72] - The company aims for 20% to 25% organic revenue growth in 2023, with expectations of a 200-basis-point improvement in gross margin [51][52] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the China market despite recent challenges, anticipating a positive outlook for 2023 [15][49] - The company is seeing strong momentum in the U.S. market and expects continued growth despite economic uncertainties [25][49] - Management highlighted the importance of maintaining vendor relationships to manage inventory effectively [39][41] Other Important Information - The company incurred one-time expenses related to severance and compensation, but these are expected to be behind them moving forward [35][76] - Cash flow from operations for Q4 was $2.4 million, with expectations for strong long-term cash flow generation [62] Q&A Session Summary Question: Insights on dealer business performance - Management noted strong performance in the dealership business, with increased dealer additions and higher product attach rates [64][66] Question: Future acquisition plans - The company plans to focus on international distribution and dealership services for future acquisitions [69][71] Question: One-time items in financials - Management confirmed that one-time items are likely behind them, with a clean P&L expected in upcoming quarters [76] Question: Growth expectations for PPF and other products - Growth in PPF is heavily dependent on the China market, with expectations for overall growth across all product lines [78][82] Question: Pricing strategies and market coverage - Management indicated that pricing adjustments have been implemented in less than 50% of markets, leaving room for future pricing power [92][95] Question: Update on Rivian relationship and European OEM projects - The Rivian program is ramping up successfully, and there is ongoing interest in expanding European OEM projects [96][100]

Part I [Business](index=8&type=section&id=Item%201.%20Business) XPEL, Inc. is a global provider of aftermarket automotive products, specializing in protective films and coatings, complemented by proprietary design software [Company Overview](index=8&type=section&id=Company%20Overview) XPEL evolved from a software design company into a global aftermarket automotive product provider, strategically expanding its market presence through acquisitions and international growth - XPEL transitioned from an automotive product design software company to a global provider of aftermarket products, including automotive surface/paint protection, window films, and architectural films[32](index=32&type=chunk) - The company's strategic philosophy focuses on being closer to the end customer, leading to international expansion into the UK (2014), Canada (2015), Europe (2016), Mexico (2017), and Asia (2018), alongside several acquisitions to bolster its presence[34](index=34&type=chunk)[35](index=35&type=chunk)[37](index=37&type=chunk) [Products and Services](index=9&type=section&id=Products%20and%20Services) XPEL's product portfolio is led by Surface and Paint Protection Films (62% of 2022 revenue), with significant contributions from Automotive Window Films (15%) and Installation Services (16%), supported by its proprietary DAP software Revenue Breakdown by Product/Service (FY 2022) | Product/Service Category | Percentage of Consolidated Revenue | | :--- | :--- | | Surface and Paint Protection Film | ~62% | | Installation and Dealership Services | ~16% | | Automotive Window Film | ~15% | | Architectural Window Film | ~2% | | DAP Software Subscriptions | <2% | - The flagship product lines include XPEL ULTIMATE PLUS and FUSION for paint protection, XPEL PRIME for automotive window tint, and VISION for architectural window film[43](index=43&type=chunk)[49](index=49&type=chunk)[52](index=52&type=chunk) - The Design Access Program (DAP) is a proprietary SAAS platform with a database of over **80,000 vehicle applications**, which increases installer efficiency and reduces waste[54](index=54&type=chunk)[55](index=55&type=chunk) [Strategic Overview](index=12&type=section&id=Strategic%20Overview) The company's growth strategy focuses on global expansion, increasing brand awareness, expanding delivery channels through acquisitions, and growing its non-automotive product portfolio - Key strategic initiatives include global expansion with a local presence, increasing brand awareness at premium events, acquiring installation facilities and international partners, and expanding the non-automotive product portfolio[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) [Sales and Distribution](index=12&type=section&id=Sales%20and%20Distribution) XPEL utilizes a diversified sales and distribution model, primarily direct sales to independent installers and new car dealerships (65% of 2022 revenue), with third-party distributors accounting for 17% Sales Channel Revenue Breakdown (FY 2022) | Sales Channel | Percentage of Consolidated Revenue | | :--- | :--- | | Independent Installers/New Car Dealerships | ~65% | | Distributors | ~17% | | Company-Owned Installation Centers/Dealership Services | ~15% | | Automobile OEMs | ~3% | | Online and Catalog Sales | <1% | - The company operates through a sole distributor in China, which accounted for approximately **10% of consolidated revenue** in FY 2022[71](index=71&type=chunk) [Competition](index=14&type=section&id=Competition) XPEL competes with other manufacturers and distributors of automotive protective films, primarily Eastman Chemical Company, differentiating itself through product quality and a comprehensive suite of services - The principal competitor in the surface and paint protection film market is Eastman Chemical Company (LLumar and Suntek brands)[80](index=80&type=chunk) - The company differentiates itself from competitors through its suite of services, including proprietary software (DAP), marketing, lead generation, and customer service[80](index=80&type=chunk) [Suppliers](index=14&type=section&id=Suppliers) XPEL operates an "asset-light" manufacturing model, sourcing products from various third-party contract manufacturers and suppliers rather than owning manufacturing facilities - The company utilizes an "asset-light" manufacturing model, relying on third-party suppliers and contract manufacturers for the majority of its products[81](index=81&type=chunk) [Government Regulation and Legislation](index=15&type=section&id=Government%20Regulation%20and%20Legislation) The company's global operations are subject to a wide range of laws and regulations, including U.S. and international trade laws, anti-corruption laws, and data privacy regulations - Operations must comply with extensive federal, state, and foreign laws, including export controls, anti-corruption laws (e.g., U.S. FCPA), and data privacy regulations (e.g., GDPR, CCPA)[85](index=85&type=chunk)[88](index=88&type=chunk)[89](index=89&type=chunk) [Environmental Matters](index=16&type=section&id=Environmental%20Matters) XPEL is ISO 14001:2015 registered and actively engages in recycling efforts for materials related to its conversion operations, such as plastic cores and film waste - The company is **ISO 14001:2015 registered** and actively recycles materials from its conversion operations, including plastic cores, film waste, and corrugated boxes[90](index=90&type=chunk)[91](index=91&type=chunk) [Human Capital Resources](index=17&type=section&id=Human%20Capital%20Resources) As of December 31, 2022, XPEL employed approximately 818 full-time equivalent people globally, emphasizing a total compensation package to attract and retain its workforce - As of December 31, 2022, the Company employed approximately **818 people**, with **567 in the U.S.** and **251 internationally**[94](index=94&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) XPEL faces operational, strategic, legal, and financial risks, including reliance on a single distributor in China, automotive industry dependence, intense competition, and potential future indebtedness [Operational Risks](index=18&type=section&id=Operational%20Risks) The company's operations are subject to significant risks, including high dependency on a single distributor in China, political and economic uncertainties in the Chinese market, and potential supply chain disruptions - The company relies on a single distributor for all its sales in China, which represented approximately **10.5% of consolidated revenue** for the year ended December 31, 2022[99](index=99&type=chunk) - Business in China is subject to risks including political and economic uncertainties, unpredictable trade policy, limited legal recourse, and the Chinese government's management of COVID-19[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[110](index=110&type=chunk) - The company depends on the continued services of its key executive officers and faces risks related to attracting and retaining qualified personnel[111](index=111&type=chunk) - A material disruption from contract manufacturers or suppliers could lead to an inability to meet customer demand or increased costs, a risk heightened by the company's asset-light business model[112](index=112&type=chunk)[115](index=115&type=chunk) [Risks Related to Our Business and Industry](index=21&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) XPEL's business is highly dependent on the automotive industry, making it vulnerable to contractions in vehicle sales and production, intense competition, and potential technological advancements that could render its products obsolete - The business is highly dependent on the automotive industry; a contraction in auto sales or production, potentially caused by factors like the global semiconductor shortage, could adversely affect results[120](index=120&type=chunk)[121](index=121&type=chunk) - The aftermarket automotive product supply business is highly competitive, with rivals that may have greater financial and marketing resources[123](index=123&type=chunk) - A dramatic change in the North American vehicle sales model, such as a move away from traditional dealerships, or