Perimeter Solutions, SA

Greetings and welcome to the Perimeter Solutions second quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Nori Yokozuka, General Counsel. Thank you. You may begin.

Thank you, Operator. Good morning, everyone, and thank you for joining Perimeter Solutions' second quarter 2022 earnings call. Speaking on today's call are Hatham Corey, Vice Chairman, Edward Goldberg, Chief Executive Officer, and Chuck Kropp, 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, August 5th, 2022, and these statements have not been nor 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 a business and the environment in which we operate, and our actual results may materially differ from those expressed and applied 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 if it does. Please refer to our earnings press release and presentation, as well as our SEC filings, both of which will be available on our website and on the SEC's website. With that, I will turn the call over to Haytham Corey, Vice Chairman.

Thank you, Nori. Good morning, everyone, and thank you for joining us today. As usual, I'll start with summary comments on our strategy. Then I'll touch on financial performance and capital allocation before turning the call over to Eddie and Chuck, 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 the following 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 higher 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 also use these criteria to evaluate potential new 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 as follows, profitable new business, continual cost improvement, and pricing to reflect the value we provide, plus a clear focus on the allocation of our capital and the management of our capital structure. Moving on to our financial results. Our consolidated adjusted EBITDA is up 39% year to date, with solid growth in both our fire safety and specialty products businesses. Note that specialty products is the new name for our oil additives business, and Eddie will elaborate on the name change later in this call. Adjusted EBDA in our fire safety business is up 11% year to date. Adjusted EBDA in our specialty products business is up 74% year to date. Our specialty products business has generated almost 27 million in adjusted EBDA over the first half of 2022, which comfortably exceeds the adjusted EBDA generated by this business in each of the last several fiscal years. As such, we're now confident that our specialty products business should deliver solid year-over-year adjusted EBDA growth this year. turning to our full year expectations for the consolidated business. We've consistently stated that assuming a roughly on-trend 2022 fire season and incorporating our best assumptions around all the other aspects of our business, we expect consolidated adjusted EBDA growth consistent with and perhaps above our long-term framework of mid-teens growth. We've also consistently highlighted that within the highly predictable and dependable long-term growth we expect in our fire safety business, we also expect quarterly and annual variability tied primarily to the severity of the North America fire season. As we approach its halfway point, we'll observe that the North America fire season through the end of July has been soft. According to the National Interagency Coordination Center, Excluding the Alaska and southern areas, both of which historically use relatively little retardant, year-to-date U.S. acres burned through the end of July are down over 35% year-over-year. Despite the slower early fire season, strong execution on our operational value drivers has driven year-to-date adjusted EBDA growth above our mid-teens long-term framework. we now expect to deliver 2022 consolidated adjusted EBDA growth consistent with, and perhaps above our long-term framework of mid-teens growth, assuming flat to modestly down volumes as the benefit from our operational value drivers should offset modest potential softness in the fire season. That said, and consistent with what we repeatedly emphasized regarding near-term variability tied to the severity of the fire season. While we expect to offset modest seasonal weakness in 2022 and deliver results in line with our long-term targets, we still expect our financial results for the year to move in line with any significant year-over-year variability in the severity of the North America fire season. I'll close this discussion by noting that we don't believe the slow start to the fire season has much predictive value to the balance of the season. In fact, climate conditions across much of the western United States remain conducive to an active season, although that has not necessarily transpired to date. Regarding capital allocation, as you're all aware, we're in the midst of a challenging period across global capital markets. with meaningfully restricted access to capital essentially across the board. In this environment, we're especially pleased to have significant dry powder on hand with approximately $126 million of cash on our balance sheet at the end of Q2 and an expectation that we will generate significant free cash flow in the second half of the year, almost irrespective of the strength of the fire season. We greatly value this financial flexibility specifically as it relates to potential M&A opportunities. Therefore, the bar for allocating capital to buybacks or dividends is especially high at the moment. With this high bar in mind, we repurchased approximately 600,000 shares in May at an average price of $8.36 for total consideration of approximately $5 million. The valuation opportunity proved short-lived, however, and we remained disciplined. With that, I'll turn the call over to Eddie.