Q4 2024 Perimeter Solutions Inc Earnings Call
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Barco: It is now my pleasure to introduce your host set Barco head of Investor Relations. Please go ahead.
Speaker Change: Thank you operator, good morning, everyone and thank you for joining perimeter solutions fourth quarter 2024 earnings call speaking on today's call are Hakan Macquarie 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 <unk>.
Speaker Change: Today February 22025, and these statements have not been nor will they be updated subsequent to today's call.
Speaker Change: Also today's call may contain forward looking statements. These statements made today are based on management's current expectations assumptions and beliefs about our business and the environment in which we operate and our actual results may materially differ from those expressed or implied on today's call. Please review our SEC filings for a more complete discussion of factors that could <unk>.
Speaker Change: Packed our results.
Speaker Change: The company would also like to advise you that during the call we will be referring to non-GAAP financial measures, including adjusted EBITDA and adjusted EPS.
Speaker Change: 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 website.
Speaker Change: With that I will turn the call over to Haytham, Corey Chief Executive Officer.
Speaker Change: Thank you Sir.
Haytham Corey: Good morning, everyone. Thank you for joining us.
Haytham Corey: As always I will start on slide three with a summary of our strategy.
Haytham Corey: Our goal is to fulfill our critical mission by providing our customers with quality products and exceptional service, while delivering private equity like returns with the liquidity of a public market.
Haytham Corey: We plan to attain this goal by owning extremely high quality businesses and maximizing the long term strength and value through consistent improvement in our three operational value drivers, which are number one profitable new business.
Haytham Corey: Number two continue will productivity improvements.
Haytham Corey: <unk> III pricing, our products and services to the value they provide.
Haytham Corey: 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.
Haytham Corey: Slide four provides a snapshot of our three main product lines, Retardants suppressants and specialty products, all of which share the following attractive structural crates.
Haytham Corey: <unk> provides a mission critical function, where failure is not an option.
Haytham Corey: Each is a clear leader in its market.
Haytham Corey: Each serves an extremely challenging and complex end market through a tightly integrated solution offering.
Haytham Corey: <unk> product equipment and service and finally, each as an attractive organic or inorganic long term growth profile.
Haytham Corey: Turning to slide five.
Haytham Corey: Perimeter reported a solid fourth quarter to close out a solid 2024.
Haytham Corey: In my public remarks over the last two years.
Haytham Corey: Repeatedly asserted my confidence in the consistent and significant progress we've made to increase the normalized earnings power of our business via the consistent and rigorous application of our value driver operating strategy.
Haytham Corey: Typically we've increased our organic growth rate by a significant and successful investments and profitable new business initiatives.
Haytham Corey: We've increased the value of our products services and solutions provide our customers and have shared in this value creation through value based pricing.
Haytham Corey: And we've driven significant operating efficiencies via our productivity initiatives, which have allowed us to maintain strong overall cost discipline, while reinvesting records films into activities that enhance customer value, including research and development.
Haytham Corey: And marketing and capital expenditures.
Haytham Corey: Virtually every time I have asserted my confidence in our operational improvements I have also asserted confidence that this progress should be evident to investors. When we experienced normalized end market, which allow for a more apples to apples comparisons versus our historical financial results.
Haytham Corey: <unk>.
Haytham Corey: While no comparison is perfect. We believe with the 2021 and 2024 are comparable years with roughly normalized demand environment in both our fire safety and specialty products businesses.
Haytham Corey: In both years.
Haytham Corey: I am proud to report that our consolidated adjusted EBITDA approximately doubled over this period from $141 million in 2021 and $280 million in 2024. This represents a three year adjusted EBITDA CAGR of 26% and extend our reach.
Haytham Corey: Adjusted EBITDA CAGR since 2010% to 19%.
Haytham Corey: Our consolidated adjusted EBITDA margin expanded approximately 11 100 basis points over the three year period, or approximately 360 basis points per year.
