Perimeter Solutions SA Q3 2023 Earnings Call

Greetings welcome to perimeter solutions third quarter 2023 earnings call. At this time, all participants are in a listen only mode.

Speaker 1: Greetings. Welcome to perimeter solution third quarter, 2023 earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference has been recorded. I will now turn the conference over to Seth Barker, head of investor relations. Thank you, may begin.

<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Seth Parker head of Investor Relations. Thank you you may begin.

Speaker 2: Thank you, operator. Good morning, everyone, and thank you for joining Perimeter Solutions third quarter 2023 earnings call. Speaking on today's call are Haytham Corey, chief executive officer, and Chuck Krop, chief financial officer.

Thank you operator, good morning, everyone and thank you for joining perimeter solutions third quarter 2023 earnings call speaking on today's call are Haytham, Corey Chief Executive Officer, and Chuck crop Chief Financial Officer.

Speaker 2: We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, November 9, 2023, and these statements have not been nor will they be updated subsequent to today's call.

We want to remind anyone who may be listening to a replay of this call that all statements made are as of today November nine 2023, and these statements have not been nor will they be updated subsequent to today's call.

Speaker 2: Also, today's call may contain forward-looking statements. These statements made today are based on management current expectations, assumptions, and beliefs about our business and the environment in which we operate, and our actual results may materially differ from those expressed or implied on today's call. These review our SEC filings for a more complete discussion of factors that could impact our results.

Also today's call may contain forward looking statements. These statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate and our actual results may materially differ from those expressed or implied on today's call.

Please review our SEC filings for a more complete discussion of factors that could impact our results.

Speaker 2: The company would also like to advise you that during the call we will be referring to non- GAAP financial measures, including EBITDA. The reconciliation of and other information regarding these items can be found in our earnings press release and presentation, both of which will be available on our website and on the SEC's website. With that, I will turn the call over to Hathen Corey, Chief Executive Officer.

The company would also like to advise you that during the call we will be referring to non-GAAP financial measures, including EBITDA.

A reconciliation of and other information regarding these items can be found in our earnings press release and presentation, both of which will be available on our website and on the Sec's website with that I will turn the call over to hate them Corey Chief Executive Officer.

Thank you Seth.

Speaker 3: Thank you, Seth. Good morning, everyone. Thank you for joining us.

Everyone. Thank you for joining us I'll start on slide three with summary comments on our strategy.

Speaker 3: I'll start on slide three with summary comments on our strategy.

Speaker 3: As we stated repeatedly, our goal is to deliver private equity-like returns with a liquidity of a public market. We plan to attain this goal by owning, operating, and growing uniquely high-quality business.

As we've stated repeatedly our goal is to deliver a private equity like returns with the liquidity of a public market. We plan to attain this goal by owning operating and growing uniquely high quality businesses, we define uniquely high quality businesses through the following five very specific economic.

Speaker 3: We define uniquely high quality businesses through the following five very specific economic criteria. One, recurring and predictable revenue streams. Two, long term.

Criteria, one recurring and predictable revenue streams.

Long term secular growth tailwind three.

Speaker 3: 3. Product that accounts for critical, but small, portions of larger value.

Three products and accounts, where critical but small portions of larger value streams for significant free cash flow generation with high returns on tangible capital.

Speaker 3: Four, significant free cash flow generation with high returns on tangible capital. And five, the potential for opportunistic consolidation.

And five the potential for opportunistic consolidation.

Speaker 3: We believe that these five economic criteria are present at our current businesses, and we use these criteria to evaluate potential U.S.

We believe that these five economic criteria are present at our card businesses and we use these criteria to evaluate potential new acquisitions.

Speaker 3: As described on Flight 4, we seek to drive long-term equity value creation via consistent improvement in our three operational value drivers, which are profitable new business.

As described on slide four we seek to drive long term equity value creation via consistent improvement in our three operational value drop words, which are.

Profitable new business.

