Xpel, Inc. (NASDAQ:XPEL) Q1 2024 Earnings Conference Call May 2, 2024 11:00 AM ET Company Participants John Nesbett - Investor Relations Barry Wood - CFO & SVP Ryan Pape - Chairman, President & CEO Conference Call Participants Jeff Van Sinderen - B.Riley Securities Operator Good morning, everyone, and welcome to the Xpel Incorporated first quarter 2024 earnings call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions after the presentation. If anyo ...

XPEL Reports First Quarter Results San Antonio, TX – May 2, 2024 – XPEL, Inc. (Nasdaq: XPEL) (the "Company"), a global provider of protective films and coatings, announced consolidated results for the first quarter and year ended March 31, 2024. 1 First Quarter 2024 Overview: Product and Service Revenue Other Financial Information Ryan Pape, President and Chief Executive Officer of XPEL, commented, "Clearly, the first quarter was a challenging quarter for the Company, particularly in the US, where we saw a ...

[FORM 10-K Filing Information](index=1&type=section&id=FORM%2010-K) This section details XPEL, Inc.'s Form 10-K filing for FY2023, confirming its status as a large accelerated filer and compliance with reporting requirements [General Information](index=1&type=section&id=FORM%2010-K) This section identifies the filing as an Annual Report on Form 10-K for the fiscal year ended December 31, 2023, for XPEL, Inc., a Nevada corporation - XPEL, Inc. is a Nevada corporation, filing its Annual Report on Form 10-K for the fiscal year ended December 31, 2023[2](index=2&type=chunk) Indicator Status | Indicator | Status | | :--- | :--- | | Well-known seasoned issuer | No | | Required to file reports pursuant to Section 13 or 15(d) | Yes | | Filed all reports required by Section 13 or 15(d) in preceding 12 months | Yes | | Submitted Interactive Data File pursuant to Rule 405 of Regulation S-T | Yes | | Filer Status | Large accelerated filer | | Shell company | No | - The aggregate market value of common stock held by non-affiliates as of June 30, 2023, was approximately **$2,100,717,483**, with **27,631,097 shares** outstanding as of February 28, 2024[4](index=4&type=chunk)[5](index=5&type=chunk) [Cautionary Notice Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20NOTICE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This notice advises that the report contains forward-looking statements subject to risks and uncertainties, cautioning readers against undue reliance [Forward-Looking Statements Disclosure](index=4&type=section&id=CAUTIONARY%20NOTICE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section advises readers that the Annual Report contains forward-looking statements reflecting current expectations and projections about future events and financial trends - Forward-looking statements reflect current expectations and projections about future events and financial trends, subject to risks, uncertainties, and assumptions[12](index=12&type=chunk)[13](index=13&type=chunk)[14](index=14&type=chunk) - Key areas of forward-looking statements include strategy, market expansion (vertical and regional), and future product offerings[13](index=13&type=chunk) - Readers are advised to consider 'Risk Factors' and other cautionary statements, as forward-looking statements are not guarantees of future performance and may not be accurate[13](index=13&type=chunk)[16](index=16&type=chunk) [Explanatory Note](index=4&type=section&id=EXPLANATORY%20NOTE) This note clarifies that the report includes estimates and statistical data from various sources and confirms XPEL's ownership of proprietary rights [Report Data and Trademarks](index=4&type=section&id=EXPLANATORY%20NOTE) This section clarifies that the report includes estimates and statistical data from independent parties and the company, which involve assumptions and limitations - The Annual Report includes estimates and statistical data on market size and growth, which are subject to assumptions and limitations[18](index=18&type=chunk) - XPEL owns or has rights to trademarks, trade names, copyrights, and proprietary rights for its business operations, products, and formulations[19](index=19&type=chunk) [Summary of Risk Factors](index=5&type=section&id=SUMMARY%20OF%20RISK%20FACTORS) This section summarizes significant risks that could adversely affect XPEL's business, financial condition, or results of operations [Overview of Key Risks](index=5&type=section&id=SUMMARY%20OF%20RISK%20FACTORS) This section provides a summary of the most significant risks that could adversely affect XPEL's business, financial condition, or results of operations - Operational Risks include reliance on a single distributor in China, potential harm from loss of key personnel, supply chain disruptions, and product quality risks due to an asset-light model[24](index=24&type=chunk)[27](index=27&type=chunk) - Risks Related to Business and Industry highlight dependence on the automotive industry, competition, fluctuations in raw material costs, and potential obsolescence of products due to technological advancements[25](index=25&type=chunk)[27](index=27&type=chunk) - Strategic Risks involve challenges in new product introductions, dependence on independent installers and dealerships, and difficulties in identifying and integrating acquisitions[26](index=26&type=chunk)[27](index=27&type=chunk) - Legal, Regulatory and Compliance Risks cover product liability, anti-corruption laws, international trade compliance, intellectual property infringement, and cybersecurity threats[28](index=28&type=chunk)[31](index=31&type=chunk) - Liquidity Risks include potential for substantial future indebtedness, uncertainty of additional financing, and exposure to interest rate volatility[29](index=29&type=chunk)[31](index=31&type=chunk) - Risks Relating to Common Stock address stock price volatility, potential dilution from future equity issuances, and the company's policy of not paying cash dividends[29](index=29&type=chunk)[31](index=31&type=chunk) - General Risk Factors encompass global economic conditions, public health crises, and broader economic, political, and market instabilities[30](index=30&type=chunk)[31](index=31&type=chunk) [Part I](index=7&type=section&id=Part%20I) This part provides a comprehensive overview of XPEL's business, including its products, strategies, sales channels, competition, and regulatory environment [Item 1. Business](index=7&type=section&id=Item%201.%20Business) XPEL, Inc. is a global supplier and installer of automotive and architectural protective films and coatings, focusing on customer proximity and market expansion [Company Overview](index=7&type=section&id=Company%20Overview) XPEL, Inc. supplies and installs protective films and coatings, originating as a software company for vehicle patterns and expanding into product sales - XPEL supplies and installs automotive paint protection film, automotive window film, ceramic coatings, architectural window film products, and related tools[32](index=32&type=chunk) - The company originated as a software company designing vehicle patterns for protective films, later expanding into product sales, with the ULTIMATE self-healing film introduced in **2011** driving significant growth[33](index=33&type=chunk) [Products and Services](index=7&type=section&id=Products%20and%20Services) XPEL offers a diverse portfolio of products and services, with paint and surface protection films being the primary revenue driver, alongside window films, ceramic coatings, and software Consolidated Revenue Breakdown by Product/Service (FY2023) | Product/Service Category | % of Consolidated Revenue (FY2023) | | :----------------------- | :--------------------------------- | | Surface and Paint Protection Film Rolls | 58.0% | | Automotive Window Film Rolls | 14.8% | | Architectural Window Film Rolls | 2.3% | | Ceramic coating | < 2% | | Software (DAP subscriptions) | < 2% | | Installation Services (including product and labor) | 18% | - Paint protection film is the flagship product, designed to protect vehicle painted surfaces from damage, with installation often aided by software and pattern databases[35](index=35&type=chunk) - The Design Access Platform (DAP) is a proprietary SAAS platform with over **80,000 vehicle applications**, used by the Company and customers to cut protective films, enhancing installer efficiency