Perimeter Solutions, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategy: Goal is to provide quality products/services, deliver private equity-like returns with public market liquidity. Focus on three operational value drivers: profitable new business, continual productivity improvements, pricing to value. Also focus on capital allocation for equity value creation.
• Operational Performance:
  • Retardants: Critical mission with 100% reliability required. Examples include supporting evacuation in Yellowknife and deploying Mobile Retardant Bases (MRBs) during 2024 Western US fire activity.
  • Suppressants: Shares criticality and complexity with Retardants, leading market in suppressants via fluorine-free foam R&D breakthroughs.
  • Specialty Products: Clear market leader with over 50% of installed OECD capacity, 10,000 bins delivered in 2024 with few product issues.
• Capital Allocation: Priorities include reinvestment in business (CapEx and OpEx), M&A search for targets to increase EBITDA and free cash flow, share repurchases when attractive, and special dividends if capital can't be allocated otherwise.

Segment Performance

• Fire Safety: Third quarter revenue increased 113% to $251.8 million, year-to-date sales up 97% to $375.5 million. Q3 adjusted EBITDA rose 181% to $157.5 million, year-to-date adjusted EBITDA up 208% to $212.9 million. The majority of growth in Fire Safety is attributable to the Retardants business.
• Suppressants: Part of Fire Safety, shares criticality and complexity with Retardants and benefits from product leadership in fluorine-free foams.
• Specialty Products: Q3 sales increased 50% to $36.6 million, year-to-date sales up 37% to $99.2 million. Adjusted EBITDA in Q3 grew 137% to $12.9 million, year-to-date up 111% to $34.5 million. Market recovery and normalized demand are noted.
• Consolidated: Q3 sales increased 102% to $288.4 million, year-to-date up 81% to $474.7 million. Consolidated adjusted EBITDA increased 177% to $170.4 million in Q3, year-to-date up 189% to $247.4 million despite elevated spending on R&D and field service.

Guidance

• Expect to deploy free cash flow and incremental leverage capacity from organic EBITDA growth into internal reinvestment, M&A, share repurchases, or special dividends.
• 2024 will mark a new high for reinvestment in the business with increased CapEx, R&D, and field service spending. Anticipate generating more free cash flow and leverage capacity than can be reinvested internally.
• Actively searching for M&A targets with the right economic criteria to apply value driver operating strategy and increase EBITDA and free cash flow.
• Share repurchases will be pursued when the market provides attractive opportunities.

Q: Josh Spector asked about fire safety volumes and future drivers, specifically if volumes were maximized in Q3 and what drives longer-term volume growth.

A: Haitham Khouri responded that there were periods of max capacity in Q3, and long-term drivers include industry capacity growth from private industry, public customers, and Perimeter's own investments in air bases.

Q: Josh Spector then asked about cash deployment timing for special dividends or M&A to return leverage to target.

A: Haitham Khouri said it's more of a longer-term thought process, being patient with capital allocation and will be patient waiting for the right M&A opportunity but will eventually return capital via special dividend if needed.

Q: Unidentified Analyst asked about 4Q fire safety results and regional focus.

A: Haitham Khouri stated they won't comment on in-process 4Q but mentioned Perimeter focuses on regions like South America, Europe, Middle East, Asia, Australia, with some regions counter-seasonal to US.