Q4 2023 Perimeter Solutions SA Earnings Call
[music].
Operator: Hello, and welcome to the Perimeter Solutions Q4 and Full Year 2023 Earnings Call-In Webcast. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into the question queue at any time by pressing star 1 on your telephone keypad.
Hello, and welcome to the printer solutions Q4, and full year 2023 earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation.
Maybe place the question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded its now my pleasure to turn the call over to Seth Barker head of Investor Relations. Please go ahead Sir.
Operator: As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Seth Barker, Head of Investor Relations. Please go ahead, Seth.
Seth Barker: Thank you, Operator. Good morning, everyone, and thank you for joining Perimeter Solutions' fourth quarter and full year 2023 earnings call. Speaking on today's call are Haytham Corey, Chief Executive Officer, and Kyle Sable, Chief Financial Officer. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, February 22, 2024, and these statements have not been, nor will they be updated subsequent to today's call. Also, today's call may contain forward-looking statements. The 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 in today's call.
Thank you operator, good morning, everyone and thank you for joining perimeter solutions fourth quarter and full year 2023 earnings call.
On today's call are Haytham, Corey Chief Executive Officer, and Kyle stable Chief Financial Officer.
We want to remind anyone who may be listening to a replay of this call that all statements made are as of today February 22024, and these statements have not been nor will they be updated subsequent to today's call.
Today's call may contain forward looking statements the.
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.
Seth Barker: Please review our SEC filings for a more complete discussion of factors that could impact our results. 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 Hastin Corey, Chief Executive Officer. Thank you, Seth. Good morning, everyone.
Please review our SEC filings for a more complete discussion of factors that could impact our results.
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 hasten Corey Chief Executive Officer.
Thank you Seth.
Morning, everyone. Thanks, you for joining us.
Haytham Corey: Thank you for joining us. As always, thanks for tuning in. We'll see you next time, start on slide 3 with summary comments on our strategy. As we stated repeatedly, our goal is to deliver 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 criteria.
As always I'll start on slide three with summary comments on our strategy.
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 criteria.
Haytham Corey: Number 1, Recurring and Predictable Revenue Streams; Number two, long-term secular growth tailwinds; Number three, products that account for critical but small portions of larger value streams; Number four, significant free cash flow generation with high returns on tangible capital. And number five, the potential for opportunistic consolidation. We believe that these five economic criteria are present in our current businesses, and we use these criteria to evaluate potential new assets, as described on the slide. We seek to drive long-term equity value creation by a consistent improvement in our three operational value drivers, which are, number one, profitable new business; number two, Continual Productivity Improvement.
Number one recurring and predictable revenue streams.
For too long term secular growth tailwind.
Number three.
Is that a cat for critical but small portions of larger value streams.
Number four significant free cash flow generation with high returns on tangible capital.
Number five the potential for opportunistic consolidation.
We believe that these five economic criteria are present at our current businesses and we use these criteria to evaluate potential new acquisitions.
As described on slide four we seek to drive long term equity value creation by a consistent improvement in our three operational value drivers, which are number one profitable new business.
Number two.
Can you will productivity improvements.
Haytham Corey: Number 3, Pricing to reflect the value of our products and services. Provide. 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. Turning now to our financial results. Slide
Number three pricing to reflect the value our products and services provide.
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 now to our financial results on slide five.
Haytham Corey: 2023 presented challenging demand, in both our fire safety and specialty products business, starting with fire safety. The 2023 fire season was very mild, with 2.3 million acres burned ex-Alaska. This represented an almost 50% decrease versus 2022, which itself was a mild season, and was almost 60% below the 10-year US average. We believe that the mild 2023 season was primarily driven by idiosyncratic weather, including record aggregate rainfall and snowpack in some of the most fire-prone regions of the United States in the first half of the year and unique storm activity during the fire season, including Tropical Storm Hillary in August. Despite the almost 50% year-over-year decline in U.S. acres burned ex-Alaska, 2023 fire safety revenue, adjusted EBITDA, and adjusted EBITDA margin were all roughly flat versus 2022.
When he twenty-three presented challenging demand environment in both our fire safety and specialty products businesses.
<unk> with fire safety.
The 2023 fire season was very mild with 2.3 million acres burned ex Alaska.
This represented an almost 50% decrease versus 2022 which itself was a mild season.
And was almost 60% below the 10 year U S average.
We believe that the mild 2023 season was primarily driven by idiosyncratic weather events, including record aggregate rainfall and snow pack in some of the most fire prone regions of the United States in the first half the year and unique storm activity during the fire season.
<unk> tropical storm Hillary in August.
Despite the almost 50% year over year decline in the U S acres burned ex Alaska 2023 fire safety revenue.
Adjusted EBITDA and adjusted EBITDA margin are all roughly flat versus 2022.