and reducing waste[40](index=40&type=chunk)[41](index=41&type=chunk) [Strategic Overview](index=8&type=section&id=Strategic%20Overview) XPEL's strategic initiatives focus on global expansion, increasing brand awareness, expanding delivery channels through acquisitions, and diversifying its non-automotive product portfolio - Global expansion strategy includes establishing local presence and adding regional sales personnel to leverage local knowledge[45](index=45&type=chunk) - Increasing global brand awareness through high-visibility events and advertising to expand the Company's premium brand[46](index=46&type=chunk) - Expanding delivery channels by acquiring installation facilities and international partners, completing **four acquisitions in 2023** to get closer to end customers[47](index=47&type=chunk)[48](index=48&type=chunk) - Driving expansion of the non-automotive product portfolio, particularly architectural window film, and exploring adjacent market opportunities for protective films[48](index=48&type=chunk) [Sales and Distribution](index=9&type=section&id=Sales%20and%20Distribution) XPEL utilizes a multi-channel sales and distribution strategy, primarily selling directly to independent installers and new car dealerships, which accounted for the majority of its consolidated revenue in 2023 - Primary sales channel is a turn-key solution directly to independent installers and new car dealerships, including protection films, training, DAP software access, and marketing support[50](index=50&type=chunk)[51](index=51&type=chunk) Consolidated Revenue Breakdown by Sales Channel (FY2023) | Sales Channel | % of Consolidated Revenue (FY2023) | | :----------------------------------- | :--------------------------------- | | Independent Installers/New Car Dealerships | 63.2% | | Distributors (including China Distributor) | 18.1% | | Company-Owned Installation Centers/Dealership Services | 14.0% | | Automobile Original Equipment Manufacturers (OEMs) | 4.1% | | Online and Catalog Sales | < 1.0% | - In China, XPEL operates through a sole distributor, Shanghai Xing Ting Trading Co., Ltd., which generated approximately **10.5% of consolidated revenue in 2023**[55](index=55&type=chunk) - XPEL operates **24 company-owned installation centers** globally and provides on-site installation services to automobile dealerships and OEMs[57](index=57&type=chunk)[59](index=59&type=chunk) [Competition](index=10&type=section&id=Competition) XPEL competes with other manufacturers and distributors of automotive protective film products, differentiating itself through a comprehensive suite of services including proprietary software and customer support - XPEL competes primarily with other manufacturers and distributors of automotive protective film products[61](index=61&type=chunk) - Key competitors in surface and paint protection film include Eastman Chemical Company (LLumar and Suntek brands) and several smaller companies[62](index=62&type=chunk) - Differentiation is achieved through a suite of services accompanying products, such as proprietary software (DAP), marketing/lead generation, and customer service[61](index=61&type=chunk) [Suppliers](index=11&type=section&id=Suppliers) XPEL employs an 'asset-light' manufacturing model, relying on third-party contract manufacturers and suppliers for most products, while internalizing conversion operations like quality assurance - The company uses an 'asset-light' manufacturing model, sourcing most products from third-party contract manufacturers and suppliers[63](index=63&type=chunk) - Product lines include those with owned/licensed IP, those made exclusively by third parties, and those sourced non-exclusively[64](index=64&type=chunk) - XPEL internalizes conversion operations such as quality assurance, inspection, rewinding, boxing, and packaging[63](index=63&type=chunk) [Government Regulation and Legislation](index=11&type=section&id=Government%20Regulation%20and%20Legislation) XPEL's operations are subject to extensive federal, state, and foreign laws and regulations covering manufacturing, distribution, advertising, consumer protection, privacy, data security, export controls, and anti-corruption - Compliance is required with federal, state, and foreign laws and regulations across manufacturing, packaging, storage, distribution, advertising, and labeling[66](index=66&type=chunk) - Subject to privacy and data security laws, including GDPR and CPRA, which govern personal data handling and impose obligations in case of security breaches[66](index=66&type=chunk)[70](index=70&type=chunk) - Products are subject to export controls (e.g., U.S. Department of Commerce's Export Administration Regulations) and economic sanctions (e.g., U.S. Treasury Department's Office of Foreign Asset Controls)[68](index=68&type=chunk) - Compliance with domestic and international anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act, is mandated[69](index=69&type=chunk) [Environmental Matters](index=12&type=section&id=Environmental%20Matters) XPEL is subject to various environmental, health, and safety laws and regulations, is ISO 14001:2015 registered, and actively recycles materials from its operations - XPEL complies with federal, state, local, and foreign environmental, health, and safety laws and regulations[71](index=71&type=chunk) - The company is **ISO 14001:2015 registered** and accredited[71](index=71&type=chunk) - XPEL recycles plastic cores, film waste, corrugated boxes, and other materials from its conversion operations[72](index=72&type=chunk) [Intellectual Property and Brand Protection](index=13&type=section&id=Intellectual%20Property%20and%20Brand%20Protection) XPEL owns and defends intellectual property rights, including patents, copyrights, and trademarks, which are crucial for its brand and products, actively enforcing these rights globally - XPEL owns intellectual property rights, including patents, copyrights, and trademarks, which provide a competitive advantage[73](index=73&type=chunk) - The company aggressively pursues and defends its intellectual property rights globally to protect its brand and products[74](index=74&type=chunk) [Human Capital Resources](index=13&type=section&id=Human%20Capital%20Resources) As of December 31, 2023, XPEL employed approximately 1,054 people globally, focusing on recruiting, retaining, developing, and compensating its workforce through competitive pay and benefits - As of December 31, 2023, XPEL employed approximately **1,054 full-time equivalents** (**710 in the U.S.**, **344 internationally**)[75](index=75&type=chunk) - The company's compensation strategy includes competitive market-based pay, comprehensive benefits, and cash and equity incentives to attract and retain talent[76](index=76&type=chunk) [Available Information](index=13&type=section&id=Available%20Information) XPEL, Inc. was incorporated in Nevada in 2003 and provides its Annual Reports, Quarterly Reports, and other SEC filings on its investor relations website - XPEL, Inc. was incorporated in Nevada in **October 2003**[77](index=77&type=chunk) - The company makes its SEC filings (10-K, 10-Q, 8-K) available on its investor relations website (www.xpel.com) under 'Corporate Filings / Financial Results'[78](index=78&type=chunk) [Item 1A. Risk Factors](index=13&type=section&id=Item%201A.%20Risk%20Factors) This section details various risks that could materially affect XPEL's business, financial condition, and results of operations, categorized into operational, business, strategic, legal, liquidity, common stock, and general factors [Operational Risks](index=14&type=section&id=Operational%20Risks) Operational risks include significant reliance on a single distributor in China, political and economic uncertainties in the Chinese market, potential loss of key personnel, supply chain disruptions, and product quality risks from an asset-light model - XPEL relies on a single distributor in China, which accounted for approximately **10.5% of consolidated revenue in 2023**; loss of this relationship could severely harm the business[80](index=80&type=chunk)[83](index=83&type=chunk) - Operating in China carries risks such as political/economic uncertainties, limited legal recourse, uncertain interpretation of laws, and potential impacts from U.S.