Haytham Corey: Given our belief that both 2021 and 2024 represent normalized and comparable years, we are confident that the improvement in our adjusted EBITDA over the three year period is the direct and sustainable result of our value driver focused operating strategy.
Haytham Corey: <unk>.
Haytham Corey: Moving to slide six.
Haytham Corey: I would like to acknowledge our team members, who sprang into action to help combat the devastating January fires in southern California.
Haytham Corey: January is traditionally a quieter month for our North American Retard business, where we primarily focus on base builds and upgrades equipment maintenance operational training and safety programs and other preparedness activities.
Haytham Corey: However, there is no off season in wildland firefighting as I've often stated our job is to support our customers by loading 100% of air tankers with 100% reliability, 100% of the time.
Irrespective of season location or any other variable.
Haytham Corey: Our teams sprang into immediate action when called upon.
Haytham Corey: Hey.
Haytham Corey: We quickly had six air tanker basis open and loading air tankers, Santa Maria and.
Haytham Corey: San Bernardino.
Haytham Corey: Lancaster Mcclellan.
Haytham Corey: Mona and channel Islands.
Haytham Corey: We also deployed three fully crewed mobile retardant basis to support close rates helicopter operations too at the Palisades fire and one at the Eaton fire as well as several ground applied retired units.
Haytham Corey: All six of our tanker basis, all three of our deployed MRV is in all of our deployed ground up five units remained fully inventoried and active during the wildfires.
Haytham Corey: This was made possible by the virtually replicable breadth and depth of perimeters operational preparedness, we have the product infrastructure equipment and personnel to respond and react with virtually perfect reliability in virtually any scenario.
Haytham Corey: This incident also illustrates why a highly distributed and localized manufacturing footprint.
Haytham Corey: Is essentially a requirement for any competitive return program.
Haytham Corey: We continually supplied our air basis, our <unk> and our ground up five units from our manufacturing facility in Rancho Cucamonga, just east of Los Angeles.
Haytham Corey: We have five retard manufacturing facilities located throughout the western United States with a six under construction with expected completion in spring of 2025.
Haytham Corey: We also have a retardant manufacturing facility in each of British Columbia and Alberta.
Haytham Corey: For a total of seven and soon to be eight retardant plants in North America.
Haytham Corey: This distributed and localized manufacturing footprint is essential as we support our customer who wildfire response irrespective of location.
Haytham Corey: Thank you to our team members, who show valiantly responded to these wildfires through.
Haytham Corey: The firefighters and first responders, who stepped into harm's way to keep other safe and to everyone still dealing with a challenging aftermath of these devastating fires.
Haytham Corey: Moving to capital allocation on slide seven.
Haytham Corey: As I have repeatedly stated we expect to deploy all of our free cash flow as well as the incremental leverage capacity, we generate through organic EBITDA growth towards the highest expected IRR combination of internal reinvestment into our business M&A.
Haytham Corey: M&A.
Yeah repurchases and special dividends.
Haytham Corey: I will recap our capital allocation results from 2024.
Haytham Corey: Starting with internal reinvestment into our business.
Haytham Corey: We reinvested a record amount of capital.
Haytham Corey: Back into perimeter in 2024.
Haytham Corey: This is most evident in our capital expenditures, which grew substantially versus our historical levels with a growth focused on investments that we expect to drive attractive returns by our profitable new business value based pricing and productivity.
Haytham Corey: Our higher Opex reinvestment is less evidence since this spend hits the income statement.
However, we've significantly increased our sustainable opex spend levels on R&D.
Haytham Corey: Sales and marketing field service customer relations and several other customer facing and value generating opex categories.
Haytham Corey: Moving to M&A.
Haytham Corey: Closed our first acquisition since going public on December 24, 2024, when we acquired intelligent manufacturing solutions or IMS for approximately $33 million.