Haytham Corey: Fire Safety's 2023 financial result outperformed the decline in acres burned principally due to first, DiRubbio, Perimeter Solns; second, continued particularly strong performance from our international retardant market; and third, continued excellent performance from our suppressors. We believe that these three positive drivers are the direct result of the rigorous application of our three-piece operating strategy, which I summarized on slide four, and which we will continue to drive going forward in all corners of our business, irrespective of end market conditions. Our specialty products business also experienced a weak demand environment in 2023. We believe this was principally driven by inventory destocking activity in the specialty chemical supply chain. This week's demand and environment are reflected in our 23 specialty products financial results, with full year revenue down 28% and adjusted EBDA down 57% versus the prior year. We'll continue to refrain from real-time commentary for timing predictions around the market recovery.
Fire safety is 'twenty two 'twenty three financial result, outperformed the decline in acres burned.
Principally due to.
Burst improve.
Improved unit economics throughout our retards business.
Second continued particularly strong performance from our international retardant markets.
Third continued excellent performance from our suppresses misonix.
We believe that these three positive drivers are the direct result of the rigorous application of first REIT Pes operating strategy, which I summarized on slide four and which we will continue to drive going forward in all corners of our business irrespective of market conditions.
Yeah.
Our specialty products business also experienced a weak demand environment in 2023.
We believe this was principally driven by inventory destocking activity in the specialty chemical supply chain.
This weak demand environment is reflected in our 23 specialty products financial results.
With full year revenue down, 28% and adjusted EBITDA, 57% versus the prior year.
We will continue to refrain.
From real time commentary or timing predictions around the market recovery.
Haytham Corey: Though I will reiterate our confidence in the demand for our product before moving on from our 23 financial results, I'll note that while both our businesses experienced weak end markets in 2023, both also reaped the benefits of a couple of years of strong execution on our 3Ps value driver strategy. The resulting 23 performance establishes a credible base EVDA in a soft and market scenario. Turning to cash and cap left. We repurchased approximately 6.3 million shares in the fourth quarter at an average price of $4.21. We repurchased approximately 12.2 million shares in 2023 at an average price of $5.
So I will reiterate our confidence that demand for our products should recover.
Before moving on from our 23 financial results I'll note that while both of our businesses experienced weak end markets. In 23, both also reap the benefits of a couple of years with strong execution on our three PS value driver strategy.
The resulting 23 performance establishes a credible base EBITDA in a soft end market scenario.
Turning to cash and capital allocation.
We repurchased approximately 6.3 million shares in the fourth quarter at an average price of $4 in 'twenty one sets.
We repurchased approximately $12 2 million shares in 2023 at an average price of $5.24.
Haytham Corey: 74. Our Board of Directors has approved a new $100 million share repurchase authorization, which replaces our prior one, www.DiRubbio.com. Let me spend a moment now on capital allocation more generally. We're confident that our 3Ps operating strategy will create significant value when applied to the right business, as defined by the five target economic criteria on slide 5. This confidence is based on the underlying improvement we've delivered in each of our retardants. Suppressants, and specialty products businesses over the past two years.
Our board of Directors has approved a new 100 million dollar share repurchase authorization, which replaced replaces excuse me our prior authorization.
Let me spend a moment now on capital allocation more generally.
We're confident that our three piece operating strategy will create significant value when applied to the right businesses as defined by the five targeted economic criteria on slide three.
This confidence is based on the underlying improvement was delivered in each of our Retardants suppressants and specialty products businesses over the past two years.
Haytham Corey: The improvement in our retardance business is evidenced by fire safety's approximately flat 2023 financial performance, despite the almost 50% year-over-year decline in U.S. acres burned ex-Alaska versus 2022. The improvement in our suppressants business is evidenced by the fact that we've approximately doubled adjusted EBITDA margins between 2021 and 2023 and have well more than doubled adjusted EBITDA dollars over this period. The improvement in our specialty products business is best evidenced by its strong performance in 2022 prior to the aforementioned destocking. However, as enthusiastic as we are about M&A driven value creation, We are constantly evaluating the IRR tradeoff between actionable acquisitions and share repurchase, as evidenced by our actions.
The improvement in our Retardants business as evidenced by fire safety is approximately flat 2023 financial performance. Despite the almost 50% year over year decline in U S acres burned ex Alaska versus 2022.
The improvement in our suppressants business is evidenced by the fact that we've approximately doubled adjusted EBITDA margins between 2020, one and 2023 and have well more than doubled adjusted EBITDA dollars over this period.
The improvement in our specialty products business is best evidenced by strong performance in 2022 prior to the aforementioned destock activity.
As enthusiastic as we are out of the M&A driven and value creation.
We are constantly evaluating the IRR tradeoff between actionable acquisitions and share repurchases as evidenced by our actions in particular over the latter part of 2023 we've deemed shrinking our share count at the prevailing valuations be the best use of our capital to date, we will.
Haytham Corey: In particular, over the latter part of 2023, we've deemed shrinking our share count to prevailing valuations to be the best use of our capital to date. We will continue to constantly evaluate our capital allocation alternatives and expect to deploy all of our excess free cash flow as well as the incremental leverage capacity we expect to generate through organic EVGA growth toward the highest IRR combination of M&A, share repurchases, and special dividends. As I've done the last couple of...
Continue to constantly evaluate our capital allocation alternatives and expect to deploy all of our excess free cash flow as well as the incremental leverage capacity, we expect to generate two organic EBITDA growth towards the highest IRR combination of M&A share repurchases.
