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 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 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. 26 The following table is a reconciliation of Net Income to EBITDA for the three and six months ended June 30, 2026 and 2025 (in thousands): (Unaudited) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2026 2025 % Change 2026 2025 % Change Net Income $ 18,303 $ 16,208 12.9 % $ 28,807 $ 24,794 16.2 % Interest 262 7 3642.9 % 266 83 220.5 % Taxes 5,053 4,122 22.6 % 7,836 6,816 15.0 % Depreciation 1,780 1,557 14.3 % 3,402 3,093 10.0 % Amortization 2,161 1,538 40.5 % 4,220 3,059 38.0 % EBITDA $ 27,559 $ 23,432 17.6 % $ 44,531 $ 37,845 17.7 % 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. 27 Results of Operations The following tables summarize the Company’s consolidated results of operations for the three and six months ended June 30, 2026 and 2025 (dollars in thousands): Three Months Ended June 30, 2026 % of Total Revenue Three Months Ended June 30, 2025 % of Total Revenue $ Change % Change Total revenue $ 143,053 100.0 % $ 124,713 100.0 % $ 18,340 14.7 % Total cost of sales 79,913 55.9 % 71,196 57.1 % 8,717 12.2 % Gross margin 63,140 44.1 % 53,517 42.9 % 9,623 18.0 % Total operating expenses 39,925 27.9 % 34,219 27.4 % 5,706 16.7 % Operating income 23,215 16.2 % 19,298 15.5 % 3,917 20.3 % Other (income) expense, net (141) (0.1) % (1,032) (0.8) % 891 (86.3) % Income tax 5,053 3.5 % 4,122 3.3 % 931 22.6 % Net income $ 18,303 12.8 % $ 16,208 13.0 % $ 2,095 12.9 % Six Months Ended June 30, 2026 % of Total Revenue Six Months Ended June 30, 2025 % of Total Revenue $ Change % Change Total revenue $ 260,407 100.0 % $ 228,518 100.0 % $ 31,889 14.0 % Total cost of sales 146,037 56.1 % 131,105 57.4 % 14,932 11.4 % Gross margin 114,370 43.9 % 97,413 42.6 % 16,957 17.4 % Total operating expenses 78,144 30.0 % 66,995 29.3 % 11,149 16.6 % Operating income 36,226 13.9 % 30,418 13.3 % 5,808 19.1 % Other (income) expense, net (417) (0.2) % (1,192) (0.5) % 775 (65.0) % Income tax 7,836 3.0 % 6,816 3.0 % 1,020 15.0 % Net income $ 28,807 11.1 % $ 24,794 10.8 % $ 4,013 16.2 % 28 The following tables summarize revenue results for the three and six months ended June 30, 2026 and 2025 (dollars in thousands): Three Months Ended June 30, % % of Total Revenue 2026 2025 Inc (Dec) 2026 2025 Product Revenue Paint protection film $ 74,822 $ 62,666 19.4 % 52.3 % 50.2 % Window film 32,459 27,959 16.1 % 22.7 % 22.4 % Other 4,393 4,170 5.3 % 3.1 % 3.4 % Total $ 111,674 $ 94,795 17.8 % 78.1 % 76.0 % Service Revenue Software $ 2,258 $ 2,180 3.6 % 1.6 % 1.7 % Cutbank credits 1,918 4,523 (57.6) % 1.3 % 3.6 % Installation labor 25,328 22,448 12.8 % 17.7 % 18.0 % Training and other 1,875 767 144.5 % 1.3 % 0.7 % Total $ 31,379 $ 29,918 4.9 % 21.9 % 24.0 % Total $ 143,053 $ 124,713 14.7 % 100.0 % 100.0 % Six Months Ended June 30, % % of Total Revenue 2026 2025 Inc (Dec) 2026 2025 Product Revenue Paint protection film $ 136,486 $ 119,106 14.6 % 52.4 % 52.1 % Window film 55,716 46,594 19.6 % 21.4 % 20.4 % Other 8,186 7,807 4.9 % 3.2 % 3.4 % Total $ 200,388 $ 173,507 15.5 % 77.0 % 75.9 % Service Revenue Software $ 4,484 $ 4,299 4.3 % 1.7 % 1.9 % Cutbank credits 4,013 8,195 (51.0) % 1.5 % 3.6 % Installation labor 48,433 41,098 17.8 % 18.6 % 18.0 % Training and other 3,089 1,419 117.7 % 1.2 % 0.6 % Total $ 60,019 $ 55,011 9.1 % 23.0 % 24.1 % Total $ 260,407 $ 228,518 14.0 % 100.0 % 100.0 % 29 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 summarized geographic regions based on our understanding of ultimate product destination based on customer interactions, customer locations and other factors for the three and six months ended June 30, 2026 and 2025 (dollars in thousands): Three Months Ended June 30, % % of Total Revenue 2026 2025 Inc (Dec) 2026 2025 United States $ 78,586 $ 70,380 11.7 % 54.9 % 56.4 % Canada 15,795 14,254 10.8 % 11.0 % 11.5 % North America 94,381 84,634 11.5 % 65.9 % 67.9 % China 15,924 7,705 106.7 % 11.1 % 6.2 % Asia Other 6,178 5,428 13.8 % 4.3 % 4.3 % Asia Pacific 22,102 13,133 68.3 % 15.4 % 10.5 % EU, UK, and Africa 16,961 17,360 (2.3) % 11.9 % 13.9 % India and Middle East 6,410 6,746 (5.0) % 4.5 % 5.4 % Latin America 3,199 2,840 12.6 % 2.3 % 2.3 % Total $ 143,053 $ 124,713 14.7 % 100.0 % 100.0 % Six Months Ended June 30, % % of Total Revenue 2026 2025 Inc (Dec) 2026 2025 United States $ 142,429 $ 128,453 10.9 % 54.7 % 56.2 % Canada 24,194 23,680 2.2 % 9.3 % 10.4 % North America 166,623 152,133 9.5 % 64.0 % 66.6 % China 27,633 15,811 74.8 % 10.6 % 6.9 % Asia Other 11,871 9,986 18.9 % 4.6 % 4.4 % Asia Pacific 39,504 25,797 53.1 % 15.2 % 11.3 % EU, UK, and Africa 34,818 32,362 7.6 % 13.4 % 14.2 % India and Middle East 13,177 