Q2 2026 Perimeter Solutions Inc Earnings Call

Speaker #1: Greetings. Welcome to Perimeter Solutions’ Q2 2026 earnings call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation.

Speaker #1: If anyone today requires operator assistance during the conference, please press *0 on your telephone keypad. Please note this conference is being recorded.

Speaker #1: I'll now turn the conference over to Seth Barker, Head of Investor Relations. Thank you. You may now begin.

Speaker #2: Thank you, operator. Good morning, everyone, and thank you for joining Perimeter Solutions' Q2 2026 earnings call. Speaking on today's call are Haitham Khouri, Chief Executive Officer, and Kyle Sable, Chief Financial Officer.

Speaker #2: We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, July 31, 2026, and these statements have not been, and will not be, updated subsequent to today's call.

Speaker #2: 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 #2: Please review our SEC filings, particularly any risk factors included in our filings, for a more complete discussion of factors that could impact our results, expectations, or assumptions.

Speaker #2: The company would also like to advise you that, during the call, we will be referring to non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, LTM adjusted EBITDA, adjusted EPS, and free cash flow.

Speaker #2: The reconciliation of and other information regarding non-GAAP financial measures can be found in our earnings press release and presentation, both of which will be available on our website.

Speaker #2: With that, I will turn the call over to Haitham Khouri, Chief Executive Officer.

Speaker #3: Thank you, Seth. Good morning, everyone. We're pleased to report Q2 adjusted EBITDA of $105.6 million. Of 16% year over year, and year-to-date adjusted EBITDA of $146.7 million, up 34% year over year.

Speaker #3: We're also excited to announce the acquisition of Monaco Enterprises for approximately $120 million, in cash. Monaco designs and manufactures the fire alarm reporting and mass notification networks that are the installed standard on more than 200 U.S.

Speaker #3: military installations globally, where system compatibility requirements make Monaco the sole compatible supplier of spare parts, upgrades, expansions, and support across its installed base.

Speaker #3: Monaco fits the economic criteria we consistently target in every business we acquire, and we will implement the same operational value driver playbook you've seen across our portfolio.

Speaker #3: With Monaco's addition, Perimeter now comprises six businesses across our two reporting segments. Three in fire safety, our retardant business, which carries the Perimeter name, our suppressants business, Solberg, and Monaco, our new fire detection and notification business.

Speaker #3: And three businesses in specialty products: PDI, our P+5-based lubricant additives business; MMT, our medical device manufacturing business; and IMS, our aftermarket electronics business. I'll now provide a summary of our strategy, followed by an operational update, and then return to Monaco in more detail.

Speaker #3: After that, Kyle will walk through the quarter's financial results and capital allocation. Starting with a summary of our strategy: our goal is to fulfill our critical mission by providing our customers with high-quality products and exceptional service, while delivering our investors private equity-like returns with the liquidity of a public market.

Speaker #3: Our strategy is built on three pillars. First, we own exceptional businesses. These are niche market leaders that play critical roles in solving complex customer problems.

Speaker #3: Qualities that support high returns on invested capital and durable earnings power. Second, we rigorously apply our three operational value drivers to the businesses we own.

Speaker #3: We derive profitable new business, achieve continual productivity improvements, and provide increasing value to customers, which we share in through value-based pricing. Third, we operate our businesses in a highly decentralized manner, granting our business unit managers full operating autonomy, paired with the accountability to deliver results with a tightly aligned incentive structure for our managers to think and act like owners.

Speaker #3: We believe that these three pillars will optimize our durable, long-term 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.

Speaker #3: Turning now to our fire safety operations on slide 4. Q2 fire safety adjusted EBITDA increased 1%. While year-to-date adjusted EBITDA increased 11%. As Kyle will quantify shortly, two factors weighed on the Q2.

Speaker #3: First, the 5% pricing step-down baked into the first year of our federal retardant contract; and second, minimal foam deliveries to our U.S. federal customers as the DLA transitioned its ordering onto the vendor-managed inventory structure we implemented under the five-year contract with a maximum value of $500 million that we announced last quarter.

Speaker #3: Excluding these two items, Q2 fire safety adjusted EBITDA grew at a double-digit rate. Both these dynamics improve in the third quarter. Foam deliveries to our federal customers resume, and new pricing under our CAL FIRE agreement should offset the federal pricing step-down.

Speaker #3: Most pertinent to our long-term fire safety earnings power are several encouraging developments from the first half of 2026. In Canada, we are supporting the country's first federally funded aerial firefighting fleet.

