XPEL: Notes from the Dealer Conference
XPEL is a global supplier of protection films. Like the film protecting the surface of your phone from scratches, XPEL’s films can be applied to your car body, car window, and home or office window to protect it from scratches and chips or provide privacy and UV protection.
The company is led by CEO Ryan Pape, who has high integrity, a strong customer focus, and concentrates on long term value creation when allocating capital. Pape became CEO in 2010 and has steered the company from near bankruptcy to a $1.2bn valuation today. He owns shares worth $45mm and is aged 43, giving him a long runway and incentive to compound capital.
This article argues that:
XPEL’s moat is greatly underappreciated. The company has significant competitive advantages from scale, switching costs, and its culture/management. Whereas many investors see XPEL as simply a film supplier, I view its relationship with film installers as more like a franchisor/franchisee.
XPEL has significant pricing power and ability to increase its take rate on system sales.
XPEL has a long runway for growth driven by its expansion beyond enthusiast customers and into other products and distribution channels.
Hidden Gems Investing will be publishing a 30 page Special Report on XPEL in the coming weeks, based on 50+ long form interviews and attendance at industry events over the last five years. Make sure you become a paid subscriber to receive a copy. An annual membership is just $347 and subscribers are protected against future price rises. You can learn about what you can expect here.
XPEL’s annual Dealer Conference is a two day event attended by over 600 installers from across the world. When I first attended in 2023 I was amazed by the energy of the installer base and how strong their connection with XPEL was.
This year was similar, with demand to attend being so strong that XPEL had to shut registration early. A show of hands suggested that most of the installers were attending for the first time, which bodes well for the future.
Why Do Installers Use XPEL?
I asked many installers this question and it was clear that historically XPEL’s advantage has been its DAP software which enables more accurate cutting of film to fit every type of car. That is important because it reduces the time it takes to wrap a car and the likelihood of mistakes, having to redo a section and waste time/film.
While XPEL still has a software advantage even after SunTek’s major update a couple years ago, the key advantage today is the company’s scale, which enables it to invest in its brand and lead generation.
Almost every installer told me that their first or second reason for partnering with XPEL is that they generate a significant number of leads from (in order of importance):
Customers increasingly asking for XPEL specifically rather than paint protection film
XPEL’s online presence, including the installer locator
XPEL’s partnerships with car dealerships
XPEL’s partnerships with OEMs
For context, XPEL has previously told me that installers moving to XPEL see a 20-30% increase in orders. That is very significant for any business owner, and compares to the film typically making up only 15% of the cost of an installation job (most of the cost is labor, hence the importance of accurate software reducing the time it takes).
I can’t verify the 20-30% increase in orders and neither can installers as they do not know when they receive a customer phone call whether that customer got the phone number from XPEL’s online locator.
However, it is clear that being with XPEL significantly boosts an installer’s orders at very little additional cost. This is what business owners care about and so I see leads and the franchise broadly as the key ‘product’ XPEL is selling to installers. The film itself is to some extent a commodity and not the real ‘product’.
This advantage comes from XPEL’s scale. The company has about 40% share of the US market by my estimates and can invest significantly more in sponsorships, paid marketing, Google placements, and social media. That drives leads and is very difficult for other suppliers to compete with or replicate.
As XPEL gets better at quantifying the leads it generates for installers I think the company will continue shifting the mindset of installers from seeing XPEL film as a cost center to comparing that cost to the increased revenues that are getting.
This should enable XPEL to earn a significantly higher take rate on system revenues, either through higher prices for film or referral or processing fees. The company has just launched a new website and mobile app and is continuously upgrading its software, all of which I believe will lead to more transparency on the value it is adding to installers.
Culture
When I first attended this conference in 2023 I was blown away by the energy levels of the installer community and how close-knit they were with XPEL.
This year was no different.
I think investors greatly underestimate how the XPEL and its installer’s culture is a major competitive advantage. Both have a very entrepreneurial culture and a lot of people move between the two.
These people are nearly all self-starters: business owners with a lot of commission based work. It's very much an eat what you kill ultra capitalist mentality and the installers are generally in their 20s and 30s, work very long hours and make six figures despite not having a college education. Some of them now have multiple shops and 40-50 employees. They are business savvy and very impressive. Anyone has an opportunity to make a ton of money and build something, which you can feel is motivating.
This is very much a two way partnership. XPEL does a great job helping these installers with training and business skills, which is partly what the conference is about.
There were 200 staff from XPEL at the conference and once again everyone who gave a presentation was impressive. Many of them had owned installation shops themselves and could relate to the installers. You could see that the installers respected the staff for this reason. Some installers even own XPEL stock.
In fact, I think this bond is unlike a supplier/customer relationship and much more like a franchisor/franchisee one.
When an installer opens their shop, XPEL provides the lead generation, brand, film, software, training, and service. It is not simply a vendor.
Like a franchisor, XPEL divides countries into different territories and manages them so that each territory has enough business to support the installers. That means not every installer is accepted by XPEL, and occasionally there is even a waitlist. This is similar to how Dominos, for example, behaves.
An important measure of the health of the system is the strength of the franchisor-franchisee relationship, and XPEL is clearly in a very strong position.