12,824 2.8 % 5.1 % 5.6 % Latin America 6,285 5,402 16.3 % 2.3 % 2.3 % Total $ 260,407 $ 228,518 14.0 % 100.0 % 100.0 % Product Revenue. Product revenue for the three months ended June 30, 2026 increased 17.8% over the three months ended June 30, 2025. Product revenue represented 78.1% of our total revenue compared to 76.0% in the three months ended June 30, 2025. Revenue from our paint protection film product line increased 19.4% over the three months ended June 30, 2025. Paint protection film sales represented 52.3% and 50.2% of our total consolidated revenues for the three months ended June 30, 2026 and 2025, respectively. The total increase in paint protection film sales was primarily due to increased paint protection film sales into China resulting from our increased direct presence and increased demand for our film products across the US and Canada. 30 Revenue from our window film product line grew 16.1% for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. Window film sales represented 22.7% and 22.4% of our total consolidated revenues for the three months ended June 30, 2026 and 2025, respectively. This increase was driven by continued demand resulting from increased product adoption in multiple regions for automotive window film led by our China and APAC regions resulting primarily from increasing our direct presence in these regions. Geographically, we experienced continued growth in most of our regions during the three months ended June 30, 2026 including 106.7% and 13.8% in China and Asia-Other, respectively. The increase in China revenue was driven primarily by higher customer demand and the recognition of incremental direct revenues following the acquisition of our China distributor, completed late in the third quarter of 2025. US revenues increased 11.7% due primarily to increased demand. These increases were offset by a slight decrease in Europe revenue due primarily to timing of distributor sales and the on-going conflict in Iran and a 5.0% decrease India/Middle East revenue due primarily to the on-going conflict in Iran. Product Revenue. Product revenue for the six months ended June 30, 2026 increased 15.5% over the six months ended June 30, 2025. Product revenue represented 77.0% of our total revenue compared to 75.9% in the six months ended June 30, 2025. Revenue from our paint protection film product line increased 14.6% over the six months ended June 30, 2025. Paint protection film sales represented 52.4% and 52.1% of our total consolidated revenues for the six months ended June 30, 2026 and 2025, respectively. The total increase in paint protection film sales was due to increased demand for our film products across multiple regions and the recognition of incremental direct revenues following the acquisition of our China distributor, completed late in the third quarter of 2025. Revenue from our window film product line grew 19.6% for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. Window film sales represented 21.4% and 20.4% of our total consolidated revenues for the six months ended June 30, 2026 and 2025, respectively. This increase was driven by continued demand resulting from increased product adoption in multiple regions for automotive window film led by our China and APAC regions resulting primarily from increasing our direct presence in these regions. Geographically, we experienced continued growth in all of our regions during the six months ended June 30, 2026 including 74.8%, 18.9%, 10.9% in China, Asia-Other, and in the United States, respectively. The increase in China revenue was driven primarily by higher customer demand and the recognition of incremental direct revenues following the acquisition of our China distributor, completed late in the third quarter of 2025. The increases in Asia-Other and the United States were driven primarily by increased product adoption and increased demand. 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. Service revenue grew 4.9% over the three months ended June 30, 2025. Installation labor revenue increased 12.8% over the three months ended June 30, 2025 due mainly to increased demand across our dealership services and OEM networks. Cutbank credit revenue declined due primarily to a reduction in the estimated fair value of a cutbank credit. Excluding cutbank credit revenue, total service revenue for the three months ended June 30, 2026 increased 16.0% over the three months ended June 30, 3035 31 Service revenue for the six months ended June 30, 2026 grew 9.1% over the six months ended June 30, 2025. Within this category, software revenue grew 4.3% over the six months ended June 30, 2025. This increase was due to an increase in total subscribers to our DAP software. Installation labor revenue