Call. At this time, all participants have been placed on a listen-only mode, and a question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your phone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, John Nesbett of IMS Investor Relations. John, you may begin.
Good morning and welcome to our conference call to discuss XPEL's first quarter 2026 financial results. On the call today, Ryan Pape, XPEL's President and Chief Executive Officer, and Barry Wood, XPEL's Senior Vice President and Chief Financial Officer, will provide an overview of the business operations and review the company's financial results. Immediately after the prepared comments, we will take questions from our call participants. A transcript of the call will be available on the company's website after the call. Now I'll take a moment to read the safe harbor statement. During the course of this call, we'll make certain forward-looking statements regarding XPEL, Inc. and its business, which may include, but are not limited to, anticipated use of proceeds from capital transactions, expansion into new markets, and execution of the company's growth strategy.
Such statements are based on our current expectations and assumptions, which are subject to known and unknown risk factors and uncertainties that could cause the actual results to be materially different from those expressed in these statements. Some of these factors are discussed in detail in our most recent Form 10-K, including under Item 1A, Risk Factors, filed with the SEC. XPEL undertakes no obligation to publicly update or revise any forward-looking statement, whether a result of new information, future events, or otherwise. With that, I now turn the call over to Ryan. Please go ahead.
Thank you, John, and good morning everyone as well. Welcome to our first quarter 2026 call. We're off to a good start this year. Solid top and bottom line performance in the quarter. Overall revenue grew 13.1% to $117.4 million. Probably a little bit higher than we were expecting. That was led by the U.S. and APAC, which both outperformed our estimates in March and set us up for a good launch point for the rest of the year. Our U.S. region performed quite well in the quarter, with revenue growing just under 10% to $63.8 million. We really, I think, saw good performance, relatively speaking, across all of our channels in the quarter. As we've discussed on prior calls, you know, March really dictates how the quarter shakes out.
Overall, I would say March exceeded our expectations, especially when you consider the supercharged March of last year in the U.S., where you had the SAR up substantially and consumers trying to front run tariffs and risk to vehicle prices that they saw. Our U.S. independent installer channel, which is the largest component of our U.S. revenue, grew 12% in the quarter. Good to see the independent aftermarket get off to a nice start. Our service business also had a good quarter, each of those areas growing mid-teens plus. Overall and globally, our dealership services install revenue was up 27%. United States makes up the largest part of that revenue category, so obviously it performed quite well.
In the quarter, we saw some dealer groups in the U.S. receive reminders from the U.S. Federal Trade Commission regarding their pricing disclosure and pricing practices. Most dealers are compliant and use this as a reminder to review their compliance, but some are less likely to pursue preloaded products due to concerns around interpreting the regulations or that they need the tools to gain compliance. The net result for us is nominally increased churn and new customer acquisition headwinds there. We're also really helpful for many of these dealers to gain or maintain compliance with our offerings. Nothing new there, but any time, you know, regulation sort of rears its head, that just creates more friction. All in all, even with that, good results.
Canada in Q1, performance somewhat masked by the timing of sales to our largest distributor we have there. If we normalize that for timing, which will push that revenue into Q2 of this year, we would have seen growth in Canada of 5.7% versus Q1 of last year versus the decline that we saw. We saw a really good growth in corporate operations, good growth in the dealership channel, but still some weakness in the aftermarket channel there in Canada. I think that is encouraging when you normalize for that. Also our April revenue in Canada, was the second highest month we've had in 14 or 15 months. You know, 1 month doesn't make a trend, but I think those are positive signs there.
China revenue came in about where we expected. You know, obviously you have a seasonal adjustment there relative to Chinese New Year that, you know, is present more when we're selling direct necessarily than our previous distribution model. We made good headway on our integration efforts there relative to the distribution business that we bought. Our OEM and 4S business continues to grow and do nicely. I think teams really integrated well post-acquisition. We're very, very pleased with that so far. As I said, really all the regions, excluding Canada, saw really good growth for the quarter, and they all had a strong March. Europe continues to post good results.
