Company Quick10K Filing
XPEL
Price-0.00 EPS0
Shares28 P/E-0
MCap-0 P/FCF-0
Net Debt-7 EBIT10
TEV-7 TEV/EBIT-1
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-09-30 Filed 2020-11-10
10-Q 2020-06-30 Filed 2020-08-12
10-Q 2020-03-31 Filed 2020-05-14
10-K 2019-12-31 Filed 2020-03-16
10-Q 2019-09-30 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-21
8-K 2020-11-16
8-K 2020-11-11
8-K 2020-10-28
8-K 2020-09-28
8-K 2020-09-01
8-K 2020-08-17
8-K 2020-08-17
8-K 2020-08-12
8-K 2020-07-29
8-K 2020-06-29
8-K 2020-05-28
8-K 2020-05-27
8-K 2020-05-14
8-K 2020-05-05
8-K 2020-03-16
8-K 2020-03-03
8-K 2020-02-03
8-K 2020-01-30
8-K 2019-11-19
8-K 2019-11-18
8-K 2019-11-12
8-K 2019-11-12
8-K 2019-10-30
8-K 2019-10-11
8-K 2019-08-21
8-K 2019-08-16
8-K 2019-08-07

XPEL 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 a2020q3exhibitno311.htm
EX-31.2 a2020q3exhibitno312.htm
EX-32.1 a2020q3exhibitno321.htm
EX-32.2 a2020q3exhibitno322.htm

XPEL Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
504030201002018201820192020
Assets, Equity
40322416802018201820192020
Rev, G Profit, Net Income
2.62.01.30.70.0-0.62018201820192020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the transition period from         to
Commission file number 001-38858
XPEL, INC.
(Exact name of registrant as specified in its charter)
Nevada
20-1117381
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
618 W. Sunset Road
San Antonio
Texas
78216
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (210) 678-3700
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.001 per shareXPELThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company



        
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes      No  
The registrant had 27,612,597 shares of common stock outstanding as of November 10, 2020.




TABLE OF CONTENTS
Page




Part I. Financial Information

Item 1. Financial Statements

XPEL, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(Audited)
September 30, 2020December 31, 2019
Assets
Current
Cash and cash equivalents
$27,224,471 $11,500,973 
Accounts receivable, net8,967,710 7,154,084 
Inventory, net18,961,093 15,141,153 
Prepaid expenses and other current assets2,803,733 2,391,340 
Income tax receivable 93,150 
Total current assets
57,957,007 36,280,700 
Property and equipment, net
4,591,787 4,014,653 
Right-of-Use lease assets5,100,499 5,079,110 
Intangible assets, net4,510,161 3,820,460 
Other assets478,291  
Goodwill3,559,614 2,406,512 
Total assets$76,197,359 $51,601,435 
Liabilities
Current
Current portion of notes payable$2,554,529 $462,226 
Current portion lease liabilities1,326,466 1,126,701 
Accounts payable and accrued liabilities16,692,018 10,197,353 
Income tax payable326,590  
Total current liabilities20,899,603 11,786,280 
Deferred tax liability, net851,329 604,715 
Non-current portion of lease liabilities3,826,003 4,009,949 
Non-current portion of notes payable4,193,436 307,281 
Total liabilities29,770,371 16,708,225 
Stockholders’ equity
Preferred stock, $0.001 par value; authorized 10,000,000; none issued and outstanding
  
Common stock, $0.001 par value; 100,000,000 shares authorized; 27,612,597 issued and outstanding
27,613 27,613 
Additional paid-in-capital10,412,471 11,348,163 
Accumulated other comprehensive loss(801,266)(908,764)
Retained earnings36,788,170 24,594,878 
46,426,988 35,061,890 
Non-controlling interest (168,680)
Total stockholders’ equity46,426,988 34,893,210 
Total liabilities and stockholders’ equity$76,197,359 $51,601,435 
See notes to condensed consolidated financial statements.
1