Speaker #3: The Pan-Canadian Aerial Asset Program, backed by $316.7 million over five years, gives every province and territory access to 10 excuse me, to a 10 aircraft national search fleet.

Speaker #3: Including four retardant-capable air tankers, and extending retardant operations into provinces that have historically relied on other suppression methods. In fact, 2026 marks the first time in decades that the province of Ontario has used retardant, supported in this case by one of our mobile retardant bases.

Speaker #3: The program reflects a pattern we've observed for many years. Following periods of elevated fire activity, government's reassessed the resources available to respond to future fires seasons.

Speaker #3: Australia transformed its aerial firefighting infrastructure after the 2019–2020 bushfires. And France significantly enhanced its aerial resources after the particularly severe 2022 season. Both countries became meaningfully larger retardant customers following these investments.

Speaker #3: In Canada's case, the severe 2023 and 2025 fire seasons—the worst and second worst in the country's history—both prompted a similar investment cycle.

Speaker #3: While the impact this year is modest, we believe the program establishes a foundation for increased retardant use over time. We see similar dynamics emerging in other regions.

Speaker #3: Elevated fire activity, particularly in Europe, should support higher retardant use this year, and more importantly, continued investment in aerial firefighting resources over the coming years.

Speaker #3: Beyond retardants, we continue to see attractive opportunities to expand our suppressants business. Our success in building new international distribution relationships, together with the ramp of our DLA contract in the second half of the year, reflects growing customer investment in higher-performance fire suppression technologies across a broad range of end markets.

Speaker #3: Taken together, these developments reinforce our expectation of solid long-term organic growth across our fire safety business. Turning now to our Specialty Products segment, and starting with PDI.

Speaker #3: PDI's adjusted EBITDA declined year-over-year in Q2, due primarily to continued production issues at the Sauget, Illinois P2S5 facility. This facility is operated by Flexus, which is owned by One Rock Capital.

Speaker #3: On June 10th, the Circuit Court of St. Clair County, Illinois, entered an order appointing an independent receiver over the Sajay plant. In this order, the court made a series of findings that we believe validate the concerns we have raised on previous calls regarding the plant's performance since Flexus was acquired.

Speaker #3: The court found the plant to be at risk of waste, loss, dissipation, or impairment absent court-supervised intervention. As part of this finding, the court cited several safety lapses, including fires, at least one explosion, releases of highly poisonous H2S gas resulting in injuries, as well as the storage of decaying P2S5 on site rather than proper disposal.

Speaker #3: These conditions developed under One Rock's ownership and control, and we believe it bears direct responsibility for the decisions that led to them. A court-appointed receiver is now in place with authority to manage Sajay's day-to-day operations, and we expect that oversight to bring a measure of stability that has been absent.

Speaker #3: Importantly, we are not waiting. We are taking concrete action to eliminate PDI's reliance on Flexus and will provide further updates in due course. As we've promised repeatedly, we will do what's necessary to protect our customers, our employees, and the long-term value of this business while enforcing our contractual rights to their full conclusion and holding One Rock accountable for its actions.

Speaker #3: Turning to MMT, our medical device manufacturing business. MMT continues to run ahead of our operating model, with strong adjusted EBITDA growth in the Q2, versus the same period last year under prior ownership.

Speaker #3: As discussed on prior calls, while our pricing and productivity actions are driving immediate benefits, the most exciting value creation lever at MMT is the significant organic growth potential through profitable new business.

Speaker #3: We're investing behind MMT's innovation pipeline and meaningfully accelerating new product launches to capitalize on this growth opportunity. Finally, IMS, our aftermarket electronics business, also delivered a strong Q2.

Speaker #3: Integration of the product lines we acquired in Q4 is proceeding well, and we're applying our operational value drivers across each of them. We're optimistic about the earnings power of IMS's current portfolio, and we look forward to adding new product lines over time.

Speaker #3: Turning to M&A, yesterday we closed the acquisition of Monaco Enterprises for approximately $120 million in cash. As I referenced earlier, Monaco designs and manufactures the fire alarm reporting and mass notification networks that are the installed standard on more than 200 U.S. military installations globally.

Speaker #3: Monaco checks every box we look for in a perimeter business. First, we target businesses that solve a critical, complicated customer need. Monaco Systems connects the hundreds of buildings on a typical DoD installation into a single, base-wide fire and life safety dispatch and response network, using proprietary communication protocols transmitted over dedicated, hard-to-disrupt radio frequencies.

