Q1 2024 Perimeter Solutions SA Earnings Call
Good afternoon, good morning, ladies and gentlemen, thank you for standing by.
Operator: Good afternoon. Good morning, ladies and gentlemen, and thank you for standing by.
Operator: Welcome to Perimeter Solutions' Q1 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should you require operator assistance during the conference, please press star zero to signal an operator. Please note this conference is being recorded. I will now turn the conference over to your host, Seth Barker, Head of Investor Relations. Thank you.
Welcome to perimeter solutions Q1, 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation should you require operator assistance during the conference. Please press star zero to signal an operator. Please note. This conference is being recorded.
I will now turn the conference over to your host Seth Barker head of Investor Relations. Thank you you may begin.
Seth Barker: Thank you operator, good morning, everyone and thank you for joining perimeter solutions first quarter 2024 earnings call speaking on today's call are 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 may nine 2024.
Seth Barker: Thank you, Operator. Good morning, everyone, and thank you for joining Perimeter Solutions' first quarter 2024 earnings call. Speaking on today's call are Haitham Khouri, 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, May 9th, 2024, and these statements have not been, nor will they be updated subsequent to today's call.
Seth Barker: And these statements have not been nor will they be updated subsequent to today's call.
Seth Barker: 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 in today's call. 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 adjusted EBITDA.
Seth Barker: 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.
Seth Barker: Please review our SEC filings for a more complete discussion of factors that could impact our results.
Seth Barker: Company would also like to advise you that during the call we will be referring to non-GAAP financial measures, including adjusted EBITDA.
Seth Barker: The reconciliation of and other information regarding these items can be found in our earnings release, 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 Haitham Khouri, Chief Executive Officer.
Seth Barker: 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.
Seth Barker: With that I will turn the call over to Hayden Corey Chief Executive Officer.
Hayden Corey: Thank you.
Haitham R. Khouri: Thank you, Seth. Good morning, everyone, and thanks for joining us. As always, I'll start on slide three with summary comments on our strategy. As we've 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. 1. Recurring and predictable revenue streams. 2.
Hayden Corey: Morning, everyone and thanks for joining us.
Hayden Corey: As always I'll start on slide three with summary comments on our strategy.
Hayden Corey: As we've stated repeatedly our goal is to deliver private equity like returns with the liquidity of a public market.
Hayden Corey: We plan to attain this goal by owning operating and growing uniquely high quality businesses.
Haitham R. Khouri: Long-term secular growth Tailor-Line, 3. Products that account for critical but small portions of larger values. Four, significant free cash flow generation with high returns on tangible capital, and 5. 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 acquisitions. As described on slide 4, we seek to drive long-term equity value creation by a consistent improvement in our three operational metrics, which are, number one, profitable new businesses. Number two, continual productivity improvements.
Hayden Corey: Define uniquely high quality businesses through the following five very specific economic criteria.
Hayden Corey: One recurring and predictable revenue streams.
Hayden Corey: Two long term secular growth tailwind.
Hayden Corey: Products that are cast for critical but small portions of larger value streams.
Hayden Corey: For significant free cash flow generation with high returns on tangible capital.
Hayden Corey: And five the potential for opportunistic consolidation.
Hayden Corey: We believe that these five economic criteria are present and are a car businesses.
Hayden Corey: We use these criteria to evaluate potential new acquisitions.
Haitham R. Khouri: And 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 5, and starting with fire safety. Recall that the first quarter is usually fire safety's smallest quarter of the year and a quarter in which the business has typically historically reported and adjusted EBDA loss. Fire safety delivered markedly improved year-over-year financial results in the first quarter of 2020, much as the business did in the prior.
Hayden Corey: 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 cost for new business.
Hayden Corey: Number two continue with productivity improvements a number of free pricing to reflect the value of our product and services provided.
Hayden Corey: In addition towards 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.
Hayden Corey: Turning now to our financial results on slide five and starting with fire safety.
Hayden Corey: Recall that the first quarter is usually fire safety smallest quarter of the year.
Hayden Corey: Quarter in which the business is typically historically reported an adjusted EBITDA loss.
Hayden Corey: Fire safety delivered markedly improved year over year financial results in the first quarter of 2020 for much of the business did in the prior quarter.
Haitham R. Khouri: Fire safety revenue increased 34% year over year in Q1, while the business was close to breakeven on an adjusted EVDA basis, versus a negative $3.4 million adjusted EBITDA loss in the first quarter of 2020. The year-over-year improvement in fire safety's revenue and adjusted EVDA was primarily driven by our suppressant business, where 3P's operating strategy continues to drive performance. Specifically, our focused R&D investments into fluorine-free technology are driving profitable new business through our market-leading product portfolio.