XPEL, INC.
Condensed Consolidated Statements of Income (Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Revenue
Product revenue
$39,528,383 $30,815,251 $94,240,296 $77,295,463 
Service revenue6,594,413 4,802,747 16,076,821 13,142,135 
Total revenue
46,122,796 35,617,998 110,317,117 90,437,598 
Cost of Sales
Cost of product sales28,369,882 22,283,771 67,687,991 56,522,834 
Cost of service1,723,082 1,061,197 4,563,329 2,865,641 
Total cost of sales30,092,964 23,344,968 72,251,320 59,388,475 
Gross Margin16,029,832 12,273,030 38,065,797 31,049,123 
Operating Expenses
Sales and marketing2,326,900 1,805,038 6,989,678 5,468,980 
General and administrative5,289,277 4,798,833 15,038,140 13,466,690 
Total operating expenses
7,616,177 6,603,871 22,027,818 18,935,670 
Operating Income8,413,655 5,669,159 16,037,979 12,113,453 
Interest expense68,368 23,851 173,480 81,631 
Foreign currency exchange loss709 136,951 420,427 151,859 
Income before income taxes8,344,578 5,508,357 15,444,072 11,879,963 
Income tax expense1,736,330 999,072 3,250,780 2,503,365 
Net income6,608,248 4,509,285 12,193,292 9,376,598 
Income attributed to non-controlling interest 6,602  9,311 
Net income attributable to stockholders of the Company$6,608,248 $4,502,683 $12,193,292 $9,367,287 
Earnings per share attributable to stockholders of the Company
Basic and diluted$0.24 $0.16 $0.44 $0.34 
Weighted Average Number of Common Shares
Basic and diluted27,612,597 27,612,597 27,612,597 27,612,597 

See notes to condensed consolidated financial statements.
2

XPEL, INC.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Other comprehensive income
Net income
$6,608,248 $4,509,285 $12,193,292 $9,376,598 
Foreign currency translation419,298 (143,535)102,965 69,029 
Total comprehensive income7,027,546 4,365,750 12,296,257 9,445,627 
Total comprehensive income attributable to:
Stockholders of the Company7,027,546 4,365,735 12,300,790 9,444,102 
Non-controlling interest 15 (4,533)1,525 
Total comprehensive income$7,027,546 $4,365,750 $12,296,257 $9,445,627 

See notes to condensed consolidated financial statements.
3

XPEL, INC.
Condensed Consolidated Statements of Changes in Stockholders’ Equity


Stockholders' Equity - Three Months Ended September 30
Common Stock
Additional Paid-in-CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Gain (Loss)
Equity
Attributable to
Stockholders of
the Company
Non-Controlling
Interest
Total Stockholders’ Equity
SharesAmount
Balance as of June 30, 201927,612,597 $27,613 $11,348,163 $15,481,857 $(976,292)$25,881,341 $(188,519)$25,692,822 
Net income
— — — 4,502,683 — 4,502,683 6,602 4,509,285 
Foreign currency translation— — — — (136,948)(136,948)(6,587)(143,535)
Balance as of September 30, 201927,612,597 27,613 11,348,163 19,984,540 (1,113,240)30,247,076 (188,504)30,058,572 
Balance as of June 30, 202027,612,597 27,613 10,412,471 30,179,922 (1,220,564)39,399,442  39,399,442 
Net income— — — 6,608,248 — 6,608,248 — 6,608,248 
Foreign currency translation— — — — 419,298 419,298  419,298 
Balance as of September 30, 202027,612,597 $27,613 $10,412,471 $36,788,170 $(801,266)$46,426,988 $ $46,426,988 