a rise in ride-sharing could negatively impact revenue[129](index=129&type=chunk)[130](index=130&type=chunk) - Technological advancements, such as improved automotive paint that doesn't chip or scratch, could render the company's core paint protection film products obsolete[131](index=131&type=chunk) [Strategic Risks](index=24&type=section&id=Strategic%20Risks) Strategic risks include the potential failure of new products, dependence on independent installers, challenges in integrating acquisitions, and exposure to multinational risks from global operations - The company's business strategy includes frequent acquisitions, which involve risks such as diversion of management attention, integration difficulties, and potential loss of key employees or customers[139](index=139&type=chunk) - Sales outside of the U.S. accounted for approximately **41% of consolidated revenue** in FY 2022, exposing the company to multinational risks like currency fluctuations, trade protection measures, and political instability[145](index=145&type=chunk) - Rapid growth has placed significant demands on processes, systems, and personnel, and failure to manage this growth effectively could harm the business[148](index=148&type=chunk) [Legal, Regulatory and Compliance Risks](index=27&type=section&id=Legal%20Regulatory%20and%20Compliance%20Risks) The company faces inherent legal and regulatory risks, including product liability claims, compliance with anti-corruption and international trade laws, intellectual property infringement, and IT system failures or data breaches - The company faces exposure to product liability and warranty claims. The liability reserve for warranties was **$0.2 million** as of December 31, 2022[150](index=150&type=chunk)[153](index=153&type=chunk) - Operating in many parts of the world exposes the company to risks of violating anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (FCPA)[154](index=154&type=chunk) - Failure, inadequacy, or breach of IT systems and violations of data protection laws (e.g., GDPR, CCPA) could result in material harm to the business and reputation[162](index=162&type=chunk)[164](index=164&type=chunk) [Liquidity Risks](index=30&type=section&id=Liquidity%20Risks) XPEL may incur more debt in the future, increasing financial vulnerability, and its variable-rate indebtedness exposes it to interest rate volatility that could raise debt service obligations - The company may incur substantial indebtedness in the future, which could increase vulnerability to economic conditions and dedicate a significant portion of cash flow to debt service[167](index=167&type=chunk) - Borrowings under credit facilities are at variable interest rates, exposing the company to interest rate volatility that could increase debt service costs[171](index=171&type=chunk) [Risks Relating to Common Stock](index=32&type=section&id=Risks%20Relating%20to%20Common%20Stock) The company's common stock price may be volatile, stockholders face dilution from future equity issuances, and significant control is held by directors and officers (19.0% as of Feb 28, 2023) - The trading price of the company's common stock has been and could continue to be volatile[174](index=174&type=chunk) - The company has not paid cash dividends in the past and has no plans to do so in the foreseeable future[178](index=178&type=chunk) - As of February 28, 2023, directors and executive officers beneficially owned approximately **19.0% of the outstanding Common Stock**, giving them substantial control[184](index=184&type=chunk) [General Risk Factors](index=34&type=section&id=General%20Risk%20Factors) The company's financial condition and operations are subject to general risks, including the negative impact of pandemics and the effect of global economic conditions on discretionary product demand - Pandemics, like COVID-19, have impacted and may in the future impact the company's workforce, operations, and customer demand through measures like travel bans, quarantines, and shutdowns[186](index=186&type=chunk) - Demand for the company's products, which are often discretionary purchases, is affected by general global economic conditions, consumer confidence, and unemployment rates[188](index=188&type=chunk) [Unresolved Staff Comments](index=35&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments - None[189](index=189&type=chunk) [Properties](index=35&type=section&id=Item%202.%20Properties) The company's principal office is in a leased facility in San Antonio, Texas, with various leased locations globally for production, distribution, installation, sales, and administration - The company's principal office is in San Antonio, Texas, with operations conducted in leased facilities throughout North America, Europe, and Asia[190](index=190&type=chunk) Leased Square Footage by Region (as of Dec 31, 2022) | Region | Leased Square Footage | | :--- | :--- | | United States | 273,342 | | Continental Europe | 85,360 | | Canada | 42,379 | | Mexico | 13,659 | | United Kingdom | 14,835 | | Taiwan | 6,381 | [Legal Proceedings](index=35&type=section&id=Item%203.