Speaker #3: These systems protect lives and mission-critical assets around the clock, and they're required by the codes that govern military construction. Second, we evaluate the solution's cost relative to its criticality.

Speaker #3: The cost of a Monaco system is minuscule relative to base construction and operating budgets, important context when assessing the value Monaco delivers to its customers.

Speaker #3: Third, we target businesses that are leaders in niche markets. Monaco's market—networked fire alarm reporting and mass notification for military installations—is genuinely niche, with highly specialized requirements; namely, base-wide radio networks built to military specifications and supported for decades after installation.

Speaker #3: A market with these characteristics is well-suited to a focused leader. Fourth, we target businesses with sustainable differentiation. Within its niche, Monaco's competitive position is exceptionally strong.

Speaker #3: Its systems run on a proprietary communications protocol, so expanding or maintaining an installed network requires Monaco equipment, and displacing Monaco means replacing an entire multi-million-dollar, base-wide system rather than winning a single order.

Speaker #3: Fifth, and finally, we target businesses that possess recurring revenue, high returns on capital, and opportunities for reinvestment and add-on positions. The vast majority of Monaco's revenue comes from proprietary products.

Speaker #3: Often, customized to DoD specifications. And with 50 years of operating history, more than 95% of Monaco's sales come from its existing installed base, spares, repairs, expansions, upgrade, and support, creating an annuity-like aftermarket revenue stream.

Speaker #3: Putting these attributes together yields. Businesses with sustainable differentiation. Within its niche, Monaco's competitive position is exceptionally strong. Its systems run on a proprietary communications protocol, so expanding or maintaining an installed network requires Monaco equipment, and displacing Monaco means replacing an entire multimillion-dollar base-wide system rather than winning a single order.

Speaker #3: Fifth, and finally, we target businesses that possess recurring revenue, high returns on capital, and opportunities for reinvestment and add-on positions. The vast majority of Monaco's revenue comes from proprietary products.

Speaker #3: Often, customized to DoD specifications. And with 50 years of operating history, more than 95% of Monaco's sales come from its existing installed base, spares, repairs, expansions, upgrades, and support, creating an annuity-like aftermarket revenue stream.

Speaker #3: Putting these attributes together yields businesses with sustainable differentiation. Within its niche, Monaco's competitive position is exceptionally strong. Its systems run on a proprietary communications protocol, so expanding or maintaining an installed network requires Monaco equipment, and displacing Monaco means replacing an entire multimillion-dollar, base-wide system rather than winning a single order.

Speaker #3: Fifth, and finally, we target businesses that possess recurring revenue, high returns on capital, and opportunities for reinvestment and add-on positions. The vast majority of Monaco's revenue comes from proprietary products.

Speaker #3: Often customized to DoD specifications, and with 50 years of operating history. Capital allocation. Period.

Speaker #1: Adjusted net income increased to $68.6 million from $61.2 million last year, while adjusted diluted earnings per share remained constant at $0.41. Our consolidated results reflect the impact of the ongoing execution of our operational value drivers, continued secular tailwinds, and our acquisition strategy.

Speaker #1: Moving into the details of fire safety, revenue for the quarter rose 7% to $129.1 million, while adjusted EBITDA increased to $78.8 million from $77.7 million in the prior year period.

Speaker #1: First half revenue totaled $174.5 million, an increase of 11% year over year, while adjusted EBITDA increased to $97.5 million from $87.87 million in the prior-year period.

Speaker #1: Fire safety performance benefited from continued execution of our operational value drivers. Our strongest value driver contribution came from profitable new business, where we established new relationships with significant international class B foam customers.

Speaker #1: These wins continue to broaden the reach of our suppressants business and position us well for future growth. The financial benefit of our value drivers' efforts was partially offset by two temporary factors that we expect to moderate in the second half of the year.

Speaker #1: First, our first half reflected the pricing step-down under our new U.S. federal government contract, while capturing only a limited benefit from our recently signed CalFire agreement.

Speaker #1: This fire activity shifts towards California during the second half, but we expect the CalFire contribution to offset a larger portion of the federal pricing impact.

Speaker #1: Second, sales to the Defense Logistics Agency were minimal during the quarter, as we prepared for production under the $500 million contract awarded last quarter.

Speaker #1: We are expanding our production facility; we have developed customer-specific IT interchange and logistics capabilities; and we secured the necessary supply chain inputs to support this expansion.

Speaker #1: We expect deliveries under the new contract to begin ramping during the second half of this year, providing an incremental contribution through 2027 and 2028, as discussed in previous calls.