Haytham Corey: This purchase price represents an approximately 10 times multiple on IMS as 2024, adjusted EBITDA pro forma for specific recurring expenses, we're adding to the business to execute on our long term strategy, Brian Yes.
Haytham Corey: Based in Manchester, New Hampshire, IMS is a manufacturer of highly specialized printed circuit boards for Pcbs.
Haytham Corey: <unk>.
Haytham Corey: Climate components, which are critical to the functioning of much larger assemblies, including large medical devices.
Haytham Corey: Communications infrastructure energy infrastructure.
Haytham Corey: Hence systems and industrial systems.
Haytham Corey: Our market research led us to Pcbs as an excellent fit for our value driver based operating strategy and highly consistent with our often stated target economic criteria spin.
Haytham Corey: Specifically.
Haytham Corey: Many of the largest PCB end markets experienced solid long term organic organic growth excuse me.
Haytham Corey: A very significant portion of <unk> sales are what we describe as spares and repairs, which constitute a predictable and recurring aftermarket demand screen.
Haytham Corey: <unk> are relatively inexpensive components, which are critical to the functioning of much larger and more expensive instruments and machines.
Haytham Corey: A well run PCB business should enjoy strong recapture low margins and high returns on tangible capital.
Haytham Corey: And finally.
Haytham Corey: We believe that there's a long runway to acquire and licensed in production PCB product lines at attractive multiples.
Haytham Corey: Bringing these product lines and try and ask for manufacturing.
Haytham Corey: <unk> profitability improvements into these products by the implementation of our value driver operating strategy.
Haytham Corey: And sell these products into established recurring and predictable aftermarkets.
Haytham Corey: Note that we will report IMS and our specialty product segment going forward.
Haytham Corey: I will conclude the 2024 capital allocation discussion with share repurchases.
Haytham Corey: We repurchased approximately 3 million shares in 2024 at an average price of $4 81.
Haytham Corey: Representing an approximately 150% return on our investment.
Haytham Corey: Since going public in late 2021, we've repurchased approximately $21 6 million shares at an average price of $5 90.
Haytham Corey: Representing an approximately 100% return.
Haytham Corey: Looking ahead, we believe that we're very well positioned to drive shareholder value by active capital allocation as well as capital structure management.
Kyle Stable: With that I will turn the call over to Kyle.
Kyle Stable: Thanks Nathan.
Ill begin on slide eight where growth figures shown are versus the prior year comparable period.
Kyle Stable: For the fire safety segment fourth quarter revenue increased 72% to $67 million and full year revenue grew 93% to $436 3 million.
Fire safety Q4, adjusted EBITDA rose, 289% to $27 2 million contributing to the full year figure of $240 1 million an increase of 215%.
Kyle Stable: The majority of the increase in fire safety is Q4 and full year revenue and adjusted EBITDA is attributable to a retardant products and associated services.
Kyle Stable: The year over year increases were driven by a combination of strong execution of our value driver focused operating model as well as end market normalization.
Kyle Stable: As the 2020 for North America fire season, it was of approximately normal severity versus the unusually mild 2023 season.
Kyle Stable: Our <unk> products experienced strong growth in 2024, as we continued to benefit from the transition to flooring free film where perimeter is the clear market leader.
Kyle Stable: In our specialty products segment, Q4 sales increased 6% to $25 5 billion.
Kyle Stable: Helping to drive full year sales growth of 29% to $124 7 million.
Kyle Stable: Specialty products Q4, adjusted EBITDA grew 34% to $5 $6 million, while full year, adjusted EBITDA improved 95% to $40 2 billion.
Kyle Stable: On a consolidated basis Q4 sales increased 45% to $86 2 million in full year sales expanded 74% to $561 million.
Kyle Stable: Consolidated adjusted EBITDA increased 193% to $32 9 million in the fourth quarter.
Kyle Stable: And totaled $283 million for the full year up 190% despite record spending to support our customers in areas, such as research and development and field service, which we expect to remain elevated for the foreseeable future as we invest in our capabilities in support of our customers' missions.