%20Legal%20Proceedings) The company is periodically involved in legal actions and claims arising from the ordinary course of business, but management believes a material financial impact is unlikely - The company is subject to legal actions in the ordinary course of business, but management believes a material impact on its financial position is unlikely[192](index=192&type=chunk)[193](index=193&type=chunk) [Mine Safety Disclosures](index=36&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[195](index=195&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=36&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) XPEL's common stock trades on Nasdaq under "XPEL", with 11 stockholders of record as of February 28, 2023; the company has never paid and does not anticipate paying cash dividends - The Company's Common Stock trades on The Nasdaq Stock Market under the symbol "XPEL"[197](index=197&type=chunk) - No dividends have been paid on Common Stock, and none are anticipated in the foreseeable future[198](index=198&type=chunk) - The company did not repurchase any shares of its Common Stock in the year ended December 31, 2022[202](index=202&type=chunk) [Reserved](index=37&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2022, XPEL's revenue grew 25.0% to **$324.0 million**, with gross margin improving to 39.4% and net income rising 31.1% to **$41.4 million**, despite a 26.6% revenue decline in China [Executive Summary](index=37&type=section&id=Executive%20Summary) In 2022, total revenue grew 25.0% to **$324.0 million**, gross margin increased to 39.4%, and net income rose 31.1% to **$41.4 million** compared to 2021 Financial Highlights (in thousands) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenue | $323,993 | $259,263 | $158,924 | | Gross margin | $127,512 | $92,677 | $54,025 | | Gross margin % | 39.4% | 35.7% | 34.0% | | Operating income | $53,937 | $40,116 | $23,370 | | Net income | $41,381 | $31,567 | $18,282 | [Results of Operations](index=40&type=section&id=Results%20of%20Operations) For 2022, total revenue grew 25.0% to **$324.0 million**, driven by strong product and service revenue growth, while U.S. revenue increased 42.3% and China revenue fell 26.6% Revenue by Product/Service (in thousands) | Category | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | **Product Revenue** | | | | | Paint protection film | $192,374 | $169,880 | 13.2% | | Window film | $54,370 | $38,363 | 41.7% | | **Service Revenue** | | | | | Installation labor | $42,828 | $24,253 | 76.6% | | **Total Revenue** | **$323,993** | **$259,263** | **25.0%** | Revenue by Geographic Region (in thousands) | Region | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | United States | $189,890 | $133,457 | 42.3% | | China | $33,993 | $46,305 | (26.6)% | | Canada | $38,997 | $30,540 | 27.7% | | Continental Europe | $24,713 | $19,605 | 26.1% | | **Total** | **$323,993** | **$259,263** | **25.0%** | - Product gross margin percentage increased from **30.4% in 2021 to 34.2% in 2022**, primarily due to improved product costs and a lower percentage of sales to lower-margin distributors[224](index=224&type=chunk) - Net income for 2022 increased by **31.1% to $41.4 million** compared to the prior year[231](index=231&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) Cash from operations decreased to **$12.1 million** in 2022, primarily due to increased inventory, with **$8.1 million** in cash and **$26.0 million** outstanding on a **$75.0 million** revolving line of credit - Cash flows from operations decreased from **$18.3 million in 2021 to $12.1 million in 2022**, primarily driven by changes in working capital and increased inventory purchases[234](index=234&type=chunk) - As of December 31, 2022, the company had a **$75.0 million revolving line of credit** with **$26.0 million borrowed**[238](index=238&type=chunk) - The company believes it has sufficient liquidity to operate for at least the next 12 months[233](index=233&type=chunk) [Critical Accounting Estimates](index=45&type=section&id=Critical%20Accounting%20Estimates) Management identifies Business Combinations and Inventory Valuation as critical accounting estimates requiring significant judgment, involving estimates for purchase price allocation and obsolete stock reserves - Critical accounting estimates requiring significant management judgment include Business Combinations (allocating purchase price to assets and goodwill) and Inventory Valuation (estimating reserves for obsolete inventory)[243](index=243&type=chunk)[244](index=244&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=46&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to currency risk from international operations in various currencies, interest rate risk from floating-rate credit facilities, and inflation risk from rising costs - The company is exposed to currency risk from operations in the British Pound, Canadian Dollar, Euro, Mexican Peso, New Taiwanese Dollar, and Australian