Speaker #1: Excluding the impact of these two factors, we believe Fire Safety EBITDA would have grown at a double-digit rate year over year. Beyond these quarter-specific dynamics, the underlying Fire Safety market continues to evolve broadly in line with our long-term expectations.

Speaker #1: We have frequently discussed the secular growth drivers supporting retardant demand, particularly increasing fire activity over time, combined with expanding aerial firefighting resources. Our second quarter volume support debt framing, growing year over year despite a mix of conditions across our geographies.

Speaker #1: The U.S. experienced stronger demand, supported by continued aggressive initial attack strategies and increased underlying activity, while Canadian activity was notably lower than the prior year.

Speaker #1: As is typically the case, change in acres burned did not translate directly into changes in our volumes. U.S. volumes increased by less than acres burned, while Canadian volumes declined by less than the reduction in fire activity.

Speaker #1: Similarly, strength in Europe offset slower activity from Asia Pacific. The diversification of our geographic footprint continues to moderate these regional fluctuations and contributes to a more stable earnings profile over time.

Speaker #1: In the near term, having observed global fire activity within the normal range through the second quarter and into early third quarter, we believe the season is becoming more representative of a normal year.

Speaker #1: Conditions are currently in the normal range, and volumes for the remainder of the year could still finish above or below normal. We remain prepared to support our customers across the full range of potential outcomes.

Speaker #1: Overall, we continue to see the fire safety business progressing in line with our long-term expectations. Our operational value drivers continue to enhance the business, while expanding firefighting demand and increasing geographic diversification reinforce the durability of our growth profile.

Speaker #1: We believe these structural trends position the segment to continue creating value over time. Turning now to our specialty products portfolio—revenue for the quarter doubled from the previous year to $84.7 million.

Speaker #1: While adjusted EBITDA increased to $26.8 million, from $13.7 million in the prior year period. For the year-to-date period, revenue totaled $164.3 million. An increase of $113% year over year, while adjusted EBITDA rose to $49.3 million, from $21.7 million last year.

Speaker #1: The year-over-year increase was driven primarily by contributions from recent acquisitions, particularly MMT. MMT provides a good example of how we seek to create value following an acquisition.

Speaker #1: The business continues to perform ahead of our underwriting model, supported by its large and growing installed base, which generates recurring aftermarket demand. Since acquiring MMT, we have invested in research and development, new product introductions, and productivity initiatives.

Speaker #1: We have put our operational value drivers into action through pricing updates that better reflect the value of MMT's highly engineered products, and re-engineering processes and investing in CAPEX that supports productivity.

Speaker #1: While these initiatives remain in their early stages, we believe they establish a meaningful runway for long-term earnings growth. PDI illustrates a different stage of that same value creation process.

Speaker #1: The business continued to make operational progress during the quarter, although the production disruption at the Flexus facility, discussed in prior quarters, continued to weigh on near-term financial performance.

Speaker #1: This production capacity is restored during the second half of the year. We expect those impacts to diminish progressively. Importantly, the underlying business remains healthy, and we believe the operational improvements implemented over the past several quarters position PDI well as we enter 2027.

Speaker #1: At IMS, disciplined product line acquisitions continue to expand the business's opportunity set. During the quarter, IMS continued integrating intellectual property acquired through recent acquisitions, while actively evaluating additional product lines that fit its strategy of extending equipment lifecycles through proprietary replacement products.

Speaker #1: As the portfolio of proprietary products grows, so does the opportunity to apply our operational value drivers through pricing, productivity, and profitable new business. We believe this combination provides a repeatable avenue for creating long-term value at IMS.

Speaker #1: Overall, the specialty products portfolio demonstrates that our operational value drivers are not specific to any one business, but rather a repeatable framework for creating value across diverse portfolio of niche industrial companies.

Speaker #1: While each platform is at a different stage of its value creation journey, they share the same disciplined approach to operational execution, capital allocation, and reinvestment.

Speaker #1: As we continue to expand our broader portfolio through acquisitions such as Monaco, we broaden the opportunity set to apply our value drivers framework across more products and solutions.

Speaker #1: Turned to our cash flow expectations on slide 8. Our assumptions are unchanged, and with normal quarterly variation, second quarter results are consistent with those expectations.

Speaker #1: Our framework contemplates annual cash interest expense of approximately $75 million, and in the second quarter, cash interest expense was $19.6 million. We expect tax-deductible depreciation and amortization in the range of $60 to $65 million annually, and second quarter taxable depreciation and amortization was $11.7 million.

