Perimeter Solutions, SA

Thanks and welcome to the Perimeter Solutions second quarter 2025 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Seth Barker, head of investor relations. Please go ahead.

Thank you, operator. Good morning, everyone. And thank you for joining Perimeter Solutions second quarter 2025 earnings call. Speaking on today's call are Hayfam Corey, chief executive officer, and Kyle Sable, 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 7th, 2025. 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 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, particularly any risk factors included in our filings for a more complete discussion of factors that could impact our results, expectations, or assumptions. 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 cashflow. 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. With that, I will turn the call over to Hayfam Corey, chief executive officer.

Thank you, Seth, and good morning, everyone. We're pleased to report perimeter second quarter and first half results. Second quarter adjusted EBITDA reached 91.3 million, and first half adjusted EBITDA reached 109.4 million, reflecting number one, execution on our operational value drivers, number two, normalized first half buyer activity in the US, and number three, strong performance in our international retardant markets, our suppressants business, and our specialty products businesses. We continue to deploy capital during the second quarter, investing nearly $62 million across a range of priorities, including increased capital expenditures, continued share repurchases, and the purchase of assets to support our retardant business. Before getting into details on the quarter, I'll provide a summary of our strategy, give a brief operational update, and discuss the settlement of our litigation with Compass Minerals. After that, Kyle will walk through our financial results and capital allocation in more detail. Starting on slide three 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 the public market. Our strategy is built on three key operational pillars. First, we own exceptional businesses. These are niche market leaders that play critical roles in solving complex customer problems, qualities that support high returns on invested capital and durable earnings growth. Second, we rigorously apply our three operational value drivers to the businesses we own. We drive profitable new business, achieve continual productivity improvements, and provide increasing value to customers, which we share in through value-based pricing. And 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, and a tightly aligned incentive structure for our managers to think and act like owners. We believe that our operational 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. Turning to development in the quarter on slide four, and starting with fire safety. As I remarked at the outset, fire safety's financial results were driven by execution on our operational value drivers, normalized first half fire activity in the United States, and strong results from our international retardant markets and our suppressants business. We continue to invest in our fire safety businesses to best support our customers' mission to save lives and protect property and the environment, including the opening of 110,000 square foot retardant production facility in Sacramento, California. Our network of manufacturing facilities, logistics and distribution systems, and air-based infrastructure has a six-year track record of performance reliability. With the addition of the Sacramento facility, we pair our never-failed delivery network with fully duplicated infrastructure that leaves no doubt about the supply chain resiliency of our solution. The cost of the facility, along with other investments we're making in our business, is reflected in our first half capital expenditures, which nearly equal our capital expenditures for the entirety of 2024, and which exceed our total capital expenditures in any full year prior to 2024 over our company's history. Capital expenditures are the most visible sign of our internal reinvestment. However, we're also investing into several areas less visible to investors, but highly visible to customers, including research and development, field service, and customer support. We concluded our trade secret litigation against Compass Minerals during the second quarter, culminating in a settlement that returned our intellectual property and allowed us to acquire surplus assets for our retardant business. Compass announced the wind down of the retardant business in the first quarter, which provided an opportunity to resolve our intellectual property dispute, which centered around phosphate-based formulations that we maintain were developed using misappropriated trade secrets from Printer. Relative to the time and expense of litigation, and combined with the excess assets of the shuttered business, which we acquired in conjunction with the settlement, we believe the 20 million paid to resolve this matter is a fair outcome. With our trade secrets re-secured, we can continue to invest in the R&D innovation that jointly drives our customer success and our performance. Switching now to our specialty product segment. For the past two decades, our primary North American phosphor-spentasulfide plant in Sauget, Illinois has been operated by a third party under a tolling agreement. In 2021, a private equity fund called One Rock Partners purchased a collection of assets which they renamed Flexis, and as part of the transaction, assumed the tolling agreement was a success. The plant is now in a contract agreement to operate the Sauget plant. There has been a marked degradation in the plant safety standards and operational performance in One Rock's acquisition. To illustrate the magnitude of this degradation, the Sauget plant experienced more unplanned downtime in the first quarter of 2025 than our P2S5 plant in Germany, which we own and operate, as experienced over the entire last decade. To reiterate, the Flexis operated plant experienced more unplanned downtime in a single quarter this year than the perimeter operated plants that experienced in an entire decade. As a result of escalating safety and operational issues, we exercise our contractual right to assume operation of the Sauget plant. Unfortunately, and in what we believe is a clear violation of our contract, One Rock and Flexis have prevented us from taking over the plant. After exhausting all options, we filed a complaint in Illinois State Court in June to enforce our rights. Given that Flexis maintains operational control over the plant while our complaint is litigated, we expect to encounter ongoing operational and financial challenges. We are committed to taking back operational control of the Sauget plant per hour rights under the tolling agreement, and when we do, we will implement the necessary operational improvements and restore the consistency, safety, and quality of production that our customers rightly demand. Finally, a brief update on our IMS acquisition. IMS is performing well, and the introduction of our value driver strategy is proceeding quickly with strong early operational and financial results. IMS is performing ahead of our underwriting assumptions, and is poised to deliver returns that meaningfully exceed our targeted IRR threshold. In support of IMS's recent growth and reflective of our confidence in IMS's future organic and inorganic growth, we recently expanded our production capacity by executing on a new 87,000 square foot lease, more than crippling IMS's space. We look forward to investing significantly more capital behind IMS, primarily through additional product line acquisitions. We consider IMS to be an excellent template for our future acquisitions, where one, acquired a niche market leader that plays a critical role in solving complex customer problems. Two, introduced our cultural principles of business unit autonomy, accountability, and alignment. Three, implemented our operational value drivers to sustainably boost operating and financial performance. Four, ramped investment into the business in order to offer our customers the best products, services, and overall value proposition. And finally, launched an inorganic growth initiative, including the 10 million we spent in the first quarter to acquire new product lines. With that, I'll turn the call over to Kyle for a more detailed review of our financials and capital allocation in the quarter.