Dollar[247](index=247&type=chunk) - Borrowings under revolving credit facilities subject the company to market risk from changes in floating interest rates[248](index=248&type=chunk) [Financial Statements and Supplementary Data](index=46&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for FY2022 and FY2021, including balance sheets, income statements, and detailed notes, with key data for FY2022 showing **$324.0 million** revenue and **$41.4 million** net income [Report of Independent Registered Public Accounting Firm](index=46&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting for the years ended December 31, 2022 and 2021 - Deloitte & Touche LLP provided an unqualified opinion on the financial statements for the years ended Dec 31, 2022 and 2021, and on the effectiveness of internal control over financial reporting as of Dec 31, 2022[253](index=253&type=chunk)[254](index=254&type=chunk) [Consolidated Financial Statements](index=49&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of **$193.4 million** and total stockholders' equity of **$124.7 million** as of December 31, 2022, with **$324.0 million** in revenue and **$41.4 million** in net income for the year Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total current assets | $106,821 | $79,028 | | Total assets | $193,362 | $161,015 | | Total current liabilities | $27,402 | $36,268 | | Total liabilities | $68,640 | $76,553 | | Total stockholders' equity | $124,722 | $84,462 | Consolidated Income Statement Highlights (in thousands) | Account | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Total revenue | $323,993 | $259,263 | $158,924 | | Gross Margin | $127,512 | $92,677 | $54,025 | | Operating Income | $53,937 | $40,116 | $23,370 | | Net income | $41,381 | $31,567 | $18,282 | | Diluted EPS | $1.50 | $1.14 | $0.66 | [Notes to Consolidated Financial Statements](index=55&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed financial disclosures, including revenue recognition, business acquisitions, asset composition, debt facilities, lease obligations, stock-based compensation, and income tax provisions - The company's largest customer accounted for **10.5%**, **17.9%**, and **20.6% of net sales** for the years ended December 31, 2022, 2021, and 2020, respectively[311](index=311&type=chunk) - In 2022, the company acquired the paint protection film business of Car Care Products Australia for **$2.2 million**. In 2021, it completed three acquisitions for a total purchase price of **$57.6 million**[313](index=313&type=chunk)[315](index=315&type=chunk) - As of Dec 31, 2022, the company had total operating lease liabilities of **$16.0 million** with a weighted-average remaining lease term of **5.3 years**[355](index=355&type=chunk)[356](index=356&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=74&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) On July 13, 2021, the company dismissed Baker Tilly US, LLP and appointed Deloitte & Touche LLP as its independent registered public accounting firm, with no reported disagreements - On July 13, 2021, the company dismissed Baker Tilly US, LLP and appointed Deloitte & Touche LLP as its independent registered public accounting firm[359](index=359&type=chunk) - There were no disagreements with the former auditor, Baker Tilly, on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures[361](index=361&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2022, a conclusion affirmed by the independent auditor - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[366](index=366&type=chunk) - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2022, based on the COSO framework[367](index=367&type=chunk) - The independent registered public accounting firm, Deloitte & Touche LLP, issued an unqualified opinion on the company's internal control over financial reporting as of December 31, 2022[369](index=369&type=chunk)[372](index=372&type=chunk) [Other Information](index=77&type=section&id=Item%209B.%20Other%20Information) This item is not applicable - Not applicable[380](index=380&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=77&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable - Not applicable[381](index=381&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=77&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's Proxy Statement for the 2023 Annual Meeting of Stockholders[383](index=383&type=chunk) [Executive Compensation](index=77&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's Proxy Statement for the 2023 Annual Meeting of Stockholders[384](index=384&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=77&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information regarding security ownership and equity compensation plans is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's Proxy Statement for the 2023 Annual Meeting of Stockholders[385](index=385&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=77&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's Proxy Statement for the 2023 Annual Meeting of