XPEL, Inc. — FY2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 16, 2020. This is an annual report, not a standalone fourth-quarter report, so the filing does not provide a clear standalone Q4 financial result. XPEL sells and installs automotive paint-protection and window films, architectural films, coatings, and related software and services. Financial statements were audited and presented in accordance with U.S. GAAP.
Financial performance and liquidity
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $129.9 million | $109.9 million | +18.2% |
| Gross profit / margin | $43.5 million / 33.5% | $33.4 million / 30.4% | Profit +30.1%; margin +3.1 percentage points |
| Operating income / margin | $17.1 million / 13.2% | $11.8 million / 10.7% | Income +44.7% |
| Net income | $14.0 million | $8.7 million | +60.5% |
| Net income attributable to XPEL stockholders; diluted EPS | $14.0 million; $0.51 | $8.7 million; $0.32 | EPS increased $0.19 |
| EBITDA (non-GAAP) | $18.7 million; 14.4% of revenue | $13.0 million; 11.9% | +43.9% |
| Cash from operations | $11.0 million | $6.8 million | +$4.2 million |
Paint-protection film was 74.9% of revenue and grew 13.9%; window-film revenue grew 55.7% to $11.4 million. Service revenue grew 23.2% to $17.7 million. The United States generated 46.5% of revenue; China generated 23.5%, down from 29.4% in 2018. Management attributed the China decline mainly to sales through inventory accumulated there in 2018.
At year-end, cash and cash equivalents were $11.5 million, versus $4.0 million a year earlier. Current assets were $36.3 million and current liabilities $11.8 million. Total assets were $51.6 million, total liabilities $16.7 million, and stockholders’ equity $34.9 million. Cash used in investing was $2.3 million and cash used in financing was $1.1 million. Notes payable totaled approximately $0.8 million, down from $1.8 million; no balance was drawn on either revolving credit facility. The company reported sufficient liquidity for at least 12 months from filing and compliance with debt covenants.
Material changes and notable items
- Gross margin improvement reflected a lower share of sales through lower-margin distributors, especially the China distributor, as well as product-cost improvements and operating leverage. Product gross margin increased to 26.6% of product revenue from 22.9%; service gross margin declined to 76.8% from 80.4%, partly due to installation labor and DAP design investment.
- Operating expenses rose 22.1% to $26.4 million, faster than revenue. General and administrative expense increased 27.0%, reflecting personnel, occupancy, IT, research and development, and professional costs; sales and marketing expense increased 11.5%.
- Inventory rose to $15.1 million from $10.8 million. Operating cash flow benefited from higher net income but was partly offset by working-capital investment, including inventory and receivables.
- The company recorded $66,364 of impairment expense related to closing its Quebec City installation location and transferring the franchise territory.
- Adoption of lease accounting guidance resulted in recognition of $5.1 million in operating lease right-of-use assets and $5.1 million in lease liabilities at year-end.
- FY2019 acquisitions included the Paintshield installation business in the United Kingdom for $127,623. Subsequent to year-end, XPEL acquired Protex Centre in Montreal and bought the remaining 15% minority interest in XPEL Ltd.; consideration included cash and promissory notes for the Protex Centre purchase and GBP 600,000 for the minority interest.
Outlook, risks, and contingencies
The filing provides no quantified revenue, earnings, or margin guidance. Management described ongoing priorities of international and local-market expansion, growing brand awareness and distribution, selective acquisitions, and expanding non-automotive products. A multi-year Team Penske partnership was to begin in 2020. These are strategic intentions, not financial guidance.
- Customer and supplier concentration: One China distributor accounted for 23.5% of FY2019 revenue. One primary supplier accounted for approximately 80% of inventory purchases. The supply agreement included a $20 million annual minimum purchase requirement and was scheduled to renew in March 2020; disruption could constrain supply or raise costs.
- China and COVID-19: The filing identified the coronavirus outbreak as a risk that could materially affect sales in China and potentially other regions. It also cited political, regulatory, trade, and enforcement uncertainty in China.
- Demand and competition: Products are largely discretionary and the business is exposed to automotive industry cycles, economic conditions, competitive pricing, and changes in vehicle ownership, design, or paint and glass technology.
- International exposure: Approximately 53% of revenue came from outside the United States. Foreign currency movements, trade restrictions, and uncertainty over post-Brexit trade arrangements were identified risks; the company did not hedge foreign-currency translation exposure.
- Other risks and claims: Risks include rapid-growth execution, acquisitions, product liability and warranty claims, intellectual property, cybersecurity and privacy compliance, and internal controls. The warranty liability was $65,591 at year-end. Management said ordinary-course litigation and claims were not expected to have a material impact, while noting outcomes remain uncertain.
Important facts for investors to verify
- Whether 2020 demand, particularly in China and other regions affected by COVID-19, diverged from the 2019 growth trajectory.
- Whether the China distributor relationship and primary supplier agreement continued without material disruption, and how concentration affected sales and gross margins.
- Whether inventory growth converted into sales and cash, and whether operating cash flow remained aligned with earnings.
- The completed purchase accounting, financing, and subsequent contribution of the Protex Centre acquisition and XPEL Ltd. minority-interest buyout.
- The sustainability of margin gains against higher operating costs and continued investment in expansion, DAP, and new products.