Hayden Corey: Fire safety revenue increased 34% year over year in Q1, while the business was close to breakeven on an adjusted EBITDA basis versus a negative $3 4 million dollar adjusted EBITDA loss in the first quarter of 'twenty three.
Hayden Corey: The year over year improvement in fire safety as revenue and adjusted EBITDA was primarily driven by our suppressive business. We are three Ts operating strategy continues to drive performance.
Hayden Corey: Specifically.
Hayden Corey: Our focused R&D investments into fluorine free technology is driving profitable new business by our market leading product portfolio.
Hayden Corey: Our focus on pricing our products and significant value. They provide is driving higher per unit revenue and profitability.
Haitham R. Khouri: Our focus on pricing our products and the significant value they provide is driving higher per unit revenue and profitability. And finally, our rigor around eliminating excess costs via consistent and measurable productivity initiatives is contributing to adjusted EVA growth in excess of revenue. Turning to specialty products, after several slow quarters, which we attributed to de-stock activity throughout the specialty chemicals supply chain.
Hayden Corey: And finally, our rigor around eliminating excess costs by a consistent and measurable productivity initiatives is contributing to adjusted EBITDA growth in <unk>.
Hayden Corey: Excess of revenue growth.
Hayden Corey: Turning to specialty products after several slow quarters, which we attribute it to destock activity throughout the specialty chemicals supply chain specialty products delivered solid financial results in the first quarter.
Haitham R. Khouri: Specialty Products delivered solid financial results in the first quarter. The business's 37% adjusted EBITDA margin, roughly in line with the business's margins prior to the de-stock period, illustrates the point we repeatedly emphasized around specialty products as resilient, underlying unit economics through the de-stock. While we're clearly encouraged by Specialty Products' first quarter performance, we've also been candid about our surprise at the depth and duration of the D-Stock. As such, we will allow more time to pass before offering projections around end market demand in this business.
Hayden Corey: The business is 37% adjusted EBITDA margin roughly in line with our businesses margins prior to the destock period.
Hayden Corey: Illustrates the point, we've repeatedly emphasized around specialty products is a resilient underlying unit economics.
Hayden Corey: The destock period.
Hayden Corey: While we're clearly encouraged by specialty products first quarter performance. We've also been candid around are surprised at the depth and duration of the destock as such we will allow more time to pass before offering projections from end market demand.
Hayden Corey: In this business.
Hayden Corey: Turning to cash and capital allocation.
Haitham R. Khouri: Turning to cash and capital allocations, we repurchased approximately 3 million shares in the first quarter at an average price of $4.79. Recall that we repurchased approximately 12.2 million shares last year at an average price of $5.24. We have approximately $97 million remaining on our existing repurchase authorization, and we ended the first quarter with approximately $34 million of cash on our balance sheet.
Hayden Corey: We repurchased approximately 3 million shares in the first quarter at an average price of $4.79 recall that we repurchased approximately $12 2 million shares last year at an average price of $5 and 24 sites, we have approximately 97 million.
Hayden Corey: Dollars remaining under existing repurchase authorization and we ended the first quarter was approximately $34 million of cash on our balance sheet.
Haitham R. Khouri: As I did last call, I'll touch on our approach to capital allocation, including M&A. We're confident that our three-piece operating strategy will create significant value when applied to the right business. The right businesses are defined by the five target economic criteria I covered on slide 5.
Hayden Corey: As I did last call I'll touch on our approach to capital allocation, including M&A.
Hayden Corey: We're confident there are three piece operating strategy will create significant value when applied to the right businesses. The right businesses are defined by the five targeted economic criteria I covered on slide three.
Hayden Corey: Our confidence in M&A, driven and value creation is based on the improvement or three piece operating strategy delivered in each of our Retardants got presence and specialty products businesses over the past two years.
Haitham R. Khouri: Our confidence in M&A Driven Value Creation is based on the improvement our 3-piece operating strategy has delivered in each of our retardants, suppressants, and specialty product businesses over the past two years. Much of this improvement is evident in our reported results and content, including our specialty products and suppressors. We expect a balance of this 3P3 improvement, particularly in our retardants business, to be evident in a more normalized fire. However, as enthusiastic as we are about M&A-driven value creation,
Hayden Corey: Much of this improvement is evident in our reported results and commentary, including specialty products and suppressants.
Hayden Corey: We expect the balance of this repeats driven improvement, particularly particularly excuse me in our retardants business to be evident in a more normalized fire season.
Hayden Corey: As enthusiastic as we are about M&A driven value creation.
Haitham R. Khouri: We're constantly evaluating the IRR tradeoffs between our different capital allocation alternatives. We ultimately expect to deploy all of our excess free cash flow as well as the incremental leverage capacity we expect to generate through organic EBITDA growth towards the highest expected IRR combination of M&A, Dairy Purchases, and Special Bidders.
