XPEL Q2 Earnings Call Highlights

Key Points

• Record Q2 performance: Revenue rose 14.7% year over year to $143.1 million, while EBITDA increased 17.6% and adjusted EPS reached $0.68. U.S., China and broader Asia-Pacific growth offset weakness in dealerships, Europe, India and the Middle East.
• Manufacturing expansion is a major investment: XPEL plans approximately $110 million in investments across facilities in San Antonio and China, with incremental margin benefits expected to begin around mid-2027 and a target of mid-20% operating margins exiting 2028.
• Near-term outlook remains measured: Management expects third-quarter revenue of $137 million to $139 million, with modest regional improvement but no assumed recovery of deferred Middle East sales. Price increases, continued SKU reductions and further manufacturing-related costs are expected in the near term.

XPEL NASDAQ: XPEL reported record second-quarter revenue as growth in the United States, China and other Asia-Pacific markets offset continued pressure in dealerships, softer European results and a decline in India and Middle East revenue tied partly to vehicle availability.

Revenue increased 14.7% year over year to a record $143.1 million, President and Chief Executive Officer Ryan Pape said. He said the result exceeded management’s expectations, though approximately $2 million of sales may have been pulled forward as customers bought ahead of actual or anticipated price increases set to take effect in the third quarter.

The company’s U.S. revenue rose 11.7% to a record $78.6 million. Pape said the independent channel outperformed the dealership channel on a relative basis during the quarter, reversing the broader trend of recent quarters. Dealership customers continued to face challenges related to Federal Trade Commission concerns, although XPEL said it has been helping customers address compliance requirements.

Regional performance varied

Canada revenue increased 10.8%, aided by the ordering timing of a large distributor. Excluding that timing effect, Canadian revenue grew about 4%, according to Pape.

China generated $15.9 million in revenue during the quarter. Pape said the company was pleased with the integration of the Chinese distributor acquired nearly a year earlier, despite what he described as a difficult quarter for domestic vehicle sales in China. He said domestic auto sales, excluding exports, were down roughly 20% year over year.

The rest of the Asia-Pacific region also recorded solid growth, as prior investments in countries including Japan continued to support expansion, Pape said. India and Middle East revenue declined 5%, reflecting impacts from the Iran conflict and a shortage of available vehicles. Pape said the disruption appeared to be more related to vehicle supply than a broad decline in consumer demand or confidence, and some deferred sales could potentially be recovered later. India itself posted growth of more than 60%, albeit from a smaller base.

Europe revenue declined 2.3%, which management attributed to distribution-order timing, lower year-over-year volumes at some OEM operations and vehicle-production cadence. Pape also noted that some products shipped to Europe are ultimately intended for the Middle East, which may have added to the regional impact. Latin America delivered another solid quarter, while XPEL’s Brazil distribution operation continued to ramp up.

Margins, earnings and cash flow

Gross margin was 44.1%, up from 43.7% in the first quarter. Pape said XPEL plans relatively modest price increases in certain regions during the third quarter to offset cost pressures and expects gross margin to continue increasing modestly through the remainder of the year.

Senior Vice President and Chief Financial Officer Barry Wood said window-film revenue grew 16.1% to a record $32.5 million, representing about 22.7% of total revenue. Installation revenue increased just under 11% and accounted for slightly more than 21% of total revenue, supported by corporate-owned stores.

For the first half, revenue rose 14% from the year-earlier period. Second-quarter selling, general and administrative expenses increased 16.7% to $39.9 million, including approximately $1.5 million in new SG&A related to the China distributor acquisition.

• EBITDA increased 17.6%, with an EBITDA margin of 19.3%.
• Adjusted EBITDA margin, excluding manufacturing-ramp costs, was 20.7%.
• Operating income increased 20.3%, with an operating margin of 16.2%.
• Net income attributable to stockholders rose 10.7%, with a margin of 12.6%.
• Earnings per share were $0.65, while adjusted EPS was $0.68.

Cash flow from operations reached a record $30.8 million, aided by improvement in the cash conversion cycle and days sales outstanding, Wood said.

Manufacturing investment and outlook

XPEL is advancing a manufacturing strategy centered on a four-building San Antonio site that includes its existing facility, along with a 75% interest in an existing manufacturing facility in China. The projects are expected to involve approximately $110 million in total investments, including acquired assets, buildout and equipment.

The San Antonio property will initially use a little more than half of its footprint for XPEL operations, with the remaining space leased to third parties. The China facility is intended to serve China and certain export markets; Pape said the company does not expect much of its output to enter North America.

Management expects incremental margin benefits to begin around mid-2027 and is targeting operating margins in the mid-20% range on a run-rate basis exiting 2028, assuming business fundamentals remain stable and projects stay on schedule. Pape said the benefits are expected to arrive in steps rather than as a uniform quarterly increase, with China potentially providing a quicker contribution because it is an existing facility.

Manufacturing startup and ramp-up costs reduced second-quarter earnings by roughly $0.03 per share, with management expecting $0.03 to $0.04 per share of such costs in the third quarter. Capital expenditures totaled $65.1 million in the quarter, including the real estate purchase. XPEL financed part of that purchase with a $44.8 million, 10-year term loan and expects further capital spending in the second half and into the first quarter, particularly for San Antonio equipment.

For the third quarter, XPEL expects revenue of $137 million to $139 million. The outlook assumes consistent U.S. and Asia-Pacific trends, seasonal effects in Europe and modest improvement in the Middle East, but does not assume recovery of deferred Middle East sales. Management also said it expects to continue reducing product SKUs to improve inventory efficiency, while preserving product availability for customers. Outside manufacturing-related capital spending, the company said it will consider small tuck-in acquisitions in service and OEM-adjacent areas and continue focusing on share repurchases.

About XPEL (NASDAQ:XPEL)

XPEL, Inc is a leading manufacturer and distributor of advanced protective films and coatings for automotive, marine, aviation, and architectural applications. The company's core products include paint protection film (PPF), window tinting film, and ceramic coatings designed to shield surfaces from scratches, environmental contaminants, and UV damage. XPEL's flagship PPF, known for its self-healing properties, is engineered to maintain a vehicle's factory finish by resisting swirl marks, stone chips, and acid rain.

Beyond automotive protection, XPEL has expanded its offerings to include protective films for electronics and architectural surfaces, providing solutions that enhance durability and prolong the life of high-value assets.

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