-China trade policies[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk)[87](index=87&type=chunk)[89](index=89&type=chunk) - The company depends on key executive officers (Ryan L. Pape, Barry R. Wood) and other highly qualified personnel; loss or inability to attract talent could disrupt operations[90](index=90&type=chunk) - Disruptions from contract manufacturers or suppliers, or inability to obtain sufficient supply, could lead to unmet customer demands, increased costs, and impact product quality[92](index=92&type=chunk)[93](index=93&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - The asset-light business model exposes XPEL to product quality and variable cost risks, and a transition away from this model could introduce new operational and capital risks[95](index=95&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk) - Financial statements rely on estimates and assumptions (e.g., revenue recognition, asset impairment, inventory reserves), which if inaccurate, could materially affect reported results[98](index=98&type=chunk)[99](index=99&type=chunk) - Failure to maintain effective internal control over financial reporting could lead to inaccurate financial reports, fraud, and loss of investor confidence[100](index=100&type=chunk) [Risks Related to Our Business and Industry](index=17&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) XPEL's business is highly dependent on the cyclical automotive industry, facing intense competition, fluctuating raw material costs, evolving sales models, and technological advancements that could render products obsolete - High dependence on the automotive industry means a contraction in automotive sales and production volumes could adversely affect business[101](index=101&type=chunk) - Fluctuations in the cost and availability of raw materials, equipment, labor, and transportation could cause manufacturing delays, increase costs, or impact ability to meet demand[102](index=102&type=chunk) - The after-market automotive product supply business is highly competitive, with many competitors having greater financial, marketing, and technical resources[103](index=103&type=chunk)[104](index=104&type=chunk) - Harm to XPEL's reputation or product reputation, whether real or perceived, could adversely affect the business[106](index=106&type=chunk) - Revenue and operating results may fluctuate due to factors like customer relationships, demand variations, pricing policies, and general economic conditions, making results difficult to predict[107](index=107&type=chunk)[108](index=108&type=chunk) - Changes in the North American vehicle dealership model (e.g., fewer franchised dealerships, manufacturer-owned distribution) could impact revenue[109](index=109&type=chunk) - Increased popularity of ride-sharing or alternate vehicle ownership models could reduce consumer vehicle ownership and impact revenue[110](index=110&type=chunk) - Technological advancements in automotive paint or film application methods could render some of XPEL's products or installation services obsolete[111](index=111&type=chunk)[112](index=112&type=chunk)[114](index=114&type=chunk) - Infringement of intellectual property, particularly proprietary patterns, could impact XPEL's ability to compete effectively[113](index=113&type=chunk)[115](index=115&type=chunk) [Strategic Risks](index=20&type=section&id=Strategic%20Risks) Strategic risks include the failure of new products, dependence on independent installers, challenges in integrating acquisitions, and exposure to political, economic, and currency exchange rate risks from multinational operations - New product introductions or significant changes to existing products may fail to meet customer expectations or generate sufficient revenue, leading to customer loss or business harm[116](index=116&type=chunk) - Dependence on independent installers and new car dealerships, who may also offer competitors' products or terminate relationships, could harm sales[117](index=117&type=chunk)[118](index=118&type=chunk) - Inability to identify, finance, or successfully complete suitable acquisitions, or the failure to integrate acquired businesses, could consume significant resources and dilute stockholder interests[119](index=119&type=chunk)[120](index=120&type=chunk) - Failure to retain and acquire new customers, due to competing products, unmet demands, or changes in customer preferences, could materially and adversely affect financial performance[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) - Operating a multinational business (**43% of 2023 revenue from outside U.S.**) exposes XPEL to political, regulatory, economic, and other risks inherent in numerous countries[125](index=125&type=chunk) - Volatility in currency exchange rates, particularly a strengthening U.S. dollar, could materially adversely affect financial condition, results of operations, and cash flows[126](index=126&type=chunk) - Failure to manage rapid growth effectively, including expanding systems, recruiting personnel, and integrating acquisitions, could strain management and operational infrastructure[127](index=127&type=chunk)[128](index=128&type=chunk)[129](index=129&type=chunk) [Legal, Regulatory and Compliance Risks](index=23&type=section&id=Legal,%20Regulatory%20and%20Compliance%20Risks) XPEL faces legal and compliance risks including product liability, anti-corruption law violations, international trade non-compliance, intellectual property challenges, and cybersecurity threats, which could lead to significant financial and reputational harm - Inherent risk of product liability and warranty claims, which could result in material losses, defense costs, and damage to reputation[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - Violations of anti-corruption laws (e.g., FCPA, U.K. Bribery Act) could lead to investigations, criminal/civil sanctions, and material adverse effects on reputation and business[133](index=133&type=chunk)[134](index=134&type=chunk) - Failure to satisfy international trade compliance regulations or changes in U.S. government sanctions could result in penalties, reputational harm, and restrictions on product distribution[135](index=135&type=chunk) - Changes in U.S. administrative policy, trade agreements, or international relations (e.g., tariffs) could adversely affect financial performance[136](index=136&type=chunk) - Modifications to trade agreements between the United Kingdom and the European Union could negatively impact competitive position and financial performance[137](index=137&type=chunk) - Intellectual property challenges, including infringement by third parties or claims against XPEL, could hinder product development, marketing, and incur significant litigation costs[138](index=138&type=chunk)[139](index=139&type=chunk)[140](index=140&type=chunk) - Failure, inadequacy, or breach of IT systems, infrastructure, or business information, or violations of data protection laws (e.g., GDPR, CPRA), could result in material harm to business and reputation[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) [Liquidity Risks](index=26&type=section&id=Liquidity%20Risks) XPEL faces liquidity risks related to potential increased indebtedness, uncertainty of obtaining additional financing, exposure to interest rate volatility from variable-rate debt, and the risk of breaching credit facility covenants - Future incurrence of substantial indebtedness could increase vulnerability to economic conditions, reduce cash flow for operations/investments, and limit financial flexibility[146](index=146&type=chunk)[147](index=147&type=chunk) - Uncertainty that additional financing will be available on reasonable terms when required, potentially leading to dilution for existing stockholders if equity is issued[149](index=149&type=chunk) - Variable rate indebtedness exposes the company to interest rate volatility, which could significantly increase debt service obligations and decrease net income/cash flows[150](index=150&type=chunk) - A breach of credit facility terms or financial covenants could result in an event of default, allowing lenders to accelerate repayment and foreclose on assets, potentially impacting the company's ability to operate as a going concern[148](index=148&type=chunk) [Risks Relating to Common Stock](index=27&type=section&id=Risks%20Relating%20to%20Common%20Stock) Risks related to XPEL's common stock include potential price