XPEL, Inc. (XPEL)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess the financial condition and results of operations of XPEL, Inc. (“XPEL” or the “Company”). Statements that are not historical are forward-looking and involve risks and uncertainties discussed under the heading “Forward-Looking Statements” in this Report and under “Business," "Risk Factors,” "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements and Supplementary Data" in the Annual Report which is available on the SEC’s website at www.sec.gov.

Forward-Looking Statements

This quarterly report on Form 10-Q contains not only historical information, but also forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to the safe harbor created by those sections. In addition, the Company or others on the Company’s behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or web casts open to the public, in press releases or reports, on the Company’s internet web site, or otherwise. All statements other than statements of historical facts included in this Report or expressed by the Company orally from time to time that address activities, events, or developments that the Company expects, believes, or anticipates will or may occur in the future are forward-looking statements, including, in particular, the statements about the Company’s plans, objectives, strategies, and prospects regarding, among other things, the Company’s financial condition, results of operations and business, and the outcome of contingencies, such as legal proceedings. The Company has identified some of these forward-looking statements in this Report with words like “believe,” “can,” “may,” “could,” “would,” “might,” “forecast,” “possible,” “potential,” “project,” “will,” “should,” “expect,” “intend,” “plan,” “predict,” “anticipate,” “estimate,” “approximate,” “outlook,” or “continue” or the negative of these words or other words and terms of similar meaning. The use of future dates is also an indication of a forward-looking statement. Forward-looking statements may be contained in the notes to the Company’s condensed consolidated financial statements and elsewhere in this Report, including under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based on current expectations about future events affecting the Company and are subject to uncertainties and factors that affect all businesses operating in a global market as well as matters specific to the Company. These uncertainties and factors are difficult to predict, and many of them are beyond the Company’s control. Factors to consider when evaluating these forward-looking statements include, but are not limited to:

Operational Risks

•A material disruption from our contract manufacturers or suppliers, or our inability to obtain a sufficient supply of products from alternate suppliers, could cause us to be unable to meet customer demands or increase our costs.

•Any continued reliance on contract manufacturers and suppliers exposes us to product quality and variable cost risks.

•Our results depend on the timely availability of raw materials, components, and commodities at acceptable prices.

•If we do not manage or control the quality of our products, we may be unable to meet customer demands and incur higher costs.

•Our planned investment in manufacturing and supply chain assets exposes us to execution risks.

23

Risks Related to Our Business in China

•Failure to meet the PRC government’s complex regulatory requirements on and significant oversight over our business operation could result in a material adverse change in our operations and the value of our securities.

•We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to make payments to us could have a material and adverse effect on our ability to conduct our business.

Risks Related to Our Business and Industry

•We are highly dependent on the automotive industry. A prolonged or material contraction in automotive sales and production volumes could adversely affect our business, results of operations and financial condition.

•Our operating results can be adversely affected by inflation, changes in the cost or availability of raw materials, labor, energy, transportation and other necessary supplies and services.

•The after-market automotive product supply business is highly competitive. Competition presents an ongoing threat to the success of our Company.

Strategic Risks

•We depend on our relationships with independent installers and new car dealerships and their ability to sell and service our products. Any disruption in these relationships could harm our sales.

•We may not be able to identify, finance and complete suitable acquisitions and investments, and any completed acquisitions and investments could be unsuccessful or consume significant resources.

•If we are unable to maintain our network of sales and distribution channels, it could adversely affect our net sales, profitability and the implementation of our growth strategy.

Legal, Regulatory and Compliance Risks

•We may incur material losses and costs as a result of product liability and warranty claims.

•Violations of the U.S. Foreign Corrupt Practices Act and similar anti-corruption laws outside the U.S. could have a material adverse effect on us.

•Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on us.

•Changes in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international relations, could adversely affect our financial performance.

Liquidity Risks

•We may seek to incur substantial indebtedness in the future.

•We cannot be certain that additional financing will be available on reasonable terms when required, or at all.

•Our variable rate indebtedness exposes us to interest rate volatility, which could cause our debt service obligations to increase significantly.

24

Risks Relating to Common Stock

•If research analysts issue unfavorable commentary or downgrade our Common Stock, the price of our Common Stock and its trading volume could decline.

