XPEL, INC. FORM 10-Q

Financial Overview of XPEL, Inc.

XPEL, Inc. is a leading supplier of protective films, coatings and related services primarily to the automotive aftermarket, new car dealerships and automobile original equipment manufacturers (OEMs). The company’s financial performance for the first quarter of 2025 demonstrates strong growth and profitability.

Revenue and Profit Trends

XPEL’s total revenue for the first quarter of 2025 was $103.8 million, a 15.2% increase compared to the same period in 2024. This growth was driven by strong performance across the company’s product and service revenue streams.

Product revenue, which makes up 75.9% of total revenue, grew 17.7% year-over-year. Within this category, paint protection film revenue increased 15.2% to $56.4 million, window film revenue grew 28.1% to $18.6 million, and other product revenue rose 10.4% to $3.6 million. The growth in paint protection film and window film sales was attributed to increased demand, channel focus, and geographic expansion, particularly in China.

Service revenue, which accounts for 24.1% of total revenue, increased 7.9% compared to the first quarter of 2024. This was driven by a 9.9% rise in software revenue, a 11.6% increase in installation labor revenue, and an 8.7% growth in training and other service revenue. However, cutbank credit revenue declined 8.6% year-over-year.

Geographically, XPEL saw the strongest growth in China, where revenue increased 459.1% compared to the prior year period. This was due to the normalization of inventory levels at the company’s China distributor. Other regions also experienced solid growth, including the United States (11.6%), Middle East/Africa (14.9%), and Asia Pacific (33.3%).

Gross margin for the quarter was 42.3%, a slight improvement from 42.0% in the first quarter of 2024. Product gross margin increased from 37.0% to 38.5%, while service gross margin decreased from 56.6% to 54.3%. The improvement in product gross margin was attributed to decreases in product costs and better operating leverage.

Strengths and Weaknesses

One of XPEL’s key strengths is its diversified product and service portfolio, which has allowed the company to capitalize on growth opportunities across different market segments. The strong performance of the paint protection film and window film product lines, as well as the company’s expanding service offerings, demonstrate XPEL’s ability to meet evolving customer demands.

Another strength is the company’s geographic diversification, with a presence in major automotive markets around the world. While the majority of revenue still comes from the United States, XPEL has been able to drive significant growth in international regions, particularly China, which now accounts for 7.8% of total revenue.

However, the company’s reliance on one distributor for its products in China represents a potential weakness. Any disruption in this relationship could have a material impact on XPEL’s performance in this important market.

Additionally, the company’s service gross margin declined year-over-year, which could be a concern if the trend continues. Management will need to closely monitor the factors driving this decrease and implement strategies to improve the profitability of the service business.

Outlook and Future Prospects

Looking ahead, XPEL’s management is optimistic about the company’s growth prospects. The continued adoption of paint protection film and window film products, both in the automotive aftermarket and with new car dealerships and OEMs, is expected to drive ongoing revenue growth.

The company’s strategic focus on expanding its international presence, particularly in the top 25 global automotive markets, is also a key driver of future growth. XPEL’s acquisition strategy, which aims to establish direct sales channels in these markets, could further strengthen the company’s competitive position and diversify its revenue streams.

However, the company faces several risks that could impact its future performance, including:

• Dependence on the automotive industry, which could be affected by a prolonged contraction in sales and production volumes
• Reliance on a single distributor in China, which could disrupt the company’s operations in this important market
• Potential competition from technological advancements that could render some of XPEL’s products obsolete
• Changes in OEM accessorization strategies or production volumes
• Infringement of the company’s intellectual property
• Challenges in identifying, financing and integrating suitable acquisitions

To mitigate these risks, XPEL will need to continue investing in product innovation, diversifying its customer base, and carefully managing its global supply chain and distribution network. The company’s strong financial position, with a healthy balance sheet and growing cash flow, should provide the resources necessary to execute on its strategic initiatives.

Conclusion

XPEL’s first quarter 2025 financial results demonstrate the company’s ability to capitalize on the growing demand for automotive protection products and services. The strong revenue growth, improved profitability, and geographic diversification position XPEL for continued success in the years ahead. However, the company will need to navigate various industry and operational challenges to maintain its competitive edge and deliver value to shareholders.