Kyle Stable: These results are a function of both the implementation of our operational value drivers and the status of our end markets.
Kyle Stable: I'll spend a moment on slide nine putting 24 2020 four's results into context.
Kyle Stable: I'll start with fire safety by describing how we frame our normal fire season.
Kyle Stable: As you can see on the left hand side of the slide U S acres burned ex Alaska averaged $6 1 million and $6 4 million over the past 10, and five years respectively.
Kyle Stable: As illustrated on the right hand side of the slide there's a multi decade data supported record of growth in the U S acres burned ex Alaska trend line.
Kyle Stable: Combining the six one and $6 4 million averages from last 10 five years with the long term growth trends suggest that our normalized U S fire season should fall roughly in the range of six to 7 million acres burned extra Alaska.
Kyle Stable: Our acres burned ex Alaska is a good directional measure of a fire seasons intensity, it's an imperfect indicator, which at times embeds deviation. So substantial has to be worth calling out.
Kyle Stable: 2024 experienced such a deviation.
Kyle Stable: 2024 U S acres burned ex Alaska were $8 2 million.
Kyle Stable: However, approximately $1 1 million of these acres resulted from the February 2024, smokehouse, Greek fire in Texas, and Oklahoma, the largest U S wildfire, excluding Alaska and more than 100 years.
Kyle Stable: A negligible amount of return that we used in fighting this fire.
Adjusting for these acres 2024 U S acres burned Alaska were approximately $7 million.
Kyle Stable: Which approximate the high end of what we believe to be a normal fire season.
Kyle Stable: I will note that 2021 acres burned Alaska were $6 9 million, which is why we believe the 2021 to 2020 for comparison is appropriate.
Kyle Stable: Moving to specialty products and markets as we noted through most of this year, we're comfortable that 2020 threes destock activities behind us and believe that 2024 represents a normalized end market demand year for the business.
Accordingly, we believe that both of our segments experienced end market demand in the normal range in 2024, and 2020 fours results are sustainable if we experienced similarly normalized end market demand.
Kyle Stable: To better assist investors in understanding our underlying earnings power.
Kyle Stable: Introducing adjusted earnings per diluted share or adjusted EPS as outlined on slide 10.
Kyle Stable: This metric shares many of the same adjustments as our adjusted EBITDA metric, but then deduct interest depreciation and taxes net of the tax impact of the adjustments to yield adjusted net income.
Kyle Stable: Our share count is adjusted to exclude the share impact of these adjustments.
Kyle Stable: We will report this metric quarterly going forward investors can find the details for these calculations as well as the adjusted EPS figures for each quarter of 2024, and our press release and Investor presentation.
Kyle Stable: For Q4, 2024, our GAAP EPS was <unk> 90, <unk> and our adjusted EPS was <unk> 13.
Kyle Stable: Full year 2024 yielded a GAAP loss per share of <unk> and an adjusted EPS of $1 11 per share.
Kyle Stable: Adjusted EPS allows investors to make comparisons to peers that report similar metrics as well as highlights the efficiencies, we expect to generate from our low capital intensity.
Kyle Stable: Prudent capital structure and improving tax profile.
Kyle Stable: Turning to free cash flow, which we define as cash flow from operations less capital expenditures, we are adjusting our long term assumptions as shown on slide 11.
Kyle Stable: Annual interest expense remains at approximately $40 million. Thank you for interest expense was consistent with that figure at $9 2 million.
Kyle Stable: We expect our depreciation amortization and other tax deductions to be in the range of $20 million to $25 million in 2025.
Kyle Stable: Driven by increased Capex and greater tax amortization.
Kyle Stable: Q4 tax deductible DNA was $2 $7 million.
Kyle Stable: Q4, GAAP depreciation was approximately $2 8 million in Q4, GAAP amortization expense was $13 $7 million.
Kyle Stable: Cash paid for income tax was $43 1 million in Q4 at $74 6 million for the full year.