We also saw outsized growth in APAC, beyond China, where we're seeing benefits from becoming more direct in that region that we've worked on for the past few years. We saw one of the better quarters in Latin America, which has been a weak spot for us over the past year as we continue to make progress standing up our direct operation in Brazil and some of our other initiatives, that we have in Mexico and beyond. Good opportunity there, and, you know, we're really, really happy to see the results. We did not see a meaningful impact to the Middle East business in Q1 resulting from the Iran conflict.
I would tell you, I think, a lot of that, the fact that we didn't see negative impact, was due to the resourcefulness of our team to navigate what quickly became a much more complicated and expensive logistics operation to get customers their product. The impulse from many of our customers was actually to order more than they needed, anticipating further logistics challenges. In practice, that didn't happen, just the logistics precluded it. Really, the quarter came in kind of status quo. We didn't suffer from the disruption, nor did we benefit by sort of customers trying to front run that. I think the unfortunate part of that is the sentiment probably post March is more negative now than it has been there.
Really, the key driver of that are the vehicle shortages that are showing up. You know, this is becoming quite common throughout the region. To say the obvious, you can't put our products on cars that don't exist to be sold. Clearly, you know, that's a concern. We've had reports that, you know, some dealership and aftermarket and other operators in the region are starting layoffs and things like that to just reduce their overhead. I think, you know, that's really probably one of our downside risks for Q2. Overall, a super important region. We've been doing an amazing job and have a really good strategy. We're gonna keep expanding and investing and continuing, you know, our plans uninterrupted and just weather that impact near term.
You know, obviously, as everyone knows, it changes every day. A continued bright spot for us is ongoing interest in development of our OEM programs. These programs now span multiple manufacturers, multiple regions, and multiple different program types and configurations. You know, some of these programs require upfront investment that negatively impact gross margin or SG&A in the beginning because we were adding fixed costs. As the program grows and scales, those costs are leveraged and margins expanded. We're beginning to see signs of that leverage in the OEM business, which is really encouraging. The Q1 OEM revenue was just under 7% of our total revenue. That was the largest in history. We believe this channel will continue to be a good growth opportunity for us and our dealers.
I think we could see a shift from an environment there where, you know, we're more demand limited to more capacity limited in terms of our ability to onboard many things simultaneously. You know, to the extent that happens, I consider that a good problem, and we'll, you know, have plans in place to continue to scale and evolve and grow what we're doing there. I think really encouraging there. Our expectation for Q2 revenue in the $135 million to $137 million range. This assumes sort of normal Q1 to Q2 ramps. Obviously, Q1 slowest quarter of the year. You know, a consistent U.S. trend, modest improvement in Canada. I think the downside risks are, and that have impacted our estimates here would be Middle East.
We certainly expect that to be weaker than we would have expected. Probably a little bit delayed new deal flow in some of the dealership services just with that extra friction. Those are probably the downsides. All in all, I think, you know, we're pretty optimistic. We're really happy with how the year started, and we see a lot of that continuing based on what we know today. Our gross margin in the quarter finished 43.7%. We continue to make good progress on working through higher cost China inventory that we acquired. We continue to see benefits from our other margin initiatives. We are seeing upward pricing pressure from the rise in oil and then all of the disruptions in supply chain and petrochemical industry.
Our expectation was to continue to build on this gross margin that we posted this quarter in subsequent quarters this year. I still think that that's likely. However, it's not guaranteed, and it may not be at the magnitude we previously expected. We'll be looking at our pricing as well. Overall, we've taken a bit of a wait and see with respect to the current dynamics, but we'll begin to firm that this quarter. You know, there's a combination of real cost inflation and pricing pressure that we see, but also I think there's some opportunistic pricing that we're seeing people try to take as well. We wanna navigate that and make the best decisions.