declines due to unfavorable analyst commentary or stock volatility, dilution from future equity issuances, the company's non-dividend policy, and anti-takeover provisions - Unfavorable commentary or downgrades by research analysts could cause the price and trading volume of common stock to decline[151](index=151&type=chunk) - The trading price of common stock has been and may continue to be volatile due to various factors, including economic conditions, company announcements, and industry changes[152](index=152&type=chunk)[153](index=153&type=chunk) - Issuance of additional equity securities or other transactions could dilute the book value and market price of common stock, as existing stockholders do not have preemptive rights[154](index=154&type=chunk) - The Board may issue preferred stock with greater rights than common stock without stockholder approval[155](index=155&type=chunk) - XPEL has not paid cash dividends and has no plans to do so, which could result in a lower stock value compared to dividend-paying companies[156](index=156&type=chunk)[157](index=157&type=chunk) - Sales of shares eligible for future sale (e.g., under Rule 144) could depress the stock price and impair the ability to raise additional capital[158](index=158&type=chunk)[159](index=159&type=chunk) - Future equity issuances for acquisitions or capital market transactions may dilute stockholders' percentage ownership and earnings per share[160](index=160&type=chunk) - Anti-takeover provisions in bylaws and Nevada corporate statute could make a third-party acquisition difficult without board approval[161](index=161&type=chunk) - Directors and executive officers, with affiliates, beneficially owned approximately **9.5% of outstanding common stock** as of February 28, 2024, giving them substantial control[162](index=162&type=chunk) - Bylaws designate state and federal courts in Bexar County, Texas, as the exclusive forum for most stockholder disputes, potentially limiting stockholders' ability to choose a favorable judicial forum[163](index=163&type=chunk)[164](index=164&type=chunk) [General Risk Factors](index=30&type=section&id=General%20Risk%20Factors) General risk factors include the impact of global economic and business conditions on demand for XPEL's discretionary products, potential disruptions from public health crises, and adverse effects from macroeconomic developments, political issues, and conflicts - Demand for XPEL's discretionary products is affected by general global economic and business conditions, including economic strength, consumer confidence, unemployment, and interest rates[165](index=165&type=chunk) - A public health crisis, such as a pandemic, could create business disruptions with a material adverse effect on operations and financial results[166](index=166&type=chunk) - Macroeconomic developments, political issues, and conflicts (e.g., Russo-Ukrainian war, Israeli-Hamas conflict) can adversely affect business, financial condition, and results of operations[167](index=167&type=chunk) [Item 1B. Unresolved Staff Comments](index=30&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) This section states that there are no unresolved staff comments from the SEC - There are no unresolved staff comments[168](index=168&type=chunk) [Item 1C. Cybersecurity](index=30&type=section&id=Item%201C.%20Cybersecurity) XPEL maintains a cyber risk management program based on ISO 27001 standards, including 24/7 monitoring and regular assessments, overseen by the Audit Committee - XPEL maintains a cyber risk management program integrated into its enterprise risk management system, based on **ISO 27001 standards**[169](index=169&type=chunk)[170](index=170&type=chunk) - A third-party organization conducts **24/7 monitoring** of the global cybersecurity environment and coordinates incident investigation and remediation[171](index=171&type=chunk) - The Director of Enterprise Systems leads the cybersecurity program, assessing and managing risks, and briefing the Audit Committee quarterly[173](index=173&type=chunk)[174](index=174&type=chunk) - While cyber incidents occur in the normal course of business, none have had a material adverse effect on the company's business, financial condition, results of operations, or cash flows to date[175](index=175&type=chunk) [Item 2. Properties](index=31&type=section&id=Item%202.%20Properties) XPEL's principal office is in San Antonio, Texas, with operations conducted in leased facilities across North America, Europe, Asia, and Australia, deemed suitable for current business needs - The principal office is located in leased premises in San Antonio, Texas[176](index=176&type=chunk) - Operations are conducted in facilities across North America, Europe, Asia, and Australia, housing production, distribution, installation, sales, marketing, and administrative functions[176](index=176&type=chunk) Principal Facilities as of December 31, 2023 | Country or Region | Installation and Sales Locations | Warehouse Locations | Administrative, Training, and Other Locations | Leased Square Footage | | :---------------- | :------------------------------- | :------------------ | :------------------------------------------ | :-------------------- | | United States | 10 | 3 | 1 | 291,900 | | Continental Europe | 3 | 1 | 2 | 88,451 | | Canada | 10 | 3 | 1 | 73,506 | | Mexico | 1 | 1 | — | 13,659 | | United Kingdom | 1 | 1 | — | 14,835 | | Asia Pacific | 2 | 1 | — | 20,484 | - The company believes its facilities are suitable and sufficient for current business needs[177](index=177&type=chunk) [Item 3. Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) XPEL is occasionally involved in legal actions and claims related to its business, with management believing a material impact on financial position is unlikely, and liabilities are periodically reexamined - XPEL is party to actions and potential claims related to commercial disputes, product liability, patent infringement, and employment matters[178](index=178&type=chunk) - Management believes a material impact on financial position, results of operations, or cash flows from future claims is unlikely, but acknowledges the inherent uncertainty of litigation[179](index=179&type=chunk) - Estimates of probable liabilities and associated expenses are periodically reexamined and adjusted[179](index=179&type=chunk) [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to XPEL, Inc - This item is not applicable[180](index=180&type=chunk) [Part II](index=32&type=section&id=Part%20II) This part covers XPEL's common equity market, financial condition, results of operations, market risk disclosures, and financial statements [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) XPEL's Common Stock trades on The Nasdaq Stock Market LLC, with 11 stockholders of record as of February 28, 2024, and no cash dividends paid or repurchases in 2023 [Holders](index=32&type=section&id=Holders) As of February 28, 2024, XPEL had 11 stockholders of record, excluding shares held in 'street name' - As of February 28, 2024, there were **11 stockholders of record**[183](index=183&type=chunk) [Dividend Policy](index=32&type=section&id=Dividend%20Policy) XPEL has not paid cash dividends on its Common Stock and does not anticipate doing so in the foreseeable future, retaining earnings for future expansion - No cash dividends have been paid on Common Stock to date, and none are anticipated in the foreseeable future[156](index=156&type=chunk)[183](index=183&type=chunk) - Any future dividend decisions are at the discretion of the Board, with anticipated earnings retained to finance future expansion[157](index=157&type=chunk)[183](index=183&type=chunk) [Stock Performance](index=32&type=section&id=Stock%20Performance) This section provides a comparison of XPEL's common stock cumulative total stockholder return against the Russell 2000 Index and the S&P 500 Index from December 31, 2019, through December 31, 2023 - Stock performance is compared to the Russell 2000 Index and S&P 500 Index from December 31, 2019, through December 31, 2023[185](index=185&type=chunk) - The Russell 2000 Index is used as a benchmark due to the company's non-comparability with specific industry indices or peer groups[186](index=186&type=chunk) [Purchases of Equity Securities](index=33&type=section&id=Purchases%20of%20Equity%20Securities) XPEL