Kyle Stable: In addition to the streamline legal accounting and cash management operations that drove our re domiciliation transaction that closed in November we expect to generate an improved tax profile from the move.
Kyle Stable: Matching our legal domicile with most of our operations and earnings allows us to broaden the scope of tax deductible expenses and increases the degrees of tax structuring freedom.
Kyle Stable: As such we anticipate our cash expenditures on income taxes will approximate 20% to 25% of our adjusted EBITDA After deducting tax deductible DNA and interest expense.
Kyle Stable: This general framework will vary year to year, and particularly quarter to quarter due to timing impacts and income fluctuations, which should provide a useful way to think about the improvement in our tax profile over a multiyear period.
Kyle Stable: Moving to Capex, we found attractive capital expenditure projects with strong returns throughout our business in 2024 and continuing to find additional opportunity in 2025.
Kyle Stable: As such we're moving our Capex assumption up to $15 million to $20 million annually and note that Q4 2020 for Capex of approximately $6 $5 million is consistent with this increased capital expenditure target.
Kyle Stable: We anticipate investing 10% of any annual increase in revenue and networking capital overtime. Although note that this varies quarter to quarter, given the seasonality of our business.
Kyle Stable: While that is our long term assumption in 2024, we outperformed that metrics consistent with remarks throughout the last year.
Kyle Stable: Our team drove substantial working capital improvement over the course of 2024, notably on inventory, which declined $29 $3 million for the full year.
Kyle Stable: In total we generated free cash flow of $172 9 million in 2024.
Kyle Stable: The inflection in our 2024 adjusted EBITDA has both validated our operational value drivers strategy and created the necessary financing capacity to pursue M&A.
Kyle Stable: Our team is actively searching for targets and after Capex, we view M&A as the highest return generating use of capital.
Kyle Stable: Turning to slide 12.
Kyle Stable: I'd like to highlight our highly attractive debt profile comprised of a single series, 5% fixed rate note maturing in the fourth quarter of 2029, which does not carry any financial maintenance covenants as.
Kyle Stable: As of Q4, we were Levered, one seven times net debt to LTM adjusted EBITDA.
Kyle Stable: We have substantial liquidity with cash and cash equivalents of approximately $198 5 million and an undrawn $100 million revolving credit facility.
Kyle Stable: We ended the period with a proximately $147 8 million basic shares outstanding.
Kyle Stable: I'll close by noting that perimeter exists to serve two complementary purposes.
Kyle Stable: Filled our secret and lifesaving mission and to drive shareholder value.
Kyle Stable: We're exceptionally proud that our team delivered on both elements in 2024 and remain focused on those two aims for 2025.
Kyle Stable: With that I'll hand, the call back to the operator for Q&A.
Kyle Stable: Thank you.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: If you'd like to ask a question. Please press star and one on your telephone keypad a.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press star two if you'd like to remove your question from the queue.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Keith.
Speaker Change: Ladies and gentlemen, we will wait for a moment, while we poll for questions.
Speaker Change: The first question comes from the line of Josh Spector from UBS. Please go ahead.
Chris Perrella: Hi, Good morning, it's Chris Perrella on for Josh.
Chris Perrella: Could you dig in a little bit more about the PCB market and how it fits in the perimeters strategy.
Speaker Change: Well for our strategy.
Speaker Change: As you've witnessed we have been extremely patient keeping the bad on our shoulders, so to speak as far as pulling the trigger on M&A over the past couple of years and that's because we set both is very high and very specific bar for ourselves we want to buy assets, we describe as exceptionally.
Speaker Change: High quality and we want to buy assets that fit very very neatly into what we do best which is significantly driving post acquisition value to the implementation of our operational value drivers strategy.
Speaker Change: We're very clear about what that means we've clearly and repeatedly articulated five targeted economic criteria.