Stockholders' Equity - Nine Months Ended September 30
Common StockAdditional Paid-in-CapitalRetained
Earnings
Accumulated
Other
Comprehensive
Gain (Loss)
Equity
Attributable to
Stockholders of
the Company
Non-Controlling
Interest
Total Stockholders’ Equity
SharesAmount
Balance as of December 31, 2018
27,612,597 $27,613 $11,348,163 $10,617,253 $(1,190,055)$20,802,974 $(190,029)$20,612,945 
Net income— — — 9,367,287 — 9,367,287 9,311 9,376,598 
Foreign currency translation— — — — 76,815 76,815 (7,786)69,029 
Balance as of September 30, 201927,612,597 27,613 11,348,163 19,984,540 (1,113,240)30,247,076 (188,504)30,058,572 
Balance as of December 31, 2019
27,612,597 27,613 11,348,163 24,594,878 (908,764)35,061,890 (168,680)34,893,210 
Net income— — — 12,193,292 — 12,193,292 — 12,193,292 
Foreign currency translation— — — — 107,498 107,498 (4,533)102,965 
Purchase of minority interest— — (935,692)— — (935,692)173,213 (762,479)
Balance as of September 30, 202027,612,597 $27,613 $10,412,471 $36,788,170 $(801,266)$46,426,988 $ $46,426,988 
See notes to condensed consolidated financial statements.
4

XPEL, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)


Nine Months Ended September 30,
20202019
Cash flows from operating activities
Net income
$12,193,292 $9,376,598 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of property, plant and equipment
889,820 655,385 
Amortization of intangible assets705,692 570,954 
Impairments 66,364 
(Gain) loss on sale of property and equipment(3,101)1,521 
Bad debt expense85,535 153,949 
Deferred income tax(47,886)135,221 
Accretion on notes payable36,760 50,346 
Changes in assets and liabilities:
Accounts receivable(1,692,396)(1,883,620)
Inventory, net(3,803,836)(5,679,694)
Prepaid expenses and other current assets(413,354)(1,372,894)
Income tax receivable94,729  
Other assets(468,400)61,795 
Accounts payable and accrued liabilities6,361,659 4,308,679 
Income tax payable300,582 (799,052)
Net cash provided by operating activities14,239,096 5,645,552 
Cash flows used in investing activities
Purchase of property, plant and equipment
(1,358,108)(994,074)
Proceeds from sale of property and equipment50,809 41,197 
Acquisition of a business, net of cash acquired(1,247,843) 
Development of intangible assets(306,635)(534,720)
Net cash used in investing activities(2,861,777)(1,487,597)
Cash flows from financing activities
Borrowings on revolving credit agreements8,932,016  
Repayments of revolving credit agreements(8,932,016) 
Borrowing on term loan6,000,000  
Repayments of notes payable(1,043,818)(908,909)
Purchase of minority interest(784,653) 
Net cash provided by (used in) financing activities4,171,529 (908,909)
Net change in cash and cash equivalents15,548,848 3,249,046 
Foreign exchange impact on cash and cash equivalents174,650 75,634 
Increase in cash and cash equivalents during the period15,723,498 3,324,680 
Cash and cash equivalents at beginning of period11,500,973 3,971,226 
Cash and cash equivalents at end of period$27,224,471 $7,295,906 
Supplemental schedule of non-cash activities
Notes payable issued for acquisitions$893,317 $ 
Supplemental cash flow information
Cash paid for income taxes$2,949,838 $3,004,758 
Cash paid for interest$129,117 $15,890 
See notes to condensed consolidated financial statements.
5

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
1.    INTERIM FINANCIAL INFORMATION
The accompanying (a) condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and (b) unaudited interim condensed consolidated financial statements as of and for the three and nine months ended September 30, 2020 and 2019 have been prepared by XPEL, Inc. (“XPEL” or the “Company”) in accordance with accounting principles generally accepted in the United States of America for interim financial information, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Pursuant to these rules and regulations, certain financial information and footnote disclosures normally included in the financial statements have been condensed or omitted. However, in the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the financial position, results of operations and cash flows of the interim periods presented. Operating results for the interim periods presented are not necessarily indicative of results to be expected for the full year or for any other interim period due to variability in customer purchasing patterns and seasonal, operating and other factors.
 These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in the Company’s annual report on Form 10-K as filed with the SEC on March 16, 2020.  These condensed consolidated financial statements also should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations section appearing in this Report.
On February 1, 2020, the Company acquired the remaining 15% minority interest in XPEL, Ltd., the subsidiary of the Company operating in the United Kingdom, for a purchase price of £600,000, or $762,479. This purchase is reflected in the Condensed Consolidated Statement of Changes in Stockholders' Equity.

