Perimeter Solutions, SA Price & Performance (PRM)

The company would also like to advise you that during the call, we will be referring to non GAAP financial measures, including adjusted EBITDA and adjusted EPS. The reconciliation of and other information regarding these both of which will be available on our website and on the SEC's website. With that, I will turn the call over to Haitham Khoury, Chief Executive Officer. Thank you, Seth.

Good morning, everyone. Thank you for joining us. As always, I'll start on Slide three with a summary of our strategy. Our goal is to fulfill our critical mission by providing our customers with quality products, exceptional service. While delivering private equity like returns with the liquidity of a public market.

We plan to attain this goal by owning and maximizing their long term strength and value through consistent improvement in our three operational value drivers. Which are number one, profitable new business number two, continual productivity improvements and number three, pricing our products and services to the value In addition, to our three operational value drivers, we seek to maximize equity value creation through a clear focus on the allocation of our capital, as well as the management of our capital structure. Slide four provides a snapshot of our three main product lines.

Retardants, suppressants specialty products. All of which share the following attractive structural crates. Each provides a mission critical function where failure is not an option. Each is a clear leader in its market Each serves an extremely challenging and complex end market through a tightly integrated solution offering that spans product, equipment, and service, and finally each has an attractive organic or inorganic long term growth profile. Turning to Slide five.

Perimeter reported a solid fourth quarter to close out a solid 2024. In my public remarks over the last two years, I have repeatedly asserted my confidence to increase the normalized earnings power of our business, via the consistent and rigorous application of our value driver operating strategy. Specifically, we've increased our organic growth rate by a significant and successful We've increased the value our products services and solutions provide our customers and have shared in this value creation through value based pricing, and we've driven significant operating efficiencies via our point of which have allowed us to maintain strong overall cost discipline while reinvesting record sums into activities that enhance customer value. Including research and development, sales and marketing, and capital expenditures. Virtually every time I've exerted my confidence in our operational improvements, I have also asserted confidence that this progress should be evident to investors when we experience normalized end markets, which allow for more apples to apples comparisons versus our historical financial results. While no comparison is perfect, we believe that 2021 and 2024 are comparable years. With roughly normalized demand environments in both our fire safety and Specialty Products businesses, in both years. I'm proud to report that our consolidated adjusted EBITDA approximately doubled over this period.

From $141,000,000 in 2021 and $280,000,000 in 2024, This represents a three year adjusted EBITDA CAGR of 26% and extends our adjusted EBITDA CAGR since 2010 to 19%. Our consolidated adjusted EBITDA margin expanded approximately 1,100 basis points over the three year period or approximately three sixty basis points. Per year. Given our belief that both 2021 and 2024 represent normalized and comparable years we are confident that the improvement in our adjusted EBITDA over the three year period is the direct and sustainable result of our value driver focused operating strategy. Moving to Slide six. I'd like to acknowledge our team members. Sprang into action to help combat the devastating January fires in Southern California. January is traditionally a quieter month our North American retardant business. Where we primarily focus on base builds and upgrades, equipment maintenance, operational training and safety programs, and other [indiscernible] However, there is no off season in wildfires fighting.

As I've often stated, our job is to support our customers by loading 100% reliability 100% of the time. Irrespective of season, location, or any other variable. [indiscernible] into immediate action when called upon in LA. We quickly had six air tanker bases open and loading air tankers.

Santa Maria, and Bernardino Lancaster, McClellan, Ramona, and Channel Islands.

We also deployed three fully crude mobile retardant basis to support close range helicopter operations, two at the Palisades fire and one at the Eaton Fire as well as several ground applied retardant units.

All six of our tanker bases all three of our deployed MRVs, and all of our deployed ground applied units remain fully inventoried and active during the wildfires. This was made possible by the virtually irreparable breadth and depth of Perimeter's operational preparedness We have the product, infrastructure equipment, and personnel to respond with virtually perfect reliability in virtually any scenario This incident also illustrates why a highly distributed and localized manufacturing footprint is essentially a requirement for any competitive retardant program. We continually supplied our air bases, our MRVs and our ground applied units from our manufacturing facility in Rancho Cucamonga just East of Los Angeles. We have five retardant manufacturing facilities located throughout the Western United States, with a six under construction with expected completion in spring of twenty twenty five.