Speaker Change: And we believe when we find the business consistent with the five again often articulated in repeated target economic criteria that means it's a great fit for our strategy that means et cetera, with high quality business and very specifically that means we think our operational value driver play.
Speaker Change: Book is highly applicable and I try to tick through or not a crisis I ticked through all five in my.
Speaker Change: Prepared remarks, we think pcbs.
Speaker Change: Hand in glove based on the first four which talk about the intrinsic business quality both of IMS and of the PCB market and the number five has the potential for opportunistic consolidation within any industry, we enter and we think that's one of the true highlights.
Speaker Change: <unk> of IMS.
<unk> itself is a very high quality asset at a very attractive business, where we think we can drive significant value.
Speaker Change: Additionally, we believe that IMS is going to be an excellent platform for us to deploy meaningful capital going forward acquiring or in licensing and production pcbs to greatly expand the portfolio.
Speaker Change: Essentially IP ownership of Pcbs, and each time, we acquire or in license a product line will look.
Speaker Change: Add real value to our customers and sharing that through value pricing will look to innovate and drive profitable new business and we will look to deploy our productivity playbook and grind down costs.
Speaker Change: I appreciate that.
Speaker Change: And then I guess as a follow up the higher Capex spending is that a function of investments in fire safety or is that your expected.
Speaker Change: Up to grow.
Speaker Change: The potential PCB business organically.
Speaker Change: Realizing I know that youre going to do some bolt ons and you're going to use that as our M&A platform just I guess, what's what's the what's driving the uptick in capex.
Chris Perrella: Hey, Chris Thanks.
Speaker Change: Thanks for the question.
Speaker Change: Excellent question.
Speaker Change: When we think about this as predominantly in that fire safety platform, where we see the increase in Capex. We've already spent a lot of dollars on both opex and capex working to kind of a better fulfill customer missions drive improved products and expanded services and that's what we're seeing here. We're very excited about the projects that we're seeing in our cap.
Speaker Change: Next pipeline they do two things.
Speaker Change: They help us fulfill our customers' missions.
Speaker Change: And they come with extremely attractive Irr's are capex pipelines, just it's filled with a lot of value creating opportunities largely in the fire safety side for right now and we'll expand that scope as we go forward.
Speaker Change: Thank you I appreciate it I'll jump back in the queue.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Dan Kutz from Morgan Stanley Investment management. Please go ahead.
Speaker Change: Hey, Thanks, good morning.
Speaker Change: Hey, Matt.
Speaker Change: So.
Speaker Change: I feel like.
Speaker Change: You guys have already kind of addressed this question, but I think it's on.
Speaker Change: A lot of folks is mined.
Speaker Change: So I figure, it's still worth asking.
Speaker Change: Firstly thoughts and prayers go out to the families impacted by the southern California wildfires, but.
Speaker Change: Basically the question is.
Speaker Change: It seems like undoubtedly the California catastrophe will catalyze.
Speaker Change: An increased focus on resilience and preparedness and basically.
Speaker Change: What I'm what I'm trying to ask is are there any implications for perimeters business as as there is kind of heightened efforts.
Speaker Change: Around fire suppression fire prevention or is it is as as you've kind of consistently reiterated.
You you are committed to and have executed on loading 100% of their tankers are 100% of the time basically.
Speaker Change: 100% preparedness.
Speaker Change: Just wondering if there's any implications for.
Speaker Change: Preliminary specifically.
Speaker Change: The country kind of bolsters its wildfire fighting efforts. Thanks.
Dan Kutz: Hey, Dan Thanks for the question.
Speaker Change: First let me note that let me note that any fire that takes lives or consumes properties, a tragedy, but the scale of the la <unk>.
Dan Kutz: <unk>.
Dan Kutz: Our Hearts go out to those affected and we're really proud we've been able to support our customers' efforts to contain the virus.
Dan Kutz: Second while that was a widespread and near instantaneous response from us and it was critical for fulfilling our mission.