2.    SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company is based in San Antonio, Texas and is a global provider of protective films and coatings, including automotive paint protection film, surface protection film, and automotive and commercial/residential window films and ceramic coatings as well as a provider of complementary proprietary software.
The Company was incorporated in the state of Nevada, U.S.A. in October 2003 and its registered office is 618 W. Sunset Road, San Antonio, Texas, 78216.
Basis of Presentation - The condensed consolidated financial statements are prepared in conformity with United States Generally Accepted Accounting Principles ("U.S. GAAP") and include the accounts of the Company and its wholly owned or majority owned subsidiaries. In applicable years, the ownership interest of non-controlling participants in subsidiaries that are not wholly-owned is included as a separate component of stockholders’ equity. The non-controlling participants’ share of the net income is included as “Income attributable to noncontrolling interest” on the Condensed Consolidated Statements of Income and Comprehensive Income. Intercompany accounts and transactions have been eliminated.
The functional currency for the Company is the United States dollar. The assets and liabilities of each of its foreign subsidiaries are translated into U.S. dollars using the exchange rate at the end of the balance sheet date. Revenues and expenses are translated at the average exchange rates for the period. Gains and losses from translations are recognized in foreign currency translation included in accumulated other comprehensive income in the accompanying consolidated balance sheets. Foreign currency exchange gains and losses are presented as foreign currency exchange loss in the accompanying condensed consolidated statements of income. The ownership percentages and
6

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
functional currencies of the entities included in these condensed consolidated financial statements are as follows:
SubsidiariesFunctional Currency% Owned by XPEL, Inc.
XPEL, Ltd.UK Pound Sterling100 %*
Armourfend CAD, LLCUS Dollar100 %
XPEL Canada Corp.Canadian Dollar100 %
XPEL B.V.Euro100 %
XPEL Germany GmbHEuro100 %
XPEL de Mexico S. de R.L. de C.V.Peso100 %
XPEL Acquisition Corp.Canadian Dollar100 %
Protex Canada, Inc.Canadian Dollar100 %
Apogee Corp.New Taiwan Dollar100 %
XPEL SlovakiaEuro100 %
*Refer to Note 1 for information related to purchase of minority interest
Segment Reporting - Management has concluded that our chief operating decision maker (“CODM”) is our chief executive officer. The Company’s CODM reviews the entire organization’s consolidated results as a whole on a monthly basis to evaluate performance and make resource allocation decisions. Management views the Company’s operations and manages its business as one operating segment.
Use of Estimates - The preparation of these condensed consolidated financial statements in conformity to U.S. GAAP requires management to make judgments and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and underlying assumptions are reviewed on an ongoing basis. Actual outcomes may differ from these estimates under different assumptions and conditions.
Accounts Receivable - Accounts receivable are shown net of an allowance for doubtful accounts of $128,237 and $182,488 as of September 30, 2020 and December 31, 2019, respectively. The Company evaluates the adequacy of its allowances by analyzing the aging of receivables, customer financial condition, historical collection experience, the value of any collateral and other economic and industry factors. Actual collections may differ from historical experience, and if economic, business or customer conditions deteriorate significantly, adjustments to these reserves may be required. When the Company becomes aware of factors that indicate a change in a specific customer’s ability to meet its financial obligations, the Company records a specific reserve for credit losses. Accounts receivable from a large customer accounted for 18.8% of the Company's total accounts receivable balance as of December 31, 2019. As of September 30, 2020, the Company had no similar accounts receivable concentration.
Provisions and Warranties - We provide a warranty on our products. Liability under the warranty policy is based on a review of historical warranty claims. Adjustments are made to the accruals as claims data experience warrant. Our liability for warranties as of September 30, 2020 and December 31, 2019 was $55,591 and $65,591, respectively. The following tables present a summary of our accrued warranty liabilities for the nine months ended September 30, 2020 and the twelve months ended December 31, 2019:
7

