Q1 2025 Perimeter Solutions Inc Earnings Call
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Speaker Change: Good day everyone and welcome to today's Perimeter Solutions Q1 2025 Earnings Call.
At this time, all participants are in a listening mode.
Speaker Change: Later, you will have an opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the start and one on your telephone
Speaker Change: Please note this call is being recorded and I will be standing by if you need any assistance. It is now my pleasure to turn today's program over to Seth Barker, Head of Investor Relations. Please go ahead.
Seth Barker: Thank you, Operator. Good morning, everyone, and thank you for joining Perimeter Solutions first quarter 2025 earnings call. Speaking on today's call are Haitham Khouri, Chief Executive Officer and Kyle Sable, Chief Financial Officer.
Speaker Change: We want to remind anyone who may be listening to a replay of this call that all statements made are as of today May 8th, 2025 and these statements have not been nor will they be updated subsequent to today's call. [inaudible]
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.
Speaker Change: These review are SEC filings, particularly any risk factors included in our filings for a more complete discussion of factors that could impact 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 EPIDA, adjusted EPS, and free cash flow.
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's website. With that, I will turn the call over to Haitham Khouri, Chief Executive Officer.
Thank you Seth, and good morning everyone.
Haitham Khouri: We're pleased to report perimeter's strong start to 2025. First quarter adjusted the ABDA reached 18.1 million, reflecting solid execution of our operational value drivers, as well as prior activity in both North America and international markets.
Haitham Khouri: We have celebrated capital deployment during the first quarter, investing 23 million across a range of priorities, including increased capital expenditures, our first product line and acquisition at IMS and share repurchases.
Haitham Khouri: Before getting into the details on the quarter, I'll provide a summary of our strategy, offer context on our IMS acquisition and give a brief operational update. After that, Kyle will walk through the chorus financial results and capital allocation in more detail.
Starting on slide three with a summary of our strategy.
Haitham Khouri: Our strategy is built on three operational pillars. First, we seek to own exceptional businesses. These are typically niche market leaders that play critical roles in solving complex customer problems.
Haitham Khouri: Qualities that support high returns on invested capital and durable earnings growth.
Haitham Khouri: Second, we will rigorously apply our three operational value drivers to the businesses we own. We drive profitable new business, achieve continual productivity improvements, and provide increasing the value to customers which we share in through value-based pricing.
Haitham Khouri: and third, we operate our businesses in a highly decentralized manner. Decentralization is a principle we discussed extensively within Perimeter and which we're happy to discuss with investors today as the third pillar of our operating strategy.
Haitham Khouri: We believe our operational pillars will optimize our durable free cash flow. We then seek to maximize long-term per share equity value through a clear focus on the allocation of our capital as well as the management of our capital structure.
Haitham Khouri: I'll now spend a moment on the importance of decentralization to our operating model.
Perimeter currently consists of multiple business units.
Haitham Khouri: and we expect that number to grow through future acquisitions. Each of our business units operate independently with minimal integration at the corporate level.
Haitham Khouri: Our general managers have full autonomy to run their businesses and drive long-term performance.
Haitham Khouri: In turn, they're held accountable to deliver results across each of our three operational value drivers and finally, they are incentivized to do so as we closely align compensation to outcomes.
Haitham Khouri: This decentralized approach accelerates and improves operational decision-making by placing it in the hands of those closest to the customer.
Haitham Khouri: We believe that there is no substitute for empowered and incentivized managers focused on driving value creation via the rigorous implementation of our three operational value drivers.
Albert Siley, Decentralized Operating Philosophy, also supports our acquisition strategy.
Haitham Khouri: If a business meets our exceptional quality criteria, we believe we can drive value creation through our proven operational playbook and without relying on unproven synergies.
Haitham Khouri: A recently acquired IMS business described in detail on slide 4 demonstrates this point well.
Haitham Khouri: IMS is a high quality platform where we see meaningful opportunity to apply our operational value drivers and deploy capital into targeted product line acquisitions to generate returns above our threshold.
Haitham Khouri: IMS Produces Printed Circuit Board-Centered Components, used in Mission Critical Applications.
Haitham Khouri: These components are typically used in the repair and replacement aftermarket for larger higher value systems, smaller cost, but essential in function, and are well suited to our strategy of building durable, high-margin, high-return businesses.
Thank you.
Haitham Khouri: IMS strategy has two critical components that differentiate it from a typical PCD manufacturer.
Haitham Khouri: First, IMS increasingly owns the intellectual property of the components it manufactures, both through developing production IP and owning the underlying designs, certifications and specifications necessary to develop these components.