Hayden Corey: We're constantly evaluating the IRR tradeoffs between our different capital allocation alternatives you.
Hayden Corey: Do you ultimately expect to deploy all of our excess free cash flow as well as the incremental leverage capacity, we expect to generate through organic EBITDA growth.
Hayden Corey: Towards the highest expected IRR combination of M&A.
Hayden Corey: Share repurchases and special dividends.
Hayden Corey: Finally, and as I've done over the last several earnings calls.
Haitham R. Khouri: Finally, and as I've done over the last several earnings calls, I will reassert our conviction that 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 employees. This is reflected in our ongoing, strong market. I will also reassert that we will never take our market leadership positions for granted. Rather, we will always relentlessly push to raise the bar on ourselves, based on the clear superiority of our products, services, and people. With our fiercely competitive spirit and our ever-vigilant mindset, we expect to thrive in all future environments. And with that, I will turn the call over to Kyle.
Hayden Corey: Reassert our conviction that perimeter is the gold standard as far as the efficacy and safety of our products.
Hayden Corey: Wallaby of her service and their passion dedication and integrity.
Hayden Corey: Our team.
Hayden Corey: This is reflected in our ongoing strong market positions I.
Hayden Corey: I will also reassert that we will never take our market leadership position for granted.
Hayden Corey: Rather we will always relentlessly push to raise the bar on ourselves.
Hayden Corey: Between the clear superiority of our products services and people.
Hayden Corey: Fiercely competitive spirit.
Hayden Corey: And our ever vigilant mindset, we expect to thrive in all future environments.
Hayden Corey: And with that I will turn the call over to Kyle.
Kyle: Thanks Nathan.
Kyle Sable: Haitham. First quarter sales in our fire safety business increased 34% year-over-year to $25.2 million, while first quarter adjusted EBITDA was negative $0.2 million, an improvement from negative $3.4 million in the first quarter of 2023. As Haitham noted, consistent with the past several quarters, the year-over-year improvement was driven by particularly strong year-over-year performance in our suppressants business, as well as continued solid three-piece implementation across our entire fire safety business. As is typical, our retardant sales were relatively modest in the first quarter and concentrated amongst customers in South America and Australia.
Kyle: First quarter sales in our fire safety business increased 34% year over year to $25 $2 million, while first quarter. Adjusted EBITDA was negative $2 million, an improvement from negative $3 $4 million in the first quarter of 2023.
Kyle: Haytham noted consistent with the past several quarters the year over year improvement was driven by particularly strong year over year performance in our suppressants business.
Kyle: Continued solid three piece implementation across our entire fire safety business.
Kyle: As is typical our retarding sales were relatively modest in the first quarter and concentrated how much customers in South America and Australia.
Kyle Sable: I'll call out that the significant February fires across Texas and Oklahoma drove very modest Q1 retardant activity, due primarily to the fact that regional airbases were not open when the fires ignited and quickly spread, as well as a significant change in weather conditions once bases did open.
Kyle: I'll call out the significant February fires across Texas, and Oklahoma drove very modest Q1 retarded activity due primarily to the fact that regional air bases, we're not open with fires ignited and quickly spread as well as significant turn in weather conditions once basis did open.
Kyle: First quarter sales in our specialty products business increased 35% year over year to $33 $9 million, a first quarter adjusted EBITDA increased 91% to $12 $4 million.
Kyle Sable: First quarter sales in our specialty products business increased 35% year-over-year to $33.9 million, while first quarter adjusted EBITDA increased 91% to $12.4 million. The year-over-year improvement was due primarily to higher market demand, as well as continued strong-unit economics driven by our pricing and productivity actions. First quarter consolidated sales increased 35% year-over-year to $59 million, while first quarter consolidated adjusted EBITDA increased almost fourfold year-over-year to $12.1 million. Moving below adjusted EBITDA.
Kyle: The year over year improvement was due primarily to higher market demand as well as continued strong unit economics, driven by our pricing and productivity actions.
Kyle: First quarter consolidated sales increased 35% year over year to $59 million, our first quarter consolidated adjusted EBITDA increased almost four fold year over year to $12 $1 million.
Kyle: Moving below adjusted EBITDA.
Kyle: Interest expense in the first quarter was $10 $6 million in line with our quarterly run rate.
Kyle Sable: Interest expense in the first quarter was $10.6 million, in line with our quarterly run rate. Appreciation was $2.6 million in Q1, while amortization expense was $13.8 million. Cash paid for income tax was approximately $800,000 in the first quarter. CapEx was approximately $1.6 million in the first quarter. Our long-term expectations for interest expense, depreciation, tax rate, and CapEx are unchanged. Our long-term expectations for networking capital are also unchanged, although, as I've noticed previously, we expect to receive some benefit from working capital in 2024, given our significant inventory position. We ended the quarter with approximately $675 million in senior notes, cash of approximately $34 million, and approximately 145 million basic shares outstanding. With that, I'll hand the call back to the operator for Q&A.