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
2020
Warranty liability, January 1$65,591 
Warranties assumed in period211,622 
Payments(221,622)
Warranty liability, September 30$55,591 

2019
Warranty liability, January 1$70,250 
Warranties assumed in period384,214 
Payments(388,873)
Warranty liability, December 31$65,591 
Recent Accounting Pronouncements Issued and Not Yet Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, “Financial Instruments — Measurement of Credit Losses on Financial Instruments”, which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 is effective for the Company beginning January 1, 2023 and is required to be applied prospectively. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements.
In December 2019, the FASB issued Accounting Standards Update ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company beginning January 1, 2021. We do not expect this standard to have a material effect on our consolidated financial statements.

3.    REVENUE
Revenue recognition
The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods and services to a customer, in an amount that reflects the consideration that it expects to receive in exchange for those goods or services. This is achieved through applying the following five-step model:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations in the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations in the contract
Recognition of revenue when, or as, the Company satisfies a performance obligation
The Company generates substantially all of its revenue from contracts with customers, whether formal or implied. Sales taxes collected from customers are remitted to the appropriate taxing jurisdictions
8

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
and are excluded from sales revenue as the Company considers itself a pass-through conduit for collecting and remitting sales taxes, with the exception of taxes assessed during the procurement process of select inventories. Shipping and handling costs are included in cost of sales.
Revenues from product and services sales are recognized when control of the goods is transferred to the customer which occurs at a point in time typically upon shipment to the customer or completion of the service. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments.
Based upon the nature of the products the Company sells, its customers have limited rights of return which are immaterial. Discounts provided by the Company to customers at the time of sale are recognized as a reduction in sales as the products are sold.
Warranty obligations associated with the sale of our products are assurance-type warranties that are a guarantee of the product’s intended functionality and, therefore, do not represent a distinct performance obligation within the context of the contract. Warranty expense is included in cost of sales.
We apply a practical expedient to expense direct costs of obtaining a contract when incurred because the amortization period would have been one year or less.
Under its contracts with customers, the Company stands ready to deliver product upon receipt of a purchase order. Accordingly, the Company has no performance obligations under its contracts until its customers submit a purchase order. The Company does not enter into commitments to provide goods or services that have terms greater than one year. In limited cases, the Company does require payment in advance of shipping product. Typically, product is shipped within a few days after prepayment is received. These prepayments are recorded as contract liabilities on the consolidated balance sheet and are included in accounts payable and accrued liabilities (Note 9). As the performance obligation is part of a contract that has an original expected duration of less than one year, the Company has applied the practical expedient under ASC 606 to omit disclosures regarding remaining performance obligations.
When the Company transfers goods or provides services to a customer, payment is due, subject to normal terms, and is not conditional on anything other than the passage of time. Typical payment terms range from due upon receipt to 30 days, depending on the type of customer and relationship. At contract inception, the Company expects that the period of time between the transfer of goods to the customer and when the customer pays for those goods will be less than one year, which is consistent with the Company’s standard payment terms. Accordingly, the Company has elected the practical expedient under ASC 606 to not adjust for the effects of a significant financing component. As such, these amounts are recorded as receivables and not contract assets.
The following table summarizes transactions within contract liabilities for the three and nine months ended September 30, 2020:
9