In each of British Columbia and Alberta, for a total of seven and soon to be eight retardant plants in North America.

This distributed and localized manufacturing footprint is essential as we support our customers' wildfire response irrespective of location.

Thank you. To our team members who so valiantly responded to these wildfires. To the firefighters and first responders who stepped into harm's way to keep others safe and to everyone still dealing with a challenging aftermath. These devastating fires. Moving to capital allocation on Slide seven. As I've repeatedly stated, we expect to deploy all of our free cash flow as well as the incremental leverage capacity we generate through organic EBITDA growth towards the highest expected IRR combination of internal reinvestment into our business M and A share repurchases and special dividends. I'll recap our capital allocation results. Starting with internal reinvestment into our business. We reinvested a record amount of capital back into perimeter in 2024. This is most evident in our capital expenditures, with the growth focused on investments that we expect to drive attractive returns by a profitable new business, value based pricing, and productivity.

Our higher OpEx reinvestment less evidence since this spend hits the income statement. However, we've significantly increased our sustainable OpEx spend levels on R and D sales and marketing, field service, customer relations, and several other and the value generating OpEx categories.

Moving to M and A. We closed our first acquisition since going public on December 24, 2024. When we acquired Intelligent Manufacturing Solutions, or IMS, for approximately $33,000,000 This purchase price represents an approximately 10 times multiple on IMS's 2024 adjusted EBITDA pro form a for specific recurring expenses we're adding to the business to execute on our long term strategy. For IMS. Based in Manchester, New Hampshire, IMS is a manufacturer of highly specialized printed [indiscernible] or PCBs PCBs are electronic components which are critical to the functioning of much larger assemblies. Including large medical devices, communications infrastructure, energy infrastructure, defense systems, and Industrial Systems. Our market research led us to PCBs as an excellent fit for our value driver based operating strategy and highly consistent with our often stated target economic criteria. Specifically many of the largest PCB end markets could experience solid long term organic growth, excuse me. A very significant portion of PCB sales are what we describe as spares and repairs. Which constitute a predictable and recurring aftermarket demand stream. ECVs are relatively inexpensive components which are critical to the functioning of much larger more expensive instruments and machines a well run PCB business should enjoy strong free cash flow margins and high returns on tangible capital And finally, we believe that there's a long runway to acquire and license in production PCB product lines at attractive multiples bring these product lines into IMS for manufacturing drive profitability improvements into these products via the implementation of our value driver operating strategy, and sell these products into established recurring and predictable aftermarkets.

Note that we will report IMS in our Specialty Products segment going forward. I'll conclude the 2024 capital allocation with share repurchases. We repurchased approximately 3,000,000 shares in 2024 an average price of $4.81 representing an approximately 160% return on our investment. Since going public in late twenty twenty one, we've repurchased approximately 21,600,000.0 shares at an average price of $5.9 representing an approximately 100% Return.

Looking ahead, we believe that we're very well positioned via active capital allocation as well.

As capital structure management. With that, I'll turn the call over to Kyle. Thanks, Ethan.

I'll begin on Slide eight.

Where growth figures shown are versus the prior year comparable period. For the Fire Safety segment, fourth quarter revenue increased 72% to $60,700,000 and full year revenue grew 93% to $436,300,000 Fire safety Q4 adjusted EBITDA rose 289% to $27,200,000 contributing to the full year figure of $240,100,000 an increase of 215%. The majority of the increase in Fire Safety's Q4 and full year revenue and adjusted EBITDA is attributable to our retardant products associated services. The year over year increases were driven by a combination of strong execution of our value driver focused operating model as well as end market normalization As the twenty twenty four North America fire season was of approximately normal severity, versus the unusually mild 2023 season. Our suppressants products experienced strong growth in 2024, as we continue to benefit from the transition to flooring free foam where perimeter is the clear market leader. In our Specialty Products segment, Q4 sales increased 6% to $25,500,000 hoping to drive full year sales growth of 29% to $124,700,000 Specialty Products Q4 adjusted EBITDA grew 34% to $5,600,000 while full year adjusted EBITDA improved 95% to $40,200,000,000 On a consolidated basis, Q4 sales increased 45% to $86,200,000 and full year sales expanded 74% to $561,000,000 Consolidated adjusted EBITDA Up 190%.