Continue with productivity improvements and pricing to reflect the value our products and services provide.

Speaker 3: and kidney roll productivity improvements and pricing to reflect the value our product and services provide.

Speaker 3: 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 struck.

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.

Turning to our financial results and starting with fire safety.

Speaker 3: turning to our financial results and starting with fire safety.

Speaker 3: We've repeatedly stated that while we expect predictable long-term growth in our fire safety,

We have repeatedly stated that while we expect predictable long term growth in our fire safety business. We also expect quarterly and annual variability tied primarily to the severity of the North American fire season, the 2023 U S fire season was mild with approximately $2.

Speaker 3: You also expect quarterly and annual variability, tied primarily to the severity of the North American fire.

Speaker 3: The 2023 U.S. fire season was mild, with approximately 2.1 million acres burned, ex Alaska, through Q3.

1 million acres burned ex Alaska through Q3.

Speaker 3: This is 43% below the same period in 2022. 62% below 2021, 71% below 2020, and 54% below the 10 year app.

This is 43% below the same period in 2022.

62% below 2021, 71% below 2020, and 54% below the 10 year average.

Speaker 3: Despite the greater than 40 percent year over year decline in year to date, USAID's Burndex Alaska year to date, fire safety segment sales and adjusted EBDA declined eight and 15 percent respectively versus the same period last year.

Despite the greater than 40% year over year decline in year to date U S acres burned ex Alaska near to date fire safety segment sales and adjusted EBITDA declined eight and 15% respectively versus the same period last year.

Speaker 3: The drivers behind this year-to-date sales and adjusted EBDA outperformance relative to the decline in Acres burned are First, improved unit economics throughout our global retardant business

The drivers behind this year to date sales and adjusted EBITDA outperformance relative to the decline in acres burned are.

First improved unit economics throughout our global Retarding business.

Second <unk>.

Speaker 3: Second, continued strong performance in our international retardant market.

<unk> strong performance in our international retardant markets.

Speaker 3: And third, continue excellent performance in our suppressant system.

And third continued excellent performance in our suppressants business.

Speaker 3: All three of these positive drivers are the result of the rigorous application of our three P's operating strategy, which will continue to drive going forward irrespective of and market conditions across our business.

All three of these positive drivers are the result of the rigorous application of our three piece operating strategy, which will continue to drive going forward irrespective of end market conditions across our businesses.

Speaker 3: Moving specialty products. As we discussed previously, this business has experienced a uniquely weak demand in the environment.

Moving to specialty products as we've discussed previously this business has experienced a uniquely weak demand environment.

Speaker 3: which we continue to believe is a temporary phenomenon tied to inventory destocking activity in the specialty chemical supply chain. While it continues to be difficult to predict precisely when the destack will end, we believe that it should end once channel inventories are depleted. Turning to cast.

Which we continue to believe is a temporary phenomenon tied to inventory destocking activity in the specialty chemical supply chain wireless continues to be difficult to predict precisely when the destocking and we believe that it should and once channel inventories are depleted.

Turning to cash and capital allocation, we repurchased approximately one 7 million shares in the third quarter at an average purchase price of $5 and 76 sets.

Speaker 3: We repurchased approximately 1.7 million shares in the third quarter at an average purchase price of $5.76.

Speaker 3: We have approximately 62 million remaining on our existing we purchased authorization.

We have approximately $62 million remaining on our existing repurchase authorization.

Speaker 3: Before carrying the call over to Chuck, I'll reiterate the comment I made previously around a competitive environment in our retard.

Before turning the call over to Chuck I would reiterate the comment I made previously around the competitive environment in our retirement business.

Speaker 3: While we don't control what will occur around the potential introduction of competing retardant products, we do control how we prepare for potential competition.

While we don't control what will occur around the potential introduction of competing retardant products, we do control, how we prepare for potential competition.