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
Balance, December 31, 2019$559,232 
Revenue recognized related to payments included in the December 31, 2019 balance(526,202)
Payments received for which performance obligations have not been satisfied1,043,767 
Effect of foreign currency translation(734)
Balance, March 31, 2020$1,076,063 
Revenue recognized related to payments included in the March 31, 2020 balance(1,022,851)
Payments received for which performance obligations have not been satisfied163,903 
Effect of foreign currency translation1,215 
Balance, June 30, 2020$218,330 
Revenue recognized related to payments included in the June 30, 2020 balance(211,537)
Payments received for which performance obligations have not been satisfied1,635,572 
Effect of foreign currency translation1,626 
Balance, September 30, 2020$1,643,991 
The table below sets forth the disaggregation of revenue by product category for the periods indicated below:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Product Revenue
Paint protection film$31,977,210 $26,527,586 $75,996,444 $66,150,360 
Window film6,302,364 3,522,815 15,347,270 8,526,886 
Other1,248,809 764,850 2,896,582 2,618,217 
Total
39,528,383 30,815,251 94,240,296 77,295,463 
Service Revenue
Software$889,709 $859,432 $2,551,177 $2,378,944 
Cutbank credits2,304,651 1,957,224 5,529,773 5,487,320 
Installation labor3,268,399 1,843,936 7,681,420 4,790,279 
Training131,654 142,155 314,451 485,592 
Total6,594,413 4,802,747 16,076,821 13,142,135 
Total$46,122,796 $35,617,998 $110,317,117 $90,437,598 
Because many of our international customers require us to ship their orders to freight forwarders located in the United States, we cannot be certain about the ultimate destination of the product. The
10

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
following table represents our estimate of sales by geographic regions based on our understanding of ultimate product destination based on customer interactions, customer locations and other factors:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
United States
$22,041,941 $15,738,762 $53,713,708 $44,745,859 
China9,397,486 9,359,531 21,409,365 17,006,451 
Canada6,213,949 4,937,514 14,347,313 13,253,413 
Continental Europe3,656,477 1,945,104 9,347,780 5,341,164 
United Kingdom1,481,174 1,032,399 3,228,322 2,842,682 
Asia Pacific1,454,119 1,168,570 3,365,354 3,100,088 
Latin America537,892 578,055 1,499,944 1,576,864 
Middle East/Africa1,326,589 770,842 3,177,155 2,374,321 
Other13,169 87,221 228,176 196,756 
Total$46,122,796 $35,617,998 $110,317,117 $90,437,598 
Our largest customer accounted for 20.4% and 26.3% of our net sales during the three months ended September 30, 2020 and 2019, respectively and 19.4% and 18.8% of our net sales during the nine months ended September 30, 2020 and 2019, respectively.

4.    PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
September 30, 2020December 31, 2019
Furniture and fixtures
$1,304,112 $1,168,894 
Computer equipment1,362,805 1,151,295 
Vehicles709,905 683,213 
Equipment1,870,191 1,648,656 
Leasehold improvements1,913,398 1,479,594 
Plotters1,131,936 839,455 
Construction in Progress344,696 306,100 
Total property and equipment8,637,043 7,277,207 
Less: accumulated depreciation4,045,256 3,262,554 
Property and equipment, net$4,591,787 $4,014,653 
Depreciation expense for the three months ended September 30, 2020 and 2019 was $325,643 and $234,297, respectively. For the nine months ended September 30, 2020 and 2019, depreciation expense was $889,820 and $655,385, respectively.

11

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
5.    INTANGIBLE ASSETS, NET
Intangible assets consists of the following:
September 30, 2020December 31, 2019
Trademarks
$368,948 $309,395 
Software
2,536,467 2,288,062 
Trade name
486,586 492,408 
Contractual and customer relationships
3,948,381 3,010,480 
Non-compete
400,748 268,459 
Other
205,810 208,012 
Total cost
7,946,940 6,576,816 
Less: Accumulated amortization3,436,779 2,756,356 
Intangible assets, net$4,510,161 $3,820,460 
Amortization expense for the three months ended September 30, 2020 and 2019 was $239,571 and $199,582, respectively. For the nine months ended September 30, 2020 and 2019, amortization expense was $705,692 and $570,954, respectively.
The Company completed the acquisition of a business during the nine months ended September 30, 2020. Refer to Note 12 for additional information related to intangible assets added from this acquisition.