Thanks, Jason. I'll begin on slide five, where growth figures shown are versus the prior year comparable period. Starting with fire safety. Revenue for the quarter came in at $120.3 million, reflecting the 22% year over year improvement, and $157.4 million year to date, a 27% gain. These results were primarily driven by our retardant products and related services. US fire retardant volumes benefited from a more typical wildfire pattern in Q2, compared to a milder season last year, while our international operations, including Canada, Europe, the Middle East, and Asia Pacific, gained from ongoing contributions from our value drivers alongside more severe conditions. Our suppressant product lines resumed their growth in the second quarter. Recall that after nine consecutive quarters of growth, our suppressant revenue declined on the year over year basis in Q1, primarily due to an unusually strong product introduction benefiting the prior year period. In the second quarter, our fire suppressant sales returned to growth, increasing $2.7 million from the prior year quarter. Fire safety adjusted EBITDA for the quarter was $77.7 million, representing a 40% increase over last year, an $87.7 million year to date, marking a 58% gain. US wildfire activity was approximately normal in the six months ending June 30th, 2025, and wildfire risk conditions across our footprint are also within a range we would consider normal. Having observed normal activity levels for Q2 and into early Q3, we believe it unlikely that the full season will be exceptionally mild. That said, conditions for the remainder of the year could still vary above or below average, but we remain prepared for the full range of potential scenarios. In our specialty product segment, Q2 net sales came in at $42.4 million, representing a 47% lift from the prior year. This performance reflects a $9.3 million contribution from the IMS acquisitions and a $4.4 million uplift from the base business. Year to date net sales reached $77.2 million, up 23%, driven by $16.9 million from the IMS acquisitions, partially offset by a $2.3 million decline, attributable to the previously noted unplanned downtime at the Sauget plant in Q1. Specialty products Q2 adjusted EBITDA rose to $13.7 million compared to $9.3 million in the prior year quarter. It remains approximately steady year to date at $21.7 million. While Q2's operational challenges were less severe than those in Q1, ongoing downtime contributed to elevated costs in the business and dampened EBITDA. While it's impossible to predict the plant's performance under Flexis's control, we anticipate a continued drag from operational issues until we assume operational control of the plant. Viewing the segments together, consolidated second quarter sales grew 28% to $162.6 million while adjusted EBITDA improved 41% to $91.3 million. Year to date, consolidated sales reached $234.7 million, up 26%, and adjusted EBITDA rose 42% to $109.4 million. Moving below adjusted EBITDA, for Q2 2025, our gap loss per share was 22 cents versus gap earnings per share of 14 cents in the prior year quarter. Q2 2025 adjusted EPS was 39 cents compared to 25 cents in Q2 2024. On a year to date basis, gap earnings per share was 16 cents as compared to a gap loss per share of 42 cents in the same period last year. Year to date adjusted EBITDA rose $2.3 million and EPS was 41 cents as compared to 23 cents in the same period in the previous year. Turning to our long-term assumptions as shown on slide six, we're increasing the high end of our assumptions for capital expenditures from $20 million to $30 million. This increase reflects our success in finding capital expenditures that align with our investment criteria, namely that investments improve our ability to serve our customers and generate returns that exceed our minimum targeted return threshold. Our new production facility in Sacramento is a clear example of this investment in action, but it's far from the only one. Last year, we shared how upgrades at several of our airbases significantly boosted throughput. Building on that momentum, we continue to implement these