And special dividends.
As I've done the last couple of earnings calls I will now comment on the competitive environment in our retirement business.
Haytham Corey: I'll now comment on the competitive environment for our retardant. We believe that Perimeter is the gold standard as far as the efficacy and safety of our products, the quality of our service, the passion, dedication, and integrity of our team. Despite a high degree of confidence in our business, we will not fall into the standard incumbent trap of ignoring, dismissing, or minimizing potential competition. We believe that only the paranoid survive, and we take every potential competitive risk, no matter how remote.
We believe that perimeter is the Gulf standard as far as the efficacy and safety of our products qual.
Quality of our service and the passion dedication and integrity of our team.
Despite a high degree of confidence in our business, we will not fall into the standard incumbent trap, ignoring dismissing or minimizing potential competition.
We believe that only the paranoid survive and we take every potential competitive risk no matter how remote.
Kyle Sable: Here we go, between the clear superiority of our products, services, and people; our competitive spirit, and our ever-vigilant mindset, we believe that we will thrive in any future environment. I'll close by noting that we will refrain from providing annual guidance, both for 2024 and as a go-forward policy. As should be clear from our 2023 results relative to end market conditions, as well as from the commentary around our businesses, we feel good about our process and expect to report solid financial results in a normalized demand environment. With that, I'll turn the call over to Haytham. Fourth quarter sales in our fire safety business were $35.4 million, up 81% versus the prior year, and $225.6 million for the full year 2023, approximately flat versus 2022.
Seriously.
Between the clear superiority of our product services and people.
Our competitive spirit and are ever vigilant mindset, we believe that we will thrive in any future environment.
I'll close by noting that we will refrain from providing annual guidance both for 'twenty 'twenty four and as they go forward policy.
Hopefully clear from our 2023 results relative to end market conditions as.
As well as from the commentary around our businesses, we feel good about our prospects and expect to report solid financial results in a normalized demand environment with that I'll turn the call over to Kyle.
Thanks Nathan.
Fourth quarter sales in our fire safety business were $35 $4 million up 81% versus the prior year and $225 $6 million for the full year 2023, approximately flat versus 2022.
Kyle Sable: Fourth quarter adjusted EBITDA in our fire safety business was $7 million, up from a loss of $3.9 million the prior year, and $76.2 million for the full year 2023, down 1% versus 2022. We are pleased with our fire safety results in the fourth quarter but are mindful of the fact that our fire business's seasonality, where the fourth quarter typically generates less than 10% of annual EBITDA, exaggerates small changes in both revenue and profitability. Approximately half of the improvement in our year-over-year Q4 financial performance was due to our suppressants, and half was due to retarded growth. The improvement in suppressants was largely driven by strength in fluorine-free foams, aided by a recent mil-spec qualification, while the improvement in retardants was primarily due to strong performance in our international markets and improved unit economics across geography.
Fourth quarter adjusted EBITDA in our fire safety business was $7 million up from a loss of $3 $9 million to prior year and $76 $2 million for the full year 2023 down 1% versus 2022.
We are pleased with our fire safety results in the fourth quarter, but are mindful of the fact that our fire businesses seasonality for the fourth quarter typically generates less than 10% of annual EBITDA exaggerate small changes in both revenue and profitability.
Approximately half of the improvement in our year over year Q4 finish performance was due to our suppressants business and half was due to retard that's.
It prevents the presence was largely driven by strength in flooring free phones aided by our recent no spec qualification.
While the improvement in Retardants was primarily due to strong performance in our international markets and improved unit economics across geographies.
Kyle Sable: Each of these components, be it international growth or retarded, successful new product introductions and suppressants, or improved unit economics across our various fire safety products and services, is a direct result of the rigorous and successful application of our 3Ps operating strategy. Fourth-quarter sales in our specialty products business were $24.1 million, up 11% versus the prior year, and $96.6 billion for the full year 2023, down 28% versus 2020. Fourth quarter adjusted EBITDA in our specialty products business was $4.2 million, down 30% versus the prior year, and $20.6 million for the full year 2020, down 57% versus 2020. 2023 revenue was impacted by lower volumes due to inventory de-stock activity. In 2023, EBITDA was impacted by lower volumes compounded by high fixed costs.
Each of these components.
National growth in Retardants successful, new product introductions, and suppressants or improved unit economics across our various fire safety products and services.
The direct result of the rigorous and successful application of our three piece operating strategy.
Fourth quarter sales in our specialty products business were $24 $1 million up 11% versus the prior year and $96 $6 billion for the full year 2023 down 28% versus 2022.
Fourth quarter adjusted EBITDA in our specialty products business was $4 $2 million down 30% versus the prior year and $26 million for the full year 2023 down 57% versus 2022.
What are your 'twenty three revenue was impacted by lower volumes due to inventory destock activity in 2023, EBITA was impacted by lower volumes compounded by high fixed costs.
Kyle Sable: Q4 2023 EVDA margins were below Q4 2022 due to the timing of certain charges. Moving to the Consolidated. Fourth quarter consolidated sales were $59.5 million, up 44% versus the prior year. Full Year 2023 Consolidated Sales were $322.1 million, down 11% versus 2020. For the fourth quarter, Consolidated Adjusted EBITDA was $11.2 million, up from $2.1 million the prior year.