Speaker 3: We are preparing vigorously. Bremeter is the gold standard as far as the efficacy and safety of our products, the quality of our service, and the passion, dedication, and integrity of our

We are preparing vigorously.

Perimeter is the gold standard as far as the efficacy and safety of our products the quality of our service and the passion dedication and integrity of our team.

Speaker 3: We will continue to relentlessly push to raise the bar on ourselves, and we expect to thrive in any future environment. With that, I'll turn the call over to you.

We'll continue to relentlessly push to raise the bar on ourselves and we expect to thrive in any future environment.

That I will turn the call over to you Chuck.

Thanks, Adam.

Speaker 2: Third quarter sales in our fire safety business were $118.3 million down 3% versus the prior year and $190.2 million year-to-date down 8% versus the prior

Third quarter sales in our fire safety business were $118 $3 million down 3% versus the prior year and $192 million year to date down 8% versus the prior year.

Speaker 2: Third quarter adjusted EBITDA in our fire safety business was $56 million. Down 7% versus the prior-

Third quarter, adjusted EBITDA, and our fire safety business was $56 million down 7% versus the prior year and $69 $2 million year to date down 15% versus the prior year.

Speaker 2: $59.2 million a year to date, down 15% versus the prior.

Speaker 2: Third quarter sales and our specialty products business were $24.4 million down 37% versus the prior year.

Third quarter sales in our specialty products business were $24 $4 million down 37% versus the prior year and.

Speaker 2: $72.5 million a year to date, down 35% versus the prior year.

And $72 $5 million year to date down 35% versus the prior year.

Speaker 2: Third quarter, adjusted EBITDA in our specialty products business was $5.4 million, down 64% versus the prior year, and $16.4 million year-to-date, down $16.4 million.

Third quarter adjusted EBITDA in our specialty products business was $5 $4 million down 64% versus the prior year.

$16 $4 million year to date.

Down 61% versus the prior year.

Moving to the consolidated business.

Speaker 2: Third quarter consolidated sales were $142.7 million. Down 11% versus the prior...

Third quarter consolidated sales were $142 $7 million down 11% versus the prior year and $262 $7 million year to date.

Speaker 2: $262.7 million year-to-date, down 18% versus the prior year.

118% versus the prior year.

Speaker 2: Third quarter consolidated adjusted EBITDA was $61.5 million, down 19% versus the prior year.

Third quarter consolidated adjusted EBITDA was $61 $5 million down 19% versus the prior year and.

Speaker 2: and $85.6 million year-to-date, down 31% versus the prior year.

And $85 $6 million year to date down 31% versus the prior year.

Moving below adjusted EBITDA.

Speaker 2: Interest expense in the third quarter was $10.4 million in line with our quarterly run rate. Depreciation was approximately $2.4 million.

Interest expense in the third quarter was $10 $4 million in line with our quarterly run rate.

Depreciation was approximately $2 $5 million.

Speaker 2: while amortization expense was $13.8 million.

While amortization expense was $13 8 million in Q3.

Speaker 2: Cash paid for income tax was approximately $2.2 million in Q3. CapEx was approximately $2.2 million in Q3.

Cash paid for income tax was approximately $2 $2 million in Q3.

Capex was approximately $2 $2 million in Q3.

Our full year 2023 expectations for interest expense depreciation and tax rate are unchanged.

Speaker 2: for interest expense, depreciation, and tax rate are unjust.

Speaker 2: We expect CapEx to be consistent with our historical spend at or slightly below.

We expect capex to be consistent with our historical spend at or slightly below $10 million.

Due primarily to the mild U S fire season, we expect working capital to be a use of cash for the year.

Speaker 2: Due primarily to the mild U.S. fire season, we expect working capital to be a use of cash for the

Speaker 2: end of the quarter with approximately $675 million of senior notes.

We ended the quarter with approximately $675 million of senior notes.

Speaker 2: cash of approximately $72 million, and approximately 152.8 million ordinary shares.

Cash of approximately $72 million and approximately 152 8 million ordinary shares outstanding.