Dan Kutz: In the near term it had a relatively modest financial impact relative to our full year earnings power. The L. A virus impact would account for only a small fraction of the variation we typically see in the full year fire season, and so it's not it's not in the near term impact.
Dan Kutz: To our financial statements or the longer term, though I think <unk>, probably want to add since that.
Dan Kutz: Yeah, Thanks, Scott, Yeah, Dan longer longer term.
Speaker Change: Buyers will almost inevitably attract more attention more focus more proactively and ultimately more resources towards wildland firefighting in general and towards the aerial element of wildland firefighting in particular.
Speaker Change: And Thats, just going to greatly benefit our nation.
Speaker Change: And certainly our industry and as part of that perimeter as we've as we've often stated.
Speaker Change: We are a capacity constrained industry, we run out of the air tanker capacity.
Speaker Change: At least a point in time, if not multiple points in time literally every single viruses.
Speaker Change: We need to have should have as a nation more air tankers.
Speaker Change: More helicopters more <unk> more ground applied units more preventative retardant application et cetera, and it's hard to believe that the attention the buyers in the spotlight put on the importance of these preparedness and Resiliency Act.
Speaker Change: <unk> will lead to more investment, which simply increases industry capacity and neutral response capability of which perimeter as a critical part.
Speaker Change: And I'll tell you we are we have a part to play here.
Speaker Change: Part of it is air tankers are added and we indirectly it very clearly benefit part of the onus is on us to continually build bigger more capable base is at the lab capability add multi with loading add newer equipment and we've been very very.
Speaker Change: Aggressively doing that over the past couple of years and you really you really saw that impact MLA that channel islands as a brand new base. We built a couple of years ago that played a huge role San Bernardino as a base, we put a lot of investment in over the past couple of years, which played a huge role.
Speaker Change: Mcclellan debates, we've put tremendous investment into over the past couple of years again played a huge role in their life fire.
Speaker Change: So we will do our part.
Quasi inevitably others will as well going forward and I think that the industry and the nation will benefit.
Speaker Change: Awesome, that's all Super helpful color.
Speaker Change: And then and then for the next question.
Pardon.
Speaker Change: Both related to the new administration in the U S.
Speaker Change: I guess firstly any.
Speaker Change: Any implications for the PRN.
Speaker Change: Manufacturing and supply chain kind of input costs from tariffs and trade wars and.
Speaker Change: More broadly.
Speaker Change: Are there any implications from.
Speaker Change: Proposed or implemented policies from the new administration that could impact <unk> business is one way or another I guess, the one that comes to mind is that.
Speaker Change: Kind of a less supportive.
Speaker Change: With vehicle legislation seems like a tailwind for ice miles driven and specialty products demand, but yes basically just.
Speaker Change: On tariffs and trade wars and more.
Speaker Change: More broadly.
Speaker Change: Policies from the New administration and in terms of the implications for <unk> business lines.
Yes, good question Dan.
Speaker Change: We really don't think so our supply chain is extremely resilient with multiple redundancies.
Speaker Change: Up and down the entire system.
Speaker Change: I don't think youll see any impact from tariffs or really any other new governmental policy not not that we don't pay very very close attention. We do of course, we spend a lot of time in Washington.
Speaker Change: We're all over this stuff.
Speaker Change: And as a result, we have a failure from the opinion that there should be negligible impact on our business, but we also stay vigilant.
Eyes wide open on.
Speaker Change: On your question, specifically on electric vehicles and specialty products.
Speaker Change: It's a rounding error might you see a small uptick in percent of new vehicle sales that are internal combustion engine in a small downtick that are electric.
Speaker Change: I mean, maybe maybe not even if you did the impact on the car Park is negligible in any given year. This is really tight.
Total internal combustion engines miles driven call it across the entire OECD. So any small change in the distribution of U S. New vehicle sales in any one or two years is is just a rounding error.
Speaker Change: Sure that all makes sense.
