1# XPEL: Some Scuttlebutt on Ceramic Coating

XPEL announced in 2019 the release of XPEL Fusion Ceramic Coating. I was very excited that XPEL had a new product that would sell in the same vertical market as Paint Protection Film PPF within their network of installers.

I wanted to get a better understanding of the competition, the opportunity, the market, gross margins and customer perception of this product a year after releasing this new product.

What better way than some good old fashion scuttlebutt research…

Competition:

The main competition Ceramic Pro experienced gigantic growth in the last few years.

“From 2014 to 2018: In a matter of years, Ceramic Pro has watched as its gross revenues have skyrocketed from $331,000 in 2014 to an estimated $22 million projected for this year, according to its founder and CEO Peter Diebitsch.”

This definitely either looked like a response by XPEL or they realized there was a tremendous opportunity to capture the value and was late to the party. Either way, this is a crazy amount of growth and there is enough room for more than one player to grow in my opinion.

XPEL has the experience of growing the revenue of PPF within their network at a 30%+ CAGR. I have no doubt they will be successful with their XPEL Fusion Ceramic Coating.

More information on Ceramic Pro and how the company started if you want to read more about it:

https://innotechtoday.com/ceramic-pro/

Opportunity:

Ceramic Pro website also has a bit of information on the scope of their business: https://ceramicpro.com/about/ 5000+ certified installers in 70 countries.

They coat approximately 100k vehicles and vessels per month.

Ceramic Pro would do about 1.2mil coating per year.

Market:

XPEL Ceramic Coating was originally marketed towards the automotive sector but in October 2020, they also released a promotional video targeting the marine market.

Gross Margins (GM) of Ceramic Coating:

There is no breakdown yet of XPEL gross margins on Ceramic Coating itself but Ceramic Pro website “Franchise” program explains you could boast 50% Gross Margin after labor.

“Ceramic Pro will train you how to pay each employee and how to price each job, so you always maintain a 50% gross margin on each coating install. “

It would certainly help with margin expansion from the low-mid 30s with enough sales of ceramic coating if XPEL would have the same gross margin profile as Ceramic Pro.

Source: XPEL November 2020 Investor Presentation

PROTEX:

I visited a PROTEX franchise before the holidays in my area in Canada to get a better feeling of the business and how things are going lately.

Interestingly enough, despite the Covid pandemic, PROTEX had a backlog of 6 weeks to get an appointment, and judging by the customers, there is no shortage of work.

The approximate cost for a Ceramic Coating at PROTEX from talking to someone who had it installed, the cost was:

~around 800 CAD for a vehicle that is also getting a PPF installed at the same time

~around 1000 CAD without a PPF

This seems to be in line with prices in other areas of Canada after discussing with other investors in XPEL.

Customer Perception:

I also surveyed six TESLA owners a few of who were at the PROTEX facility and from other sources. Ceramic Coating now seems de facto with a PPF protection for a TESLA car. There is no question. XPEL PPF is almost a cult with Tesla owners and so does the XPEL name comes to mind when thinking about Ceramic Coating.

If you have been following XPEL for a while, you know that TESLA owners are fans of XPEL and you can also find the information on the Tesla Motors Club forum.

I found this great Tweet showing the different referrals to XPEL website. Look at the main referring website:

And if you ask, no I won’t comment on TSLA stock ;)

That’s it for now. You can do some math with the numbers provided for fun.


Disclosure: I am long XPEL shares.

I have been following XPEL since 2014 and been a shareholder since 2015.

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