The most striking moment for me two years ago was when XPEL announced that they would be selling merch at the back of ballroom. That immediately led to a stampede as installers ran to buy t-shirts, caps, and other merch before it sold out.
This year was similar.
XPEL had a merch store next to the main ballroom and a huge queue of maybe 150 people formed waiting for it to open. This meant XPEL staff had to use a retractable barrier at the entrance like a nightclub to control the number of people going into the shop at any one time.
I walked past the queue and assumed the installers were waiting to go into the competition area. It was only later when installers were showing off their new merch to me that I realized what was happening. As a result, the photos I got show the line after it had died down significantly. It was about 4x longer when the store opened:
Installers told me that XPEL’s merch always sells out straight away but that the company occasionally does ‘drops’. Several of XPEL’s younger employees also told me they wanted to buy merch.
Does this really matter?
I think this is an example of how strong the franchisor/franchisee relationship is. Can you think of many businesses whose customers are this obsessed with the company? Or a franchisor which has as strong a relationship with the franchisees?
This along with XPEL’s lead generation suggests to me the company will be hard to stop and has substantial pricing power.
Growth Runway
When I asked installers about XPEL’s growth runway and whether the market was now close to saturation, they told me that XPEL is expanding into other verticals like windshield, marine, and architectural.
A few installers and the CEO mentioned that windshield film had been received well.
And a significant number of installers brought up marine as a potentially big market for shops near a coast. That is because installers often have a good relationship with their customers, and the customer who owns a Ferrari or Porsche quite often owns a boat too. These are big ticket orders, with one installer telling me they recently wrapped a boat for $400,000.
Of course, customers also own homes with windows that could be tinted, but I did not sense the same enthusiasm for architectural as I did for marine. That may have just reflected the sample of people I spoke to.
On paint protection film, installers told me that most people still don’t know what it is and that most of their customers are car enthusiasts. They said that XPEL needs to advertise the brand to the general public and that installers can then follow up with more targeted marketing. It seems that XPEL is aware of this given management have discussed growing advertising beyond enthusiasts in the last few quarters.
One negative I heard about was that there are an increasing number of alternate paint protection film suppliers to XPEL, many of whom are at a lower price point.
However, when I asked the installer (who owns one of the biggest franchisees with several shops) at what price he would switch away from XPEL, he replied that there is effectively no price as he has built his whole business off XPEL and gets a large number of leads from XPEL connecting him with Porsche dealerships. He said it would require XPEL to really screw something up.
I think that again highlights XPEL’s pricing power, switching costs, and the key product the company sells being leads/the franchise rather than just film.
I heard similar but less favorable comments from installers in China and the UK. Unsurprisingly, there seems to be lots of competition in China from very cheap film suppliers, which makes the market very different to the US.
In the UK, one person told me that alternate suppliers and installers are “catching up” and undercutting XPEL installers on price.
While XPEL has a bullet-proof competitive position in the US in my view, it’s smaller scale and therefore lower brand awareness and lead generation internationally means that it is more vulnerable to competition.
It was also interesting what installers did not mention as growth drivers. No one brought up window tint as a growth market, and only one installer talked about colored film as growth market.
No one saw colored film applied by the car manufacturer instead of spray paint as a threat.
Growth was also the primary focus of the CEO’s speech. He highlighted four key channels XPEL will be pursuing:
Lead generation: XPEL launched a new website last week and mobile app for the end customer connected to XPEL’s DAP software for installers. It sounds like the app will be the starting point for further point-of-sale innovation. My guess is this will eventually allow XPEL to increase its take rate.
Social Media
OEM partnerships
Dealerships
The dealership channel I think is a major opportunity that is underestimated. XPEL had two featured sessions for the breakout rooms at the conference and one of them was on how installers can build relationships with new car dealers and grow that business. My guess is XPEL is working on relationships with the big dealers like AutoNation and Lithia while installers will go directly to smaller ones.
XPEL’s pitch centered around dealers typically selling new cars, used cars, services (financing, insurance) and aftermarket parts, but most of the profit is made in the servicing and aftermarket. Paint protection film is attractive to dealers because it is a very profitable upsell and they can outsource the work to an XPEL installer.
One major installer talked about how they work with a dealer who charges $2,300 for a customer to have the front of their car wrapped. The dealer pays the XPEL installer $1,300 to do the work, thereby making a very meaningful $1,000 profit. And while $1,300 is less than the $2,000 the installer would typically charge for this job, dealers bring substantial volume.
I think this example is also interesting because it suggests installers are willing to give away $700 if someone refers a customer to them at no incremental cost.
Of course, XPEL is referring customers to installers but has not quantified that as clearly yet and is not taking a fee for it…
Hidden Gems Investing will be publishing a 30 page Special Report on XPEL in the coming weeks, based on 50+ long form interviews and attendance at industry events over the last five years. Make sure you become a paid subscriber to receive a copy. An annual membership is just $347 and subscribers are protected against future price rises. You can learn about what you can expect here.
This article is for informational purposes only and is not investment advice. Plural Investing, LLC currently holds a position in XPEL. Read important disclosures here.