Q4, 2023, EBITDA margins were below Q4, 2022, due to the timing of certain charges and expenses.
Moving to the consolidated business.
Fourth quarter consolidated sales were $59 $5 million up 44% versus the prior year.
Full year 2023, consolidated sales were $322 $1 million down 11% versus 2022.
Fourth quarter <unk>.
Consolidated adjusted EBITDA was $11 $2 million up from $2 $1 million to prior year.
Kyle Sable: Full Year 2023 Consolidated Adjusted EBITDA was $96.8 billion, down 23% versus 2020. The year-over-year decline in consolidated revenue, adjusted EBITDA, and adjusted EBITDA margin is due to what we believe to be DSTOCK-related values in our specialty product moving below adjusted EBITDA. Interest expense in the fourth quarter was $10.5 million, in line with our quarterly run rate.
Full year 2023, consolidated adjusted EBITDA was $96 $8 billion down 23% versus 2022.
Essentially all of the year over year decline consolidated revenue adjusted EBITDA and adjusted EBITDA margin is due to what we believe to be destock related volumes in our specialty products business.
Moving below adjusted EBITDA.
Interest expense in the fourth quarter was $10 $5 million in line with our quarterly run rate.
Kyle Sable: Full-year interest expense was $41.4 million, also in line with our long-term expectations. Appreciation was $2.6 million in Q4, while amortization expense was $13.8 million. Depreciation was $9.8 million for the full year, while amortization expense was $55.1 million.
Your interest expense was $41 $4 million also in line with our long term expectations.
Depreciation was $2 6 million in Q4, while amortization expense was $13 $8 million.
Depreciation was $9 8 million for the full year, while amortization expense was $55 1 million.
Kyle Sable: Cash paid for income tax was approximately $5.4 million in Q4 and $26 million for the full year. CapEx was approximately $2.8 million in Q4 and $9.4 million for the full year. Our long-term expectations for interest expense, depreciation, tax rate, and CapEx are unchanged. Our long-term expectations for networking capital are unchanged as well, although we expect to receive a benefit from working capital in 2024, given our robust inventory. We ended 2023 with approximately $675 million in senior notes, a cash of approximately $47.3 million, and approximately 146.5 million ordinary shares outstanding. With that, I'll hand the call back to the operator for Q&A. Thank you; we will now be conducting a question and answer session. If you would like to be placed into question Q, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question Q. You may press star 2 if you'd like to remove your question from the question Q. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star one.
Cash paid for income taxes of approximately $5 $4 million in Q4 and $26 million for the full year.
Capex was approximately $2 $8 million in Q4, and $9 $4 million for the full year.
Our long term expectations for interest expense depreciation tax rate and Capex are unchanged and summarized on slide six.
Our long term expectations for networking capital are unchanged as well, although we expect to receive a benefit from working capital in 2024, given our robust inventory position.
We ended 2023 with approximately $675 million in senior notes cash of approximately $47 $3 million.
$146 5 million ordinary shares outstanding.
With that I'll hand, the call back to the operator for Q&A.
Thank you will now be conducting a question answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment may be necessary to pick up your handset.
Operator: One moment, please, while we poll for questions. Our first question today is coming from Dan Kutz from Morgan Stanley. Your line is now live. Hey, thanks. Good morning.
Dan Kutz: So I just wanted to kick it off. Haytham, you talked a lot about capital allocation priorities and how M&A fits into that. I guess my question is against kind of the prevailing debt and equity capital markets backdrop and cost of capital for Perimeter. Is kind of smaller full-time M&A still on the menu, and then, maybe more importantly, what would some of the milestones or what would you need to see for bigger M&A opportunities to be potentially more attractive in the capital allocations stack? Yeah, Dan, thanks for the question. So, to quickly hit your first one, yes, small, tuck-in, M&A, anything we can do with balance sheet cash or expected free cash generation is absolutely on the table, and we're always looking for small deals like that, which tend to be very good when you can find them.
Normal severity fire season, and and you know the the the stock reflecting better reflected in earnings power of the business or anything that you could help us with in in terms of you know what would make bigger M&A.
We're attractive in the capital allocations to excellent excellent.
Yeah, Yeah, Hey, then thanks, Thanks for the question Sir.
Quickly hit your first one yet small tucking M&A anything we can do from balance sheet cash or or are expected to protect generation is is absolutely on the table and we're always we're always looking for for small deals like that which which tend to be very good when you can find them.
Do larger deals.
Dan Kutz: Larger deals, it really is strictly a function of... expected IRR. If we had one on the table today that had a higher expected IRR than share repurchases or alternative uses of cash, and we believed we could finance it, we would. We're open to business for large transactions. Now, that said, to the extent we do need to issue debt or equity securities to finance a larger acquisition, then a lower share price and a higher cost of debt are adverse inputs into the model and will lead to a lower IRR.
It really is strictly a function of <unk>.
