How San Antonio’s Wall Street darling company transformed itself – San Antonio Express-News

From outside a nondescript industrial building about a mile north of the AT&T Center, you can’t see that the corporate headquarters of XPEL Inc. is an exciting place — the engine of a company that has become a Wall Street darling while growing faster than perhaps any other San Antonio enterprise over the past decade.

At first glance, the clear sheets of adhesive film that XPEL makes to protect vehicles and buildings may seem too narrow a product line upon which to build a $1.8 billion company. But CEO Ryan Pape recoils at the suggestion that paint protection film, of PPF, is niche. Widespread pride of ownership among car buyers, he said, has powered exponential revenue and profit growth for XPEL.

“Our original customers were all the enthusiasts, as we would call them. Maybe 15 percent of car buyers who love their car. But over time, what you realize is there’s a pride of ownership for a big chunk of the car buying public,” Pape said. “Getting more adoption in that group is really where we are now as a business.”

Where the busines is on a high-growth track that continued in the third quarter.

The company reported nearly $90 million in revenue in the three months ending Sept. 30, topping Wall Street analysts’ expectations. That’s a far cry from the start of the previous decade, when the company generated $68 million in revenue from 2010 through 2014.

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The company’s profit growth has also been dramatic. XPEL reported net earnings of $33 million through first nine months of the year, up from $25 million in the same period in 2021. And its third-quarter profit of $13.3 million nearly matched that for all of 2019.

Today, XPEL sells PPF as an aftermarket accessory, working with car dealerships that sell its PPF by training their technicians to install the film products on vehicles, a process that requires some finesse. It also sells the film to distributors in other countries, and XPEL recently signed a deal with Rivian — which makes high-end electric pickup trucks — to offer PPF for customers buying trucks direct from the factory.

“To reach the 40 percent of the market that are not enthusiasts and are not ‘never going to buy,’ we need all hands on deck: dealership involvement, (original manufacturer) involvement,” Pape said. “A deal like (Rivian) creates tremendous awareness for PPF.”

Past struggles

The outlook wasn’t always this rosy for XPEL, which started in the late 1990s as a scrappy software company that sought to store data on dimensions of every panel on every vehicle around the world. The idea was for PPF installers to use XPEL’s software to automatically cut the film to fit any customer’s vehicle — whether it was a small sedan or a large truck.

Rudy Robles checks the conditions for applying XPEL Inc.’s protective coating on a car hood at the company’s San Antonio headquarters.

Rudy Robles checks the conditions for applying XPEL Inc.’s protective coating on a car hood at the company’s San Antonio headquarters.

Billy Calzada, San Antonio Express-News / Staff photographer

XPEL began trading publicly in the mid-2000s on the obscure Toronto Stock Exchange in Canada, while the company had a handful of employees and was generating a few hundred thousand dollars in quarterly revenue.

“Why Canada? Why then? Why when you’re this tiny company? These questions endure today,” Pape said on a recent afternoon at XPEL’s headquarters off Interstate 35. “There’s not obvious answers.”

The software nature of the business is what brought Pape, who has a computer science degree, on board as the 12th employee to join XPEL in 2004, but a combination of bad decisions and econonomic challenges would prompt him to leave four years later.

A major early mistake, Pape said, was focusing on the software and not the protective film itself.

“You go back to the decision to say ‘We’re going to sell this software and completely ignore the film,’ it was just the wrong decision,” he said. “The company struggled because the software business … was not sufficient to build a real company around.”

In 2007, then-new CEO Steven McCauley pivoted XPEL to begin selling paint protection film, which is designed to be invisible and protect vehicles from paint chipping and damage.

But while Pape applauded that move, it wasn’t long before the Great Recession hit the economy in 2008 and XPEL found itself “overextended” amid the shift in its business model.

“We got into 2007, 2008, it was a terrible time for the car business, for the economy, and XPEL as a company had completely overspent and just ran out of money,” Pape said.

Ryan Pape is CEO of XPEL Inc., a fast-growing company that makes protective films for vehicles and buildings.