Kyle: Depreciation was $2 $6 million in Q1, while amortization expense was $13 $8 million.
Kyle: Cash paid for income taxes of approximately $800000 in the first quarter.
Kyle: Capex was approximately $1.6 million in the first quarter.
Kyle: Our long term expectations for interest expense depreciation tax rate and Capex are unchanged and summarized on slide six.
Kyle: Our long term expectations for networking capital was also unchanged, although as I've noted previously we expect to receive some benefit from working capital in 2024, given our significant inventory position.
Kyle: We ended the quarter with approximately $675 million of senior notes cash of approximately $34 million and approximately 145 million basic shares outstanding.
Kyle Sable: With that I'll hand, the call back to the operator for Q&A.
Speaker Change: Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Operator: Thank you. At this time, we will be conducting a question and answer session. 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. If at any time you wish to remove your question from the queue, please press star 2. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Josh Spector with UBS.
Operator: And anytime you wish to remove your question from the queue. Please press star two for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys, one moment. Please for we poll for questions.
Operator: Our first question is from Josh Spector with UBS.
Operator: Hi, Good morning, everyone. It's Chris Perrella on for Josh I wanted to follow up on the strengths in specialty is their restocking that took place in the business in the first quarter or should we think about that is as strong growth in of a good run rate for the business for the rest of 'twenty four.
Chris Perella: Hi, good morning, everyone. It's Chris Perella on for Josh. I wanted to follow up on strength and specialty. Is there restocking that took place in the business in the first quarter? Or, you know, should we think about that as strong growth and a good run rate for the business for the rest of the year?
Haytham: Yeah, Hey, Chris Haytham here.
Haitham R. Khouri: Yeah, hey Chris, Haitham here. So the latter. We don't think there was any restocking in Q1. We think it was a natural rebound off of the depressed levels of the last four or five quarters.
Haitham: So sort of a ladder.
Haitham: We don't think there was.
Haitham R. Khouri: Any.
Haitham: Sorry, any restocking in Q1.
Haitham: We think it was a natural rebound off of the depressed levels.
Haitham: Four five quarters.
Haitham: Alright, I appreciate the color on that and then switching over to fire safety you know the fire season to date, you know you had the the higher burden acreage in Texas now given some of the noise in the first quarter. How would you think about the trends in the fire season, and how it relates to the P. R M.
Haitham R. Khouri: Alright, no, I appreciate the color on that. And then, switching over to fire safety, you know, the fire season to date, you had the higher burn acreage in Texas. Now, given some of the noise in the first quarter, how would you think about the trends in the fire season and how it relates to PRM?
Speaker Change: I don't think there's much if anything to extrapolate from Q1.
Haitham R. Khouri: I don't think there's much, if anything, to extrapolate from Q1 into the balance of the year. The financial impact of RQ1 was largely insignificant, and I think disconnected from what may or may not happen over the balance of the year. As far as what may happen over the balance of the year, Chris, it's just too early to tell. It's unpredictable, and we'll... We'll find out in the next 90, 120 days here, but it's very, very hard to prognosticate with any confidence.
Haitham R. Khouri: The balance of the year, the acreage number due to the Texas and Oklahoma fires were significant.
Haitham R. Khouri: <unk> pointed out their.
Haitham R. Khouri: Financial impact on our Q1 was largely insignificant.
Haitham R. Khouri: And I think disconnected from what may or may not happen.
Haitham R. Khouri: Over the balance of the year as far as what may happen over the balance of the year Chris.
Haitham R. Khouri: It's just it's just too early to tell.
Haitham R. Khouri: It's it's unpredictable and we will.
Haitham R. Khouri: Find out in the next 90 120 days here, but it's very very hard to prognosticate with any confidence at this point.
Kyle Sable: No, no, I appreciate that. And then just one more on working capital. You know, where are you targeting that for the year? And, you know, Is that going to be, you know, positive for 24?
Speaker Change: No I appreciate that and then just one more on working capital.
Kyle Sable: Where are you targeting the.
Speaker Change: For the year and you know.
Kyle Sable: Is that going to be positive for.
Kyle Sable: 24.
Kyle Sable: Yeah, Chris, it's Kyle. We do expect that we will receive a benefit compared to our normal long-term guidance that we laid out on slide six this year. And when we look through that, the timing of that is going to come through, and the big piece of that will come a little bit in Q2 and more predominantly in Q3. As we've talked about previously, we have a more robust inventory position than we usually hold.
Kyle Sable: Yes, Chris as Kyle.
Kyle Sable: We do expect that we will receive a benefit.