Despite record spending to support our customers in areas such as research and development, and field service. Which we expect to remain elevated for the foreseeable future we invest in our capabilities in support of our customers' missions. These results are a function of both the implementation of operational value drivers and the status of our end markets. I'll spend a moment on Slide nine, putting twenty four twenty twenty four's results into context. I'll start with fire safety by describing how we frame a normal fire season. As you can see on the left hand side of the slide, Combining the $6,100,000 and $6,400,000 averages, from the last ten and five years, with the long term growth trend suggests that a normalized U. S. Fire season should fall roughly in the range of 6,000,000 to 7,000,000 acres burned ex Alaska. While acres burned ex Alaska is a good directional measure of how fire seasons intensity, is an imperfect indicator which at times embeds deviations so substantial as it'd be worth calling out. 2024 experienced such a deviation. Twenty twenty four U. S. Acres burned ex Alaska were 8,200,000 However, approximately 1,100,000 of these acres resulted from the February 2024 Smokehouse Creek Fire in Texas and Oklahoma.

The largest U. S. Wildfire excluding Alaska in more than one hundred years. A negligible amount of retardant was used in fighting this fire. Adjusting for these acres, twenty twenty four U. S. Acres burned ex Alaska were approximately $7,000,000 which approximates the high end of what we believe to be a normal fire season. I'll note that twenty twenty one acres burned ex Alaska were $900,000 which is why we believe the 2021 to 2024 comparison is appropriate. Moving to Specialty Products end markets, As we noted through most of this year, we're comfortable that twenty twenty three's de stocked activity is behind us and believe that 2024 represents a normalized end market demand year for the business. Accordingly, we believe that both of our segments experienced end market demand in the normal range in 2024 and that twenty twenty four's results are sustainable if we experience similarly normalized end market demand. To better assist investors in understanding our underlying earnings power, we are introducing adjusted earnings per diluted share, or adjusted EPS is outlined on Slide 10. This metric shares many of the same adjustments as our adjusted EBITDA metric, but then deducts interest, depreciation and taxes net of the tax impact of the adjustments, to yield adjusted net income.

Our share count is adjusted to exclude the share impact of these adjustments. We will report this metric quarterly going forward. Investors can find the details of these calculations as well as the adjusted EPS figures for each quarter of twenty twenty four in our press release and investor presentation. For Q4 of twenty twenty four, our GAAP EPS was $0.9 and our adjusted EPS $0.13 Full year 2024 yielded a GAAP loss per share of $0.04 and an adjusted EPS of $1.11 per share. Adjusted EPS allows investors to make comparisons to peers that report similar metrics. As well as highlights the efficiencies we expect to generate from our low capital intensity prudent capital structure and improving tax profile. Turning to free cash flow. Which we define as cash flow from operations less capital expenditures. We are adjusting our long term assumptions as shown on Slide 11. Annual interest expense remains at approximately $40,000,000 and Q4 interest expense was consistent with that figure at $9,200,000 We expect our depreciation amortization and other tax deductions to be in the range of $20,000,000 to $25,000,000 in 2025. Driven by increased CapEx, and greater tax amortization. Q4 tax deductible D and A was $2,700,000 Q4 GAAP depreciation was approximately $2,800,000 and Q4 GAAP amortization expense was $13,700,000 Cash paid for income tax was $43,100,000 in Q4, and $74,600,000 for the full year.