enhancements across our network. The result, higher return volumes that help our customers achieve their mission while delivering strong returns on the capital we've deployed. As we build on these initiatives, we will continue investing in airbase infrastructure while seeking new opportunities with comparable potential. Aside from CAPEX, the remainder of our assumptions are unchanged and with normally quarterly variation, Q2 is consistent with those expectations. Q2 interest expense was $9.9 million while taxable depreciation, amortization, and other tax deductions total $5.4 million. Tax paid for income tax was $12.3 million in Q2 as compared to $3.6 million in the prior year quarter. Here, I will note that variation in taxes is typically timing related in any given quarter and our full year tax expectation is unchanged. Capital expenditures for the quarter were $12.8 million. Our working capital needs fluctuate seasonally and Q2's working capital levels and the associated use of cash are consistent with our expectations given the level of activity in Q2. Our year-end networking capital outlook is unchanged. We define free cash flow as cash flow from operations less capital expenditures. In total, we had free cash flow in Q2 of negative $15.6 million, primarily due to the seasonal build and networking capital as well as purchases of property and equipment. We generated free cash flow of $3.3 million for the six months and the June 30th of 2025. 2025 cash flow generation seasonality is in line with our expectations and consistent with history. Where we invest significantly in working capital in the first half of the year in preparation for the fire season, convert these investments into cash in the second half. Our full year EBITDA to cash generation conversion consistent with the assumptions shown on this slide with the vast majority of cash generation occurring over the next few months. We allocated nearly $62 million of capital in the quarter. The returns on which we expect will exceed our minimum targeted equity returns of 15%. We continue to invest in our business organically with $12.8 million allocated to capital expenditures in the quarter. The majority of these capital expenditures support our growth and productivity initiatives. Our pipeline of projects continues to build and is an important element supporting our long-term organic EBITDA growth trajectory. Moving to M&A, as discussed previously, we invested $20 million in select compass assets comprised of $1.7 million of raw materials and $3.1 million of property and equipment with the remainder allocated to intangibles. More broadly, we continue to search diligently for acquisitions that meet our investment criteria. Finally, we repurchased 2.9 million shares for approximately $32 million in Q2. While many companies have systematic share repurchase programs, our view is to repurchase shares when we believe our equity trades meaningfully below intrinsic value and when repurchases would not preclude higher potential IRR investments, notably in M&A. Both conditions were true in Q2. Turning to slide eight, I'd like to highlight our favorable debt structure, a single series of fixed rate notes at 5%, maturing in the fourth quarter of 2029 with no financial maintenance covenants. As of Q2, we were leveraged 1.7 times net debt to LTM-adjusted EBITDA driven by $675 million of gross debt, $141 million in cash, and nearly $313 million of LTM-adjusted EBITDA. We also have substantial liquidity with an undrawn $100 million revolver as a quarter end in addition to our cash. We ended the quarter with about 145.9 million basic shares outstanding. To conclude, perimeter second quarter reflected our team's execution of our strategy combined with normalized end markets. Despite the solid start, we remained disciplined in our approach to the full year, continuing our work to deliver for our customers and apply our operational value drivers across the business. With that, I'll hand the call back to the operator for Q&A.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Your first question comes from Dan Cutts with Morgan Stanley, please go ahead.