Speaker #1: We expect our cash tax rate to be approximately 20% or better over time, and in the second quarter, cash taxes paid were $7.7 million, compared to $12.3 million in Q2 2025, primarily reflecting timing dynamics.

Speaker #1: We continue to expect annual capital expenditures of $30 to $40 million. Capital expenditures in the second quarter were $12.7 million, bringing year-to-date spending broadly in line with our expectations.

Speaker #1: As we have discussed previously, investments across the business—including new retardant bases, an expanded suppressants production facility, and productivity initiatives at MMT—are expected to drive full-year capital expenditures toward the upper end of our guidance range.

Speaker #1: Finally, we expect working capital investment of approximately 10% to 15% of revenue growth, and working capital performance in the quarter was consistent with that framework, reflecting seasonal dynamics and the impact of recent acquisitions.

Speaker #1: Overall, the quarter tracks in line with our long-term assumptions. Moving to capital allocation on slide 9. As Haitham mentioned, we completed the acquisition of Monaco Enterprises following quarter end, funding the transaction with cash on hand and borrowings under our existing credit facility.

Speaker #1: Monaco is another example of the type of business we believe fits our strategy: a mission-critical business with attractive competitive positioning and meaningful opportunities to create value through the application of our operational value drivers.

Speaker #1: It also expands Perimeter into a sixth distinct product platform, broadening the opportunity set over which we can deploy that playbook. Monaco will be reported in our Fire Safety segment.

Speaker #1: One of the advantages of the Perimeter operating model is that it allows us to integrate acquisitions without disrupting what makes them successful. Our decentralized approach preserves the autonomy that keeps businesses close to their customers, while aligning incentives around our operational value drivers and providing a consistent framework for accountability across the portfolio.

Speaker #1: We also continue to invest organically in our businesses through capital expenditures. These investments are focused on projects that enhance our ability to serve customers while driving productivity improvements and supporting profitable growth.

Speaker #1: As with all capital allocation decisions, we underwrite these investments to generate returns above our targeted threshold, and we continue to see an attractive pipeline of opportunities across the business.

Speaker #1: Looking forward, we have ample capital to deploy, even after funding our organic investment pipeline. Once those capital needs are met, our primary focus remains M&A.

Speaker #1: Our acquisition framework remains consistent. We target businesses that provide a small but essential component within a broader solution to critical customer needs, operate in niche markets with sustainably differentiated solutions, and exhibit characteristics such as recurring revenue, high returns on capital, and opportunities for reinvestment and add-on acquisitions.

Speaker #1: Importantly, we believe value creation comes not from completing acquisitions, but from what happens after closing. Our operational value drivers provide a repeatable framework to improve businesses over time, allowing us to consistently create value across an expanding portfolio.

Speaker #1: From a capital standpoint, we retain significant flexibility. Even after the MMT and Monaco acquisitions, we remain modestly levered, with meaningful capacity to continue deploying capital into attractive opportunities.

Speaker #1: We remain active in evaluating a robust pipeline of acquisition opportunities and are focused on deploying capital where we believe it can generate attractive long-term returns for shareholders.

Speaker #1: Turning to our capital structure, we maintain a disciplined and flexible capital structure comprised of long-dated, fixed-rate debt maturing in 2034. The blended coupon rate is 5.6% across both tranches.

Speaker #1: At quarter end, we were approximately 3.1 times net debt to LTM Adjusted EBITDA, remaining below our target leverage level and preserving substantial financial flexibility. We also retained strong liquidity, including approximately $83 million of cash on the balance sheet and, as of quarter end, a fully undrawn $200 million revolving credit facility.

Speaker #1: Following our acquisition of Monaco, our total liquidity between cash on hand and undrawn revolving credit facility capacity exceeds $150 million, which will increase over the course of the third quarter as we enter peak cash generation months for the company.

Speaker #1: This liquidity provides significant flexibility to continue investing in the business while pursuing M&A opportunities. We ended the quarter with approximately 163.7 million basic shares outstanding.

Speaker #1: Our second quarter demonstrates the strength of the model we have built. Earnings growth reflected contributions from our operational value drivers, favorable long-term demand trends across our businesses, and the continued expansion of our portfolio through disciplined acquisitions.

Speaker #1: We continue to identify opportunities to apply our operational value drivers across the portfolio, and remain focused on acquisitions that fit our strategy and further expand that opportunity set.

