Protection film superstar
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Xpel has been an extremely successful company since 2009, despite being founded 12 years earlier. The common denominator? Ryan Pape. The story isn’t quite as simple as that, but the impact that Pape has had in turning around the company is undeniable. When he started out as CEO right in the second half of the GFC, he was guaranteeing debt on his personal credit card, hiring a salesforce, and talking to any potential shareholder that would listen.
Pape’s track record is slightly unbelievable. After taking over in 2009, revenue was just under $4 million, flat YoY, with SG&A cut about 40% to stop the cash bleed. Over the ensuing 13 years, the company’s revenues grew to $324 million, and they could reach $400 million by the end of this fiscal year. So $4 million to $400 million over 14 years is a 39% sales CAGR. Meanwhile, EBIT has grown from $140,000 in 2009 and could reach $60 million this year. These are just mind-blowing numbers. But what’s really important is the starting valuation of Xpel. There are many fast-growing businesses that put up insane numbers from early on – even Samsara was only founded in 2015 and already does more than $700 million in revenue. But in 2009, when the turnaround was happening, the share price was around 5 cents. Yes, that’s right. Shares outstanding were 25.7 million and have only grown to 27.6 million after 14 years.
So you could buy Xpel at a $1.3 million market cap on nearly $4 million in revenue. Samsara, in comparison, raised a $25 million Series A from a16z, which I imagine went for ~$100 million on barely any revenue. So while it’s not quite a reasonable comparison, the point that valuation matters a whole lot remains.
Xpel sits at a $2 billion enterprise value nowadays, a 1,500 bagger from the lows when the company only traded on the TSX, the Canadian stock exchange. In fact, it only started trading on US exchanges in 2019.
So with that whole backstory, would you be surprised if I told you that Xpel sells paint film? The product is pretty cool, made from thermoplastic polyurethane, it has self-healing properties. Basically, it provides a thin, resilient barrier, protecting paint from damage and chipping. There are some demonstration videos where scratches can be instantly fixed just by splashing some warm water on the affected area.
Nearly all of the company’s revenue comes from its paint protection films for cars. About 65% of the company’s revenue is from selling these films and the associated software, DAP (design access program), to new car dealerships and independent installers. These installers act as a network of salespeople, taking a cut of every film that is sold to a customer. The end customer’s value prop is that they won’t have to worry as much about dings or scrapes, thereby saving them on future paint jobs. Meanwhile, Xpel provides a great upsell opportunity for the dealers and installers.
Xpel owns 13 of its own installation centers, accounting for another 15% of sales. The last big portion of revenue is from other distributors that sell into other installers, though the majority of this is from one relationship in China. One interesting side-point is that China made up 29% of sales in 2018 and now it only makes up about 10%.
So while paint protection film makes up a majority of the company’s revenue, Xpel is busy serving more than just cars in the future. It also sells a solar film for homes and offices to lessen the effect of UV rays and a security film that makes it more difficult to break a window. It even makes antimicrobial films to put on surfaces that are often touched like a countertop or a thermostat. The company even offers films for electronics.
Speaking of other products, the company’s window film is doing quite well and now makes up about 21% of product revenue. This doesn’t include DAP or the company-owned centers. Further, architectural film, a newer product, doubled to $6 million, which is a drop in the bucket but a good sign that the company can expand out of its core car film business.
One differentiation for the company is its DAP software, which only accounts for about 2% of revenue. It’s very low cost but includes an entire library of sizes and templates for installers to use to simplify the cutting process of the film. Imagine a customer comes in with a 2015 Jeep Renegade. Rather than measuring the headlights and the hood and the mirrors and every part of the car, you could just pull up DAP and have the automatic measurements cut out for you. This is a great 14-minute video showing the entire process from start to finish for installing an Xpel film.
Another fun fact is that Rivian has an exclusive supply relationship with Xpel so that customers can order Xpel films straight from the Rivian factory. These relationships only make up 3% of revenue but they more so tell the story of Xpel’s moat and dominance within the industry.
The main competitor is Eastman Chemical Company, a $10 billion conglomerate. The company has $10 billion in revenue but its advanced materials segment makes up about $3.2 billion of that. Further, its performance films make up about $600 million in total revenue, about 50% larger than Xpel, under its SunTek and LLumar brands. This segment has roughly doubled since 2013. So, basically, Xpel has added the same amount of revenue as its much larger competitor. It’s safe to say that Xpel has been gaining a ton of market share over the past decade.
It’s not unreasonable to imagine a much higher proportion of nice cars being wrapped in Xpel film than currently is the case. It is still quite a niche upsell but its value prop of decreasing the odds of needing a new paint job is attractive and it’s a high margin product for the installer network. As the company ventures into new verticals, there is still room for reinvestment. With Ryan Pape still at the helm, Xpel continues to grow and gain market share.
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