You know, absent any future impact from that, I mean, you're seeing the impact to gross margin that we've talked about from all of these initiatives and as we get Dyna more integrated, and that will continue excluding those other factors. We did see leverage in the quarter. EBITs are growing 17.8% quarter-over-quarter. Then just to update on our previously announced initiatives regarding manufacturing and supply chain investments. We made substantial progress this year and have largely settled on our course of action, you know, after evaluating numerous alternatives. We have begun to execute on that strategy.
We'll have more to share in the, in the coming months and quarters and remain very confident in pursuing our goals, previously discussed. I think, you know, I would not expect play-by-play commentary from us on this. This is a multi-year initiative to, you know, improve the business and improve the performance of the business and allow us to grow into new markets. That continues to move. We're quite excited about it. Also, I just mention Mark Thornton, who we added to the board. Mark is a Procter & Gamble executive and really tremendous China and APAC business experience, along with manufacturing and material science. You know, we've been very deliberate about how we expand our board, and it was important to initially add one.
We've discussed also possibly adding 1 more board member. I think we have a very high functioning board that is able to really contribute to the business in a productive way. The addition of Mark helps us do that. We've taken our time, but we found a great addition, so very excited about that. With that, really good job by everyone on our team. I can't stress it enough. You know, just the operational discipline this quarter relative to what's happened in the Middle East and to be able to get the revenue out and get the product out and get it in where it needed to go. It took a huge effort just to sort of maintain that status quo operation.
Did a tremendous job, sort of unsung heroes that don't get a lot of, a lot of praise every day. I wanna call that out. Good job by everybody on the team. With that, I'll turn it over to Barry. Barry, go ahead.
Thanks, Ryan, and good morning, everybody. You know, Ryan mentioned our normal Q1 and Q2 revenue ramp. Just as a reminder, Q1 is typically our lowest quarter of the year, as Ryan said. Q2 and Q3 are our highest quarters, and Q4 is usually lower than Q2 and Q3 but higher than Q1. From a product line perspective, our window film product line grew 24.8% to $23.3 million, which represented approximately 19.8% of total revenue. We had good performance in most of our regions, but of note, China and APAC saw really strong growth in this product line, which really is just a byproduct of us now being direct in this region. It's also indicative of the progress we're making in the OEM and for U.S. space in the region, particularly in China.
Our total installation revenue increased a little over 24% in the quarter and represented just under 24% of total revenue, with solid performance in each of our channels. Our total SG&A expenses grew 16.6% in the quarter to $38.2 million, representing 32.6% of total revenue. Our Q1 SG&A includes about $1.2 million related to our annual dealer conference that we held in January. It also includes approximately $0.5 million for NADA, which a lot of you know is a car dealer trade show where we intentionally boosted our presence this year and plan to do so on a go-forward basis. Our SG&A also included approximately $2 million in new SG&A resulting from our China acquisition.
As we've been discussing, we do expect SG&A growth rates to continue to moderate as we progress throughout the year. Our EBITDA margin in the quarter was 14.5%. Operating income increased 17%, and our net income attributable to stockholders grew 20.5% to $10.3 million, and our net income attributable to stockholders' margin was 8.8%. During the quarter, we did see another increase in our DSO. Like last quarter, we do have some noise in our AR, totaling about $3.1 million and worth about two days of DSO, resulting from our transition services agreement in China, where the seller is collecting for us as part of the transition agreement.
Outside of that, over 60% of our Q1 AR bill was in the OEM channel, which does require extended terms and does impact DSO. Just to call this out, we've also been reorganizing our customer-facing operations to provide more targeted support to our different channels, namely the aftermarket and the dealership channels. While we're convinced this was absolutely the right thing to do, we were a little slow to evolve our collection practices to fully align with the reorganization, and consequently, we lost some traction there. That's all been rectified, and we're seeing good improvement in our metrics, and we do expect a downward trend in our DSO going forward. That, along with our increased inventory levels, did increase our cash conversion cycle.
