XPEL, Inc. — Q1 2024 Form 10-Q Summary
Reporting period: Three months ended March 31, 2024; unaudited. Comparisons are with Q1 2023 unless noted. XPEL sells, distributes and installs protective films and coatings, supported by software and a global installer network. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $90.1 million | $85.8 million | +5.0% |
| Gross profit / margin | $37.9 million / 42.0% | $36.0 million / 41.9% | Profit +5.3% |
| Operating income / margin | $9.2 million / 10.2% | $14.9 million / 17.4% | -38.2% |
| Net income / diluted EPS | $6.7 million / $0.24 | $11.4 million / $0.41 | Net income -41.7% |
| EBITDA (non-GAAP) | $11.7 million | $17.1 million | Down approximately 31% |
| Operating cash flow | -$5.0 million | +$0.7 million | Decreased $5.7 million |
Product revenue was $66.9 million, down 0.7%; service revenue rose 25.5% to $23.3 million, largely from dealership services and installation labor. Product gross margin was 37.0% versus 37.3%; service gross margin was 56.6% versus 58.4%. Sales and marketing expense rose 55.7% and general and administrative expense rose 27.2%, pressuring operating profit. Management attributed higher sales and marketing costs mainly to the timing of its annual dealer conference, and higher G&A to personnel, occupancy and professional fees.
Balance sheet and liquidity
- At March 31, cash was $8.6 million, inventory $110.2 million, and total assets $258.5 million.
- Borrowings on the main revolving credit facility were $24.0 million, up from $19.0 million at year-end; notes payable were approximately $0.4 million. The company reported about $104.3 million of available funds under its credit facilities.
- The $125 million secured revolving facility matures April 6, 2026. Its disclosed borrowing rates at March 31, 2024 were 8.5% for Base Rate and 6.4% for Adjusted Term SOFR loans. XPEL said it complied with debt covenants. A separate Canadian facility had no balance outstanding.
- Investing activities used $3.1 million, including $2.0 million of property and equipment purchases and $0.8 million for a business acquisition. Financing activities provided $5.0 million, primarily from increased revolver borrowing.
Material changes, outlook and risks
- Revenue growth was uneven. U.S. revenue rose 1.9%, while estimated China revenue fell 78.2% to $1.5 million. Management linked the China decline to distributor inventory sell-through following record Q4 2023 purchases; XPEL also relies on one China distributor. Management said sales outside the U.S. and China grew in most regions.
- Paint protection film revenue declined 1.1% and window film revenue declined 2.9%; service revenue growth partly offset these declines. Architectural window film revenue increased 33.1% to $1.8 million.
- Operating cash outflow reflected lower net income and increased working capital, including changes in receivables, inventory, prepaids, and payables. Cash and cash equivalents fell $3.0 million during the quarter.
- Management expects liquidity from cash, operating cash generation and credit facilities to support operations, capital spending and acquisitions, and stated it expects sufficient liquidity for at least the next 12 months. The filing gives no numerical revenue or earnings guidance.
- Risks include automotive-industry demand, China exposure, supplier and raw-material availability and costs, competition, foreign currency movements, and floating-rate debt. XPEL does not hedge its currency translation or interest-rate exposure; it said a hypothetical 200-basis-point increase in variable rates could materially affect its financial statements.
- Management considers material impact from ordinary-course litigation and claims unlikely, but noted that an unforeseen adverse ruling could result in material charges. Acquisition-related contingent liabilities measured at fair value were $0.7 million at quarter-end, down from $0.8 million at year-end; the decrease was recorded in G&A.
Important facts for investors to verify
- Whether China distributor sell-through and the sharp year-over-year sales decline persist or reverse.
- Whether service growth can continue while installation labor mix and company-owned-center cost efficiency affect service margins.
- Whether working-capital investment, especially inventory, converts to operating cash flow in subsequent quarters.
- How higher operating expenses and variable borrowing rates affect earnings, and whether covenant headroom remains adequate.
- That geographic revenue is management’s estimate of ultimate product destination; the filing notes that shipments to U.S. freight forwarders limit certainty.