XPEL

• Geographic Market Progress
  • The flight to quality amid market challenges creates growth opportunities for Expel
  • The one-year integration of the acquired Chinese distributor is progressing well, with the team exceeding expectations in a difficult domestic market
  • Long-term investments in regional presence across APEC markets are delivering growth and development opportunities, particularly in Japan
  • India, the world's third largest car sales market, remains a high-potential long-term growth market where Expel is well positioned for significant expansion
• Strategic Manufacturing Investments
  • In May 2026, Expel announced two key investments to execute its manufacturing strategy, totaling ~$110 million including acquisition, build-out, and equipment costs
  • The company purchased a four-building site including its existing San Antonio facility, which will be the centerpiece of its North American manufacturing and supply chain footprint; half the space will be used for Expel operations, with the remainder leased to third parties to preserve scaling optionality
  • Expel acquired a 75% interest in an existing manufacturing facility in China to complete its regional footprint; this facility will serve Chinese and export markets, with minimal expected product flow to North America
  • Incremental margin benefits from these investments are expected to start in mid-2027, with a target run-rate operating margin in the mid-20% range by the end of 2028 (assuming stable business fundamentals and on-schedule project execution)
• Financial and Operational Efficiency
  • Q2 2026 gross margin was 44.1%, up from 43.7% in Q1 2026; modest Q3 price increases will offset ongoing cost pressure, with management expecting continued modest gross margin growth through the end of the year
  • Q2 2026 manufacturing ramp-up costs totaled ~$0.03 per share, expected to rise to $0.03-$0.04 per share in Q3 2026
  • Record operating cash flow of $30.8 million was achieved in Q2 2026, with improvements in the cash conversion cycle and days sales outstanding
  • Management is aggressively reducing SKU counts and consolidating product offerings (especially post-China acquisition) to improve inventory efficiency and working capital performance, with additional focus on optimizing balance sheet metrics like accounts receivable
• Capital Allocation Strategy
  • Outside of funding the manufacturing initiative, Expel will pursue small tuck-in acquisitions (avoiding large or transformative deals) and maintain a focus on share repurchases, a strategy expected to continue into 2027
  • A $44.8 million 10-year term loan was used to finance a portion of the San Antonio real estate purchase, giving the company optionality on long-term real estate ownership

• Q3 2026 revenue is guided to a range of $137 million to $139 million, which assumes continued consistent performance trends in the U.S. and Asia-Pacific, normal seasonal weakness in European business from August holidays, and modest improvement in the Middle East (with no expected recapture of lost Q2 revenue included, representing upside potential if recapture occurs)
  • Incremental margin benefits from the company's new manufacturing investments are not expected until mid-2027, with a target run-rate operating margin of mid-20% by the end of 2028
  • Manufacturing ramp-up costs are projected to be $0.03 to $0.04 per share in Q3 2026, up from $0.03 per share in Q2 2026

By product: 1) Window film: Q2 2026 revenue grew 16.1% year-over-year to $32.5 million, accounting for 22.7% of total company revenue, with broad-based growth across all regions led by the U.S. and China. 2) Total installation revenue: Increased just under 11% year-over-year in Q2 2026, representing just over 21% of total company revenue, driven by strong performance at corporate-owned stores. By geographic region: 1) U.S. region: Q2 2026 revenue grew 11.7% year-over-year to a regional record $78.6 million, with strong performance from the independent channel. 2) Canada region: Q2 2026 reported revenue grew 10.8% year-over-year; excluding timing impacts from large distributor ordering cadence, organic growth was approximately 4%, marking an improvement after a year of weak performance. 3) China region: Q2 2026 revenue hit $15.9 million, with solid progress one year after acquiring the local distributor, despite a 20% year-over-year drop in domestic Chinese car sales. 4) Rest of APEC region: Delivered solid growth in Q2 2026, with returns on investments in regional market presence. 5) India Middle East region: Q2 2026 revenue declined 5% year-over-year due to Iran conflict impacts, driven primarily by vehicle availability shortages rather than collapsed consumer demand. 6) Europe region: Q2 2026 revenue declined 2.3% year-over-year due to distribution order timing, lower OEM volumes tied to vehicle production cadence, and indirect spillover impacts from the Middle East conflict.

• Forward-looking statements about business performance, manufacturing investments, and growth are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from expectations, as detailed in the company's most recent Form 10-K
  • The large-scale manufacturing build-out is the largest capital project Expel has ever undertaken, with potential risks related to quality control, project execution, and project timeline adherence
  • Ongoing geopolitical conflict in Iran creates uncertainty for the India Middle East region, with potential for further demand or supply chain disruptions
  • Weak macroeconomic conditions in key markets, including the 20% year-over-year drop in domestic Chinese car sales, create near-term headwinds for regional performance
  • Cost pressure for raw materials and inputs continues to pressure gross margins, offset partially by planned Q3 price increases

Q: An analyst asks about the cadence of margin expansion from Expel's new manufacturing facilities, specifically whether it will be a step function change in mid-2027 or gradual growth, and asks why the existing Chinese manufacturing facility does not deliver faster margin gains. / A: Management confirms margin expansion will occur in incremental step-ups rather than one large jump to the target terminal run rate by mid-2027, and the company will accelerate the timeline if possible. The current planned cadence reflects the ramp-up required for both new facilities, even the already-built China site.

Q: An analyst asks how investors should frame risks for the largest capital project in the company's history, specifically around quality control and project leadership. / A: Management notes Expel already oversees all stages of product development, quality control, sourcing, and production for most of its offerings, currently using third-party owned manufacturing assets rather than internal facilities. The company already has an experienced 40+ person team of technical, quality assurance, R&D, and manufacturing process engineers that manages these processes, so the project only shifts ownership of production assets rather than building new operational capabilities from scratch, reducing underlying risk.

Q: An analyst asks for an update on Expel's SKU reduction initiative, including progress to date, expected benefits, and timing. / A: Management says the company first succeeded in halting excessive SKU growth months ago by exiting non-core commodity products that do not align with its focus. It is now pruning the existing product portfolio to eliminate low-volume SKUs of paint protection and window film, targeting an approximately 10% reduction in total SKU count. The expected benefits include improved inventory efficiency and turns, more stable inventory levels, and the potential for lower aggregate inventory investment even as revenue grows over time.

Q: An analyst asks whether the small tuck-in acquisitions the company mentioned are related to its manufacturing expansion, and clarifies what types of acquisitions Expel will pursue. / A: Management confirms tuck-in acquisitions are unrelated to the current manufacturing footprint expansion, where the company's plan is fully funded and set. Tuck-ins will focus on service and OEM-adjacent businesses that help bring new net customers in the dealership and OEM channels. The company explicitly avoids large or transformative acquisitions, hence the focus on small tuck-in opportunities.