Kyle Sable: Compared to our normal long term guidance that we laid out on slide six this year and when we look through that the timing of that is going to come through and the big piece of that will come a little bit in Q2 and more predominantly in Q3.
Kyle Sable: Talked about previously we have a more robust inventory position that we usually hold.
Kyle Sable: A good portion of the reduction that will be made in that to the extent that we're able to do so will be during the fire. So well see some of that benefit coming through in predominantly in Q3.
Kyle Sable: A good portion of the reduction that will be made in that, to the extent that we're able to do so, will be during the fire season, so we'll see some of that benefit coming through predominantly in Q3. No, thank you very much.
Chris Perella: No, thank you very much. I appreciate the color on the cadence of that. That's it for
Speaker Change: No. Thank you very much I appreciate the color on the cadence of that that's it for me.
Chris Perella: Our next question is from Dan Kurtz with Morgan Stanley.
Daniel Robert Kutz: Our next question is from Dan Kutz with Morgan Stanley.
Daniel Robert Kutz: Hey, thanks, good morning, and Jeff. Thank you.
Daniel Robert Kutz: Hey, Thanks, good morning.
Daniel Robert Kutz: Hum.
Daniel Robert Kutz: I just wanted to ask about the, um... UASA is calling for the U.S. Fire Service to kind of revisit and revise its EPL qualification process. I guess the first part of the question is just simply, are any PRM products at risk from this requalification process? I'd assume no because it sounds like in all of the articles that the stress is on new product qualifications. But firstly, I just wanted to confirm that.
Daniel Robert Kutz: I just wanted to ask about.
Daniel Robert Kutz: The.
Daniel Robert Kutz: Yeah, he's calling from the U S fire service.
Daniel Robert Kutz: They kind of revisiting revise its its E P L O application process.
Daniel Robert Kutz: Yes.
Daniel Robert Kutz: The first part of the question is just simply why.
Daniel Robert Kutz: Any of that or any products at risk from this qualification process I'd assume no because it sounds like in all the articles that the stress is on new product qualification, but personally I just wanted to.
Daniel Robert Kutz: It can from that and then I guess secondly, you know a lot of folks are trying to wrap their head around what.
Daniel Robert Kutz: And then, I guess secondly, a lot of folks are trying to wrap their heads around what the timeline could be for the U.S. Fire Service to potentially revisit and revamp this process. It sounds like it's a pretty old process, so maybe the answer to this question is no, not really. But I'm just wondering if there's any relatively recent experience you have with revisions or updates to the QPL process and any read-throughs to the potential revision of the process today.
Daniel Robert Kutz: The timeline would be for where the U S fire service.
Daniel Robert Kutz: We revisit and revamped this this process it sounds like it's a pretty old.
Daniel Robert Kutz: So you know maybe the answer to this question is no not really but I'm just wondering if there's any.
Daniel Robert Kutz: If there was any relatively recent experience you have with.
Daniel Robert Kutz: Were updates to be keeping our process and any read throughs to you now.
Daniel Robert Kutz: The potential re route.
Daniel Robert Kutz: Revision of the process today. Thanks.
Haitham R. Khouri: Yeah, so two good questions. Thanks, Dan. On the first one, you're thinking about it right.
Speaker Change: Yeah. So two good questions. Thanks, Dan on the first one you were thinking about it right. We feel we feel very good about all our products on the Q P O.
Haitham R. Khouri: We feel very good about all our products on the QPL and certainly expect no changes there, pressure from the air tanker community, or, I would say, more safety-focused testing to avoid, frankly, the pretty close call those guys had with a competing product. We're absolutely on the same page as the air tankers, the air tanker companies, as UEFA, which is the industry association, as the Forest Service, which is driving much of this re-examination, and then as the regulatory agencies that are, I think, very, very appropriately looking at what happened and trying to improve safety, NIST, NTSB, etc. So we think this is a very, very healthy process. It's a process.
Haitham R. Khouri: We expect no changes there on the.
Haitham R. Khouri: Push from the air tanker community.
Haitham R. Khouri: Or more.
Haitham R. Khouri: More safety focused testing to avoid a frankly, a pretty close call those guys had.
Haitham R. Khouri: With a competing product.
Haitham R. Khouri: We're absolutely on the same page as the air tankers.
Haitham R. Khouri: <unk> is the wafer which is the industry Association as the Forest service, which is driving much of this reexamination and then if the regulatory agencies that are I think very very appropriately looking at what happens in trying to improve safety.
Haitham R. Khouri: NIST NTSB et cetera. So we think this is a very very healthy.
Haitham R. Khouri: Process.