Haitham Khouri: Second, IMS is focused on highly flexible short run production. This enables IMS to own niche aftermarket components with smaller volumes, which larger manufacturers often struggle to service.
Haitham Khouri: The result of these two differentiating characteristics is that IMF is often the sole source provider of critical components into niche after market applications.
Haitham Khouri: Our goal is to expand IMS's portfolio of proprietary components by acquisition. IMS completed its first add-on product line acquisitions in the first quarter for a total purchase price of $10 million dollars.
Haitham Khouri: We anticipate deploy significant capital annually into add-on acquisitions at INS or at expected IRRs which exceed our return threshold based on our ability to apply our operational value driver playbook to these acquired product lines.
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Turning to recent operational developments on slide 5.
Haitham Khouri: Wildfire activity in the early part of the North America fire season was elevated, including devastating wildfires in Southern California, and activity across Texas, Oklahoma, Florida and the Carolinas.
Haitham Khouri: This early season activity reinforces the critical importance of resource radius.
Haitham Khouri: Family availability of firefighting assets, not only improved response detectiveness, but also delivers a meaningful return on investment to government and communities.
Haitham Khouri: reducing long-term costs, protecting property and the environment, and most importantly helping safeguard lives in the threatened communities.
Haitham Khouri: International markets also contributed positively to the quarter, with a return to more typical fire activity levels in Australia and increased use of retardant across several international markets.
Haitham Khouri: Our Suppressance Product line faced a more difficult comparison in Q1, as it had a stronger prior year period due to the launch of our fluorine-free mil-spec products in late 2023.
Haitham Khouri: In our specialty products business, we experienced operational challenges at our US-P2S-5 manufacturing facility, which is operated by a third party via tolling arrangement.
Haitham Khouri: The extended Q1 plant outage, excuse me, weighed on EBDA for the segment. We are actively addressing the downtime issues with our tolling partner.
Speaker Change: Thanks, Haitham. I'll begin on slide six. For growth to your shown, our versus the prior year comparable period.
Haitham Khouri: Starting with fire safety, revenue is $37.2 million, up 48% from last year, and adjusted EBITDA was $10.1 million, compared to a small loss in the same period last year.
Haitham Khouri: The increase in fire safety's Q1 revenue in adjusted EBITDA is attributable to our retarded products and associated services, which overcame a decline in our
Haitham Khouri: The increase in fire returning sales is determined by above average fire activity in multiple states, most notably in California during Q1.
Haitham Khouri: First quarter, 2024 benefited from a major suppressants product launch in late 2023, which boosted results in Q1, 2024 in light of lower sales and suppressants in Q1 of 2025.
Haitham Khouri: While wildfire activity in Q1 was elevated, wildfire risk conditions across our entire footprint are still within range we would consider normal, and we continue to prepare for the full range of potential outcomes.
Haitham Khouri: In our specialty product segment, Q1 net sales increased $7.5 million due to our IMS acquisition. Set a $6.5 million decrease in the base business due to unplanned client downtime at our outsourced manufacturing provider for a net increase of $1 million.
Haitham Khouri: Specialty Products, Q1, Adjusted EVA Dot, Decreased to $8.9 dollars, is compared to $12.4 million in the prior year quarter.
Haitham Khouri: Well, demand for our base C2S5 business was strong in Q1, extensive downtime at our manufacturing provider because specialty products to miss out on the sales in Q1.
Haitham Khouri: While our team is focused on resolving the underlying issues to ensure more stable operations going forward, these missed sales will not be fully recovered in the balance of 2025 and will reduce this year's adjusted EBITDA. We anticipate that the earnings power of the business will rebound to normalized levels in 2026.
Combined, the Fire Safety Outperformers
Haitham Khouri: Offset specialty products at their party plant issues. It consolidated first quarter sales up 22% to 72 million dollars, and adjusted EBITDA rising 49% to 18.1 million dollars, compared to 12.1 million dollars a year ago.
Haitham Khouri: Let me take a moment to discuss the impact of trade policy on our operations. We expect a modest direct impact, as virtually all of our US sales are produced domestically. We prioritize domestic suppliers when available, and we have plans in place to mitigate even this limited exposure.
Haitham Khouri: Our Jurassic Sposure equates to 2 to 3% of annual EBITDA, which we are working to mitigate.
Haitham Khouri: Moving below adjusted EBITDA for Q1 2025, our GAP EPS is 36 cents as compared to a 57-cent loss in the prior year quarter. Q1 2025 adjusted EPS was 3 cents as compared to a 1-cent loss in the prior year quarter.