•Short sellers of our stock may be manipulative and may have driven down and may again drive down the market price of our Common Stock.

•Our stock price has been, and may continue to be, volatile.

•We may issue additional equity securities or engage in other transactions that could dilute our book value or affect the priority of our Common Stock, which may adversely affect the market price of our Common Stock.

General Risk Factors

•General global economic and business conditions affect demand for our products.

•A public health crisis could impact our business.

•Economic, political and market conditions can adversely affect our business, financial condition and results of operations.

We believe the items we have outlined above are important factors that could cause estimates included in our financial statements to differ materially from actual results and those expressed in a forward-looking statement made in this Report or elsewhere by us or on our behalf.  We have discussed these factors in more detail in the Annual Report as supplemented in this Report. These factors are not necessarily all of the factors that could affect us. Unpredictable or unanticipated factors that we have not discussed in this Report could also have material adverse effects on actual results. We do not intend to update our description of important factors each time a potential important factor arises, except as required by applicable securities laws and regulations. We advise our shareholders that they should (1) be aware that factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution when considering our forward-looking statements.

Company Overview

We are a supplier of protective films, coatings and related services primarily to the automobile aftermarket, new car dealerships and automobile original equipment manufacturers, or OEMs. The majority of our revenue is derived from the sale of our automotive products and related services while the remainder of our revenue is derived from non-automotive products including architectural window film and marine and flat surface protection films.

The Company began as a software company designing vehicle patterns used to produce cut-to-fit protective film for headlights and painted surfaces of automobiles. In 2007, we began selling automotive paint protection film products to complement our software business. As paint protection film technology improved and became more durable, awareness and adoption of paint protection film has continued to increase, driving significant industry growth over the last several years. Initial adoption of paint protection film came primarily from luxury car enthusiasts in the United States and Canada. These enthusiasts were primarily served by a growing automotive aftermarket of independent installers of automotive paint protection and window films. Internationally, nascent demand began to build as awareness and adoption in the United States and Canada continued to increase. Over the last few years, new car dealership interest in the product has increased due to their exposure to the aftermarket installer network, while OEM interest in the product increased through their exposure to the new car dealerships who were selling the product.

25

In May 2026 we purchased a four-building site totaling 431,525 square feet in San Antonio, Texas (the "Properties") in which the Company was a substantial tenant for $60.4 million which will serve as the centerpiece of the Company's North American manufacturing and operations footprint. In addition, we acquired a manufacturing facility in China to augment the Company's growing presence in the region.

Strategic Overview

Our strategy initially centered on how best to serve and grow our network of independent installers in the US and Canada and to sell products internationally through independent distributors while simultaneously building and enhancing the XPEL brand. This “best-in-class” service strategy was then extended to new car dealerships and OEMs. Internationally, while our initial market entry has primarily been through indirect distribution, we desire to ultimately sell directly to the majority of the top 25 car markets in the world, which is an important element of our acquisition strategy. To that end, we have acquired distributors in several international markets including India, Thailand, Japan and, most recently, China.

To complement our channel network and distribution, we are investing in manufacturing and the supply chain with a goal to be a high quality, low cost producer for our products which we expect will significantly improve our operating margin and allow more control over the end-to-end manufacturing process.

Key Business Metric - Non-GAAP Financial Measures

Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that the most important measure to the Company is Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”).

EBITDA is a non-GAAP financial measure. We believe EBITDA provides helpful information wit

[Excerpt truncated for page length; source filing is linked above.]

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Summary

Set forth below is summary financial information for the years ended December 31, 2025, 2024, and 2023. This information is not necessarily indicative of results of future operations, and should be read in conjunction with Part I, Item 1A, “Risk Factors,” Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report to fully understand factors that may affect the comparability of the information presented below (dollars in thousands).

Company Overview

We are a supplier of protective films, coatings and related services primarily to the automobile aftermarket, new car dealerships and OEMs. The majority of our revenue is derived from the sale of our automotive products and related services while the remainder of our revenue is derived from non-automotive products including architectural window film and marine and flat surface protection films.

Key Business Metric - Non-GAAP Financial Measures

Our management regularly monitors certain financial measures to track the progress of our business against internal goals and targets. We believe that the most important measure to the Company is Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”).