Expected IRR, if we had one on the table today as it was a higher respect to the I R. R. Then share repurchases or alternatives pieces of cash and we believe we could finance. It we do we're we're open for business for large transactions.
Now that said to the extent, we do need to issue that directly securities fascia larger acquisition.
Lower share price at a higher cost of dead. Those are those are adverse inputs in in a model and will lead to a <unk>. So there is there certainly is some stroke hilarity.
Two eight ended up the better or stopped us in the lower cost of that is.
Haytham Corey: So there certainly is some circularity. DiRubbio, Perimeter Solns, Proforma for Financing Assumptions and is a superior IRR to buying back our own stock. We'll swing the baton. That's great, that's all super helpful, that color.
Some just mathematically more likely it is that a larger deal will clear the hurdle, but there's no magic stock price or cost of death, Sir the reason magic IRR hurdle, where you're fazio clears that hurdle.
Mmm pro forma for financing assumptions and as a superior IRR to buying back around stock will will swing to that.
That's great that's all Super helpful and I appreciate that.
That color maybe.
Haytham Corey: Maybe just quickly, I appreciate it's early in the year, but I was wondering if there's anything you can share in terms of what kind of like the snowpack and precipitation indicators might signal thus far this year relative to maybe some prior years or you know the historical normal trends or is there anything to garner thus far in terms of the potential severity of this fire season from those indicators? Dan, predicting fire seasons in February is, uh..., is a fool of Aaron, but I'm... At the risk of sounding like a fool, I will. I will cut it, you know, at a very high-level comment. I would say this... This looks pretty normal. There are no indicators.
Maybe just quickly.
It's early in the year and.
Like.
Wondering.
If there's anything you can share in terms of what kind of like the snowpack and precipitation indicators.
<unk> my signal, thus far this year relative to.
Maybe some prior years or or you know that.
Start up a normal transfer is there anything to garner thus far in terms of the potential severity of this <unk>.
Okay and for predicting fire seasons in February is.
<unk> is a fool's errand, but I'm.
At the risk of sounding like a fool I will I will.
A very high level comment I would say.
This this looks pretty pretty normal, but there are no indicators.
Haytham Corey: So it's generally very hard to make a prediction in February, and it's even harder this year because nothing particularly unusual is going on, as far as we can tell. Fair enough, and I really appreciate that. Thanks a lot, guys. I'll turn it back.
Slashing.
Particularly mild or particularly severe so it's generally very hard to make a prediction in February and.
It's it's even harder this year, because nothing particularly unusual is going on as far as we can tell.
Fair enough and and.
<unk>.
Thanks, a lot guys I'll turn it back.
Dan Kutz: Thanks, Dan. Your next question is coming from Josh Spector from UBS. Your line is now live. Yeah, hey guys. Good morning.
Thanks, Sir.
Thank you. The next question is coming from Josh Spector from you be extra line is my life.
Gotcha.
Yeah, Hey, guys. Good morning, So the first one just ask for clarification, just when you talked about the fire safety business in fourth quarter. I think he said it was roughly half suppressants and Retardants I wasn't sure if that was referring to the year on year growth or the mix in the corner. So can you clarify that please.
Josh Spector: So I first want to just ask a clarification, just when you talked about the fire safety business in the fourth quarter, I think you said it was roughly half suppressants and retardants. I wasn't sure if that was referring to the year on year growth or the mix in the quarter. So can you clarify that, please? Thanks, Josh. Now, when we're speaking about that, we're talking about improvement in the performance of the business, not the overall mix of the business in the overall. Okay, thanks. That's helpful.
Thanks, Josh now when we're speaking about that we're talking about the improvement in performance of the business not the overall mix of the business in the corner.
Okay. Thanks, that's helpful. I guess just related on suppressant when you talk about the notes back when <unk>.
Haytham Corey: I guess just related to suppressants, when you talk about the mil-spec, when... How much of that would you say now is in the numbers, I guess at least in the second half of this year, versus further opportunity as you look at next year? So it's very hard to quantify precisely because no specs, a very large market, and the nature of our product in some presence tends to be razor razor blade, so even if you penetrate the market with upfront installs, you're then setting yourself up for a very nice long-term, fairly captive stream of foam sales. It's it's hard to answer the question, but at a high level, we got no spec approval pretty late in It really was for only a few weeks in 2023, so we're pretty excited about MilSpec going forward.
How much of that what you say now is in the numbers I guess at least in the second half of this year versus a further opportunity as you look at next year.
So it's very hard.
Want to five precisely because no specs.
A large market and the nature of our product in suppressants tends to be raised a razor blade. So even if you penetrate the market with.
Upfront installs, you're you're then setting yourself up for a very nice longterm fairly captive stream of a phone sales.
It's hard to answer the question, but at a high level. We we got no stick approval freebie late in 2023 and therefore.
<unk> <unk> <unk>.
Help us nicely late in the year. It really was it really was for only a few weeks of 2023. So we're we're we're pretty excited about most of that going forward. The last thing I'll say on 1000 spec Josh is.