The increase in inventory was planned as we were ramping up for busy season and still nominally elevated with inventory from the China acquisition. Similar to Q4, we did execute on a share buyback early in Q1, amounting to approximately $3 million. Our cash flow provided by ops was $7.4 million in the quarter. We did also incur approximately $9.7 million in CapEx in the quarter, driven primarily by some deposits we made to maintain our optionality on our supply chain initiatives. All in all, a really good quarter for the company, and we're off to a great start for the year. With that, operator, we'll now open the call up for questions.
Thank you very much, Barry. At this time, we'll be conducting our question and answer session. If you would like to ask a question, please press star one on your phone keypad now. A confirmation tone will indicate that your line is in the queue. You may press star two if you would like to remove your question from the queue. For any participants using speaker equipment, it might be necessary to pick up your handset before you press the keys. Please wait a moment whilst we poll for questions. Thank you very much. Our first question is coming from Jeff Van Sinderen of B. Riley Securities. Jeff, your line is live.
Thanks, and good morning, everyone. Just a question on the Middle East. I know you mentioned some concerns there, I guess, about how that'll progress. Is the downside risk in your guidance for Q2, or would that be kind of incremental downside risk to the guidance?
I think it's a little bit of both, Jeff. I mean, our guidance is updated to probably a little bit lower end with respect to the trends we see coming from the Middle East and what we expect. I think that's embedded in there. I think we would call it out also is we're still trying to extrapolate what that means. I think, you know, if that's, you know, if we looked at that wrong, there is probably further downside risk. I think, you know, it's, we've done our best to include that there.
Okay, that's helpful. Then, I know you touched on gross margin, and it sounds like I think you said you do expect gross margin to improve throughout the year, but maybe not to the magnitude previously. Any thoughts on where gross margin might be for Q2 or how we should trend there either sequentially or year-over-year?
Yeah, I mean, I think. Yeah. If you, if you look at it really coming into the year, we expected to see Q1 gross margin improvement, Q2 gross margin improvement and then, and then likely beyond that for all the factors that we've discussed. You know, that's still likely to be the case in Q2. I think as we, as we start to look beyond Q2, the question is, you know, will we be able to continue to drive gross margin improvement? Are we gonna see some of that upside reduced by pricing pressures coming in now? I think it's more likely we still see some net improvement in Q2. We haven't quantified it exactly. Just beyond that, I think the picture's a little bit more uncertain for the year.
Given the pricing pressure, are there initiatives that you're planning around pricing to help offset some of that?
Yeah. Obviously, that's something that we're looking at. I mean, we've been relatively conservative in our pricing to the market recently. I think, you know, just looking at some of the weakness that you've seen over the past two years in the aftermarket, you know, you're trying to balance what's actually productive to the business versus counter to what's productive. I think we've been really conservative in our pricing. Really independent of this pricing pressure that you see, there's an initiative for us to evaluate that this year, and I think now that's just being done with this in mind. Yes, I mean, that's to be determined what that means.
you know, it's certainly likely that we'll make adjustments, you know, at least in line with what we're seeing come to us.
Okay. Then just kind of following the line of thought on gross margin. Any more you can give us on progress moving toward, verticalization, or some form of that? I guess any thoughts on timeframe around that?
No. I mean, I think we've given our goals where we'd like to be in, you know, 2028. That is unchanged. You know, we've been pursuing multiple paths simultaneously, I think, as we discussed, and really spent the first part of this year evaluating those and deciding what makes the most sense for us. For the most part, I think, you know, now recently we've settled on that and certainly included some things and eliminated some things. You know, it's time now to execute that. You know, this is going to be a multi-year project, and there'll be different sort of milestones and things along the way as we execute on that.
Really nothing more changed from our initial goals and nothing more to share, except as we move through that over the next, you know, 2 years, we'll, at any meaningful milestone, we'll certainly be keeping everybody informed of that.
