XPEL, Inc.XPEL

XPEL, Inc. Fair Value Disclosure

10-KFiled Feb 27, 20262 min read
FAIR VALUE MEASUREMENTS
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 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.
Financial instruments include cash and cash equivalents, accounts receivable, accounts payable, our line of credit, and long-term debt. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, our line of credit, 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. The carrying value of the Company's long-term debt approximates fair value due to the interest rates being market rates.
The estimated fair value of debt is based on market quotes for instruments with similar terms and remaining maturities.
The Company has contingent liabilities related to future internal performance milestones and the estimated value of acquired inventory that may be sold above its net realizable value. The fair value of these liabilities was determined using discounted cash flow analyses and Monte Carlo Simulations based on the probability and timing of certain future payments under these arrangements. These liabilities are accounted for as Level 3 liabilities within the fair value hierarchy.
Level 3 liabilities measured at December 31, 2025 and 2024 at fair value on a recurring basis are as follows (in thousands):
20252024
Level 3:
     Contingent Liabilities$19,966 $1,816 
The following table presents a summary of the changes in fair value of Level 3 liabilities for the years ended December 31, 2025, 2024, and 2023 respectively (in thousands):
Balance, December 31, 2023$815 
New acquisitions and measurement adjustments1,623 
Recognized contingent liabilities
(82)
Fair value adjustments(512)
Effect of Foreign Currency Translation(28)
Balance, December 31, 2024$1,816 
New acquisitions and measurement adjustments25,037 
Recognized contingent liabilities
(6,341)
Fair value adjustments(613)
Effect of Foreign Currency Translation67 
Balance, December 31, 2025$19,966 
Level 3 contingent liabilities were updated during the reporting period as a result of new acquisitions and valuation adjustments. The valuation adjustments are reflected in general and administrative expenses in the Consolidated Statements of Income for the twelve months ended December 31, 2025 and 2024, respectively. See Note 3 for acquisition-related activity.

Historical Timeline

Fiscal YearFiled
2025Feb 27, 2026Showing above
2024Feb 28, 2025

About Fair Value Disclosures

Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.

Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.

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