XPEL, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. XPEL sells, distributes and installs automotive and architectural protective films and coatings, and provides related software and services. Management reports one operating segment.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $68.7 million | $35.8 million | $120.6 million | $64.2 million |
| Gross profit / margin | $25.2 million / 36.7% | $11.7 million / 32.8% | $43.5 million / 36.1% | $22.0 million / 34.3% |
| Operating income / margin | $12.7 million / 18.4% | $5.1 million / 14.4% | $21.2 million / 17.6% | $7.6 million / 11.9% |
| Net income / margin | $10.2 million / 14.8% | $4.0 million / 11.1% | $17.0 million / 14.1% | $5.6 million / 8.7% |
| Diluted EPS | $0.37 | $0.14 | $0.62 | $0.20 |
| Operating cash flow | — | $19.1 million | $11.8 million |
Q2 revenue increased 92.0% year over year; six-month revenue increased 87.9%. Q2 product revenue was $58.7 million and service revenue was $10.1 million. Paint protection film remained the largest product category. Management attributed growth to broad-based demand and comparatively weak prior-year results amid COVID-19 disruptions. EBITDA, a non-GAAP measure, was $13.6 million for Q2 and $22.7 million for the first half; the filing cautions that it is not a substitute for GAAP measures.
Liquidity, debt and balance sheet
At June 30, 2021, cash and cash equivalents were $8.7 million, down from $29.0 million at year-end 2020. Current assets were $50.3 million and current liabilities $25.0 million. Cash used in investing was $33.6 million, principally reflecting the PermaPlate acquisition and capital expenditures; financing used $5.4 million, mainly due to repayment of the prior term loan. Total assets were $105.4 million and stockholders’ equity was $70.4 million.
XPEL had approximately $0.8 million of notes payable outstanding, versus approximately $6.1 million at year-end. In May, it replaced prior borrowing arrangements with a $57 million revolving credit facility, bearing 2.50% interest as of June 30 and maturing July 5, 2024; no balance was drawn at quarter-end. A separate Canadian-dollar $4.5 million revolving facility was also undrawn. The company reported compliance with debt covenants and stated it had sufficient liquidity for at least the next 12 months.
Material changes and unusual items
- On May 25, XPEL acquired PermaPlate Film LLC, a U.S. automotive window-film distributor and installer, for $30 million in cash, subject to customary working-capital adjustments. Preliminary allocation included $16.9 million of customer relationships and $11.3 million of goodwill. The acquired business contributed $2.5 million of revenue and $0.4 million of net income as reported in the acquisition note.
- Acquisition activity contributed to increases in goodwill, intangible assets and lease assets. The company also spent $3.5 million on property and equipment during the first half.
- Q2 gross margin improved to 36.7% from 32.8%; management cited better product costs, operating leverage and a higher service mix excluding lower-margin installation labor. Operating expenses increased in dollars, while their share of revenue was broadly stable for the quarter.
- The company recorded a $96,802 reduction in the fair value of contingent consideration from a prior acquisition, recognized as a reduction in general and administrative expense during the first half.
Outlook, risks and contingencies
The filing provides no specific numerical revenue or earnings guidance. Management reported continued recovery and demand across major regions but said the future effects of COVID-19 remained uncertain. It also highlighted automotive cyclicality and the global semiconductor shortage, which could constrain vehicle production and demand for XPEL products.
Disclosed risks include reliance on a primary paint-protection-film supplier and a single China distributor; exposure to China and foreign currencies; dependence on automotive sales, dealerships and independent installers; competition; execution and resource risks from acquisitions and rapid growth; and ordinary-course litigation, product-liability and warranty claims. Management considered material adverse effects from current claims remote, while acknowledging litigation outcomes are uncertain. The company does not hedge currency translation exposure. It reported effective disclosure controls and no material change in internal control over financial reporting.
Key facts for investors to verify
- How much of the exceptional year-over-year growth reflects underlying demand versus the COVID-affected 2020 comparison, and how results develop after Q2.
- PermaPlate’s finalized purchase-price adjustments, contribution to results, integration progress and expected economics; reported pro forma figures are not forecasts.
- Cash conversion and working-capital needs, particularly inventory growth, alongside planned capital spending and acquisition requirements.
- Customer and supply-chain concentration: the largest customer represented 18.4% of Q2 sales and 19.3% of first-half sales; the company also identifies key supplier and China-distribution dependencies.
- Effects of the semiconductor shortage, COVID-19 developments, foreign-exchange movements and compliance with the new facility’s financial covenants.