Speaker #1: We believe this combination of operational value drivers, growing end markets, and disciplined capital allocation positions us to continue compounding earnings and shareholder value over time.

Speaker #1: With that, I'll turn the call back to the operator for Q&A.

Speaker #2: Thank you. Ladies and gentlemen, Haitham, you may please proceed—your line is live.

Speaker #3: Yeah. Thanks. Thanks, operator. Good morning, folks. I'm sorry. There was a little glitch there as I was ending my remarks and Kyle was beginning his.

Speaker #3: My very enthusiastic comments about how pumped we are about Monaco or being twice, which, by the way, is arguably not a bad thing because we are very pumped about Monaco, and I don't mind repeating it.

Speaker #3: Unfortunately, I did inadvertently talk over Kyle's opening remarks. The key point to just reiterate from there is our Q2 net sales increased 31% to $213.8 million.

Speaker #3: Our adjusted EBITDA rose 16% year over year to $105.6 million. A couple other snippets got spoken over from Kyle. You can find those in our earnings specials.

Speaker #3: And with that, operator, back to you, and we'll take questions.

Speaker #2: Thank you. We'll now be conducting our question and answer session. To ask a question at this time, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue.

Speaker #2: You may press star 2 if you'd like to withdraw your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker #2: One moment, please, while we pull up our first question. Thank you. And our first question comes from the line of Tomosano with JP Morgan.

Speaker #2: Please receive their questions.

Speaker #4: Hi. Good morning, everyone.

Speaker #3: Good morning, Tomo.

Speaker #4: Thank you for taking my questions. On fire we adjust for two specific headwinds, you talk about the EBITDA margins could have been notes of 66%.

Speaker #4: And you talk about some improvement in the third quarter. Could you walk us through the key drivers that should lift fire safety profitability from the second quarter into the back half, and then how you expect the cadence to evolve quarter by quarter, please?

Speaker #3: Tomo, it's Kyle. Thanks for the question. I'll say, yeah, I think you have it exactly right. That there are two large headwinds in Q2 that impacted the quarter that we expect to abate in the back half.

Speaker #3: Those two are the step-down in pricing under our new federal contract and the pause in sales to the Defense Logistics Agency. Each of those things had a material impact in Q2. Absent those, we would have had double-digit EBITDA growth, and exactly as you highlighted, that would have had a positive impact on both our EBITDA margins. We expect those to be more in line with their historical averages in the back half of the year.

Speaker #4: Okay, thank you, Kyle. As a follow-up on integration acquisitions in Monaco, could you talk about strategies for talent retention and customer execution? If you could, please also discuss culture integration as well.

Speaker #4: Thank you.

Speaker #3: Yeah. Hey Tomo, it's Haitham. Our stance on that is very consistent. We're typically buying exceptional businesses, and those typically come with very talented management teams that got them there.

Speaker #3: Our goal is always to truly and deeply partner with those teams and retain them over the long term. Our hope is they fit into our decentralized operating culture and are attracted to our very high levels of autonomy, very high levels of accountability, and very high levels of incentive alignment.

Speaker #3: And we hope they're fired up about taking a good company to great or a great company to even greater with us via three P's application.

Speaker #3: And I very much hope and expect that's going to be the outcome with Monaco, which appears to have a truly excellent management team.

Speaker #4: Thank you, Haitham.

Speaker #2: Our next question is from the line of Josh Spector with UBS. Please receive their questions.

Speaker #4: Yeah. Hey, good morning, guys. Enjoyed you guys hammering home the acquisition comments. I'll start there with just I think the value driver of that acquisition is very clear.

Speaker #4: I think the piece which I'm just curious on is really is there a volume opportunity in that business really at all? I think you're kind of slide said it's the majority of the TAM.

Speaker #4: So can that expand beyond air bases into municipal or some other markets, or is that kind of really not the strategy of that business?

Speaker #3: Yeah. Hey, Josh. So I would say industry growth, volumetrically, is in the low single digits, and we certainly expect to get that.

Speaker #3: We do think there is an opportunity to do materially better by driving E&B. Monaco is extremely strong today in the Air Force. Which for obvious reasons, tends to have especially large sophisticated bases.

Speaker #3: There are significant expansion opportunities in other branches of the DOD where Monaco is present today but does not have the dominant market position. They have with the Air Force.

Speaker #3: And then there are very interesting potential opportunities in highly regulated government areas around the three main branches of the military. So, combining low single-digit underlying industry growth with meaningful, profitable new business opportunity, I think we can do very nicely here from a volumetric perspective.