Okay. Then the OEM business, you pointed out the strength there. Just curious, are there other OEMs that you think you might add over the next year or so? you know.
Yes. Yeah, I mean.
Maybe you can touch a little bit on Yeah.
Yeah. I mean, I think it's all the above, in terms of we're working with more OEMs. We are expanding with the existing, we are expanding with the existing in different programs and different configurations than maybe where we started. I mean, it's pretty broad-based. It extends, you know, sort of globally now, where we have initiatives in multiple different countries. You know, I think it is a bright spot for us and something that we continue to get better at and smarter at as we move forward.
Okay. Great to hear. Congrats, and, we'll take the rest offline.
Thanks, Jeff.
Thank you very much. Just a reminder there, you can still join the queue by pressing star one on your phone keypad. Our next question is coming from Steve Dyer of Craig-Hallum. Steve, your line is live.
Hey, thanks. This is Matthew Raab on for Steve. Just wanna ask on the $10 million CapEx number in the quarter, understanding that you're not gonna give a play-by-play on the in-house manufacturing developments, but can you provide any color on the cadence of CapEx going forward, whether it's, you know, quarterly, annual, total dollar amount, just as we think about free cash flow in 2026 and 2027?
Not yet. I think, you know, what we've done in the quarter is, you know, make some decisions that preserved our optionality and help shorten timelines on things while we made final decisions on what we wanna pursue. Now we're in the process of doing that. I think as that comes to fruition, we'll be able to provide more guidance on that as we go forward. I don't think I can probably characterize it better than that today.
Fair enough. Then Ryan, I wanna ask a bigger picture question. You know, obviously you are outperforming the U.S. market. You know, SAR's down 5%, 6%. You grew in the U.S. by 10%. I'm trying to figure out where you're seeing most of those gains come from, and I would assume it's, you know, the 3 buckets that we've long talked about, which are take rate, content per car, and then market share gains over your peers. I guess the question is, within those buckets, you know, where are you seeing the most success, and then how has that shifted over time, and maybe even more recently in the last few quarters?
I mean, I think the biggest driver for us is still attachment rate growth in the sense of more cars with some amount of product from us on them. You know, there are different reasons for that in different parts of the channel. You know, if it's dealership or OEM, it tends to be cars that just didn't have the product on it before in many cases. If it's aftermarket, you see a lot of just net new customers, but you also probably see a little bit more share shift there, share gain there, so it may be new attachment for us, but not net new attachment to the business. I think that's the number one driver.
You know, over a longer period of time, the content per vehicle was increasing and was probably a larger driver of growth. We still see by, you know, many metrics, the content, total content per vehicle growth, you know, is a component of that revenue growth, but not quite to the magnitude that it was several years ago. The main reason for that is if you look at, you know, products like the paint protection film, I mean, you saw a big shift from smaller coverage to larger coverage and then full car coverage. That continues, but the magnitude of that is less than maybe it was four years ago. It's really at an attachment rate story.
I think that, you know, we'll take the share gain where we can get it, and that's obviously a focus, and we'd love to have more content per vehicle and more products per vehicle. I think if you want sort of the North Star that we're pursuing, it's really about attachment.
Understood. I just wanna go back to gross margin quickly. I get the puts and takes on the product side. I mean, service margin was maybe a touch weaker in the quarter. Is there anything to call out there as maybe a one-time item or anything else?
I think you're gonna see typically compression in service margin in the slower parts of the year as well, just because you're, you know, sort of utilization rate of what's in cost of goods is lower. Overall, no, I wouldn't attribute that to anything meaningful.
Sounds good. Thank you very much, guys.
Thank you.
Thank you very much. We appear to have reached the end of our question and answer session, so I will now hand back over to the management team for any closing remarks.
I'd like to thank our team for a really great work this quarter, and thanks to everybody for joining us. Look forward to speaking with you next time.
Thank you very much. This does conclude today's conference. You may disconnect your phone lines at this time, and have a wonderful day. We thank you for your participation.