did not repurchase any shares of its Common Stock during the year ended December 31, 2023 - No shares of Common Stock were repurchased during the year ended December 31, 2023[187](index=187&type=chunk) [Item 6. [Reserved]](index=33&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information - This item is reserved[188](index=188&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an executive summary and detailed analysis of XPEL's financial condition and results of operations for 2023, 2022, and 2021, highlighting revenue growth, improved gross margins, and increased net income [Executive Summary](index=33&type=section&id=Executive%20Summary) XPEL reported strong financial performance for 2023, with total revenue increasing by 22.3% and net income growing by 27.6% compared to 2022, driven by improved gross margins and operational efficiency Summary Financial Information (Dollars in thousands) | Metric | 2023 | % of Total Revenue (2023) | 2022 | % of Total Revenue (2022) | 2021 | % of Total Revenue (2021) | % Change 2023 vs. 2022 | % Change 2022 vs. 2021 | | :------------------ | :--- | :------------------------ | :--- | :------------------------ | :--- | :------------------------ | :--------------------- | :--------------------- | | Total Revenue | $396,293 | 100.0% | $323,993 | 100.0% | $259,263 | 100.0% | 22.3% | 25.0% | | Total Cost of Sales | $233,879 | 59.0% | $196,481 | 60.6% | $166,586 | 64.3% | 19.0% | 17.9% | | Gross Margin | $162,414 | 41.0% | $127,512 | 39.4% | $92,677 | 35.7% | 27.4% | 37.6% | | Total Operating Expenses | $95,442 | 24.1% | $73,575 | 22.7% | $52,561 | 20.3% | 29.7% | 40.0% | | Operating Income | $66,972 | 16.9% | $53,937 | 16.6% | $40,116 | 15.5% | 24.2% | 34.5% | | Other Expenses | $941 | 0.2% | $1,972 | 0.6% | $676 | 0.3% | (52.3)% | 191.7% | | Income Tax | $13,231 | 3.3% | $10,584 | 3.3% | $7,873 | 3.0% | 25.0% | 34.4% | | Net Income | $52,800 | 13.3% | $41,381 | 12.8% | $31,567 | 12.2% | 27.6% | 31.1% | [Company Overview](index=34&type=section&id=Company%20Overview_7_34) XPEL is a leading global provider of protective films and coatings, emphasizing high-quality products, customer service, technical support, and training, supported by its proprietary DAP software - XPEL is a leading global provider of protective films and coatings, including automotive paint protection film, surface protection film, automotive and commercial/residential window films, and ceramic coatings[190](index=190&type=chunk) - The company emphasizes high-quality products, leading customer service, expert technical support, and world-class training, supported by its proprietary DAP software[190](index=190&type=chunk) [Key Business Metric - Non-GAAP Financial Measures](index=34&type=section&id=Key%20Business%20Metric%20-%20Non-GAAP%20Financial%20Measures) XPEL's management primarily monitors Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) as a key non-GAAP financial measure to track operating performance, compare results, and for planning purposes - **EBITDA** is the most important non-GAAP financial measure monitored by management to track business progress[191](index=191&type=chunk) - EBITDA is used for comparing operating performance, calculating incentive compensation, planning, evaluating operational strategies, and assessing debt covenant compliance[192](index=192&type=chunk) Reconciliation of Net Income to EBITDA (Dollars in thousands) | Metric | 2023 | % of Total Revenue (2023) | 2022 | % of Total Revenue (2022) | 2021 | % of Total Revenue (2021) | | :---------------- | :--- | :------------------------ | :--- | :------------------------ | :--- | :------------------------ | | Net Income | $52,800 | 13.3% | $41,381 | 12.8% | $31,567 | 12.2% | | Interest | $1,248 | 0.3% | $1,410 | 0.4% | $303 | 0.1% | | Taxes | $13,231 | 3.3% | $10,584 | 3.3% | $7,873 | 3.0% | | Depreciation | $4,534 | 1.1% | $3,433 | 1.1% | $1,887 | 0.7% | | Amortization | $5,059 | 1.3% | $4,401 | 1.4% | $2,501 | 1.0% | | EBITDA | $76,872 | 19.4% | $61,209 | 18.9% | $44,131 | 17.0% | [Use of Non-GAAP Financial Measures](index=35&type=section&id=Use%20of%20Non-GAAP%20Financial%20Measures) XPEL clarifies that EBITDA is a non-GAAP measure and should be considered supplementary to GAAP financial measures, not as a substitute, acknowledging its limitations as an analytical tool - **EBITDA** is a non-GAAP financial measure and should be considered in addition to, not as a substitute for, GAAP measures[194](index=194&type=chunk) - Limitations of EBITDA include not reflecting certain cash charges and potential incomparability with other companies' measures[195](index=195&type=chunk) [Results of Operations](index=36&type=section&id=Results%20of%20Operations) XPEL's results of operations for 2023 show significant growth across both product and service revenues, leading to improved gross margins and net income, driven by increased demand and strategic channel focus [Revenue](index=37&type=section&id=Revenue) Total revenue increased by **22.3% in 2023** to **$396.3 million**, with product revenue growing **20.6%** and service revenue growing **29.0%**, driven by broad-based demand and product adoption Revenue by Category (Dollars in thousands) | Category | 2023 | 2022 | 2021 | % Change 2023 vs. 2022 | % Change 2022 vs. 2021 | | :---------------- | :--- | :--- | :--- | :--------------------- | :--------------------- | | Product Revenue | $311,406 | $258,174 | $217,283 | 20.6% | 18.8% | | Service Revenue | $84,887 | $65,819 | $41,980 | 29.0% | 56.8% | | Total Revenue | $396,293 | $323,993 | $259,263 | 22.3% | 25.0% | Product Revenue Breakdown (Dollars in thousands) | Product Line | 2023 Revenue | % of Total Revenue (2023) | % Change 2023 vs. 2022 | | :-------------------- | :----------- | :------------------------ | :--------------------- | | Paint protection film | $229,880 | 58.0% | 19.5% | | Window film | $67,951 | 17.1% | 25.0% | | Other | $13,575 | 3.5% | 18.8% | Service Revenue Breakdown (Dollars in thousands) | Service Line | 2023 Revenue | % of Total Revenue (2023) | % Change 2023 vs. 2022 | | :---------------- | :----------- | :------------------------ | :--------------------- | | Software | $6,518 | 1.6% | 25.0% | | Cutbank credits | $17,626 | 4.4% | 8.0% | | Installation labor | $58,477 | 14.8% | 36.5% | | Training and other | $2,266 | 0.6% | 55.1% | Sales by Geographic Region (Dollars in thousands) | Region | 2023 Sales | % of Total Revenue (2023) | % Change 2023 vs. 2022 | | :---------------- | :----------- | :------------------------ | :--------------------- | | United States | $224,839 | 56.7% | 18.4% | | Canada | $43,506 | 11.0% | 11.6% | | China | $41,576 | 10.5% | 22.3% | | Continental Europe | $34,883 | 8.8% | 41.2% | | Middle East/Africa | $16,472 | 4.2% | 56.9% | | United Kingdom | $13,438 | 3.4% | 30.5% | | Asia Pacific | $11,943 | 3.0% | 32.3% | | Latin America | $8,737 | 2.2% | 61.5% | | Other | $899 | 0.2% | (22.9)% | - Automotive window film grew **20.2% to $58.5 million**, and architectural window film revenue increased **65.9% to $9.5 million in 2023**[201](index=201&type=chunk) - FUSION ceramic coating product revenue grew **51.7% to $6.2 million in 2023**[202](index=202&type=chunk) [Cost of Sales](index=38&type=section&id=Cost%20of%20Sales) Total cost of sales increased by **19.0% in 2023**, with product costs rising **16.5%** and service costs growing **35.0%**, commensurate with revenue growth and expansion of installation services - Product costs increased **16.5% in 2023**, aligning with product revenue growth[208](index=208&type=chunk) - Cost of service revenue grew **35.0% in 2023**, primarily due to increased labor costs from the expanding installation business[208](index=208&type=chunk) [Gross Margin](index=38&type=section&id=Gross%20Margin) Overall gross margin increased to **41.0% in 2023** from **39.4% in 2022**, driven by improved product gross margin due to decreased costs and favorable product mix, despite a slight decrease in service gross margin Gross Margin by Category (Dollars in thousands) | Category | 2023 | % of Category Revenue (2023) | 2022 | % of Category Revenue (2022) | 2021 | % of Category Revenue (2021) | | :-------- | :--- | :--------------------------- | :--- | :--------------------------- | :--- | :--------------------------- | | Product | $113,398 | 36.4% | $88,269 | 34.2% | $65,997 | 