XPEL, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report; the filing does not provide a clear standalone fourth-quarter results breakdown. XPEL sells and installs protective films and coatings, supported by its proprietary DAP software and installer network.
Financial performance and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $324.0 million | $259.3 million | +25.0% |
| Gross profit / margin | $127.5 million / 39.4% | $92.7 million / 35.7% | +37.6% gross profit |
| Operating income / margin | $53.9 million / 16.6% | $40.1 million / 15.5% | +34.5% |
| Net income / margin | $41.4 million / 12.8% | $31.6 million / 12.2% | +31.1% |
| Diluted EPS | $1.50 | $1.14 | +31.6% |
| Operating cash flow | $12.1 million | $18.3 million | Down $6.2 million |
- Product revenue was $258.2 million (+18.8%); service revenue was $65.8 million (+56.8%). Paint protection film was 59.4% of revenue; window film was 16.8%.
- Adjusted EBITDA, a non-GAAP measure defined by the company, was $61.2 million (18.9% of revenue), up from $44.1 million (17.0%).
- Cash and cash equivalents were $8.1 million at year-end. Inventory rose to $80.6 million from $51.9 million, which management attributed in part to purchases intended to mitigate supply-chain risk.
- Outstanding borrowings on the main revolving credit facility were $26.0 million; the facility has a $75.0 million commitment and matures July 5, 2024. Its year-end interest rate was 6.75%. The company reported compliance with its debt covenants. Operating lease liabilities totaled $16.0 million.
- Cash used in investing was $14.2 million, including $7.9 million for property and equipment and $4.7 million for acquisitions. Financing activities provided $0.6 million.
Changes versus FY2021
- U.S. revenue increased 42.3% to $189.9 million. China revenue fell 26.6% to $34.0 million, or 10.5% of total revenue, amid COVID-related disruption.
- Window-film revenue grew 41.7%; installation labor revenue rose 76.6%, reflecting acquisition-related growth and demand. Architectural window-film revenue increased 98.2% to $5.7 million.
- Gross margin improved, principally due to better product costs, product mix, and a lower share of sales to lower-margin distributors. Service gross margin declined to 59.6% from 63.6%, as installation labor made up more of service revenue.
- Operating expenses increased 40.0%, faster than revenue, including higher personnel, marketing, occupancy, technology, professional-fee, and acquisition-related costs. Interest expense rose to $1.4 million from $0.3 million amid higher borrowings and rates.
- Operating cash flow declined, mainly because of working-capital movements and inventory purchases. The 2022 Australian distributor-business acquisition had a purchase price of $2.2 million; 2021 acquisitions had substantially higher cash outlays.
Outlook, risks, and unusual items
- The filing gives no specific numeric revenue, earnings, or margin guidance. Management expects operating cash flow and available cash and borrowing capacity to cover operating needs, capital expenditures, acquisitions, and debt service, and stated it believes liquidity is sufficient for at least 12 months from filing.
- Management cited inflation, rising interest rates, U.S.-dollar strength, automotive component shortages, longer lead times, and logistics constraints as uncertainties that could continue into 2023. A weakening automotive market could affect demand because many products are discretionary and tied to vehicle sales and production.
- China is a key exposure: sales there are through a single distributor, which accounted for approximately 10.5% of FY2022 revenue. COVID restrictions disrupted the market; trade tensions, regulation, and other China-specific risks could also affect results.
- Other principal risks include dependence on third-party manufacturers and suppliers, competition, foreign-exchange exposure, rapid growth and acquisition integration, product warranty or liability claims, and cybersecurity and regulatory compliance. The company does not hedge its foreign-currency translation or variable-rate interest exposure; it said a hypothetical 200-basis-point rate increase could materially affect its financial statements.
- Ordinary-course litigation and claims are disclosed; management assessed the likelihood of a material impact as remote. The warranty reserve was $0.2 million. No goodwill impairment was recorded in 2022. The auditor issued unqualified opinions on the financial statements and internal controls and reported no critical audit matters.
Important facts for investors to verify
- Whether revenue growth, particularly in North America and installation services, is sustained and supports margins as operating costs rise.
- Whether China sales recover and whether the single-distributor relationship remains stable.
- Inventory levels, working-capital requirements, and operating cash flow conversion; inventory increased materially while operating cash flow declined.
- Debt repayment and refinancing capacity before the $75 million facility matures in July 2024, including sensitivity to variable interest rates and covenant headroom.
- Acquisition performance and integration, and the assumptions supporting acquired goodwill and intangible assets.