What are the cash flow implications of the earnings results – is free cash flow improving, and what is the cash conversion rate?

Short answer:

Based on the information released in the XPEL Q2‑2025 earnings announcement, we cannot calculate a precise free‑cash‑flow (FCF) figure nor a cash‑conversion rate because the press release does not disclose operating‑cash‑flow, capital‑expenditures, or any other cash‑flow line‑items.

What we can say is that the EBITDA rose 7.1 % (to $23.4 million) and revenue grew 13.5 % (to $124.7 million). Those headline trends are generally positive for cash generation, but they do not automatically translate into higher free cash flow or a better cash‑conversion ratio without the supporting cash‑flow data.

Below is a deeper look at why the numbers we need are missing, what the available data suggests, and how you could compute the missing metrics once the full financial statements are published.

1. What the press release tells us

Why EBITDA matters for cash conversion

• EBITDA strips out depreciation & amortization (non‑cash) and financing costs, giving a rough proxy for cash generated by core operations.
• The cash‑conversion rate is often defined as Operating Cash Flow ÷ EBITDA (or sometimes Net Income ÷ Operating Cash Flow). A rate > 100 % means the company turns more cash than the EBITDA figure suggests, usually because of working‑capital improvements or low capex.

2. What we don’t have (and why it matters)

Because the press release is a high‑level earnings summary, it intentionally omits those details. They will appear in the company’s Form 10‑Q (quarterly report) or in a more detailed earnings‑release supplement that includes the statement of cash flows.

3. How to calculate the metrics once the data are available

3.1 Free Cash Flow (FCF)

[
\text{Free Cash Flow} = \text{Operating Cash Flow (OCF)} - \text{Capital Expenditures (CapEx)}
]

• Operating Cash Flow = Net income + Depreciation & amortization + Non‑cash charges – Changes in working‑capital items.
• CapEx is typically shown under “Investing activities” as “Purchases of property and equipment” (and may also include purchases of intangible assets).

3.2 Cash‑Conversion Rate

Two common definitions:

1. EBITDA‑based conversion (most used in tech and high‑growth firms):
   [
   \text{Cash‑Conversion Ratio}_{\text{EBITDA}} = \frac{\text{Operating Cash Flow}}{\text{EBITDA}}
   ]

2. Net‑income‑based conversion (used when net income is more stable):
   [
   \text{Cash‑Conversion Ratio}_{\text{NI}} = \frac{\text{Operating Cash Flow}}{\text{Net Income}}
   ]

Interpretation:
- > 100 % – the company generates more cash than the earnings metric suggests (often due to working‑capital efficiencies or low capex).
- ≈ 100 % – cash generation roughly matches the earnings metric.
- < 100 % – cash generation lags earnings; could signal high capex, working‑capital strain, or aggressive accrual accounting.

3.3 Example (illustrative only)

Assume (for illustration) XPEL reported in its 10‑Q:

Then:

• Free cash flow = $28.0 M – $6.5 M = $21.5 M
  
• Cash‑conversion (EBITDA) = $28.0 M ÷ $23.4 M = 119 %
  
• Cash‑conversion (Net Income) = $28.0 M ÷ $15.0 M = 187 %

In this hypothetical scenario, free cash flow would have improved relative to the prior quarter (if prior‑quarter FCF was lower) and the cash‑conversion ratio would be above 100 %, indicating strong cash generation.

But until the actual cash‑flow numbers are released, we cannot confirm whether XPEL’s free cash flow is truly improving or what its precise conversion rate is.

4. What the available data suggests about cash generation

Bottom line: The headline numbers are encouraging for cash generation, but the real cash‑flow picture hinges on the balance of operating cash inflows versus cash outflows for capital spending and working‑capital changes.

5. Next steps to obtain the missing information

1. Check XPEL’s SEC filings – The Form 10‑Q for the quarter ending June 30 2025 (filed within 45 days of quarter‑end) will include:

   • Consolidated Statement of Cash Flows (Operating, Investing, Financing sections)
     
   • Notes on capital expenditures and working‑capital components.
     

2. Listen to the earnings call transcript – Management often discusses cash‑flow trends, capex outlook, and working‑capital initiatives.

3. Look for investor‑presentation slides – Companies sometimes include a “Cash Flow” slide summarizing free cash flow, cash‑conversion, and guidance.

4. Analyst coverage – Research notes from sell‑side analysts will frequently compute and comment on cash‑conversion ratios and free‑cash‑flow trends.

6. Quick take‑away for decision‑makers

TL;DR

• The press release shows revenue +13.5 %, gross margin 42.9 %, EBITDA +7.1 % (to $23.4 M).
  
• Free cash flow and cash‑conversion rate cannot be derived from these numbers alone because operating cash flow, capex, and working‑capital details are missing.
  
• If operating cash flow tracks EBITDA (a common scenario), cash conversion could be near or above 100 %, suggesting healthy cash generation.
  
• Action: Review XPEL’s Q2‑2025 Form 10‑Q (or the detailed earnings release) to extract operating cash flow and capex, then compute:

[
\text{FCF} = \text{OCF} - \text{CapEx}
]
[
\text{Cash‑Conversion Ratio} = \frac{\text{OCF}}{\text{EBITDA}}
]

Until those numbers are available, any conclusion about cash‑flow improvement remains tentative.