Speaker Change: Really helpful. Appreciate the color and I'll turn it back.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Chris predict from Pacific Asset Management. Please go ahead.
Chris predict: Hi, Good morning, Thanks for taking my questions just a couple housekeeping ones probably for Carl on the financials.
Chris predict: The first one is just there's a bit of it looks like noise with taxes and the cash flow statement. This year.
Chris predict: Cash taxes looks like they've gone up Theres, a big drawdown on.
Chris predict: Deferred income taxes is that related to the re domicile or was there something different.
Chris predict: Yes, Chris you have it exactly right is related to the re domicile a little bit on the on the DTA and details the deferred taxes that the re domicile impact when you look at the cash tax impact Chris It's largely just a matter of timing.
Chris predict: Okay Super.
Chris predict: The other one thanks for the disclosure about adjusted net income would you be willing to offer any kind of guidance on a long term basis about the.
Chris predict: The relationship between free cash flow and adjusted net income would it be.
Chris predict: 90%, 100% at 80 is there any kind of range, we should be thinking about in terms of.
Chris predict: Cash per dollar of adjusted net income please.
Chris predict: Chris on that specific ratio, we will not however, what we do do is give you a fair bit of detail on how we think about converting from adjusted EBITDA to free cash flow.
Chris predict: Our earnings deck, and you shouldn't be able to go through and take any underlying business assumptions that you make bringing that to adjusted EBITDA and then use that fly to go from there to free cash flow.
Speaker Change: Fair enough no problem. Thank you very much.
Chris predict: Thank you.
Speaker Change: The next question comes from the line of Josh Spector from UBS. Please go ahead.
Speaker Change: Hi, everybody, it's Chris again.
Speaker Change: Just a follow up on the leverage ratio lower historically you guys.
Speaker Change: Grown into the leverage.
Speaker Change: I think.
Speaker Change: Do you have a target there or do you want to get back to about three and a half or over three five times Levered and how quickly now that you have the PCB base acquisition.
Speaker Change: Do you think M&A will progress as part of the strategy.
Speaker Change: Sure. Thanks, Chris on the target leverage yes, we would like to have a higher leverage ratio here and I think your range is a perfectly fine place to think about it the other day.
Speaker Change: Data point out look at point you to is the leverage ratio when we IPO since we effectively picked that at the time of IPO and yet the main driver that we expect to get back to that leverage ratio will indeed be will indeed be M&A, we're pretty active in that we know we have a extremely high quality portfolio of businesses and we're very focused.
Speaker Change: Maintaining that quality of businesses and specifically the applicability of our operational value drivers strategy any potential acquisition, we're out there looking for a lot of.
Speaker Change: A lot of potential targets and as we put it where we're gonna kiss a lot of frogs until we find our friends.
Speaker Change: Fair enough.
Speaker Change: It's not just focused on PCB at this point.
Speaker Change: Still scouring for other businesses that fit with our strategy.
Speaker Change: 100%, Chris that's exactly right I think what you should take away from the IMS acquisition is that when we see an asset that we're extremely excited about we're going to go out and do that.
Speaker Change: We have a pretty broad aperture both in size and in the types of businesses that we're going to evaluate at the top of our funnel for M&A and this is just the first step in what we hope will be a series of acquisitions, where we can put more and more kind of raw material into our operational value drivers framework and continue to drive the sort of value creation you've seen over the.
Speaker Change: Last three years in our existing portfolio of businesses.
Speaker Change: Alright, I appreciate the color thanks, guys.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, if you wish to ask a question Please press star and one.
Speaker Change: As there are no further questions I will now hand, the conference over to hate them Kearney for his closing comments.
Speaker Change: Thank you everybody for your time this morning, and thank you as always to our investors for your trust and support we remain very very hard at work to drive value for you. Thank you.
Speaker Change: Thank you, ladies and gentlemen, the conference of betting meter solutions has now concluded. Thank you for your participation you may now disconnect your line.