30.4% | | Service | $49,016 | 57.7% | $39,243 | 59.6% | $26,680 | 63.6% | | Total | $162,414 | 41.0% | $127,512 | 39.4% | $92,677 | 35.7% | - Product gross margin percentage increased due to decreases in product costs, favorable changes in product mix, and improved operating leverage[209](index=209&type=chunk) - Service gross margin percentage decreased due to a higher percentage of lower-margin installation labor revenue relative to other higher-margin service components[210](index=210&type=chunk) [Operating Expenses](index=38&type=section&id=Operating%20Expenses) Total operating expenses increased by **29.7% in 2023**, with sales and marketing expenses rising **25.3%** and general and administrative expenses growing **32.0%**, driven by personnel, occupancy, IT, R&D, and professional fees - Sales and marketing expenses increased **25.3% in 2023**, representing **8.0% of consolidated revenue**, driven by increased personnel and marketing projects[211](index=211&type=chunk) - General and administrative expenses grew **32.0% in 2023**, representing **16.1% of consolidated revenue**, due to increases in personnel, occupancy, IT, research and development, and professional fees[212](index=212&type=chunk) [Income Tax Expense](index=39&type=section&id=Income%20Tax%20Expense) Income tax expense increased to **$13.2 million in 2023** from **$10.6 million in 2022**, with effective income tax rates of **20.0%** and **20.4%**, respectively Income Tax Expense and Effective Rate | Metric | 2023 | 2022 | | :---------------- | :--- | :--- | | Income Tax Expense | $13.2 million | $10.6 million | | Effective Income Tax Rate | 20.0% | 20.4% | [Net Income](index=39&type=section&id=Net%20Income) Net income for 2023 increased by **27.6% to $52.8 million**, primarily due to strong revenue growth and improved margins Net Income (Dollars in millions) | Metric | 2023 | % Change YoY | | :-------- | :--- | :----------- | | Net Income | $52.8 | 27.6% | [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) XPEL is exposed to currency risk from non-U.S. operations and interest rate risk from variable-rate debt, with potential impacts from inflation, though it does not currently hedge these exposures - XPEL has operations exposing it to currency risk in British Pound Sterling, Canadian Dollar, Euro, Mexican Peso, New Taiwanese Dollar, and Australian Dollar[232](index=232&type=chunk) - Translation adjustments from foreign operations are recorded in accumulated other comprehensive income; the company does not currently hedge this exposure[232](index=232&type=chunk) - Borrowings under revolving lines of credit expose XPEL to market risk from changes in variable interest rates; a hypothetical **200 basis point increase** could materially impact financial statements[233](index=233&type=chunk) - The company does not currently have derivative contracts to hedge interest rate risk[233](index=233&type=chunk) - Significant inflationary pressures could adversely affect business if not offset by price increases[234](index=234&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=43&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents XPEL's audited consolidated financial statements for 2023, 2022, and 2021, including balance sheets, income statements, comprehensive income, equity changes, and cash flows, along with detailed notes [Report of Independent Registered Public Accounting Firm](index=43&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Deloitte & Touche LLP issued an unqualified opinion on XPEL's consolidated financial statements for the three years ended December 31, 2023, and on the effectiveness of its internal control over financial reporting - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2023[239](index=239&type=chunk) - An unqualified opinion was also expressed on the effectiveness of the Company's internal control over financial reporting as of December 31, 2023[240](index=240&type=chunk) - No critical audit matters were identified[244](index=244&type=chunk) [Consolidated Balance Sheets](index=45&type=section&id=Consolidated%20Balance%20Sheets) XPEL's consolidated balance sheets show a significant increase in total assets and stockholders' equity from 2022 to 2023, driven by growth in current assets and goodwill from acquisitions Consolidated Balance Sheet Highlights (In thousands) | Metric | December 31, 2023 | December 31, 2022 | | :-------------------------------- | :------------------ | :------------------ | | **Assets** | | | | Cash and cash equivalents | $11,609 | $8,056 | | Accounts receivable, net | $24,111 | $14,726 | | Inventory, net | $106,509 | $80,575 | | Total current assets | $146,454 | $106,821 | | Property and equipment, net | $16,980 | $14,203 | | Intangible assets, net | $34,905 | $29,294 | | Goodwill | $37,461 | $26,763 | | Total assets | $252,041 | $193,362 | | **Liabilities** | | | | Accounts payable and accrued liabilities | $32,444 | $22,970 | | Total current liabilities | $36,472 | $27,402 | | Borrowings on line of credit | $19,000 | $26,000 | | Total liabilities | $72,052 | $68,640 | | **Stockholders' Equity** | | | | Retained earnings | $168,624 | $115,824 | | Total stockholders' equity | $179,989 | $124,722 | - Total assets increased by **$58.68 million (30.3%)** from **$193.36 million in 2022 to $252.04 million in 2023**[248](index=248&type=chunk) - Total stockholders' equity increased by **$55.27 million (44.3%)** from **$124.72 million in 2022 to $179.99 million in 2023**[248](index=248&type=chunk) [Consolidated Statements of Income](index=46&type=section&id=Consolidated%20Statements%20of%20Income) XPEL's consolidated statements of income show robust growth in 2023, with total revenue increasing by **22.3% to $396.3 million** and net income rising by **27.6% to $52.8 million**, resulting in diluted earnings per share of **$1.91** Consolidated Statements of Income Highlights (In thousands, except per share data) | Metric | 2023 | 2022 | 2021 | | :---------------------- | :--- | :--- | :--- | | Total revenue | $396,293 | $323,993 | $259,263 | | Gross Margin | $162,414 | $127,512 | $92,677 | | Operating Income | $66,972 | $53,937 | $40,116 | | Income before income taxes | $66,031 | $51,965 | $39,440 | | Income tax expense | $13,231 | $10,584 | $7,873 | | Net income | $52,800 | $41,381 | $31,567 | | Basic Earnings per share | $1.91 | $1.50 | $1.14 | | Diluted Earnings per share | $1.91 | $1.50 | $1.14 | - Total revenue increased by **22.3% from $323.99 million in 2022 to $396.29 million in 2023**[250](index=250&type=chunk) - Net income increased by **27.6% from $41.38 million in 2022 to $52.80 million in 2023**[250](index=250&type=chunk) - Diluted earnings per share increased from **$1.50 in 2022 to $1.91 in 2023**[250](index=250&type=chunk) [Consolidated Statements of Comprehensive Income](index=47&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) XPEL's total comprehensive income for 2023 was **$53.79 million**, an increase from **$39.77 million in 2022**, including net income and a positive foreign currency translation adjustment Consolidated Statements of Comprehensive Income (In thousands) | Metric | 2023 | 2022 | 2021 | | :------------------------ | :--- | :--- | :--- | | Net income | $52,800 | $41,381 | $31,567 | | Foreign currency translation | $994 | $(1,613) | $(657) | | Total comprehensive income | $53,794 | $39,768 | $30,910 | - Total comprehensive income increased by **35.3% from $39.77 million in 2022 to $53.79 million in 2023**[252](index=252&type=chunk) - Foreign currency translation resulted in a gain of **$994 thousand in 2023**, reversing a loss of **$1,613 thousand in 2022**[252](index=252&type=chunk) [Consolidated Statements of Changes in Stockholders' Equity](index=48&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) XPEL's total stockholders' equity significantly increased to **$179.99 million in 2023** from **$124.72 million in 2022**, primarily driven by net income and stock-based compensation, alongside a positive foreign currency translation adjustment Consolidated Statements of Changes in Stockholders' Equity Highlights (In thousands) | Metric | December 31, 2023 | December 31, 2022 | | :-------------------------- | :------------------ | :------------------ | | Common Stock (Amount) | $28 | $28 | | Additional Paid-in Capital | $12,546 | $11,073 | | Retained Earnings | $168,624 | $115,824 | | Accumulated Other Comprehensive Loss | $(1,209) | $(2,203) | | Total Stockholders' Equity | $179,989 | $124,722 | - Total stockholders' equity increased by **$55.27 million (44.3%) in 2023**[256](index=256&type=chunk) - Net income contributed **$52.80 million** to retained earnings in 2023[256](index=256&type=chunk) - Stock-based compensation added **$1.47 million** to additional paid-in capital in 2023[256](index=256&type=chunk) - Accumulated other comprehensive loss improved by **$994 thousand** due to foreign currency translation in 2023[256](index=256&type=chunk) [Consolidated Statements of Cash Flows](index=49&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) XPEL's cash flows from operating activities significantly increased to **$37.38 million in 2023**, primarily due to higher operating earnings and reduced inventory purchases, while investing activities rose due to acquisitions Consolidated Statements of Cash Flows Highlights (In thousands) | Cash Flow Activity | 2023 | 2022 | 2021 | | :------------------------------------ | :--- | :--- | :--- | | Net cash provided by operating activities | $37,384 | $12,057 | $18,268 | | Net cash used in investing activities | $(26,353) | $(14,156) | $(56,808) | | Net cash (used in) provided by financing activities | $(7,259) | $602 | $19,241 | | Net change in cash and cash equivalents | $3,772 | $(1,497) | $(19,299) | | Cash and cash equivalents at end of year | $11,609 | $8,056 | $9,644 | - Operating cash flows increased significantly from **$12.06 million in 2022 to $37.38 million in 2023**, driven by higher operating earnings and reduced inventory purchases[216](index=216&type=chunk)[258](index=258&type=chunk) - Cash used in investing activities increased to **$26.35 million in 2023**, primarily due to additional cash outlay for acquisitions[217](index=217&type=chunk)[258](index=258&type=chunk) - Financing activities resulted in a net cash outflow of **$7.26 million in 2023**, mainly due to net repayments on credit facilities[218](index=218&type=chunk)[258](index=258&type=chunk) - Cash and cash equivalents at year-end 2023 increased to **$11.61 million** from **$8.06 million in 2022**[258](index=258&type=chunk) [Notes to Consolidated Financial Statements](index=51&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes provide detailed information on XPEL's significant accounting policies, revenue recognition, business acquisitions, asset valuations, debt obligations, employee benefits, capital stock, stock-based compensation, fair value measurements, income taxes, commitments, contingencies, and leases [1. SIGNIFICANT ACCOUNTING POLICIES](index=51&type=section&id=1.%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note outlines XPEL's key accounting policies, including basis of presentation, segment reporting, use of estimates, foreign currency translation, inventory valuation, goodwill impairment, intangible asset amortization, revenue recognition, and business acquisitions - XPEL operates as one operating segment, with the CEO reviewing consolidated results monthly[262](index=262&type=chunk) - Inventories are valued at the lower of cost or net realizable value, with cost determined on a weighted average basis; reserves for discontinued, slow-moving, and excess inventory were **$0.8 million in 2023**[267](index=267&type=chunk)[268](index=268&type=chunk) - Goodwill is tested for impairment annually (December 31) at the reporting unit level; no impairment was recognized in **2023 or 2022**[269](index=269&type=chunk) - Intangible assets (software, customer relationships, trademarks) are amortized on a straight-line basis over their expected useful lives (e.g., software **5 years**, customer relationships **9-10 years**)[270](index=270&type=chunk)[271](index=271&type=chunk) - Revenue is recognized when performance obligations are satisfied by transferring control of products or services to customers, primarily at a point in time[273](index=273&type=chunk) - Research and development costs were **$2.9 million in 2023**, significantly up from **$0.4 million in 2022 and 2021**[275](index=275&type=chunk) - Warranty liability was **$0.4 million** as of December 31, 2023, based on historical claims[277](index=277&type=chunk) - Deferred income tax assets and liabilities are computed for temporary differences, with a valuation allowance recorded against net operating losses and intangibles in foreign jurisdictions[277](index=277&type=chunk)[325](index=325&type=chunk) - Stock-based compensation cost is measured at grant date fair value and recognized over the service period[278](index=278&type=chunk) - Identifiable assets acquired and liabilities assumed in business combinations are measured at fair value at acquisition date, with any excess purchase price recorded as goodwill[281](index=281&type=chunk) [2. REVENUE](index=55&type=section&id=2.%20REVENUE) XPEL recognizes revenue by applying a five-step model, transferring control of goods and services to customers, primarily at a point in time, with contract liabilities for prepayments totaling **$0.76 million** at year-end 2023 - Revenue is recognized when performance obligations are satisfied by transferring control of promised goods and services to a customer, typically at a point in time[285](index=285&type=chunk)[286](index=286&type=chunk) - Sales taxes are excluded from revenue, and shipping/handling costs are included in cost of sales[285](index=285&type=chunk) Contract Liabilities (In thousands) | Metric | 2023 | 2022 | | :---------------------------------------------------- | :--- | :--- | | Balance, December 31 | $761 | $261 | | Revenue recognized related to payments in prior balance | $(206) | $(768) | | Payments received for which performance obligations not satisfied | $691 | $206 | | Effect of Foreign Currency Translation | $15 | $5 | Disaggregation of Revenue by Product Category (In thousands) | Category | 2023 | 2022 | 2021 | | :---------------- | :--- | :--- | :--- | | Product Revenue | $311,406 | $258,174 | $217,283 | | Paint protection film | $229,880 | $192,374 | $169,880 | | Window film | $67,951 | $54,370 | $38,363 | | Other | $13,575 | $11,430 | $9,040 | | Service Revenue | $84,887 | $65,819 | $41,980 | | Software | $6,518 | $5,213 | $4,373 | | Cutbank credits | $17,626 | $16,317 | $12,372 | | Installation labor | $58,477 | $42,828 | $24,253 | | Training and other | $2,266 | $1,461 | $982 | | Total | $396,293 | $323,993 | $259,263 | - The largest customer accounted for **10.5% of net sales in both 2023 and 2022**, down from **17.9% in 2021**[291](index=291&type=chunk) [3. ACQUISITIONS OF BUSINESSES](index=58&type=section&id=3.%20ACQUISITIONS%20OF%20BUSINESSES) XPEL completed **four acquisitions in 2023** for an aggregate preliminary purchase price of **$20.8 million**, contributing **$4.8 million in revenue** and **$0.4 million in net income** to the consolidated financial statements, recognizing goodwill and intangible assets - XPEL completed **four acquisitions in 2023** for an aggregate preliminary purchase price of **$20.8 million**[293](index=293&type=chunk)[294](index=294&type=chunk) - Acquisitions in 2023 contributed **$4.8 million in revenue** and **$0.4 million in net income** to the consolidated financial statements[297](index=297&type=chunk) Acquisition Purchase Price Allocation (In thousands) | Allocation Item | 2023 Acquisitions | | :------------------------ | :---------------- | | Cash | $1,062 | | Other working capital | $868 | | Property and equipment | $878 | | Trade name | $406 | | Customer relationships | $8,720 | | Goodwill | $10,422 | | Deferred tax liability | $(1,482) | | Total Purchase Price | $20,774 | - Goodwill from these acquisitions relates to expansion into new geographical areas, acquired employee knowledge, institutional distribution abilities, and expected synergies[295](index=295&type=chunk) - Unaudited pro forma revenue for 2023, assuming 2023 acquisitions occurred on January 1, 2023, would be **$407.27 million**, with net income of **$53.18 million**[298](index=298&type=chunk) [4. PROPERTY AND EQUIPMENT, NET](index=60&type=section&id=4.