increased 17.8% over the six months ended June 30, 2025 due mainly to increased demand across our dealership services and OEM networks. Excluding cutbank credit revenue, total service revenue for the six months ended June 30, 2026 increased 19.6% over the six months ended June 30, 3035 Total installation revenue (labor and product combined) increased 10.8% over the three months ended June 30, 2025. This represented 21.3% and 22.0% of our total consolidated revenue for the three months ended June 30, 2026 and 2025, respectively. These increases were primarily due to increased demand in our corporate owned stores and across our dealership services and OEM networks. Total installation revenue (labor and product combined) increased 16.9% over the six months ended June 30, 2025. This represented 22.4% and 21.8% of our total consolidated revenue for the six months ended June 30, 2026 and 2025, respectively. These increases were primarily due to increased demand in our corporate owned stores and across our dealership services and OEM networks. Adjusted product revenue, which combines the cutbank credit revenue service component with product revenue, increased 14.4% over the three months ended June 30, 2025. Adjusted product revenue increased 12.5% over the six months ended June 30, 2025. Cost of Sales Cost of sales consists of product costs and the costs to provide our services. Product costs consist of material costs, personnel costs related to warehouse personnel, shipping costs, warranty costs and other related costs to provide products to our customers. Cost of service includes the labor costs associated with installation of product in our installation facilities, costs of labor associated with pattern design for our cutting software and the costs incurred to provide training for our customers. Product costs for the three months ended June 30, 2026 increased 12.5% over the three months ended June 30, 2025. Cost of product sales represented 45.8% and 46.7% of total revenue in the three months ended June 30, 2026 and 2025, respectively. Cost of service revenue grew 11.1% during the three months ended June 30, 2026. Refer to the Gross Margin section below for discussion of this cost relative to revenue. Product costs for the six months ended June 30, 2026 increased 10.5% over the six months ended June 30, 2025. Cost of product sales represented 45.2% and 46.7% of total revenue in the six months ended June 30, 2026 and 2025, respectively. Cost of service revenue grew 15.3% during the six months ended June 30, 2026. Refer to the Gross Margin section below for discussion of this cost relative to revenue. Gross Margin Gross margin for the three months ended June 30, 2026 grew approximately $9.6 million, or 18.0%, compared to the three months ended June 30, 2025. For the three months ended June 30, 2026, gross margin represented 44.1% of revenue compared to 42.9% for the three months ended June 30, 2025. Gross margin for the six months ended June 30, 2026 grew approximately $17.0 million, or 17.4%, compared to the six months ended June 30, 2025. For the six months ended June 30, 2026, gross margin represented 43.9% of revenue compared to 42.6% for the six months ended June 30, 2025. 32 The following tables summarizes gross margin for product and services for the three and six months ended June 30, 2026 and 2025 (dollars in thousands): Three Months Ended June 30, % % of Category Revenue 2026 2025 Inc (Dec) 2026 2025 Product margin $ 46,212 $ 36,605 26.2 % 41.4 % 38.6 % Service margin 16,928 16,912 0.1 % 53.9 % 56.5 % Total $ 63,140 $ 53,517 18.0 % 44.1 % 42.9 % Six Months Ended June 30, % % of Category Revenue 2026 2025 Inc (Dec) 2026 2025 Product margin $ 82,560 $ 66,877 23.5 % 41.2 % 38.5 % Service margin 31,810 30,536 4.2 % 53.0 % 55.5 % Total $ 114,370 $ 97,413 17.4 % 43.9 % 42.6 % Product gross margin for the three months ended June 30, 2026 increased approximately $9.6 million, or 26.2%, over the three months ended June 30, 2025 and represented 41.4% and 38.6% of total product revenue for the three months ended June 30, 2026 and 2025, respectively. The increase in gross margin percentage was due primarily to decreases in product costs, favorable changes in product mix improved operating leverage and the on-going sell through of higher cost inventory acquired in our China distributor acquisition in September 2025. Product gross margin for the six months ended June 30, 2026 increased approximately $15.7 million, or 23.5%, over the six months ended June 30, 2025 and represented 41.2% and 38.5% of total product revenue for the six months ended June 30, 2026 and 2025, respectively. The increase in gross margin percentage was due primarily to decreases in product costs, favorable