Haytham Corey: The last thing I'll say on MilSpec Josh is, not all of those factors are the same. We got, we were the first to get a specific mil-spec approval in late 23, which was, which was great. And by the way, tremendous, tremendous effort over the past couple of years by our suppressants R&D team. I mean, this is very difficult chemistry and a hell of an accomplishment to be first to market here, but it's the first of a couple of other potential meaningful mil-spec approvals, which nobody has yet.
Not all of those factors a single.
We got we were the first to get a specific 1000 spec approval and late 23, which was which was great and by the way tremendous tremendous.
Effort over the past couple of years by Us impressions R&D T. I mean this is.
This is very difficult chemistry, and a hell of an accomplishment to be first to market here, but it's the first of a couple of other potential meaningful milkshake approvals, which also nobody has yet and we feel we feel pretty good about raj of of being first to market and doing quite well there was the first move.
Haytham Corey: And we feel pretty good about our odds of being first to market and doing quite well there with the first mover advantage as well. Now we'll see if we've got that executed, but we certainly have the R&D team for it. Thanks, I appreciate that. I'll ask a couple more and then turn it over. I guess first, just I wanted to ask about the contracts for the 2024 season.
Vantage as well now we'll see if we got out because that execute certainly have you already thank you for it.
Thanks, I appreciate that and I'll ask a couple more and then turn it over I guess first I just wanted to ask on the the contracts for the 2024 season. I think you know you get competitor flag that there was some delays in.
Haytham Corey: I think, you know, your competitor flagged that there were some delays going out. I'm not really sure what that means for you guys and what your view is on share pricing, but just curious about any color there. It really doesn't mean anything for us, Josh, we... We, the last thing I think we want to be doing as a company is commenting customer by customer and contract by contract, so we're not going to do it today, and we're really never going to do it. That said, those comments have no impact on our business.
Going out I'm, not really sure what that means for you guys and what's your view is on share pricing for just curious on any color there.
It really doesn't mean anything for us Josh we we.
The last thing I think we want to be doing as a company is commenting customer about customer in contact by contracts or primary to do today and will never really never gonna do it.
Shed.
No.
Those comments have have I have no impact on on our business.
Haytham Corey: From a competitive share perspective, listen. You heard my comments in the prepared remarks. On the one hand, we feel really, really, really good about our business. I'd put up our people against anybody in the world.
From a from a competitive share perspective, pushing you heard my comments and the and the prepared remarks on the one hand, we feel really really really good.
Our business I'll I'll put up our people against anybody in the World products me of anybody in the world off of our service against anybody in the World and I'm I'm very confident spending lots of time with our customers that they agree with that assessment second thing I'll say is we really do believe that only the paranoid <unk>.
Haytham Corey: I'll put up our products against anybody in the world. I'll put up our service against anybody in the world. And I'm very confident, spending lots of time with our customers, that they agree with that assessment. The second thing I'll say is we really do believe that only the paranoid survive. And if there's any glimmer of risk anywhere in our business, competitive or otherwise, we're going to take it super, super, super seriously. So we feel good about 24, but we're also ever vigilant. Okay, thanks. I have more questions, but I'll leave them there, so I'll just jump back in the queue. Thank you. As a reminder, that's star number one to be placed in the question. Our next question is coming from Brian DiRubbio from Baird. Your line is now live. Good morning, gentlemen.
Five and if there's any glimmer of risk anywhere in our business competitive or otherwise, we're gonna take it Super Super Super seriously. So what if we feel good about 24, but we're also ever vigilant.
Okay. Thanks, I have more questions I'll leave it there so I just got back in the queue.
Thank you as a reminder, that's star one too.
Question Q.
Next question is coming from Brian to reveal from bird reminders that life.
Good morning, gentlemen, a couple of questions for me just first off Kyle. Thank you mentioned that 2024, you will see it working capital benefit can you give us any sense of how much would that inventories and fire safety verses specialty products.
Brian DiRubbio: A couple of questions for me. First off, Kyle, I think you mentioned that in 2024 you will see a working capital benefit. Can you give us any sense of how much of that inventory is in fire safety versus specialty products? Sir Brian, just given the size of the relative businesses and where we're at right now, the bulk of the inventory that we see here is going to be in our fire safety business. As far as the impact that it's going to have on our free cash flow this year, it's really hard because it depends on both the severity and the timing of the fire season, but we wouldn't have called it out if it didn't have the potential to be meaningful.
Alright sure Brian just you know given the size of the relative businesses and where we're at right now the bulk of the inventory that we see here, it's gonna be in our fire safety business as far as the impact it's gonna have this year to our free cashflow.
Really hard because it depends on the severity and the timing of the fire season, but we wanted to call to doubt if it didn't have the potential to be meaningful.
Brian DiRubbio: Are you going to manage that aggressively this year, or put another way, are you going to reduce operating rates to make sure you get that benefit? Yeah, Josh, when you think about our business, the first focus for us is always 100% of the time we need to have retardant available to deliver. So I just want to start by saying there's no scenario where we would ever endanger that priority. That said, yeah, you know, listen, we've talked about this several times now. This is a focus for the company and for us to really work through that inventory. We're going to need more of a fire season than we saw last year, if that materializes this year.
[laughter], Okay, and you <unk> are you going to manage that aggressively this year or put another way you're gonna reduce operating rates to make sure you get that benefit.