Haitham R. Khouri: Our industry exists to drive a safety mission. Our company truly exists to drive a safety mission. Absolutely everything takes a distant backseat, the safety and efficacy of our products. We carry our product in their planes to keep the wildlife firefighters who are risking their lives day in, day out fighting fires with our product being dropped around them to keep them safe, safe, and ultimately keeping communities safe. And any calls, be it from the Industry Association, our customers, regulatory agencies, to look at the testing and approval process with an eye towards increased safety and eff We're just huge, huge proponents of and are frankly very, very pleased with some of the developments over the past year.
Haitham R. Khouri: Process, our industry exists to drive a safety mission our company truly exists to drive.
Haitham R. Khouri: <unk> mission, absolutely everything takes a distant backseat.
Haitham R. Khouri: Safety and efficacy of our products to keeping the air tanker pilots carry our product and they're playing safe to keep them. The wildlife firefighters who are risking their lives day in day out fighting fires with our product being dropped around them to keep them safe safe and ultimately keeping communities.
Haitham R. Khouri: Any calls be it from the industry Association, our customers regulatory agencies.
Haitham R. Khouri: To look at the testing and approval process with an eye towards increased safety and efficacy were just huge huge proponents of and are frankly, very very pleased with some of the developments over the past few weeks.
Haitham R. Khouri: Great.
Daniel Robert Kutz: Great. That's really helpful, Kyle, and sorry, Kyle, to..., talk about this again, but I just wanted to come back to the working capital and inventory question and just confirm. So if I look at past first quarters, you guys would invest a little bit in inventory. This quarter was basically flat. Is the interpretation of that that there's maybe less runway than you contemplated a quarter ago for, you know, the incremental talent versus your normal long-term working capital framework, or, you know, are you guys still pretty confident that, you know, are we kind of in a similar place today as we were a quarter ago in terms of the magnitude of what you think that tailwind can be?
Speaker Change: That's really helpful color and <unk> sorry.
Daniel Robert Kutz: What I can tell you.
Speaker Change: Hmm battery list again.
Daniel Robert Kutz: I just want to come back to the working capital and inventory question and just confirm.
Daniel Robert Kutz: So if I look at past first quarters, you guys would invest a little bit in inventory. This quarter. It was basically flat. It is is the interpretation of that that there's maybe less runway and you'd contemplated.
Daniel Robert Kutz: A quarter ago for you now that the incremental tantalum versus your normal long term working capital framework or you know are you guys still pretty confident that you know are.
Daniel Robert Kutz: Are we kind of in a similar place today as we were a quarter ago in terms on the magnitude of what you think that tailwind it can be.
Kyle Sable: Dan I think you just said it extremely well we are in the same place we were a quarter ago as regards to our working capital view for the year.
Kyle Sable: Dan, I think you just said it extremely well. We're in the same place we were a quarter ago as regards our working capital outlook for the year. The important point to recognize for our working capital and the difference from our long-term assumptions is that inventory position. We entered the year with a substantially more robust inventory position than we normally would. When you look at the use of working capital specifically as it relates to inventory, typically, Q2 is a reasonably meaningful use of cash for that as we build that inventory into the fire season. That trend in Q2 will be muted this year, and then we will see, and we're likely to see a reduction in that inventory in Q3 as the fire season gets going.
Kyle Sable: The important point to recognize there are working capital the difference from our long term assumptions is that inventory position, we entered the year with a substantially more robust inventory position than we normally would.
Kyle Sable: When you look at the use of working capital specifically as it relates to inventory typically Q2's, a reasonably meaningful use of cash for that as we build that inventory into the fire season.
Kyle Sable: That that.
Kyle Sable: That trend in Q2 will be muted this year and then we will see.
Kyle Sable: We're likely to see a reduction in that inventory in Q3 as a fire season gets going.
Speaker Change: Got it.
Daniel Robert Kutz: Got it. Super helpful and very clear. Thank you. Maybe if I could just sneak one last one in, and Haitham, this might be for you. I know sometimes some investors aren't huge fans of special dividends or special dividends versus buybacks. I was just wondering if you could talk us through what scenario or what the situation would be where special events might rank the highest in your capital allocation framework, just broadly what would be the circumstances where that might be the preferred capital deployment method.
Speaker Change: Helpful and very clear. Thank you, maybe if I could just sneak one last one and this might be for you but.
Daniel Robert Kutz: I know, sometimes some investors aren't huge fans of special dividends or special dividends versus buybacks. I was just wondering if you could talk us through.
Daniel Robert Kutz: What scenario or what you know.
Daniel Robert Kutz: Uhm, B, where special events might ranked the highest in your and your capital allocation framework, just broadly what kind of would be the circumstances, where where that might be the preferred capital deployment method.
Haitham R. Khouri: You know, another very good question. So let me walk you through a principle, Dan, and then I will walk you through essentially the process by which we sort of express the print. The first principle is cash on our balance sheet is... Capital that belongs to our show. And we have an obligation and a duty to put that capital to work on their behalf at appropriately high IRRs.