In addition to the streamlined legal accounting and cash management operations that drove our redomiciliation transaction that closed in November we expect to generate an improved tax profile from the move. Matching our legal domicile with most of our operations and earnings allows us to broaden the scope of tax deductible expenses and increases the degrees of tax structure [indiscernible] As such, anticipate our cash expenditures and income taxes will approximate 20% to 25% of our adjusted EBITDA after deducting tax deductible D and A and interest expense. This general framework will vary year to year, particularly quarter to quarter due to timing impacts and income fluctuations. But should provide a useful way to think about the improvement in our tax profile over a multi year period. Moving to CapEx. Found attractive capital expenditure projects with strong returns throughout our business in 2024. And continue to find additional opportunity in 2025. As such, are moving our CapEx assumption up to $15,000,000 to $20,000,000 annually. And note that Q4 twenty twenty four CapEx of approximately $6,500,000 is consistent with this increased capital expenditure target. We anticipate investing 10% of any annual increase in revenue in networking capital over time. Although note this is varies quarter to quarter given the seasonality of our business.

While that is our long term assumption, in 2024, we outperformed that metric. Consistent with remarks throughout the last year, our team drove substantial working capital improvement over the course of 2024. Notably on inventory. Declined $29,300,000 for the full year, In total, we generated free cash flow $172,900,000 in 2024. The inflection in our 2024 adjusted EBITDA has both validated our operational value driver strategy and created the necessary financing capacity to pursue M and A. Our team is actively searching for targets and after CapEx, we view M and A as the highest return generating use of capital. Turning to Slide 12, like to highlight our highly attractive debt profile. Comprised of a single series 5% fixed rate note maturing in the fourth quarter of twenty twenty nine which does not carry any financial maintenance covenants. As of Q4, we were levered 1.7 times net debt to LTM adjusted EBITDA, is substantial liquidity with cash and cash equivalents of approximately $198,500,000 and an undrawn $100,000,000 revolving credit facility. We ended the period with approximately 147,000,000 basic shares outstanding, I'll close by noting that Perimeter exists to serve two complementary purposes. To fulfill our sacred and life saving mission, to drive shareholder value.

We are exceptionally proud that our team delivered on both elements in 2024 and remain focused on those two aims for 2025. With that, hand the call back to the operator for Q and A. Thank you. Ladies and gentlemen, we will now begin the question and answer session. You may press star The first question comes from the line of Josh Spector from UBS. Hi, good morning. It's Chris Perrella on for Josh. Could you dig in a little bit more about the PCB market and how it fits in the Perimeter strategy?

Well, for our strategy. As you've witnessed, we've been extremely patient keeping the bat on our shoulder, so to speak. As far as pulling the trigger on M and A. Over the past couple of years.

And that's because we set both a very high and very specific bar for ourselves. We want to buy assets we describe as exceptionally high quality and we want to buy assets that fit very, very neatly into what we do best which is significantly driving post acquisition value through the implementation of our operational value driver strategy And we're very clear about what that means. We've clearly and repeatedly articulated five target economic criteria And we believe when we find the business consistent with the five, again, often articulated and repeated, target economic criteria that means it's a great fit for our strategy, that means exceptionally high quality business. And very specifically, that means we think our operational value driver playbook is highly applicable. And I I In my prepared remarks. We think PCBs fit hand in glove. Based on the first four, which talk about the intrinsic business quality both of IMS of the PCB market and the number five is the potential for opportunistic consolidation within any industry we enter and we think that's one of the true highlights of IMS. While IMS itself is a very high quality asset and very attractive business where we think we can drive significant value We additionally believe that IMS is going to be an excellent platform for us to deploy meaningful capital going forward acquiring or in licensing in production PCBs, to greatly expand the portfolio of essentially IP ownership of PCBs and each time we acquire or in license a product line, we'll look to add real value to our customers and share in that through value pricing, We'll look to innovate and drive profitable new business.

And we'll look to deploy our productivity playbook and grind down costs. I appreciate that, Haikon. And then I guess as a follow-up, the higher CapEx spending is that a function of investments in fire safety or is that your expected step up to grow the potential PCB business organically realizing I know that you're going to do some bolt ons and you're going to use it as a M and A platform. Just I guess what's driving the uptick in CapEx?

Hey, Chris. It's Kyle here.

Thanks for the question.