Yeah, Josh when you think about our our business to first focus for US is always 100 per cent of the time, we need to have retarded available to deliver so I just want to start by saying, there's no scenario, where we would ever in danger that priority.
That said yeah, you know what we've talked about this several times now this is a focus for the company and for us to really work through that inventory, where we're gonna need more of a more of a fire season that we saw last year that materializes. This year, we expect we'll see a benefit from inventory.
Haytham Corey: And a final question for me. Early this month, the U.S. Forest Service released a record decision about how they want to attack wildfires on national forest lands, basically calling for using more water and less toxic suppressants.
Understood and final question for me early this month the U S Forest service released the record the decision about how did they wanted to attack wildfires on National Forest lands, basically calling for using more water and less toxic suppressants sorry retarded.
Brian DiRubbio: Sorry, retardants. Just sort of any thoughts on how that can affect your business overall? I think one of the comments they made in the ROD was that it impacted about 20 percent of the land-based system. Handedly, Brian, I just don't know the report you're referring to. I'm in a conference room here with a big swath of our management team, and none of us know the report you're referring to. Our products have been, just for it's worth, our retarded products have been developed in true partnership with our large customers very consultatively over many, many years and under. Our customers are environmental conservationists, first and foremost. Our products have gone through rigorous testing and blessing by them, and therefore, there's some intellectual inconsistency in..., sort of the premise of your question, but let's follow up offline, and we'll gladly read anything out there. Yeah, and I'll send you a copy of the report.
Just sort of any thoughts on how that can affect your business. Overall I think one of the comments they've made in the L. R. O D was that an impact about 20% of the land based system.
<unk> Brian <unk>.
I just don't know the report.
You're referring to.
In a conference room here with.
Big swath of our management team and.
None of us.
No the report.
You're referring to uhm, Okay product that's been just for it's worth all retardant products developed in true partnership with our large customers very consultative Lee over many many years and <unk>, we our our customers are environmental conservation.
Our products have gone through rigorous testing and blessing by them and therefore as her.
Intellectually mine <unk>.
Sure.
Premise of your question, but.
Follow up offline and will gladly read anything out there.
Yeah, and I'll I'll send you a copy of the report it was posted on their website. The U S Forest service Web site and early February I think it was February 2nd.
Brian DiRubbio: It was posted on their website, the U.S. Forest Service website, in early February. I think it was February 2nd, sort of detailing how they want to change their approach. I'll pass along until we can follow up offline. Okay. Great. Thank you. Thank you. Next question is a follow-up from Josh Spector from UBS. Your line is now live.
Sort of detailing how they wanted to change the approach I'll I'll pass along until we can follow up offline.
Okay.
Great. Thank you.
Thank you next question is a follow up from Josh from you B S. Your line is in L. A.
Josh Spector: Hey again. So I just wanted to ask about international growth and retardants. Are there specific markets or products you'd call out that helped you in the fourth quarter? And I'm just wondering if that signals any flow-through of wins, etc., for next year or something just within this fire season in those countries for this quarter? I'll answer the second part first, which there's... There's really no read-through problem.
Hey, again, so I just wanted to ask about the international growth and Retardants are there specific markets are products he'd call out that helped you in the fourth quarter and I'm. Just wondering if that's any read of any flow through of Windsor set her up for next year or something I guess within the fire.
C as in those countries for this corner.
Yeah, Oh I'll answer the second part first which there's.
There's really no readthrough from.
Haytham Corey: into Q4. Not to say that Q1 is going to be particularly mild or severe, it's just the events that led to good return sales in Q4 were pretty idiosyncratic and don't say much about what Q1 of 24 might look like. As far as markets that were strong for us, Australia was solid for us in Q4, not particularly unusual, but it was a good market for us, as were a couple of markets in South America.
Q for.
Q1, not to say that you want is going to be particularly mild or severe.
Just be events the events that led to.
Returns sales into for work or further we're pretty idiosyncratic and don't say much about or Q1 of 24 might look like as far as markets. There was strong for US Australia was solid for us in queue for not.
Not particularly unusual but it was it was a good market for us as we are a couple of markets in South America.
Haytham Corey: Okay, thanks. And just to follow up on the working capital part of it, I guess if I look at where you ended, working capital looks like it's about 50% of sales, but historically, it's closer to maybe 25%.
Okay. Thanks, and just to follow up on the working capital part of it I guess, if I look at where you ended working capital looks like it's about 50 per cent of sales historically, it's close to the Navy 25 per cent. It gets very rough nap. If your sales are flat shall we take about getting that working capital percentage.
Josh Spector: I guess very rough math. If your sales are flat, should we think about getting that working capital percentage down to that historical level as the right framework? And I guess if you were to grow sales, do you actually get a working capital benefit, or do you just grow into that? Thanks, Josh. Yeah, you to the second point; we'll take that first. You generally have the right idea, the right way to frame that.
Age down to that historical level is about the right framework and I guess, if you were a kid grows sales you actually get a working capital benefit or you get to grow into that.
Curious on those two points.
Thanks, Josh yet you to the second point and take that first you've generally got the right.