changes in product mix, improved operating leverage and the on-going sell through of higher cost inventory acquired in our China distributor acquisition in September 2025. Service gross margin was comparable to the three months ended June 30, 2025. This represented 53.9% and 56.5% of total service revenue for the three months ended June 30, 2026 and 2025, respectively. Excluding cutbank credit revenue, service gross margin was 50.9% and 48.8% for the three months ended June 30, 2026 and 2025, respectively. This increase was due primarily to a more favorable mix of service channel revenue. Service gross margin increased approximately $1.3 million, or 4.2%, over the six months ended June 30, 2025. This represented 53.0% and 55.5% of total service revenue for the six months ended June 30, 2026 and 2025, respectively. Excluding cutbank credit revenue, service gross margin was 49.6% and 47.7% for the six months ended June 30, 2026 and 2025, respectively. This increase was due primarily to a more favorable mix of service channel revenue. Operating Expenses Sales and marketing expenses for the three months ended June 30, 2026 increased 29.7% compared to the same period in 2025. This increase was primarily due to increased personnel and marketing costs associated with ongoing growth in multiple markets as the Company increased the number of sponsorships and increased marketing efforts to dealerships as well as increased direct sales marketing costs in China. These expenses represented 10.8% and 9.5% of total consolidated revenue for the three months ended June 30, 2026 and 2025, respectively. 33 For the six months ended June 30, 2026, sales and marketing expenses increased 28.7% compared to the same period in 2025. This increase was due to increased personnel and marketing costs incurred associated with ongoing growth in multiple markets as the Company increased its marketing efforts to dealerships as well as increased direct sales marketing costs in China. These expenses represented 11.7% and 10.4% of total consolidated revenue for the six months ended June 30, 2026 and 2025, respectively. General and administrative expenses grew approximately $2.2 million, or 9.8% over the three months ended June 30, 2025. This increase in cost was due primarily to increases in personnel, occupancy costs and professional fees including legal costs associated the acquisition of a Chinese manufacturer. Total General and Administrative expenses represented 17.2% and 17.9% of total consolidated revenue for the three months ended June 30, 2026 and 2025, respectively. General and administrative expenses grew approximately $4.3 million, or 10.0% over the six months ended June 30, 2025. This increase in cost was due primarily to increases in personnel, occupancy costs and professional fees including legal costs associated with the acquisition of a Chinese manufacturer. Total General and Administrative expenses represented 18.3% and 18.9% of total consolidated revenue for the six months ended June 30, 2026 and 2025, respectively. Interest Expense Interest expense for the three months ended June 30, 2026 increased $0.3 million from the three months ended June 30, 2025. This increase resulted from interest expense associated with the new term loan agreement obtained in connection with the purchase of certain real estate assets. (See Note 8 in the Notes to Condensed Consolidated Financial Statements). Income Tax Expense Income tax expense for the three months ended June 30, 2026 increased $0.9 million from the three months ended June 30, 2025. Our effective tax rate was 21.6% for the three months ended June 30, 2026 compared with 20.3% for the three months ended June 30, 2025. The increase in our effective rate was primarily due to an increase in foreign taxes associated with our China operations. Income tax expense for the six months ended June 30, 2026 increased $1.0 million from the six months ended June 30, 2025. Our effective tax rate was 21.4% for the six months ended June 30, 2026 compared with 21.6% for the six months ended June 30, 2025. Net Income Net income for the three months ended June 30, 2026 increased 12.9% to $18.3 million. Net income for the six months ended June 30, 2026 increased 16.2% to $28.8 million. 