Hey, thanks a lot, good morning. I wanted to ask, I think you guys have kind of quantified this in the past, but when you think about, when you speak to kind of a range of normal wildfire activity or acres burned, can you help us, can you remind us how you guys think about that? Is it kind of over the course of the year, I think I remember like a six to 7 million US lower, 48 acres burned range on one of your past slide backs or is it kind of a percentage versus a trailing five or 10 year trend? Just hoping that you could, as we're trying to think through what it means when you say within a normal range, was just hoping you could share a little bit more color on how you guys think about that.

Thank you. Yeah, you bet Dan, it's safe. Thanks, thanks of course for the question. So I'll refer back to a slide we presented in our Q4 2024 earnings call where we've tried to break down for investors exactly how we think about what a normal fire season is. To sort of recap the message from six or so months ago, you're right, we thinking normal fire season is roughly in the range of six to 7 million acres burned in the US, excluding Alaska. Given that there's secular growth in acres, we think that range will creep up slowly yet steadily over time. We described 2024 as a fairly normalized acreage year because if you exclude the Smokehouse Creek fire, which occurred in Q1 in Texas and Oklahoma, and which used almost no retardant acres burned in 24, we're right about 7 million excluding Alaska. So near the top end of what we would consider normal. I'll note that if you take our year so far and look at acreage burned through early August and assume normalization through the balance of the year, which of course is an unknown what happens here on out, we're again looking like we're gonna be in that roughly six to 7 million normal range. Awesome,

super helpful. And then maybe, so a question has come up. If you look empirically, there does seem to be somewhat of a inverse relationship between a revenue per acre burned or even odd per acre burned if you did try and isolate just the US lower 48 components of those revenue streams versus the US ex-Alaska acres burned. There does seem to be somewhat of an inverse correlation over time now, the direction of travel for those metrics has been higher, has been improvement over time in terms of the dollar number of EBITDA revenue per acre burned, but still there does seem to be somewhat of a negative correlation with Siltin if you could help us understand, I mean A, determine if that phenomenon is true or just kind of noise in the data and then B, if so, what some of the drivers are that drives that relationship, thank you.

Yeah, absolutely, Dan, it's Kyle. Couple things on this, I'm gonna make two points on acres. One is that when we look at the acres data, we believe that it's a good indicator of our activity over longer term timeframes. There's a more challenging metric to use at short term timeframes. The related piece of that which you've identified here is that particularly large swings in acres will result in smaller changes in our retardant usage for a number of factors. So let me walk through so you can understand what those are. When you think about the factors that go into retardant usage for any acre, there's a number of things that go in. First, you have to have the acre itself and fire activity. It also matters where that acre's burning. In a remote area, there's less likely to be retardant usage than when it is closer to structures and has a near proximity to lives and property. And then the second piece that comes into this is both the ability to fly, so the weather, and then in particular, and the one that drives a lot of the variability you're seeing here is resource availability. So for instance, if you saw a very large spike in fire activity, what will happen is that all the resources can oftentimes be in utilization. That means that all the planes are busy. And so when another call comes in, they're simply not a plane to dispatch to that incremental call. When we see these spikes, that's a big reason why we are a big proponent of supporting our air tanker partners and expanding the fleet capacity. We believe that there's an amazing ability to drive ROI for the government, for the agencies, for our air tanker partners, and most importantly, perform the mission, protecting lives and property through an expansion of the air tanker fleet. You also see the inverse of that when there's a large decline in acres. When there's a decline in acres, the availability of planes for any given fire are much higher. So you're exactly right. When you look at this, there is a muted impact where big spikes will see less retardant usage because of the availability of aircraft, and the inverse is true when it falls. Does that make sense?