Excellent question. I think when we think about this, it's predominantly in that fire safety platform where we see the increase in CapEx. We've already spent a lot of dollars on both OpEx and CapEx working to kind of better fulfill customer missions, drive improved products and expanded services, And that's what we're seeing here. We're very excited about the projects that we're seeing in our CapEx pipeline. They do two things. They help us fulfill our customers' missions and they come with extremely attractive IRRs. Our CapEx pipeline is just is filled with a lot of value creating opportunities largely in the fire safety side for right now and we'll expand that scope as we go forward.

Thank you. I appreciate that. I'll jump back in the queue.

Thank you.

The next question comes from the line of Dan Kurtz from Morgan Stanley Investment Management.

Please go ahead. Hey, thanks. Good morning. [indiscernible] So I feel like you guys have already kind of addressed this question, but I think it's on a lot of folks' mind. So I figured it's still worth asking. And firstly, thoughts and prayers go out to the families impacted by Southern California wildfires, but basically, the question is It seems like undoubtedly the California catastrophe will catalyze an increased focus on resilience and preparedness and basically What I'm trying to ask is, are there any implications [indiscernible] there's kind of heightened efforts [indiscernible] fire suppression, fire prevention, or is it as you've kind of consistently reiterated that you are committed to and have executed on loading 100% of their tankers 100% of the time basically 100% preparedness just Just wondering if there's any implications for perimeter specifically as the country kind of bolsters its wildfire fighting efforts.

Hey, Dan, it's Kyle. Thanks for the question. First, let me know that let me note that any fire that takes lives or consumes property is a tragedy, but the scale of the LA fires, it's breathtaking. Our hard spots to those affected and we're really proud we've been able to support our customers' efforts to contain the fires. Second, while that was a widespread and near instantaneous [indiscernible] In the near term, it had a relatively modest financial impact relative to our full year earnings power. The LA fires impact would account for only a small fraction of the variation we took fire season. And so it's not in the near term impact to our financial statements. The longer term, I think, Ketan will probably want to add some to that.

Yes. Thanks, Kyle. Yes, Dan, longer term, the LA fires will almost inevitably attract more attention, more focus, more proactiveness and ultimately more resources towards wildland firefighting in general and towards the aerial element of wildland firefighting in particular and that's just going to greatly benefit our nation our industry and as part of that, perimeter As we've often stated, we are a capacity constrained industry. We run out of air tanker capacity [indiscernible] at least a point in time, if not multiple points in time, literally every single fire season.

We need to have, should have as a nation more air tankers, more helicopters, more MRBs, more ground applied units, more preventative retardant application, etcetera.

And it's hard to believe that the attention the allied fires and the spotlight they've put on the importance of these preparedness and resiliency activities won't lead to more investment, which simply increases industry capacity and neutral response capability or push perimeter is a critical part And I'll tell you, we are we have a part to play here. Part of it is air tankers are added and we indirectly and very clearly benefit, part of the onus is on us to to continually build bigger more capable basis, add VLAP capability, add multi bit loading, add newer equipment and we've been very, very aggressively doing that. Over the past couple of years. And you really saw that impact in LA. Channel Islands is a brand new base we built a couple of years ago that played a huge role. San Bernardino is a base we put a lot of investment in over the past couple of years, which played a huge role. McClellan is a base we've put tremendous investment into over the past couple of years, again, played a huge role in the Allied fire. So we will do our part I think, quasi inevitably others will as well going forward.

And I think the industry and the nation will benefit. Awesome. That's all super helpful color. Then for the next question, two parts, both related to the new administration in The U. S. I guess, firstly, any Any implication for the PRM manufacturing supply chain kind of input costs from tariffs and trade wars and then I guess more broadly Are there any implications from proposed or implemented policies from the new administration that could impact PRMs businesses one way or another. I guess the one that comes to mind is that kind of the less supportive electric vehicle legislation seems like a tailwind for ICE miles driven in specialty products demand. But yes, basically just thoughts on tariffs and trade wars and more broadly, policies from the new administration and in terms of the implications for PRM's business lines? Yes. Good question, Dan. So we really don't think so. Our supply chain is extremely resilient with multiple redundancies up and down the entire system. I don't think you'll see any impact from tariffs or really any other new governmental policy, not not that we don't pay very, very close attention We do, of course, we spend a lot of time in Washington, We're all over the stuff.