Haitham Khouri: Persumptions are unchanged, and with normal quarterly variation, Q1 is consistent with those expectations.
Haitham Khouri: He won interest expense with $9.6 million, while taxable depreciation, amortization, and other tax deductions total $5.3 million.
Haitham Khouri: Here I will note that variation in taxes is typically timing-related in any given quarter, and our full-year tax expectation is unchanged. Our capital expenditure is consistent with expectations at $4.8 million.
Haitham Khouri: Our working capital needs fluctuate seasonally, and Q1's working capital levels reflected our team's effort to manage this cash flow, with the declining and accounts receivable more than offsetting the slight seasonal inventory increase.
Haitham Khouri: We define free cash flow as cash flow from operations left capital expenditures.
Haitham Khouri: We continue to invest in our business organically, with $4.8 million allocated to capital expenditures, the majority of which supported our growth and productivity initiatives.
Haitham Khouri: Pipeline about Standing Projects continues to build and is an important element supporting our long-term, organic ebidagross trajectory.
Haitham Khouri: Moving to M&A, we invest 10 million dollars in Q1, kicking off the Inorganic expansion of IMS, it was a key part of the original investment thesis.
Haitham Khouri: The acquired product lines are being integrated into our manufacturing footprint and our team is working on implementing our operational value driver strategy.
Haitham Khouri: Finally, we repurchase 900,000 shares for approximately $8 million in Q1.
Haitham Khouri: While many companies have systematic share repurchase programs, our view is to repurchase shares when we believe our equity trades meaningfully blow intrinsic value, and when repurchases will not preclude higher potential IRR investments, notably in M&A. Both conditions were true in Q1.
Turning to slide 9.
Haitham Khouri: I'd like to highlight our favorable debt structure, just a single series of fixed rate notes at 5%, maturing in the fourth quarter of 2029 with no financial maintenance
Haitham Khouri: As a Q1, we were alerted 1.7 times net debt to LTM Adjusted EBITDA.
Haitham Khouri: We also have substantial liquidity with around $200 million in cash and an undrawn $100 million revolver as of quarter-end.
Haitham Khouri: We ended the quarter with about 148.8 million basic shares outstanding.
Haitham Khouri: To conclude, Perimeter's first quarter reflected good execution in some early tailwinds.
Haitham Khouri: Despite the strong start, we remain disciplined in our approach to the full year, continuing our work to implement our operational value drivers across the business.
Haitham Khouri: With that, I'll hand the call back to the operator for Q&A.
Speaker Change: Thank you. At this time, if you would like to ask a question, please press the star end one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, let us start and one if you would like to ask a question. We'll take our first question from Josh Skefter with EBS. Your line is open.
Josh Skepter: Hey, good morning, guys. I just wanted to follow up on the comment on tariffs. So the 2-3% EBITDA exposure risk is that primarily cost that you're talking about and can you talk about your ability to offset that do you have full ability to do that or do you think some of that is going to remain a headwind.
Josh Kyle, thanks for the question.
Josh Skepter: and the cost side, the 2% to 3% of adjusted evils out for the year.
Josh Skepter: is really a reflection of our imports, and we really believe that we're going to have some lovers to fold and be able to do that. Will we be able to get the entire amount back? We're still uncertain and we're still working through the alternatives there, but we do suspect we'll be able to mitigate a reasonable proportion of that.
Speaker Change: And just on the customer side, Amanda, most of your sales are within the region, but your customer's customer may be sending some oil-added blends from the US to China or some other areas. How do you assess that piece from a sales exposure perspective? Is there any comments you can make there?
Speaker Change: Okay, thanks. And just on suppressants, so the sales down year-over-year on the tough comp. I think it's the toughest year-over-year growth comp.
Speaker Change: But the sales and suppressants are higher in 2Q and 3Q. I guess what I'm trying to ask here is do you expect that 2Q and 3Q are tough comps that you expect to be down or would you expect to grow 2Q and 3Q based on what your order books look like today?
Speaker Change: Yeah, I got Q1 last year. It wasn't unusually tough comp for us in the scheme of the cadence of the year overall. So I expect that we will have a, as the year builds through, we should get, we should be a little bit better on that front.
Speaker Change: Okay, and if I could squeeze in one more just on a fire retardant.
Speaker Change: During the quarter, one of your potential competitors basically exited the market. So I'm just curious if you have any comments there around competitive dynamics within the industry today. And as we think longer term, do you think the USDA, US Fire Service still have a goal? Yes, I do.
