XPEL, Inc. — FY2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021; filed February 28, 2022. XPEL sells and installs automotive paint-protection and window films, architectural films and coatings, and provides related software and services.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $259.3 million | $158.9 million | +63.1% |
| Gross profit / margin | $92.7 million / 35.7% | $54.0 million / 34.0% | Margin +1.7 percentage points |
| Operating income / margin | $40.1 million / 15.5% | $23.4 million / 14.7% | +71.7% |
| Net income | $31.6 million | $18.3 million | +72.7% |
| Diluted EPS | $1.14 | $0.66 | +$0.48 |
| EBITDA, non-GAAP | $44.1 million | $25.3 million | +74.6% |
Paint-protection film revenue was $169.9 million (+53.3%); window-film revenue was $38.4 million (+83.1%). Product revenue was 83.8% of total revenue, and service revenue rose 85.2% to $42.0 million. U.S. sales were 51.5% of revenue; China accounted for 17.9% ($46.3 million).
Cash flow and liquidity: Operating cash flow was $18.3 million, approximately flat versus $18.5 million in 2020; inventory purchases and working-capital movements absorbed cash. Investing cash outflow was $56.8 million, primarily reflecting acquisitions. Financing provided $19.2 million. Cash declined to $9.6 million from $29.0 million. Current assets were $79.0 million and current liabilities $36.3 million.
Debt: The company had $25.0 million drawn on its $75 million revolving credit facility and approximately $0.5 million of notes payable at year-end. The revolver matures July 2024, is secured by substantially all company assets, and carries financial covenants; XPEL reported compliance at year-end. The CAD $4.5 million Canadian facility was undrawn.
Material changes and notable items
- Revenue growth was broad-based, supported by increased demand, customer additions and higher sales to existing customers. Gross margin improved, primarily due to product mix, lower relative sales through lower-margin distributors and operating leverage. Service margin declined to 63.6% from 71.8%, partly due to low dealership inventories affecting on-site work.
- XPEL completed several 2021 acquisitions, including PermaPlate Film, businesses associated with Shadow Shield, Shadow Tint, North 1 Technologies, One Armor and TintNet, and bicycle-pattern business invisiFRAME. Acquisition consideration totaled approximately $57.6 million, including contingent consideration. Acquired businesses contributed $16.6 million in revenue from their respective acquisition dates.
- Inventory rose to $51.9 million from $22.4 million. Goodwill increased to $25.7 million from $4.5 million and intangible assets to $32.7 million from $5.4 million, largely reflecting acquisitions.
- Sales and marketing expense increased 87.5%; general and administrative expense increased 64.0%, reflecting growth-related staffing and costs, acquisitions and higher amortization.
Outlook, risks and contingencies
- No specific revenue, earnings or margin guidance is provided. Management said it expected sufficient liquidity for at least 12 months from the filing date and planned to fund operations, capital investment and acquisitions with operating cash flow, cash and available borrowing capacity.
- Supply concentration is a key risk: entrotech supplied approximately 75% of inventory purchases in 2021. XPEL gave notice that its existing supply agreement would end March 21, 2022; it intended to negotiate a new agreement but could not assure success. Supply-chain disruption, material and freight cost increases, and availability of alternate suppliers could pressure delivery and margins.
- China exposure includes reliance on a single distributor, which represented 17.9% of 2021 revenue. The filing highlights China-related political, regulatory and trade uncertainties, including U.S.-China tensions.
- Other risks include automotive production cyclicality and semiconductor-related vehicle shortages, COVID-19 uncertainty, competition, foreign-exchange exposure, rapid-growth and acquisition integration demands, and product warranty, litigation, data-security and regulatory risks.
- A material weakness in financial-system user-access controls was identified in the fourth quarter and reported as fully remediated by year-end, with no resulting financial-statement errors or misstatements. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2021; the financial-statement audit opinion was unqualified.
- Ordinary-course legal claims and acquisition-related contingent payments are disclosed. Management considered a material impact from litigation unlikely; the filing does not identify a specific pending matter expected to have a material impact.
Investor verification priorities
- Track the outcome and terms of the post-March 2022 entrotech supply arrangement, alternative sourcing, inventory levels and any effects on product availability or margins.
- Monitor China distributor performance and revenue concentration, and assess changes in China-related trade or regulatory conditions.
- Separate organic growth from acquisition contributions; review integration results, acquired-business profitability, contingent payments and the assumptions behind acquired customer-relationship valuations.
- Assess whether operating cash flow can support working-capital needs, acquisitions, capital expenditures and debt service, particularly given the sharp inventory increase and acquisition spending.
- Monitor dealership inventory and vehicle production trends, service margins, and whether the remediated access-control weakness remains resolved as the business scales.