And as a result, we have a fairly informed opinion that there should be negligible impact on our business, but we also stay vigilant and eyes wide open. On your question specifically on electric vehicles and specialty products, look, it's it's a rounding error. Might you see a small uptick in engine and a small downtick that are electric. Maybe, maybe not, even if you did, the impact on the car park is negligible in any given year. This is really tight. Total internal combustion engines miles driven, across the entire OECD. So any small change in the distribution of U. S. New vehicle sales in any one or two years is is just surrounding Sure. That all makes sense. Again, really helpful. Appreciate the color and I'll turn it back. Thank you.

The next question comes from the line of Chris Fiddick from Pacific Asset Management.

Please go ahead.

Good morning. Thanks for taking my questions. Just a couple housekeeping ones probably for Kyle on the financials. The first one is just There's a bit of it looks like noise with taxes in the cash flow statement this year. Cash taxes look like they've gone up. There's a big drawdown on deferred income taxes, is that related to the redomicile or is there something different?

Yes, Chris, you have it exactly right. It's related to redonocile a little bit on the DTA and DTL, the deferred taxes, that's that's a redomicile impact. You look at the cash tax impact, Chris, it's largely just a matter of timing.

Okay, super.

And the other one, thanks for the disclosure about adjusted net income. Would you be willing to offer any kind of guidance on a long term basis about the relationship between free cash flow and adjusted income, would it be 90%, 100%, 80%? Is there any kind of range we should be thinking about in terms of Cash per dollar of adjusted net income Chris, on that specific ratio, we will not However, what we do do is give you a fair bit of detail on how we think about converting from adjusted EBITDA to free cash flow in our earnings deck. And you should be able to go through and take any underlying business assumptions that you make bring that to adjusted EBITDA, and then use that slide to go from there to free cash flow. Fair enough. No problem. Thank you very much. Thank you.

The next question comes from the line of Josh Spector from UBS. Please go ahead.

Hi, everybody. It's Chris again. Just a follow-up on the leverage ratio, it's lower as historically. You've grown in the leverage I think do you have a target there? Do you want to get back to about 3.5 or over 3.5 times levered And how quickly now that you have the PCB [indiscernible] do you think M and A will progress as part of the strategy? Sure. Thanks, Chris.

On the target leverage, yes, we would like to have a higher leverage ratio here and I think your range is a perfectly fine place to think about it. The other data point I would look at point you to is the leverage ratio when we IPO we effectively kicked that at the time of IPO. And yes, the main driver that we expect to get back to that leverage ratio will indeed be M and A. We're pretty active in that.

Know we have extremely high quality portfolio of businesses and we're very focused on maintaining that quality of businesses and specifically the applicability of our operational value drivers strategy to any potential acquisition. We're out there for a lot of lot of potential targets. And as we put it, we're going to kiss a lot of frogs until we find our prints. Fair enough. So it's not just focused on PCB at this point. You're still scouring for other businesses that fit the strategy? 100%, Chris.

That's exactly right. Think what you should take away from the IMS acquisition is that when we see an asset that we're extremely excited about, we're going to go out and do that. We have a pretty broad aperture, both in size and in the types of businesses that we're going to evaluate at the top of our funnel for M and A. And this is just the first step of what we hope will be a series of acquisitions where we can put more and more kind of raw material into our operational value drivers framework and continue to drive the value creation you've seen over the last three years in our existing portfolio of businesses.

All right. I appreciate the color. Thanks, guys.

Thank you. As there are no further questions, I would now hand the conference over to Haitham Khouri for his closing comments. Thank you everybody for your time this morning and thank you as always to very, very hard at work to drive value for you. Thank you.

Thank you. Ladies and gentlemen, the conference of Perimeter Solutions has now concluded.

Thank you for your participation. You may now disconnect your lines.