Stockholders[386](index=386&type=chunk) [Principal Accounting Fees and Services](index=77&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding fees paid to the independent auditor and pre-approval policies is incorporated by reference from the company's 2023 Proxy Statement - Information is incorporated by reference from the registrant's Proxy Statement for the 2023 Annual Meeting of Stockholders[387](index=387&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=79&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, found in Item 8, and all exhibits filed with or furnished as part of the Annual Report, including corporate governance documents and material contracts - This section provides an index of all financial statements, schedules, and exhibits filed with the Form 10-K[389](index=389&type=chunk)[390](index=390&type=chunk) [Form 10-K Summary](index=82&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided under this item - None[392](index=392&type=chunk)

XPEL, Inc. (NASDAQ:XPEL) Q3 2022 Earnings Conference Call November 9, 2022 11:00 AM ET Company Participants Jen Belodeau - Investor Relations Ryan Pape - President and Chief Executive Officer Barry Wood - Senior Vice President and Chief Financial Officer Conference Call Participants Steve Dyer - Craig-Hallum Jeff Van Sinderen - B. Riley Tim Moore - EF Hutton Operator Good day ladies and gentlemen, and welcome to the XPEL’s Third Quarter 2022 Earnings Conference Call. At this time, all participants have been ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 For the quarterly period ended September 30, 2022 FORM 10-Q OR (Mark One) ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ☒ QUARTERLY 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 | | | --- | --- | --- | --- ...

Financial Data and Key Metrics Changes - Revenue for Q2 2022 grew 22% to $83.9 million, with a record gross margin of 39.3% and an EBITDA margin of 20.5%, the highest in company history [7][17][34] - Net income increased 16.8% year-over-year to $11.9 million, reflecting a net income margin of 14.2% [37] - Year-to-date net income grew 15.7%, with an EPS of $0.21 per share [39] Business Line Data and Key Metrics Changes - Product revenue grew approximately 14.3% to $67 million, while service revenue increased 67.3% to $16.9 million, representing 20.1% of total revenue [31] - Total installation revenue, combining product and labor, increased over 106% [33] - The window film business grew 42% for the quarter, reaching $60 million, while the architectural film business remains small but is growing [23] Market Data and Key Metrics Changes - U.S. revenue grew 43.4% to a record $49.2 million, despite challenges in new car sales and lockdowns in China [8][12] - Canada, Europe, U.K., and Latin America also saw record revenues, with strong demand continuing in Canada [10] - The company faced a negative impact of approximately $6.5 million on overall revenue due to the strengthening U.S. dollar and COVID-related lockdowns in China [13][11] Company Strategy and Development Direction - The company aims to reach a 40% gross margin run rate by the end of the year, focusing on managing expenses and improving gross margins [16] - A partnership with Rivian was announced to be the exclusive supplier of their factory direct paint protection film program, enhancing the company's OEM program [24] - The company is actively pursuing acquisitions to enhance its software offerings and expand its market presence [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in revenue growth, estimating 2022 annual revenue growth to be in the 25% to 28% range, slightly lower than previous guidance due to China impacts and currency strength [19] - There is optimism regarding new car production recovery in the second half of the year, which could benefit the company [20] - Management expects Q3 revenue in the $85 million range, with improvements anticipated in China [21] Other Important Information - The company finished the quarter with approximately $74 million in inventory, indicating a stabilization after a significant build earlier in the year [26] - Cash flow from operations returned to $1.8 million as inventory build moderated, with plans to utilize cash flow for acquisitions [39] Q&A Session Summary Question: What are the biggest drivers of growth in the U.S.? - Management attributed growth to increasing attach rates for paint protection film, more product per vehicle, and the expansion of service offerings [44][46] Question: How many franchise dealers are selling paint protection film? - Management indicated there are several thousand new car dealerships connected to the company, with significant opportunities for growth in dealership offerings [47][49] Question: Is the deal with Rivian the only OEM partnership? - Management confirmed there are opportunities for further OEM partnerships, emphasizing the potential for increased market reach [55][57] Question: What is the outlook for inventory recovery? - Management noted that while inventory has improved, a full recovery is expected to take multiple quarters [61] Question: What about the software acquisition? - Management stated they are looking to integrate the acquired software into their DAP platform and are open to further acquisitions to enhance their technology offerings [66][68]