Speaker #3: I'll emphasize our underwriting model, which, as always, suggests a well over 20% IRR and doesn't assume any P&B. We typically don't assume P&B in our models.

Speaker #3: We run with low single digit industry growth and any volumetric upside under our ownership is IRR upside.

Speaker #4: Okay. No, that makes sense. And I wanted to follow up on fire safety. I guess it's pretty clear and it's very helpful for you guys to give that comment to what growth would have been kind of ex those items.

Speaker #4: But on suppressant specifically, I guess if I was modeling $30 million a quarter for that business, and let's say it was $10 million, I guess we'll figure that out in the Q later.

Speaker #4: Do you make up that 20 million in the back half or are we still at that 30 rate just giving examples of numbers? It sounds like the implementation wasn't immediate so I'm not sure if some of that pushes into 27 or if you make that up in 26.

Speaker #3: Hey, Josh. It's Kyle. Great question, and let me see if I can add some more color to this. So, the way this contract works is—the way the relationship works is, historically, we've had shorter-term sales, and that's what you see already in the run rate in 2025.

Speaker #3: This year we continued the first quarter to be operating on that PO to PO basis. As we signed this larger contract, there was a pause in that PO activity.

Speaker #3: That also corresponded with us spending a good chunk of money in capital on getting ready to take a big step up. That was the slowdown that we experienced in Q2.

Speaker #3: As we look into the back half of the year, we're going to see a resumption of that activity and start to ramp into the more substantial activity that we've outlined from the overall scope of the contract.

Speaker #3: So we will get a little bit of that left back in the back half. And then you'll see the more substantial ramp as we enter 2027.

Speaker #1: Josh, this is Haitham. Just to reiterate, I mean, I can cause that a nice job making this clear, but for the avoidance of doubt here, Q2 was tricky with our DOD phone sales in that we had essentially full run rate costs of everything we've put in place to service the contract.

Speaker #1: The vendor management inventory system, the warehousing, the logistics, etc., the expanded facility, yet hardly any sales. And so from the EBITDA perspective, you lose a good amount of revenue but your run rating a good amount of cost.

Speaker #1: And we got caught in that in Q2. Sales resumed the ramp in Q3 and therefore that impact essentially falls away.

Speaker #4: Okay. No, that's helpful clarification. I'll leave it there. Thanks, guys.

Speaker #2: Our next question is from the line of Will Gadea with CJS Securities. Please receive their questions.

Speaker #5: Hey. Hey, good morning.

Speaker #4: Thanks for taking our questions.

Speaker #3: Very well.

Speaker #4: So on the Monaco deal, 10 and a half times EBITDA multiple, I mean, that's pretty reasonable for a company generating 35% margins. So was it a competitive process?

Speaker #4: I'm just curious why the multiple wasn't somewhat higher.

Speaker #3: It was a competitive process. We're very, very happy we prevailed and we're not in the business of asking people to make us pay more.

Speaker #3: So we're pretty happy with the outcome.

Speaker #4: Yep, fair enough. I think congratulations on that. And then, just record-breaking wildfires in Oregon as we speak—should we think about these acres as more remote, low-retardant usage, similar to the Nebraska fires in Q1? Or should we think of these acres as more typical in terms of retardant deployment?

Speaker #3: More typical. More typical. California, the Pacific Northwest, most of the Southwest is much more intensive retardant per acre burden or usage than some of the acres you saw burn in Florida and Georgia and Nebraska early in early in Q2.

Speaker #3: These are retardant-heavy acres burning in Q3.

Speaker #4: All right. I'll leave it there. Thank you.

Speaker #3: You bet.

Speaker #2: Our next question is from the line of Dan Kutz with Morgan Stanley. Please receive their questions.

Speaker #5: Hey, thanks. Good morning.

Speaker #3: Hey, Dan.

Speaker #5: So, I just wanted to ask a few clarifying questions on the updates from Canada, and then, I guess, maybe some follow-up questions that could help us think through how we might quantify that opportunity.

Speaker #5: But just to kick it off, I wanted to clarify that I think you said there's 10 aircraft—10 incremental aircraft—that'll be dedicated. Four of them are retardant-capable air tankers. Are the other six tactical aircraft or other aircraft that are used in wildfire fighting efforts, but don't deploy retardant?

Speaker #5: Or are they retardant-capable aircraft, but just not air tankers? And then, I guess on top of that, for the four air tankers, would you happen to be able to share or know specifically what type of air tanker they are?