Ryan Pape is CEO of XPEL Inc., a fast-growing company that makes protective films for vehicles and buildings.

Billy Calzada, San Antonio Express-News / Staff photographer

McCauley left in 2008, and the following CEO held the role for about nine months, Pape said. XPEL was in such disarray at the time that Pape left the company in 2008.

“The company was in bad shape,” he said.

But a few months after his departure, the company presented him with a challenge.

“Later that year, the board called and asked if I wanted to be CEO,” he said. “I said, ‘Well why not? What do you have to lose?’”

Rising from the brink

Pape spent the next couple of years at the helm “trying to not go into bankruptcy” and building a sales team before XPEL introduced its flagship Ultimate Paint Protection Film in 2011.

At the time, PPF products were known to turn yellow over time after being applied. Pape said XPEL’s innovation was creating a film product that stuck to a vehicle and remained invisible.

Pape recalled that the company’s expectation for its Ultimate PPF was that it would account for 15 to 20 percent of its sales a year after its introduction.

“Within a year, it was more like 90 percent,” Pape said. “That sequence of events set us up for the growth that we had.”

XPEL now employs 250 people at two sites in San Antonio — more than 700 employees total — with operations in 11 countries. Last month, XPEL acquired the paint protection film business of Car Care Products Australia, which distributes automotive protective films on that continent.

Cody Phillips works on applying the protective film made by XPEL Inc. to a vehicle at the company’s headquarters.

Cody Phillips works on applying the protective film made by XPEL Inc. to a vehicle at the company’s headquarters.

Billy Calzada, San Antonio Express-News / Staff photographer

Pape’s goal is to make XPEL’s PPF the dominant protective film worldwide for cars as well as buildings. The company also introduced architectural film that can block the sun’s heat and improve a building’s energy efficiency, or slow someone from breaking through a window.

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“Our customers, and random people around world, have always taken PPF and put them on other things. On the bottom of shoes to protect in-demand sneakers, stainless steel, furniture, boat holes,” Pape said. “When we look at where we want to go on a 10-year horizon, we want to be about protection and personalization across verticals, not just about automotive. We’re big enough now that we should be able to do two things at once.”

XPEL’s products can be pricey. Covering a vehicle in PPF can cost $4,000 to $6,000, depending on the size of the vehicle and the quality of the film. Covering a vehicle’s entire front portion can cost up to $2,500.

But there are less expensive options also. Pape said the most popular one is to cover the lower portion of the front hood, which is subjected to the most damage from incoming debris. That targeted piece of film can cost about $200 to install.

In the company’s post-third-quarter earnings call this month, Pape told Wall Street analysts the company has “other acquisitions in the pipeline.” In an example of new markets XPEL is seeking to grow into, the company last year acquired Invisiframe, a British company that makes protective films for bicycles.

“People love their bikes like they love their cars,” Pape said.

Word on The Street

XPEL saw its interest expenses rise in the third quarter to $391,000 — from $46,000 a year ago — as the Federal Reserve and other central banks have raised interest rates to fight inflation. Pape said higher interest rates could dampen sales of new cars and ultimately hurt PPF sales. But he said there is pent-up demand for new vehicles from buyers as supply shortages slowly alleviate, which should buoy auto sales for some time.

“In the environment of higher interest rates — cars are big purchases. There has to be a negative impact from that,” he said. “The flip side is that you’ve had an environment where new cars have been hard to get. … We’ve done exceptionally well in spite of that.”

And as XPEL’s revenue has swelled, so has its value. The company’s stock was trading at $65.76 at market close on Nov. 15. That’s a more than 4,500 percent increase from five years ago, when shares traded at under $1.50 on its prior exchange, and a more than tenfold increase since it began trading on the Nasdaq Stock Market in July 2019. By comparison, the S&P 500 grew 54 percent over the last five years.

“We’ve been able to prove that PPF is not a niche product,” Pape said. “That’s evidenced in the sales and our revenue growth. And the market sees that as well.”

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