6.    GOODWILL
The following table summarizes goodwill transactions for the nine months ended September 30, 2020 and 2019:
Balance at December 31, 2018$2,322,788 
Impairment(35,884)
Foreign Exchange47,601 
Balance at September 30, 2019$2,334,505 
Balance at December 31, 2019$2,406,512 
Additions1,184,774 
Foreign Exchange(31,672)
Balance at September 30, 2020$3,559,614 
The Company completed the acquisition of a business during the nine months ended September 30, 2020. Refer to Note 12 for additional information related to goodwill added from this acquisition.

12

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
7.    INVENTORIES
The components of inventory are summarized as follows:
September 30, 2020December 31, 2019
Film and film based products$16,951,250 $13,538,610 
Other products1,585,041 1,226,708 
Packaging and supplies517,444 496,661 
Inventory reserve(92,642)(120,826)
$18,961,093 $15,141,153 

8.    DEBT
REVOLVING FACILITIES
The Company has a $8,500,000 revolving line of credit agreement with The Bank of San Antonio to support its continuing working capital needs. The Bank of San Antonio has been granted a security interest in substantially all of the Company’s current and future assets. Borrowings under the credit agreement bear interest at a variable rate of the Wall Street Journal prime rate minus 1.00% with a floor of 3.50%. In May 2020, the Company renewed this line of credit, extending its maturity date to June 5, 2022. The interest rate was 3.50% and 5.50% as of September 30, 2020 and December 31, 2019, respectively. As of both September 30, 2020 and December 31, 2019, no balance was outstanding on this line.
The credit agreement contains customary covenants including covenants relating to complying with applicable laws, delivery of financial statements, payment of taxes and maintaining insurance. The credit agreement also requires that  XPEL must maintain debt service coverage (Earnings Before Interest Taxes Depreciation and Amortization, or EBITDA, divided by the current portion of long-term debt + interest) of 1.25:1 and funded debt of no more than 2.5 times EBITDA on a rolling four quarter basis. The credit agreement also contains customary events of default including the failure to make payments of principal and interest, the breach of any covenants, the occurrence of a material adverse change, and certain bankruptcy and insolvency events.
As of September 30, 2020 and December 31, 2019, the Company was in compliance with all debt covenants.
XPEL Canada Corp., a wholly owned subsidiary of XPEL, Inc., also has a CAD $4,500,000 revolving line of credit agreement with HSBC Bank Canada to support its continuing working capital needs. The line has a variable interest rate of the HSBC Canada Bank’s prime rate plus 0.25%. The interest rate as of September 30, 2020 and December 31, 2019 was 2.70% and 4.20%, respectively. As of September 30, 2020 and December 31, 2019, no balance was outstanding on this line of credit. This facility is guaranteed by the parent company.
NOTES PAYABLE
On May 11, 2020, the Company borrowed $6,000,000 pursuant to a 36-month term-loan with The Bank of San Antonio. The term-loan bears interest at a rate of 3.5% per annum, requires monthly payments of principal and interest and matures in June 2023. As of September 30, 2020, $5,537,782 was
13

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
outstanding under the term-loan. The term-loan is secured by a security interest in substantially all of our current and future assets.
As part of its acquisition strategy, the Company uses a combination of cash and unsecured non-interest bearing promissory notes payable to fund its business acquisitions. The Company discounts the promissory note to fair value using market interest rates at the time of the acquisition.
Notes payable are summarized as follows:
Weighted Average Interest Rate
MaturesSeptember 30, 2020December 31, 2019
Term-loan3.50%2023$5,537,782 $ 
Acquisition notes payable
3.15%20231,210,183 769,507 
Total debt6,747,965 769,507 
Less: current portion2,554,529 462,226 
Total long-term debt$4,193,436 $307,281 