Speaker Change: to qualify and bring in alternative materials or has that goal changed at all? Thank you.
Yeah, hey, Josh, it's Haitham.
So I think one or two things have changed.
Alternate Non-Amonial Cross-Fate Chemistry is attempted or qualified anytime soon.
Hmm.
What hasn't changed?
Speaker Change: which is where our focus has always been, and if it needs to be, is Perimeter is the gold standard of retardant programs. I've said this before, but there's a reason that literally every meaningful retardant program in the world partners with us.
Speaker Change: We, it's an attractive market. We understand that there always be competitors.
are offering an enter the market.
Speaker Change: and the way we combat that is remaining highly, highly vigilant and obsessively trying to raise the bar.
Speaker Change: on ourselves. We invested very heavily in R&D to remain at the absolute cutting edge.
Speaker Change: of the industry, we invest heavily in our equipment and our people to be sure we have the best of the best in the field at all times. And we continue to very intently listen to our customers, understand their needs, understand their pain points, and move expeditiously to address those and therefore provide...
Thank you.
Speaker Change: Thank you. We'll take our next question from Dan Kutz with Morgan Stanley . Your line is now open.
Hey, thanks, good morning.
We will be back.
Speaker Change: Okay, so I wanted to ask, I guess, as folks are thinking about different economic scenarios, I guess maybe at a higher level, did you kind of walk us through your business lines and talk through
Speaker Change: Which business lines do have some level of economic exposure, correlation with broader market trends, and then I guess more importantly, and what is one of the key components of the value proposition of Perimeters is that a lot of the big parts of your business.
Speaker Change: at very little, if any, economic correlation. So yeah, just wondering if you could talk through kind of the sensitivities of your business lines to broader market trends. Thank you.
Yeah, you bet, Dan, Haitham again.
So a retardant business has close to no...
Speaker Change: Economic sensitivity. As you can imagine, based on the use case, what's happening in the broader economic environment as close to zero with non-fact, zero impact.
Our Suppressant Business Is
Speaker Change: Replenishment, Replacement, and Emergency Response Business. So when there's a fire in a facility with flammable liquids such as an airport.
We'll go in there and-
Speaker Change: Slows, but we expect any impact there to be pretty modest
and then our Foster Spector Satellite business.
Speaker Change: is very closely tied to miles driven by internal combustion engine vehicles in the OECD. It really is just that simple and that metaphor moves.
Speaker Change: in very, very small, one, two percent increments in periods of economic fluctuation. You just don't see huge changes in mild driven, and therefore we expect to see a modest impact there as well.
Speaker Change: Great. That's all really helpful. Maybe just one more specific one along that similar line of questioning.
Speaker Change: Kind of looming macroeconomic uncertainty or is this, you know, kind of an overarching trend of, let's get a cleaner, cleaner, safer.
Speaker Change: product installed and therefore that that trend may also be relatively less sensitive to the broader macro background. Thank you.
Speaker Change: We have not seen any change in customer enthusiasm or the pace of customer conversions to
Speaker Change: Foreign Free Phones, so that that is in the area where if the economy slows?
Speaker Change: materially. You may see people defer these conversions because there is meaningful cat-backs in stocking and stocking order spend working capital.
Speaker Change: associated with them, but we so far have seen and heard no signs of any slowdown in that switch.
Speaker Change: Thank you, and maybe Kyle if I can begin one more for you. I think you've kind of addressed most of this in a pair of remarks but as I'm looking at your long term assumptions.
Speaker Change: Is there anything that you would not just towards below or a high end for 2020-25 specifically or is it kind of right down the middle across the board for those assumptions? Thanks.
Yeah, Dan, thanks for the question.
Speaker Change: I don't think there's anything I would change overall for the European period at this point in time.
Speaker Change: When you look at Q1, you'll see that networking capital is a little bit better. We did a really good job on chasing down AR this quarter.
Speaker Change: That's the one thing where we got a little bit of a benefit in Q1, but honestly it's a small enough impact the total year that that's going to end up being noise I think, and so I probably wouldn't change anything about the full-year view.
Great. All really helpful. Thanks a lot. I'll turn it back.
Thank you Sam Sharpe.
Speaker Change: And once again, that is start and one of you would like to ask a question. We will pause for just a moment to allow questions to cue.
Speaker Change: It appears we have no further questions in the key while turning the program back over to our presenters for any additional or closing remarks.
Speaker Change: Thank you operator and once again thank you everybody for your time and we'll be here again in 90 days or so.