Haitham: Another very good question. So let me walk you through a principal Dan and then let me walk you through essentially the process.
Haitham R. Khouri: By which we sort of express the principle.
Haitham R. Khouri: The first principle is cash on our balance sheet is.
Haitham R. Khouri: Capital that belongs to our shareholders and we have an obligation and Judy too.
Haitham R. Khouri: Put that capital to work on their behalf that appropriately high.
Haitham R. Khouri: Irr's, that's literally how we think about and talk about cash.
Haitham R. Khouri: Thank you, literally how we think about and talk about cash on our balance sheet and Cassidy on the balance sheet earning a couple of percent, interest rates are woefully insufficient for what we owe our shareholders as far as a return on their cash, which begs the question, alright, if you're not going to stockpile cash on the balance sheet, what are you going to do with it? And the answer is, we are very focused on deploying it at high IRRs, and I think there's a clear, there's a clear waterfall.
Haitham R. Khouri: Cash on our balance sheet.
Haitham R. Khouri: And cash sitting on the balance sheet, earning a couple of percent.
Haitham R. Khouri: Interest rates.
Haitham R. Khouri: Woefully insufficient for what we owe our shareholders as far as a return on their cash which begs the question alright, if youre not going to stockpile cash on the balance sheet. What what are you going to do with it and the answer is we are we are very focused on deploying it.
Haitham R. Khouri: At high Irr's and I think there is a clear there's a clear water.
Haitham R. Khouri: There was no company, we know better than perimeter or there's no company, we believe in more.
Haitham R. Khouri: More than perimeter Theres, No company, where we have a.
Haitham R. Khouri: Better and more specific view on future value.
Haitham R. Khouri: Perimeter and therefore.
Haitham R. Khouri: We believe the IRR on share buybacks is above our long term return hurdle, which we described at the opening of every call. It's private equity like returns with the liquidity of a public market, we're going to deploy cash into buybacks as well.
Haitham R. Khouri: There is no company we know better than Perimeter; there's no company we believe in. More than Perimeter, there's no company where we have a better and more specific view on future value than Perimeter, and therefore, when we believe the IRR on share buybacks is above our long-term return hurdle, which we describe at the opening of every call as private equity-like returns with the liquidity of a public market, we're going to deploy cash into buybacks as priority one.
Haitham R. Khouri: Already won.
Haitham R. Khouri: Number two is M&A; we are. We are very and increasingly confident that we can take our three-piece playbook based on driving profitable new business, driving constant measurable productivity, and pricing our products to the value they provide and meaningfully improve margins and cash flows at Acquired. We believe we're three for three with our three businesses. At Perimeter, I think the results are clear on two, and hopefully we'll be on our retarded business when we have a more normal season.
Haitham R. Khouri: Number two is M&A we are.
Haitham R. Khouri: Very and increasingly confident that we can take our three piece playbook based on driving profitable new business driving constant measurable productivity and pricing our products to the value they provide and meaningfully improve margins and cash flows.
Haitham R. Khouri: Choir businesses, we believe we're three for three with our three businesses.
Haitham R. Khouri: At perimeter I think the results are clear on two and hopefully will be on an a retardant business when we have a more normal season.
Haitham R. Khouri: And we think we can apply it again and again and drive real value. And therefore, when there is an acquisition opportunity on the table where we believe the playbook applies, we can get the deal done. And again, the IRRs are above our status threshold. We're going to do that. Now, if we ever find a scenario where we are not buying our stock back because the IRR doesn't justify it, and we don't believe we're going to find actionable acquisitions over the near-median term that hit our return threshold, then our options simply become... cash on the balance sheet, or return it to its owners, in which case the answer is very clear. We'll return it to its owners, our shareholders, and they can decide how to allocate it. Very
Haitham R. Khouri: We can apply it again and again and drive real value.
Haitham R. Khouri: And therefore, when there was an acquisition opportunity on the table, where we believe the playbook applies we can get the deal done and again, the IRR or above.
Haitham R. Khouri: Our stated threshold.
Daniel Robert Kutz: Very, very clear and super helpful. Thanks a lot, guys. I'll turn it back.
Operator: Once again, if you do have a question, please press star 1. Our next question is from Josh Spector with UBS.
Chris Perella: Hi guys, it's Chris Perrell again. Just a quick one. Can you comment on fire, your outlook for fire retardant pricing for the year?
Haitham R. Khouri: The short answer, Chris, and I'm sorry is no, we just don't talk about it. [inaudible] Pricing What I will point you to, which I think..., will be quite responsive, is our very, very, very consistent philosophy on pricing. I mean this is unwavering, has never changed, will never change. We are truly obsessed, obsessively focused on listening to our customers, understanding where their pain points are, understanding what they perceive as maximum value, and working really, really hard, be it with our R&D team, with our service team, whatever it may be, to improve our product and service and drive more value to the customer. And we think we're really good at that.