34 Liquidity and Capital Resources Our primary sources of liquidity are available cash and cash equivalents, cash flows provided by operations and borrowing capacity under our credit facilities. As of June 30, 2026, we had cash and cash equivalents of $40.7 million. For the six months ended June 30, 2026, cash provided by operations was $38.2 million and as of June 30, 2026 we had $128.2 million in funds available under our credit facilities. We expect to continue to have sufficient access to cash to support working capital needs, pay for capital expenditures (including acquisitions), and to pay interest and service debt. We believe we have the ability and sufficient resources to meet these cash requirements by using available cash, internally generated funds and borrowings under committed credit facilities. We are focused on continuing to generate positive operating cash to fund our operational and capital investment initiatives. We believe we have sufficient liquidity to operate for at least the next 12 months from the date of this quarterly report. Operating activities. Cash provided by operations totaled $38.2 million for the six months ended June 30, 2026, compared to $31.1 million during the six months ended June 30, 2025. This increase in cash flows from operating activities was mainly due to an increase in net income and other changes in working capital. Investing activities. Cash used in investing activities totaled approximately $82.8 million during the six months ended June 30, 2026 compared to $2.9 million during the six months ended June 30, 2025. This increase was due primarily to the purchase of certain real estate assets totaling $60.4 million, deposits related to our supply chain initiatives and acquisition related payments. Financing activities. Cash provided by financing activities during the six months ended June 30, 2026 totaled $34.7 million compared to $0.3 million used during the same period in the prior year. This change was due primarily to borrowings on bank term loan in 2026 in connection with the purchase of certain real estate assets. Debt and contingent obligations as of June 30, 2026 and December 31, 2025 totaled approximately $60.7 million and $20.0 million, respectively. Future Liquidity and Capital Resource Requirements We expect to fund ongoing operating expenses, capital expenditures, acquisitions, interest payments, tax payments, credit facility maturities, future lease obligations, and payments for other long-term liabilities with cash flow from operations and borrowings under our credit facility. In the short-term, we are contractually obligated to make lease payments and make payments on contingent liabilities related to certain completed acquisitions. In the long-term, we are contractually obligated to make lease payments, for contingent liabilities, and for repayment of borrowings on bank term loan and credit facility. In addition, if an opportunity presents itself, we may increase our borrowing under available credit arrangements or sell debt or equity securities, although we may not be able to complete any such financing on terms acceptable to us or at all. We believe that we have sufficient cash and cash equivalents, as well as borrowing capacity, to cover our estimated short-term and long-term funding needs. 35 Credit Facilities On September 11, 2025, XPEL entered into the Amendment to the Credit Agreement with Wells Fargo Bank, N.A., as Administrative Agent, and other lenders party thereto. The Amendment, among other things, extended the maturity of the Credit Agreement from April 6, 2026 to September 11, 2028. The Credit Agreement provides for secured revolving loans and letters of credit in an aggregate amount of up to $125 million, which is subject to the terms of the Credit Agreement. As of June 30, 2026 and December 31, 2025, the Company had no outstanding balances under the Credit Agreement. All capitalized terms in this description of the credit facility that are not otherwise defined in this Report have the meaning assigned to them in the Credit Agreement. Borrowings under the Credit Agreement bear interest, at XPEL’s option, at a rate equal to either (a) Base Rate or (b) Adjusted Term SOFR. In addition to the applicable interest rate, the Credit Agreement includes a commitment fee ranging from 0.20% to 0.25% per annum for the unused portion of the aggregate commitment and an applicable margin ranging from 0.00% to 0.50% for Base Rate Loans and 1.00% to 1.50% for Adjusted Term SOFR Loans. At June 30, 2026, these rates were 6.8% and 4.7%, respectively. Both the margin applicable to the interest rate and the commitment fee are dependent on XPEL’s Consolidated Total Leverage Ratio. The Credit Agreement's maturity date is September 11, 2028. Obligations under the Credit Agreement are secured by a first priority perfected security interest, subject to certain permitted encumbrances, in all of XPEL’s material property and assets, other than the assets which secure the Term Loan. The terms of the Credit Agreement include certain affirmative and negative covenants that require, among other things, XPEL to maintain legal existence and remain in good standing, comply with applicable laws, maintain accounting