Speaker #5: Because there could be a 10x difference in the retardant capacity of a very large air tanker versus a single-engine air tanker, and then the large air tankers are somewhere in between.

Speaker #5: But yeah, just the composition of those 10 aircraft and then the type of air tanker, for the four things.

Speaker #3: Sure. So composition-wise, yeah, the other six are going to be a mix of air attacks, scoopers, etc. Essentially not rotary wings or helicopters. Typically, non-retardant dropping aircraft.

Speaker #3: In some cases, to support retardant dropping aircraft. As far as the four retardant planes, these are genuine by the way, brand new build, additions to the fleet.

Speaker #3: Large air tankers with 3,000–4,000 gallons of POF capacity, so quite a meaningful, long-term capacity expansion to the fleet.

Speaker #5: Great. That's really helpful. And then yeah, I mean, the next question is around trying to think through how much of an incremental opportunity this could be.

Speaker #5: And if you have a better way that you'd point us to to think through this, then please feel free, but a couple of ideas I have were just if I look back at just granted, this is an older report, but I think a couple of years ago the US had 20 exclusive use large and very large air tankers and then another 10 or 15 cone when needed plus the MAPS aircraft.

Speaker #5: And so if the US and those 20 exclusive use, they kind of would contribute the lion's share of retardant deployment. So four aircraft in Canada could be pretty meaningful if you just use that US baseline number.

Speaker #5: And then I guess the other data point that I thought was interesting is you'd mentioned that Australia after 2019 brushed 1920 brush fires they really increased their wildfire fighting capacity.

Speaker #5: I think I assume that Australia is a decent chunk of the rest of world revenue that you disclose. And if you look at 2019, '20 versus the subsequent five or six years, it kind of looks like your rest of world revenue has doubled.

Speaker #5: So between those two examples, I just would you say that either of those would be decent analogues for the incremental Canada opportunity or is there a different way that you might point us to helping think through that?

Speaker #5: Thanks.

Speaker #3: Let me take that in two chunks. I would say the addition of the four air tankers to the fleet could be a significant long-term driver.

Speaker #3: There are 30-something air tankers in service today globally. And those carry potentially 100% of our retardant. We have seen very nice growth in that fleet over the past several years.

Speaker #3: And we're seeing that growth actually meaningfully accelerate. So four air tankers in Canada is a 10-plus percent addition to the fleet. We shall see over the next couple of years.

Speaker #3: We are working with Texas to meaningfully infrastructure and actually build them one specific state-of-the-art airbase, which is well underway. And you'll see in our capital expenditures and Texas plans to buy a fleet of several brand new air tankers which will be an addition to the fleet.

Speaker #3: We're seeing several U.S. states in the Pacific Northwest and elsewhere order bespoke, state-owned air tankers, which will be an addition to the fleet. And then you see a lot of fleet additions in Europe.

Speaker #3: With a new product from Airbus that got used this summer for the first time with our retardant with significant capacity. And so yes, the four air tankers in Canada are meaningful addition to the fleet.

Speaker #3: And there are several other similar additions happening, and we expect that to potentially be a very material volumetric driver for us over the coming years. As you know, virtually every fire season—in fact, every fire season—we could drop more retardant than we do, but we are volume-constrained during peak periods by a lack of air tankers.

Speaker #3: And therefore, these additions are very welcome from a safety of life and property perspective, and will drive our business for sure. Your second question on Australia and France being analogs—yes, 100%.

Speaker #3: The way these events play out in new geographies is remarkably consistent. You get a severe fire season, you get a lot of political attention, and you get significant capital allocated—typically by federal or provincial authorities.

Speaker #3: They work with us in all cases. We build out the infrastructure for them. They buy or lease the air tankers. And a small market becomes a large market, or a large market becomes a very large market.

Speaker #3: And we believe that is on the come in several areas building out infrastructure now. Again, Australia being a good example, Texas being an excellent example, and several others.

Speaker #3: We haven't necessarily talked about where we are targeting, or building out national infrastructures and working with them to get their hands on air tankers.

Speaker #5: Super helpful color. Thank you very much. I'll turn it back.

Speaker #2: Thank you. We've reached the end of our question-and-answer session. I'll turn the floor back to Haitham for any closing remarks.

Speaker #3: No. Not at all. Josh, Dan, Tomo, Will, appreciate what you guys do for us very much. Thank you for the great questions. Thank you to our investors for the support.

Speaker #3: And we'll speak in 90 days.

Speaker #2: Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.