9.    ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table presents significant accounts payable and accrued liability balances as of the periods ending:
September 30, 2020December 31, 2019
Trade payables$11,868,312 $7,440,965 
Payroll liabilities2,050,389 1,367,340 
Contract liabilities1,643,991 559,232 
Other liabilities1,129,326 829,816 
$16,692,018 $10,197,353 

10.    FAIR VALUE MEASUREMENTS
Financial instruments include cash and cash equivalents (level 1) and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings approximate fair value because of the near-term maturities of these financial instruments. The carrying value of the Company’s notes payable approximates fair value due to the relatively short-term nature and interest rates of the notes. For discussion of the fair value measurements related to goodwill refer to Note 6, Goodwill of the financial statements for periods ended September 30, 2020 and December 31, 2019.
The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities (Level 2 inputs and valuation techniques).
ASC 820 prioritizes the inputs to valuation techniques used to measure fair value into the following hierarchy:
Level 1 – Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Inputs other than the quoted prices in active markets that are observable either directly or indirectly, including: quoted prices for similar assets and liabilities in active markets; quoted prices for
14

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.

11.    COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
In the ordinary course of business activities, the Company may be contingently liable for litigation and claims with customers, suppliers and former employees. Management believes that adequate provisions have been recorded in the accounts where required. Management also has determined that the likelihood of any litigation and claims having a material impact on our results of operations, cash flows or financial position is remote.
SUPPLY AGREEMENT
Through our Amended and Restated Supply Agreement that we entered into with our primary supplier in March 2017, we have exclusive rights to commercialize, market, distribute and sell its automotive aftermarket products through March 21, 2022, which term automatically renews for successive two year periods thereafter unless terminated at the option of either party with two months’ notice. During such term, we have agreed to use commercially reasonable efforts to purchase a minimum of $5,000,000 of products quarterly from this principal supplier, with a yearly minimum purchasing requirement of $20,000,000.

12.    ACQUISITION OF A BUSINESS
The Company completed the following acquisition during the nine months ended September 30, 2020:
Acquisition DateName/Location/DescriptionPurchase PriceAcquisition TypeAcquisition Purpose
February 1, 2020Protex Centre, Laval, Quebec, Canada - Paint protection installation shop$2,383,968Share PurchaseLocal market expansion
The total preliminary purchase price for the acquisition completed during the nine months ended September 30, 2020 and a preliminary allocation of that purchase price are set forth in the table below. The purchase agreement provides for customary purchase price adjustments related to acquired working capital that have not yet been finalized.
15

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
Protex Centre
Purchase Price
 Cash$1,490,651 
 Promissory notes893,317 
$2,383,968 
Allocation
 Cash$242,808 
 Accounts receivable206,808 
 Inventory27,732 
 Prepaid assets3,764 
 Other long-term assets6,197 
 Property, plant, and equipment161,702 
 Software1,027 
 Customer relationships987,556 
 Non-compete136,395 
 Goodwill1,184,774 
 Accounts payable and accrued liabilities(142,175)
 Assumed debt(108,766)
 Deferred tax liability(281,565)
 Taxes payable(42,289)
$2,383,968 
Intangible assets acquired in 2020 have a weighted average useful life of 8.51 years.
Goodwill for these acquisitions relates to expansion in a local market and is deductible for tax purposes. The goodwill represents the acquired employee knowledge of the various markets, distribution knowledge by the employees of the acquired businesses, as well as the expected synergies resulting from the acquisitions.
Acquisition costs incurred related to these acquisitions were immaterial and were included in selling, general and administrative expenses.
The acquired company was consolidated into our financial statements on its acquisition date. The amount of revenue and net income of this acquisition which has been consolidated into our financial statements for the nine months ended September 30, 2020 was $2,559,347 and $571,701, respectively.
The following unaudited consolidated pro forma combined financial information presents our results, including the estimated expenses relating to the amortization of intangibles purchased, as if this acquisition had occurred on January 1, 2020 and 2019:
16

XPEL Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2020 and 2019
(Unaudited)
Nine Months Ended September 30,
2020 (