EBITDA is a non-GAAP financial measure. We believe EBITDA provides helpful information with respect to our operating performance as viewed by management, including a view of our business that is not dependent on (i) the impact of our capitalization structure and (ii) items that are not part of our day-to-day operations. Management uses EBITDA (1) to compare our operating performance on a consistent basis, (2) to calculate incentive compensation for our employees, (3) for planning purposes including the preparation of our internal annual operating budget, (4) to evaluate the performance and effectiveness of

44

our operational strategies, and (5) to assess compliance with various metrics associated with the agreements governing our indebtedness. Accordingly, we believe that EBITDA provides useful information in understanding and evaluating our operating performance in the same manner as management. We define EBITDA as net income plus (a) total depreciation and amortization, (b) interest expense, net, and (c) income tax expense.

The following table is a reconciliation of Net Income to EBITDA for the years ended December 31, 2025, 2024, and 2023 (dollars in thousands):

Use of Non-GAAP Financial Measures

EBITDA should be considered in addition to, not as a substitute for, or superior to, financial measures calculated in accordance with GAAP. It is not a measurement of our financial performance under GAAP and should not be considered as alternatives to revenue or net income, as applicable, or any other performance measures derived in accordance with GAAP and may not be comparable to other similarly titled measures of other businesses. EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our operating results as reported under GAAP.

EBITDA does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of ongoing operations; and other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

45

Results of Operations

This section of this Annual Report on Form 10-K generally discusses the years ended December 31, 2025 and 2024 and year-over-year comparisons between those years. Discussions of the periods prior to the year ended December 31, 2024 that are not included in this Annual Report on Form 10-K are found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 and the discussion therein for the year ended December 31, 2024 compared to the year ended December 31, 2023 is incorporated by reference into this Annual Report.

The following tables summarize revenue results for the years ended December 31, 2025, 2024 and 2023 (dollars in thousands):

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 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 for the years ended December 31, 2025 and 2024 (dollars in thousands):

46

Revenue

Product Revenue. Product revenue increased 12.9% during the year ended December 31, 2025 as compared to 2024 and represented 75.6% of our consolidated 2025 revenue. Within this category, revenue from our paint protection film product line increased 10.0% as compared to the prior year and represented 52.4% of total consolidated revenue for the year ended December 31, 2025. The total increase in paint protection film sales was due to increased demand for our film products across multiple regions.

Revenue from our window film product line grew 21.7% during the year ended December 31, 2025 and represented 19.9% of our consolidated annual 2025 revenue. This increase was driven by continued demand resulting from increased product adoption in multiple regions for automotive window film. Our windshield protection film revenue for the year ended December 31, 2025 was $7.0 million and represented 7.4% of total window film revenue and 1.5% of total consolidated revenue. Our windshield protection film product was launched during the fourth quarter 2024.

Other product revenue for the year ended December 31, 2025 grew 9.9% to $15.9 million and represented 3.3% of total consolidated revenue. This increase was driven by an increase in demand for our non-film related products such as ceramic coating, plotters, chemicals and other film installation tools and accessories.

Geographically, we experienced continued growth in most of our regions during the year ended December 31, 2025 including growth of 65.3%, 24.2%, and 18.7% in China, Asia-Other, and EU/UK/Africa respectively. Additionally, we saw 10.5% growth in the US region, our largest market. The increase in China was driven primarily by increased demand and incremental direct revenue resulting from the completion of the acquisition of our China distributor late in the third quarter 2025. Other increases were primarily due to increasing product awareness and adoption.

Service revenue. Service revenue consists of revenue from fees for DAP software access, cutbank credit revenue, which represents the value of pattern access provided with eligible product revenue, revenue from the labor portion of installation sales in our Company-owned installation centers, revenue from our dealership services business and revenue from training services provided to our customers. During 2025, service revenue grew 14.6% over service revenue for the year ended December 31, 2024.

Within the service revenue category, software revenue increased 8.3% during the year ended December 31, 2025. This increase was due to an increase in total subscribers to our DAP software. Ins

[Excerpt truncated for page length; the complete text is on the linked full-MD&A page.]