records, deliver financial statements and certifications on a timely basis, pay taxes as required by law, and maintain insurance coverage, as well as to forgo certain specified future activities that might otherwise encumber XPEL and certain customary covenants. The Credit Agreement provides for two financial covenants, as follows. As of the last day of each fiscal quarter: 1.XPEL shall not allow its Consolidated Total Leverage Ratio to exceed 3.50 to 1.00, and 2.XPEL shall not allow its Consolidated Interest Coverage Ratio to be less than 3.00 to 1.00 The Company also has a CAD $4.5 million (approximately $3.2 million USD as of June 30, 2026) revolving credit facility through a financial institution in Canada, and is maintained by XPEL Canada Corp., a wholly-owned subsidiary of XPEL. This Canadian facility is utilized to fund the Company's working capital needs in Canada. This facility bears interest at the Royal Bank of Canada’s prime rate plus 0.25% per annum and is guaranteed by the parent company. As of June 30, 2026 and December 31, 2025, no balance was outstanding on this line of credit. Term Loan On May 15, 2026, the Company entered into a $44.8 million term loan agreement with PNC Bank, N.A. (“PNC”), secured by four commercial properties in San Antonio, Texas (the “Properties”), and a guarantee (the "Guaranty") by the Company. Borrowings outstanding bear interest at the sum of (a) the Term SOFR Rate in effect on each Reset Date (defined as the closing date or the last day of every month thereafter, unless the last day falls on a non-business day, upon which the Reset Date shall be the first business day after the last day of the month), plus (b) 125 basis points (1.25%), matures ten years from the closing date on May 15, 2036, and amortizes over a twenty-five year period. The interest rate at closing was 4.7% per annum. At June 30, 2026, the interest rate was 4.9%. 36 The term loan is secured by the assets owned by Harvest and is subject to customary representations, warranties, covenants, and events of default. Upon the occurrence of an event of default, PNC may, among other remedies, accelerate the outstanding principal balance and accrued interest, foreclose on the Properties, and exercise its rights under the Guaranty. As of June 30, 2026, $44.8 million in principal was outstanding, $1.3 million of which was classified as current and $43.5 million as long-term debt on the Condensed Consolidated Balance Sheets. Debt issuance costs incurred in connection with this term loan were not material to the condensed consolidated financial statements. The Term Loan includes certain affirmative and negative covenants that require, among other things, Harvest to maintain its legal existence and good standing, comply with applicable laws, maintain accounting records, deliver financial statements and compliance certifications on a timely basis, pay taxes as required by law, maintain insurance coverage, and maintain its depository accounts with PNC Bank, as well as to forgo certain specified future activities, including incurring additional indebtedness other than indebtedness under the Credit Agreement or not otherwise permitted under the Credit Agreement, granting liens on its assets, guaranteeing third-party obligations, paying dividends except as permitted under the Credit Agreement, merging or transferring substantially all of its assets, or changing its ownership or management, and certain other customary covenants. The Term Loan provides for two financial covenants which become effective after the Credit Agreement with Wells Fargo and any refinancing of the Credit Agreement ceases to be in effect as follows: As of the last day of each fiscal quarter: 1.XPEL shall not allow its Consolidated Total Leverage Ratio to exceed 3.50 to 1.00, and 2.XPEL shall not allow its Consolidated Interest Coverage Ratio to be less than 3.00 to 1.00. As of June 30, 2026 and December 31, 2025, the Company was in compliance with all debt covenants. Critical Accounting Estimates There have been no material changes to the Company’s critical accounting estimates from the information provided in the Annual Report on Form 10-K. Related Party Relationships There are no family relationships between or among any of our directors or executive officers. There are no arrangements or understandings between any two or more of our directors or executive officers, and there is no arrangement, plan or understanding as to whether non-management stockholders will exercise their voting rights to continue to elect the current Board. There are also no arrangements, agreements or understandings between non-management stockholders that may directly or indirectly participate in or influence the management of our affairs.