The right way to frame of that.
Kyle Sable: If we grow sales, normally we'd have to invest in working capital like any business. But we have an inventory position that allows us to slow those initial purchases. It allows us to build into some of the inventory that we already have and use that.
If we gross sales normally we'd have to invest in working capital like any business and we have an inventory physician that allows us to slow those initial purchases.
It allows us to build into some of the to the inventory that we already have and use that.
Kyle Sable: To your question on, if we hold sales flat, do we release inventory? The hope would be that we would be able to release some amount of inventory. The question just really depends on the severity and timing of the fire season.
To your question on if we hold tail flat do we release inventory.
Hope would be that we would be able to at least some amount of inventory. The question just it really depends on the severity and timing of the fire season.
Josh Spector: Okay, fair enough. And just a couple on special. So, I guess the sales were up, but the EBITDA wasn't, so I'm curious if there's anything you could share about why that was. Yeah, Josh. It really was down to a little bit of charge timing, what came in and out of the quarter right around quarter end. When we look at the underlying economics of the business, we don't think there's anything meaningful that's changed, either quarter over quarter or year over year, other than the de-leveraging we would see from an operating perspective, right? Okay, and I mean, since you don't disclose price or volumes, I don't know if there's a way you can roughly frame... Where are the volumes in that segment today versus, I think you said 22 was normal. Can you frame that at least so we can understand what a recovery might look like? I'll try to take that, Josh.
Okay Turnoff uhm.
And just a coupla on specialty so.
Yeah, I guess, the the sales were up at the EBITDA wasn't.
I'm curious if there's any thing you could share about why that was the case.
Yeah, Josh Uhm, it really was <unk> to a little bit of charge tiny what came in and out of the corner right around order red.
When we look at the underlying economics of the business. We don't think there's anything meaningful this change either quarter over quarter or year over year other than the the.
Deleveraging, we would see from an operating person perspective right.
Okay, and I mean, since you don't disclose price or volumes I don't know if there's a way you can roughly frame where the volumes in that segment today versus I think you said 22 with normal can.
Can you frame that at least so that he can understand what a recovery might look like.
Oh I'll try to take back just so now I'm not going to comment on on today, but I'll I'll comment on on last year.
Haytham Corey: I'm not going to comment on today, but I'll comment on last year. Last year was down. Meaningful, I mean, we're not, again, we're not going to quantify it but last year, volumes, the destock was severe. Our volumes were down significantly throughout 23 versus 22. We have said before, and I'll say again, from a 3Ps value driver perspective.
Last year was down.
<unk> I mean, we're not again, we're not going to quantify it but last.
Last year volumes.
The destock was was severe our volumes were down significantly.
<unk> 23.
Verses 22, we.
We have <unk>.
<unk> said before and I'll say again from a three piece valued driver perspective.
Haytham Corey: We did well. Our unit economics are similar if not better in 23 versus 22, which does suggest some element of positive pricing and, therefore, A large portion, although more than all of, etc., the revenue decline is voluntary. Okay, but not fair enough.
We did well are you a minute economics are similar if not better in 2003.
22, which does suggest some element of a positive pricing uhm and therefore.
A large portion <unk> more than more than all of et cetera revenue declines volume.
Okay, No fair enough and the last one to need just kinda picky one here on the share count you present in your slides.
Josh Spector: And the last one, just kind of a picky one here on the share count you present in your slide. I assume that reflects the current share count with the full buyback, so as of January versus the December quarter average, and does that include the roughly couple million shares that will be added with the founder share structure? You know, to keep it simple, how shall we just give and, uh... 23, Basic Shears Outstanding. Yeah, at the end of 20, at the end of 23, for BISC shares outstanding, we had 146.5, I believe, shares outstanding at the end of 23. Net of everything. Okay, but that doesn't matter if the founder's share is to be added this year or not already in that? Exactly. Yeah, that's not, okay, does not include founder's share issuance in Q1 of 24 and any other potential buyback or issuance activity in the first quarter. Got it. It makes sense.
I I assume that reflects assuring current share account with the full buyback so as of January versus the December quarter average and does that include the roughly couple million chairs that will be added with the founder of share structure.
You know to keep it keep it simple how shall we just give and.
23.
Basic shares outstanding.
Yeah at the end of the 20th at 10 to 23 for basic shares outstanding We had 146.5 I believe.
Shares outstanding at the end of 23.
None of everything.
Okay, but that that doesn't if the founder shares of the added this year or is that already.
Yeah Okay.
Okay does not include founder share <unk> in Q1 of 24.
And any other potential find that punishments activity in the first quarter of 24.
Got it makes sense. Thank you very much.
Josh Spector: Thank you very much. Thanks, Jeff. Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing, No, just thanks again for the time, everybody, thanks for the support, and we'll be back here soon. Thank you, that does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your...
Thanks, Jeff Thank.
Thank you we reached the end of our question and answer session I'd like to turn the floor back over to management for any further closing comments.
Nope just thanks, Thanks again for the time, everybody. Thanks for the support and and we'll be back to you soon.
Thank you that does conclude today's teleconference. A webcast human disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.