Perimeter Solutions, SA

And welcome to the Perimeter Solutions fourth quarter 2021 earnings call and webcast. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Nori Yokozuka, General Counsel. Please go ahead, Nori.

Thank you, Operator. Good morning, everyone, and thank you for joining Perimeter Solutions' fourth quarter 2021 earnings call. Speaking on today's call are Hatham Corey, Vice Chairman, Edward Goldberg, Chief Executive Officer, and Barry Lederman, Chief Financial Officer. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, March 24, 2022, and these statements have not been or will they be updated subsequent to today's call. 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 impact our results. The company would also like to advise you that during the call, we will be referring to non-GAAP financial measures, including EBITDA. Please refer to our earnings press release and presentation, as well as the 8K, most of which will be available on our website and on the SEC's website. With that, I will turn the call over to Hakim Khoury, Vice Chairman.

Hakim Khoury Thanks, Nori. Good morning, everybody, and thanks for calling in today. I'll briefly cover three topics before turning the call over to Eddie and Barry. First, I'll make some summary comments on our strategy. Next, I'll briefly comment on our fourth quarter performance in fire safety. Finally, I'll close by sharing a few thoughts on 2022, starting with our strategy on slide three. As you've heard from us before, our goal is to deliver private equity-like returns with the liquidity of a public market. We plan to attain this goal by owning, operating, and growing uniquely high-quality businesses. We define uniquely high-quality businesses through five very specific economic criteria. One, recurring and predictable revenue streams. Two, long-term secular growth tailwinds. Three, products that account for critical but small portions of larger value streams. Four, significant free cash flow generation with high returns on tangible capital. And five, the potential for opportunistic consolidation. We believe that these economic criteria are present at Perimeter, as described on slide four, and we'll also use these criteria to evaluate any future acquisitions. As described on slide five, we seek to drive long-term equity value creation via consistent improvement in our three operational value drivers, which are profitable new business, continual cost improvement, and pricing to reflect the value we provide, as well as an intent focus on the allocation of our capital and the management of our capital structure. Now, to address our Q4 performance in fire safety. As we stated on our prior call, the first and fourth quarters typically contribute a very modest portion of our fire safety segment's annual adjusted EBDA. Regarding the fourth quarter specifically, if a few late-season fire events occur in North America and or if Australia has an active early fire season, fire safety tends to have a strong Q4. If these potential late season North American fire events don't occur, however, and or if Australia has a slow December, fire safety tends to have a slow Q4. Q4 2021 witnessed extremely low fire activity in North America, with acres burned down over 50% year over year, and almost no December fire season in Australia. As such, Q4 2021 was a very slow quarter for us. Because the numbers are relatively small in Q4 and Q1, the year-to-year variations can appear large. We caution investors against reading too much into annual variations in our Q4 and Q1 fire safety results. Finally, I'll close with a few comments on 2022. As we mentioned on our last call, we expect our fire safety segment to grow volume meet the high single digits annually over the long term. We remind investors, however, that within the highly predictable long-term secular growth that we expect in fire safety, there exists an element of year-to-year variability tied primarily to the intensity of the North American fire season, which we can't predict. As such, we don't provide guidance on a quarterly or annual basis. Now, with that said, I'll share with investors some of our current thinking around 2022. First, on fire safety. We consider 2021 to be a fairly normalized year in fire safety, with acreage burned across our markets very roughly in line with the long-term trend line. As such, assuming another roughly around trend line year in 2022, we believe that mid-to-high single-digit volume growth is not an unreasonable expectation for this segment. Next, on oil additives. We're encouraged by our initial findings in this segment and believe that we're likely to see some upside in 2022 relative to our expectation of flat revenue and adjusted EBITDA. Moving on to consolidated adjusted EBITDA. We believe that adjusted EBITDA growth in either dollar terms or percent turns, will be the best metric by which to judge our 2022 performance. Conversely, while we expect to expand underlying adjusted EVDA margins in both our segments this year, we believe that adjusted EVDA margins can be a less informative measure of our 2022 performance. This is because we may experience significant cost inflation in 2022, a meaningful portion of which we expect to pass through. These inflation pass-throughs, however, can distort a reported margin performance as zero margin revenue hits the P&L and can artificially compress margins. The more cost inflation we experience and pass through, the lower a reported adjusted EBDA margin will therefore appear. Adjusted EBDA growth, however, should generally be unimpacted by these inflation pass-throughs. In closing, and remaining on the topic, 2022 Consolidated Adjusted EBDA. Assuming a roughly on-trend line 2022 fire season and making our best assumptions around oil additives performance, inflation pass-throughs, underlying margin performance excluding the impact of inflation pass-throughs, incremental public company costs, and other financial assumptions, we expect Consolidated 2022 Adjusted EBDA growth consistent with and perhaps above our long-term framework of mid-teens growth.