Slide seven bridges between our basic and diluted share count, which includes shares issuable under the founder advisory agreement in future periods.

Speaker 2: Slide 7 bridges between our basic and diluted share count, which includes shares issuable under the Founder Advisory Agreement in future periods.

Speaker 2: With that, I will hand the call back over to the operator for Q&A.

With that I will hand, the call back over to the operator for Q&A.

Speaker 1: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we

Thank you if you would like to ask a question. Please press star one on your telephone keypad.

Information tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, while we poll for questions.

[noise].

Speaker 1: Once again, it is star one on your telephone keypad if you would like to ask a question.

Once again it is star one on your telephone keypad, if he would like to ask a question.

[noise] [noise].

Speaker 1: Our first question is from Brian DiRubino with Baird. Please proceed.

Our first question is from Brian <unk> with Baird. Please proceed.

Speaker 4: Morning, gentlemen. Just a couple of questions for Maryland working capital, I guess.

Good morning, gentlemen, just a couple of questions primarily on working capital I guess you.

Speaker 4: You said, you know, it'll be now a use of cash this year. Just as we think about sort of the next couple of quarters and the, you know, particularly in inventory, are you still going to be running your plan to still full out, just trying to see how you're going to be operating your business just given the weak backdrop we've had?

You said it will be now a use of cash this year, just as we think about sort of the next couple of quarters and the.

Particularly in inventory are you still going to be running your plants are still full out just trying to see how you are going to be operating your business just given the weak backdrop we've had.

Speaker 3: Yeah. Hey, Ryan. I'll take it. The short answer is no.

Hey, Brian.

I'll take it.

The short answer is no we put a lot of.

Speaker 5: effort into optimizing our plans to, on the one hand,

Effort into <unk>.

Optimizing our plan on the one hand.

Speaker 5: always meet demand and never self-load. They're a tanker, on the other hand, to be as cost-conscious as possible. And when you have the amount of finished goods inventory we do today, you can do things to optimize how you run your plant.

Always meet demand and never felt slow near tanker on the other hand to be as cost conscious as possible and when you have the amount of finished goods inventory. We do today. You can you can you can you can do things to optimize how you run your plants.

And is it.

Speaker 4: And it just remind me, and the accounting, you know.

Just remind me in the accounting.

It was.

Speaker 4: Are you below a point on your operating rates where we're going to see a problem with fixed cost absorption or are you still above about a 70% rate just trying to get a sense of how this is going to flow through the next couple of quarters?

The low point on your operating rates, where we're going to see a problem with fixed cost absorption.

Are you still above about a 70% rate just trying to get a sense of how this is going to flow through the next couple of quarters.

Speaker 5: it shouldn't flow through a whole lot different than what you've seen. We frankly had seven consecutive mild quarters, mild fire season, so what what you see is what you get as far as the impact of high inventory and not great absorption on the reported financials.

It shouldnt flow through a whole lot different than what <unk> seen we frankly had.

Seven consecutive mild quarters.

Mild mild fire season. So what you see is what you get as far as the impact of.

High inventory.

Not great absorption on the reported financials.

Got it and just final question on fire safety just do.

Speaker 4: Do you mind, I know you break it out annually, but what the performance of suppressants was in the quarter?

Do you mind I know you break it out annually.

What the performance of suppressants was in the quarter.

Maybe just a percentage gain in revenue.

Speaker 5: No, we're not. We're not in the habit of breaking that out. We did last quarter just to give investors a snapshot. I expect.

No we're not.

We're not in the habit of breaking that out we did last quarter just to give investors a snapshot I expect we will in the future again break it out on a one off basis to give investors a snapshot.

Speaker 5: We will, in the future, again, break it out on a one-off basis to give investors a snapshot. I'm not going to do it today, Brian , but at a high qualitative level, suppressants had just a tremendous

Not going to do it today, Brian but.

At a high qualitative level suppressants had just tremendous third quarter topline and margin.