Part I - Financial Information [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Unaudited financial statements for Q2 2022 show significant revenue and net income growth, increased assets and liabilities, and decreased operating cash flow due to inventory build-up [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets reached **$189.1 million** by June 30, 2022, driven by inventory growth, while liabilities increased to **$86.0 million** due to higher borrowings Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$189,056** | **$161,015** | | Cash and cash equivalents | $9,321 | $9,644 | | Inventory, net | $74,142 | $51,936 | | Goodwill | $25,071 | $25,655 | | **Total Liabilities** | **$85,979** | **$76,553** | | Borrowings on line of credit | $32,000 | $25,000 | | Accounts payable and accrued liabilities | $36,587 | $32,915 | | **Total Stockholders' Equity** | **$103,077** | **$84,462** | [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q2 2022 revenue grew **22.0%** to **$83.9 million**, with net income up **16.8%** to **$11.9 million**, and diluted EPS at **$0.43** Statement of Income Summary (in thousands, except EPS) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | **$83,890** | **$68,736** | **$155,754** | **$120,602** | | Gross Margin | $32,983 | $25,247 | $60,700 | $43,534 | | Operating Income | $15,749 | $12,672 | $25,786 | $21,219 | | **Net Income** | **$11,902** | **$10,186** | **$19,706** | **$17,033** | | Diluted EPS | $0.43 | $0.37 | $0.71 | $0.62 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow for H1 2022 was a **$2.5 million** outflow, a significant decrease from the prior year, mainly due to a **$22.7 million** inventory increase Six Months Ended June 30, Cash Flow Summary (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,525) | $19,073 | | Net cash used in investing activities | $(4,595) | $(33,638) | | Net cash provided by (used in) financing activities | $6,706 | $(5,423) | | **Decrease in cash and cash equivalents** | **$(323)** | **$(20,293)** | - The significant decrease in operating cash flow was mainly caused by a **$22.7 million increase in inventory** and a **$6.6 million increase in accounts receivable**[25](index=25&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue disaggregation, debt structure, and acquisition activities, highlighting paint protection film revenue and a **$75.0 million** revolving credit facility - The company operates as a single operating segment, with the CEO acting as the Chief Operating Decision Maker (CODM)[31](index=31&type=chunk) Revenue by Product Category - Six Months Ended June 30 (in thousands) | Category | 2022 | 2021 | | :--- | :--- | :--- | | Paint protection film | $92,236 | $81,030 | | Window film | $27,320 | $18,243 | | Installation labor | $20,303 | $8,473 | | **Total Revenue** | **$155,754** | **$120,602** | - The company has a **$75.0 million revolving line of credit**, with a balance of **$32.0 million** as of June 30, 2022. The interest rate was **4.00%**[49](index=49&type=chunk) - Purchase price accounting for five acquisitions completed on October 1, 2021, remains preliminary and will be finalized within one year of completion[47](index=47&type=chunk)[65](index=65&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q2 2022 performance to high demand, with revenue up **22.0%** to **$83.9 million** and improved gross margin, while managing supply chain risks and maintaining liquidity [Company Overview and Strategy](index=21&type=section&id=Company%20Overview%20and%20Strategy) XPEL, a global provider of automotive protective products, strategically focuses on customer proximity, global expansion, acquisitions, brand awareness, and non-automotive portfolio growth - The company's core strategic philosophy is that being closer to the end customer drives revenue growth by enabling efficient new product introductions and value delivery[75](index=75&type=chunk) - Key strategic initiatives include global expansion with a local presence, increasing brand awareness at premium events, acquiring installation facilities and international partners, and expanding the non-automotive product portfolio[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Q2 2022 revenue increased **22.0%** to **$83.9 million**, driven by strong U.S. growth and service revenue, while China declined, and gross margin improved to **39.3%** Q2 2022 vs Q2 2021 Performance (in thousands) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $83,890 | $68,736 | 22.0% | | Gross Margin | $32,983 | $25,247 | 30.6% | | Gross Margin % | 39.3% | 36.7% | +2.6 p.p. | | Operating Income | $15,749 | $12,672 | 24.3% | | Net Income | $11,902 | $10,186 | 16.8% | Q2 Revenue by Geography (in thousands) | Region | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | United States | $49,166 | $34,296 | 43.4% | | China | $7,904 | $12,626 | (37.4)% | | Canada | $10,877 | $8,877 | 22.5% | | Continental Europe | $6,944 | $5,215 | 33.2% | - Service revenue grew **67.3%** in Q2 2022, driven by a **106.2% increase in installation labor revenue** following the 2021 acquisitions of dealership services businesses[93](index=93&type=chunk)[98](index=98&type=chunk) - Product gross margin percentage increased from **30.8% to 34.0%** in Q2 2022 vs Q2 2021, due to lower product costs and improved operating leverage[107](index=107&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2022, cash was **$9.3 million**, with **$2.5 million** used in operations for H1 2022 due to strategic inventory build-up, and total debt at **$32.2 million** - Primary liquidity sources are cash on hand (**$9.3 million** at June 30, 2022) and cash from operations[121](index=121&type=chunk) - Cash used in operations for the first six months of 2022 was **$2.5 million**, a decrease from **$19.1 million** in cash provided in the prior year, mainly due to a strategic inventory build-up[122](index=122&type=chunk) - Total debt obligations increased to **$32.2 million** as of June 30, 2022, from **$25.5 million** at year-end 2021, reflecting increased use of the revolving credit facility[124](index=124&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces unhedged foreign currency risk from international operations and interest rate risk from floating-rate credit facility borrowings - The company has exposure to currency risk in the British Pound Sterling, Canadian Dollar, Euro, Mexican Peso, and New Taiwanese Dollar, but does not currently hedge this exposure[131](index=131&type=chunk) - Floating rate bank credit facilities expose the company to interest rate risk. A hypothetical **200 basis point increase** in variable rates could have a material impact[132](index=132&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of the period, the company's disclosure controls and procedures were effective at a reasonable assurance level[134](index=134&type=chunk) - No changes occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[136](index=136&type=chunk) Part II - Other Information [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal actions, with management deeming a material financial impact unlikely - The company is party to actions and potential claims related to the ordinary conduct of its business, including commercial disputes, product liability, and employment matters[138](index=138&type=chunk) - Management believes the likelihood of any litigation having a material impact on the company's financial position is remote[139](index=139&type=chunk) [Item 1A. Risk Factors](index=35&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors, except for the addition of increasing inflation risk impacting product demand - No material changes to risk factors were reported, except for the addition of inflation risk. Economic conditions in several markets are experiencing increasing inflation, which could impact product demand and future financial results[141](index=141&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported for the period - None[142](index=142&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable for the reporting period - Not applicable[143](index=143&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable for the reporting period - Not applicable[144](index=144&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period - None[145](index=145&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including CEO and CFO certifications and XBRL financial data - Exhibits filed include CEO and CFO certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and financial statements formatted in XBRL[147](index=147&type=chunk)

XPEL, Inc. (NASDAQ:XPEL) Q1 2022 Results Conference Call May 10, 2022 11:00 AM ET Company Participants John Nesbett - Investor Relations Ryan Pape - President and Chief Executive Officer Barry Wood - Senior Vice President and Chief Financial Officer Conference Call Participants Ryan Sigdahl - Craig-Hallum Jeff Van Sinderen - B. Riley Operator Good day, ladies and gentlemen, and welcome to the XPEL Inc.’s First Quarter 2022 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over t ...

(Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ 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) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (State or other jurisdiction of incorporation or organiz ...

XPEL, Inc. (NASDAQ:XPEL) Q4 2021 Earnings Conference Call February 28, 2022 11:00 AM ET Company Participants John Nesbett - Investor Relations Ryan Pape - President and Chief Executive Officer Barry Wood - Senior Vice President and Chief Financial Officer Conference Call Participants Steve Dyer - Craig-Hallum Jeff Van Sinderen - B. Riley Operator Good day, ladies and gentlemen, and welcome to the XPEL, Inc. Fourth Quarter and Year-End 2021 Earnings Call [Operator Instructions]. It is now my pleasure to tur ...