Haitham R. Khouri: Pricing.
Haitham R. Khouri: What I, what I will point, you to which I think.
Haitham R. Khouri: We'll be quite responsive.
Haitham R. Khouri: Is are very very very consistent philosophy on.
Haitham R. Khouri: On pricing I mean this is this is unwavering has never changed will never change we are.
Haitham R. Khouri: Truly obsess excessively focused on listening to our customer.
Haitham R. Khouri: You're standing where their pain points are understanding what they perceive as Max value and working really really hard with our R&D team with our service team whatever it may be to improve our product and service and drive more value to the customer and we think I think we're really.
Haitham R. Khouri: Good at that.
Haitham R. Khouri: Once you do that, you offer the customer more value, and it behooves us to then... take the price so we continue to price our product commensurate with the value it provides customers, and everybody wins in that case. You've sold your customer's biggest pain point, you've provided them with material value, they're typically more than happy to pay some premium for that incremental value, and we're also thrilled. We've delighted our customers, and we've done good work for our bottom line and our shareholders, and therefore, while we're, we are simply not doing our jobs if we deviate from that playbook. I think that the direction that the playbook suggests our pricing should go year in, year out is crystal clear.
Haitham R. Khouri: Once you do that and you offer the customer more value.
Haitham R. Khouri: It Behooves us to then take price. So we continue to price our product commensurate with the value of provides customers and everybody wins in that case you sold your customers' biggest pain point, you've provided them with material value. They are typically more than happy to pay some premium for that incremental value.
Haitham R. Khouri: And we're also thrilled we've we've delighted our customer.
Haitham R. Khouri: And we've done good work for our bottom line and our shareholders and therefore, while we're never going to comment on pricing in any given year.
Haitham R. Khouri: We are simply not doing our jobs, if we deviate from that.
Haitham R. Khouri: That playbook and I think the I think the direction.
Haitham R. Khouri: The playbook suggests our pricing should go year in year out is crystal clear.
Speaker Change: No I appreciate the color on that and then just one quick one.
Haitham R. Khouri: No, I appreciate the color on that. And just one quick one for Mil-SPEC. Does that have an impact in 2024, or is that a slow build for that product?
Speaker Change: For 1000 spec.
Haitham R. Khouri: Does that have an impact in 2024 or is that a slow build.
Speaker Change: For a for that product.
Speaker Change: So I would say both.
Haitham R. Khouri: So I would say both. It had an impact on the second half of 23. It had an impact. Q1, it should certainly have an impact, throughout the balance of the year. But Mil-Spec's not a one-shot thing. I referred to this on my prior call. Mil- there are a number of chunky important Mil-Spec approvals, which are separate from one another. You have aircraft rescue, you have fixed system sprinkler, you have salt water, you have commercial airport, so on and so forth.
Haitham R. Khouri: It had an impact.
Haitham R. Khouri: Second half of 'twenty three.
Haitham R. Khouri: It had an impact in Q1, it should certainly have an impact throughout the balance of the year, but <unk> not a one shot thing I referred to this on my prior call Mills, there are a number of chunky.
Haitham R. Khouri: Important.
Haitham R. Khouri: 1000 spec approvals, which are separate from.
Haitham R. Khouri: One another.
Haitham R. Khouri: You have aircraft rescue you have X systems sprinkler you'd have saltwater commercial airport so on so forth.
Haitham R. Khouri: And our.
Haitham R. Khouri: And our hope and certainly our plan over the coming quarters and years is to keep being first to market with these various approvals, therefore unlocking incremental chunks of mil-spec and continuing to benefit from this opportunity over the long term, as we clearly are in 2024.
Haitham R. Khouri: Our hope is certainly our plan over the coming quarters and years is to keep being first to market with these various approvals therefore, unlocking incremental chunks of 1000 spec and continuing to benefit from this opportunity.
Haitham R. Khouri: Over the long term as we clearly are in 2024.
Speaker Change: Thank you very much I appreciate all the color.
Chris Perella: Thank you very much. I appreciate all the comments.
Speaker Change: You bet.
Chris Perella: Ladies and gentlemen, we have reached the end of the question and answer session time for today's call I would like to turn the call back to hit them Corey for closing remarks.
Haitham R. Khouri: Ladies and gentlemen, we have reached the end of the question and answer session and are out of time for today's call. I would like to turn the call back to Haitham Khouri for closing remarks.
Haitham R. Khouri: Thank you very much everyone.
Haitham R. Khouri: Thank you very much, everyone, and I'll talk to you again in 90 or so days.
Haitham R. Khouri: Talk again in 90 or so days.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time.
Haitham R. Khouri: Thank you. This concludes today's conference you may disconnect your lines at this time.
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Operator: [music].