Speaker 4: Third quarter, top line and margin. We expect to have a tremendous fourth quarter based on a backlog in order as we really feel very good about that business. Great, appreciate all the color. Thank you. You bet.

We expect to have a tremendous fourth quarter based on our backlog and orders.

We feel very good about that business.

Great I appreciate all the color. Thank you.

You bet.

Yeah.

Our next question.

Speaker 1: is from Josh Spector with UBS, please proceed.

And from Josh Spector with UBS. Please proceed.

Right.

Karla on for Josh I apologize I was having some trouble getting into the queue here, so I might have missed it.

Speaker 6: Rella on for Josh. I apologize I was having some trouble getting into the queue here so I might have missed it. As you think about 2024,

As you think about 2024.

The fire season, and how it sets up to you do you see it more as a return to trend or a return to average next year and as I think about the fire safety business. What are the levers that are within your control.

Speaker 6: The fire season and how it sets up, do you see it more as a return to trend or a return to average next year? And as I think about the fire safety business, what are the levers that are within your control to drive growth next year if we get a less than ideal setup for fire season?

To drive growth next year, if we if we get a less than ideal setup for fire season.

Just wanted 2020 for fire season.

I am truly being direct and truly not trying to be cheeky.

We just don't know.

We think we have a tremendous business, we think our business has very high likelihood.

Predictable long term secular growth.

Speaker 5: But it's not a business in which we can predict what the next quarter or in this case looking out.

But it's not a business in which we can predict what the next quarter or in this case looking out.

Five quarters.

Speaker 5: is going to look like. It's sort of a fool's errand to try to project that. As far as the levers within our control, it's the same three things. It's always and consistently

Is it going to look like it's just it's a sort of a fool's errand to try to project that.

As far as the levers within our control. It. It's the same three things, it's always and consistently the same three things we try to grind out as much productivity as we can we.

We try to always price our products and services to reflect the value they provide to customers and we will always push hard to invest thoughtfully behind new business, who are balancing attaining new business with realizing high IRR is on sales and marketing or R&D or whatever it is you need to invest to drive that business.

And we're going to continue to just grind grind through all three of those in no matter what the fire seasons like next year.

Speaker 5: fully confident we will drive value out of each price, productivity and profitable new business.

Fully confident we will we will drive value out of each of price productivity and profitable new business.

And as I think about switching over to the specialties business.

How much visibility do you have into your customers' order patterns, there and where do you guys estimate.

Inventory is.

Relative to historical norms are.

How you know any any sense of how close we're getting to the end of the destocking.

[noise], we candidly.

Don't have a great sense, we were surprised by the duration and magnitude.

The destock.

Very comfortable that it's a destock, we're very comfortable that it's transitory and it'll end.

Speaker 5: that it's a de-stock. We're very comfortable that it's transitory and it'll end, but we've frankly been wrong on magnitude and duration so far, and therefore I'm hesitant.

But we've frankly been wrong on magnitude and duration, so far and therefore I am I'm hesitant.

Speaker 5: to make a future projection on when it'll end. I'm very comfortable that it will.

To make our future projection on.

When when they land I'm very comfortable that it will.

Alright, Thank you very much.

As a reminder, the star one on your telephone keypad, if he would like to ask a question.

Speaker 1: As a reminder to star 1 on your telephone keypad, if you would like to ask a question, we will pause for a brief moment.

I'll pause for a brief moment to pause for questions.

Speaker 1: There are no further questions, I would like to turn the conference back over to the management team for closing remarks.

There are no further questions.

I'd like to turn the conference back over to the management team for closing remarks.

Alright, well, thank you everybody and see everybody again next quarter.

Speaker 7: All right. Well, thank you, everybody, and see everybody again next quarter.

Thank you this will conclude today's conference.

Speaker 1: You may disconnect your lines at this time, and have a wonderful day.

You may disconnect your lines at this time and have a wonderful day.

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