Xpel, Inc. ((XPEL)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Xpel, Inc. struck an upbeat tone on its latest earnings call, emphasizing record profitability and accelerating momentum across its core water businesses. Management acknowledged higher capital spending and short‑term cash flow pressure, but argued that strong growth, expanding margins and a healthier balance sheet more than offset these near‑term headwinds.
Record Margins and Earnings Power
Consolidated gross margin before depreciation and amortization topped 30% for the first time, marking a new high for the company. Adjusted EBITDA reached $77.6 million in the quarter, up $13.5 million from last year, as revenue rose by $19.5 million and net income increased by $11.5 million year over year.
Water Infrastructure Delivers Breakout Quarter
Water Infrastructure posted a record quarter with roughly $97 million of revenue and reported growth of about 19% versus last year, with some commentary pointing to growth above 33% in certain measures. Gross margins before depreciation and amortization hit an impressive 56%, comfortably ahead of prior guidance and underscoring the segment’s operating leverage.
Throughput Scale Drives Revenue and Margins
The company’s water network handled about 1.4 million barrels per day of produced water in the first quarter, reflecting both recycling and disposal activity. Rising volumes across the system are supporting revenue growth while also enhancing margin performance as fixed infrastructure is utilized more efficiently.
New Commercial Deals, Low‑Capex Growth
Since the start of the year, Xpel signed a slate of new commercial agreements across key basins, including three minimum volume commitments and multiple acreage and right‑of‑first‑refusal dedications. The company also secured eight interruptible agreements, many of which bring incremental barrels with little to no additional capital, boosting returns on existing assets.
Strategic Northern Delaware Acquisitions
Management closed several acquisitions in the Northern Delaware Basin, adding roughly 4,000 acres of surface and mineral rights along with about 30,000 barrels per day of disposal capacity. The deals also delivered approximately 1,800 acre‑feet per year of water rights and 500,000 barrels of storage, with around $29 million of subsequent acquisitions expected to integrate smoothly into the network.
Water Services Shows Sequential Recovery
The Water Services segment delivered a better‑than‑expected quarter with revenue up roughly 7% sequentially compared with the prior period. Gross margin before depreciation and amortization improved to 21.8% from 19.6%, and management guided second‑quarter margins to remain in the 20% to 22% range despite some anticipated top‑line moderation.
Chemical Technology Builds Momentum
Chemical Technology generated around $78 million of first‑quarter revenue with a 19% gross margin, in line with earlier expectations. Management is forecasting robust sequential revenue growth of 10% to 15% in the second quarter, with margins expanding into the 20% to 21% range as demand strengthens for friction reducers and specialty surfactants.
Cost Discipline and Stronger Balance Sheet
Selling, general and administrative expenses fell more than 6% to $40.6 million, representing about 11% of revenue and highlighting continued cost control. Following an equity raise, the company repaid revolver borrowings, ended the quarter with about $196 million of net debt and more than $300 million of available liquidity, with net interest expense expected to run roughly $4 million to $6 million per quarter.
Receivables Weigh on Near‑Term Cash Flow
Operating cash flow was temporarily pressured by a sizable increase in accounts receivable during the quarter, which management linked to timing issues rather than structural problems. The company expects these receivables to convert into cash over the course of the year, easing the current drag on cash generation.
CapEx Guidance Raised on Growth Projects
Capital expenditures totaled $78 million in the first quarter, largely tied to infrastructure investments supporting growth. Full‑year net CapEx guidance was lifted to a range of $200 million to $250 million from the prior $175 million to $225 million, with about $50 million to $60 million earmarked for maintenance, implying higher near‑term capital intensity.
Higher Depreciation and Amortization Ahead
Depreciation and amortization are expected to remain elevated in the second quarter at roughly $47 million to $50 million, with a further step‑up into the low $50 million range later in the year. As new projects come online, this higher non‑cash expense load will weigh on reported earnings metrics even as cash returns from the assets ramp.
Service Segment Guidance After Years of Pressure
Despite first‑quarter improvements, management is guiding to a modest low single‑digit percentage revenue decline for Water Services in the second quarter. Analysts on the call pointed out that both the Services and Chemical Technology segments have faced multi‑year pressure, making the recent signs of stabilization and growth an important area to watch.
Macro and Regional Risks Under Watch
The company flagged geopolitical uncertainty, including tensions in the Middle East, and broader industry volatility as factors it continues to monitor. Regionally, natural gas takeaway constraints and associated operational issues in parts of New Mexico pose localized risks, though management has not yet seen meaningful customer pullbacks in activity.
Slow‑Burn Municipal and Industrial Opportunities
Management reiterated that municipal and industrial projects, including a highlighted Colorado municipal opportunity, remain slower to develop and will likely take until around 2027 to hit key contract milestones. That extended timeline introduces some timing risk and means diversification into these markets will contribute more meaningfully over the medium term rather than immediately.
Upgraded Outlook and Capital Plan
The company raised its full‑year Water Infrastructure growth guidance to 25% to 30% year over year, up from 20% to 25%, reflecting strong first‑quarter execution. Management now expects second‑quarter adjusted EBITDA between $77 million and $80 million, higher depreciation and amortization near $47 million to $50 million, steady interest expense of $4 million to $6 million per quarter and continued investment under a $200 million to $250 million CapEx plan supported by over $300 million of liquidity.
Xpel’s latest call painted the picture of a business leaning into growth, with record Infrastructure margins, rising volumes and improving service lines offsetting the burden of heavier capital spending. For investors, the story centers on whether strong contract wins, disciplined costs and a reinforced balance sheet can continue to outpace near‑term cash flow and macro risks as the company executes on its expanding water platform.