%20PROPERTY%20AND%20EQUIPMENT,%20NET) XPEL's net property and equipment increased to **$16.98 million in 2023** from **$14.20 million in 2022**, with depreciation expense for 2023 at **$4.5 million**, allocated between cost of goods sold and general and administrative expense Property and Equipment, Net (In thousands) | Category | December 31, 2023 | December 31, 2022 | | :---------------------- | :------------------ | :------------------ | | Total property and equipment | $30,850 | $23,494 | | Less: accumulated depreciation | $13,870 | $9,291 | | Property and equipment, net | $16,980 | $14,203 | Geographic Property, Plant and Equipment, Net (In thousands) | Region | 2023 | 2022 | | :------------- | :--- | :--- | | United States | $13,942 | $12,511 | | Canada | $1,332 | $469 | | Europe | $1,359 | $1,093 | | Other | $347 | $130 | | Consolidated | $16,980 | $14,203 | - Depreciation expense for 2023 was **$4.5 million**, up from **$3.4 million in 2022**[300](index=300&type=chunk) [5. INTANGIBLE ASSETS, NET](index=60&type=section&id=5.%20INTANGIBLE%20ASSETS,%20NET) XPEL's net intangible assets increased to **$34.91 million in 2023**, primarily comprising contractual and customer relationships, software, and trade names, with amortization expense for 2023 at **$5.1 million** Intangible Assets, Net (In thousands) | Category | December 31, 2023 | December 31, 2022 | | :------------------------------ | :------------------ | :------------------ | | Total at cost | $50,524 | $39,767 | | Less: Accumulated amortization | $15,619 | $10,473 | | Intangible assets, net | $34,905 | $29,294 | Geographic Intangible Assets, Net (In thousands) | Region | 2023 | 2022 | | :------------- | :--- | :--- | | United States | $24,178 | $23,749 | | Canada | $5,738 | $3,127 | | Europe | $4,353 | $1,685 | | Other | $636 | $733 | | Consolidated | $34,905 | $29,294 | - Amortization expense for 2023 was **$5.1 million**, up from **$4.4 million in 2022**[301](index=301&type=chunk) Estimated Future Amortization Expense (In thousands) | Year | Amount | | :--- | :----- | | 2024 | $5,626 | | 2025 | $5,369 | | 2026 | $5,290 | | 2027 | $4,911 | | 2028 | $4,587 | | Thereafter | $9,122 | [6. GOODWILL](index=61&type=section&id=6.%20GOODWILL) XPEL's goodwill increased to **$37.46 million in 2023**, primarily due to additions from acquisitions totaling **$10.42 million**, with no impairment recognized in **2023 or 2022** Changes in Goodwill Carrying Amounts (In thousands) | Metric | 2023 | 2022 | | :-------------------------- | :--- | :--- | | Balance at December 31 | $37,461 | $26,763 | | Additions | $10,422 | $1,826 | | Foreign currency translation | $276 | $(718) | Geographic Goodwill (In thousands) | Region | 2023 | 2022 | | :------------- | :--- | :--- | | United States | $20,371 | $17,699 | | Canada | $10,397 | $5,108 | | Europe | $5,660 | $2,923 | | Other | $1,033 | $1,033 | | Consolidated | $37,461 | $26,763 | - Goodwill additions in 2023 were **$10.42 million**, primarily from acquisitions[302](index=302&type=chunk) [7. INVENTORIES](index=61&type=section&id=7.%20INVENTORIES) XPEL's net inventory increased to **$106.51 million in 2023** from **$80.58 million in 2022**, with finished goods as the largest component and inventory reserves at **$0.8 million** Components of Inventory, Net (In thousands) | Component | December 31, 2023 | December 31, 2022 | | :---------------- | :------------------ | :------------------ | | Raw materials | $22,308 | $10,416 | | Work in process | $6,230 | $6,756 | | Finished goods | $77,971 | $63,403 | | Total | $106,509 | $80,575 | - Inventory reserves were **$0.8 million** as of December 31, 2023, up from **$0.7 million in 2022**[268](index=268&type=chunk) [8. DEBT](index=61&type=section&id=8.%20DEBT) XPEL has a **$125.0 million** revolving credit facility, with an outstanding balance of **$19.0 million** as of December 31, 2023, bearing variable interest rates and including financial covenants, all of which were in compliance - XPEL has a revolving credit facility of up to **$125.0 million**, with an outstanding balance of **$19.0 million** as of December 31, 2023[221](index=221&type=chunk)[304](index=304&type=chunk) - Borrowings bear interest at variable rates (Base Rate or Adjusted Term SOFR), with rates of **6.5% and 6.4%** respectively at December 31, 2023[222](index=222&type=chunk)[305](index=305&type=chunk) - The credit agreement includes two financial covenants: Consolidated Total Leverage Ratio not to exceed **3.50 to 1.00**, and Consolidated Interest Coverage Ratio not to be less than **3.00 to 1.00**[226](index=226&type=chunk)[308](index=308&type=chunk) - As of December 31, 2023, XPEL was in compliance with all debt covenants[309](index=309&type=chunk) - XPEL Canada Corp. has a separate **CAD $4.5 million** revolving credit facility, with no outstanding balance as of December 31, 2023[226](index=226&type=chunk)[308](index=308&type=chunk) [9. EMPLOYEE BENEFIT PLANS](index=62&type=section&id=9.%20EMPLOYEE%20BENEFIT%20PLANS) XPEL sponsors defined contribution plans for most employees, with discretionary company contributions totaling **$1.0 million in 2023**, an increase from **$0.8 million in 2022** - XPEL sponsors defined contribution plans for substantially all employees[310](index=310&type=chunk) Company Contribution Expenses (In millions) | Year | Amount | | :--- | :----- | | 2023 | $1.0 | | 2022 | $0.8 | | 2021 | $0.5 | [10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES](index=62&type=section&id=10.%20ACCOUNTS%20PAYABLE%20AND%20ACCRUED%20LIABILITIES) XPEL's accounts payable and accrued liabilities increased to **$32.44 million in 2023** from **$22.97 million in 2022**, primarily driven by increases in trade payables and contract liabilities Accounts Payable and Accrued Liabilities (In thousands) | Component | December 31, 2023 | December 31, 2022 | | :------------------------ | :------------------ | :------------------ | |

XPEL, Inc. (NASDAQ:XPEL) Q4 2023 Earnings Conference Call February 22, 2024 11:00 AM ET Company Participants John Nesbett - IMS Investor Relations Ryan Pape - Chairman, President and Chief Executive Officer Barry Wood - Senior Vice President and Chief Financial Officer Conference Call Participants Steve Dyer - Craig Hallum Jeff Sinderen - B. Riley Operator Greetings. Welcome to the XPEL, Inc. Fourth Quarter and Year End 2023 Earnings Call. [Operator Instructions] Please note this conference is being recorde ...

San Antonio, TX – February 22, 2024 – XPEL, Inc. (Nasdaq: XPEL) (the "Company"), a global provider of protective films and coatings, announced consolidated results for the fourth quarter and year ended December 31, 2023. 1 Fourth Quarter 2023 Highlights: XPEL Reports Fourth Quarter and 2023 Year End Results Ex. 99.1 • Revenue increased 34.5% to $105.5 million compared to fourth quarter 2022. • Net income increased 43.2% to $12.0 million, or $0.43 per basic and diluted share, versus net income of $8.4 millio ...

XPEL, Inc. (NASDAQ:XPEL) Q3 2023 Earnings Conference Call November 8, 2023 11:00 AM ET Company Participants John Nesbett - IMS IR Ryan Pape - President and CEO Barry Wood - SVP and CFO Conference Call Participants Steve Dyer - Craig Hallum Jeff Van Sinderen - B. Riley Operator Good day, everyone, and welcome to the XPEL, Inc. Third Quarter 2023 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, John Nesbett, IMS Investor Relations. Sir, the floor is yours. John ...

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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 XPEL, INC. (Exact name of registrant as specified in its charter) | Nevada | | 20-1117381 | | | --- | --- | --- | --- ...

XPEL, Inc. (NASDAQ:XPEL) Q2 2023 Results Conference Call August 9, 2023 11:00 AM ET Company Participants John Nesbett - IMS IR Ryan Pape - President and CEO Barry Wood - SVP and CFO Conference Call Participants Steve Dyer - Craig-Hallum Jeff Van Sinderen - B. Riley Tim Moore - EF Hutton Operator Greetings, and welcome to the XPEL, Inc. Second Quarter 2023 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Mr. John Nesbett ...

FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 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) | Nevada | | 20-1117381 | | | --- | --- | --- | --- | | ( ...

XPEL, Inc. (NASDAQ:XPEL) Q1 2023 Earnings Conference Call May 9, 2023 11:00 AM ET Company Participants John Nesbett – IMS 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 Greetings, and welcome to the XPEL, Inc. First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode and a quest ...