Yep, that makes kind of sense. And maybe if I could please go on one last one in on the resource availability point. We've seen a ton of different headlines on, you know, higher fire suppression spending, budget allocations lower. I've seen some headlines about California getting some, I believe, new air tankers. I was wondering if you could just kind of, you know, obviously super close to this. I was wondering if you could kind of give us some of the highlights of how some of the upstream factors that would drive resource availability have evolved maybe since last quarter or a year to date. Thank you.

Yeah, there's two pools of resource availability to think about here. One is the government-owned assets, and as you've highlighted, California has done a really good job of expanding their air tanker fleet through the acquisition of a number of C-130s, which are pretty large aircraft and dump a fair bit of retardant on each run. So that's one piece that's going on, and we continue to see that progression as states think more and more about owned resources. The second piece, as I alluded to before, is the typically contracted resources that the federal government tends to use. And in those, what we're really trying to support there, what really helps provide more availability is both the funding, but also the structure of the contracts. We always work with our industry groups to help provide the best structural contracts where they have availability and guaranteed contracts that allows them to invest in that fleet, that allows them to bring more resources into the ecosystem, that allows them to be more available when they're needed. Awesome,

really helpful. Thank you both very much. Congrats on a great corner, and I will turn it back. Thanks, Dan.

Next question, Josh Spector with UBS. Please go ahead.

Yeah, hey, good morning, guys. I was wondering if you could talk about kind of the sustainability of what you did in 2Q and fire safety. I mean, the margins are kind of above what we've assumed for peak margins in 3Q. The incremental margin looks like it was pretty much 100% year on year. So just as we think forward and we're saying, 2Q is kind of a normal-ish fire season in terms of acres burned, is this something you build off of? Is there anything you would call out as maybe one time helping you within the quarter?

Yeah, hey, good morning, Josh. It's hey, Tom. It's something we build off of. There was nothing notable in Q2 in fire safety that is unsustainable.

So then how would you help us think about what you should be doing in a peak quarter in 3Q? Is the incremental margin much higher than in the past? Should you be much higher than the mid-60s percent margins? Any help there?

Yeah, as much as I'd like to, Josh, I'm gonna hold back and ask you to wait 90 days on that one.

That expects nothing less. So shifting gears, on the specialty side, honestly, I don't know if we would have really known about the outages unless you talked about them, considering what the performance was in the quarter. So I was wondering if you could pick apart the moving pieces there. In terms of the five-ish million growth in EBITDA, you've had year over year, what was the impact that you had from the outages and the poor operating performance of that one facility? How much was growth in base specialty? And how much is the build-out of IMS, if you could help us frame that?

Yeah, I'm trying to be directionally helpful here, Josh, although I don't wanna get into too much quantification. The IMS acquisition is purely incremental over a year basis, and IMS had a hell of a second quarter. And so that's clearly part of it. Our base P2S5 business, which is a combination of the US plant and our own and operated European plant, did well. Those are on the positive side. And then on the negative side, the ongoing operational issues and in excess, way in excess of normal unplanned downtime at the Flexis-operated Sauget plant was a headwind in Q2, and those netted out to a good overall result, but puts and takes there.

Okay, I mean, I guess if I could try again, just on the Sauget impact, I mean, is it a 1 million, 2 million impact? Just trying to think about what we should be baking in when you say go forward, there's gonna be an impact the next couple of quarters.

You know, there has been, so first of all, it's a significant impact. It's a situation we take very, very seriously. It is harming our financial performance, it is impacting our customers, and most importantly, it is creating safety issues for the plant's employees. And so I don't wanna underplay significance for an operational safety or financial perspective. That said, this underperformance at Flexis has been ongoing really since OneRock acquired the business in 2021, and therefore, unfortunately, it's in the run rate numbers you've been seeing. And until we resolve this dispute, take control of the plant, address safety, and address quality, what you've been seeing, which includes again, the negative impact of their operating is gonna continue to reflect it in the financials.

Okay, no, thanks for that. And a couple other follow-ups if I can go through them. I guess first, the 20 million payment to resolve the dispute with Compass, is that primarily just intangibles and the ability to maintain your formulations? Is there any assets or anything there you'd call out as part of that?

Josh, it's Kyle. Yeah, there are actually assets that we acquired in his that we would have otherwise had to purchase from a normal CapEx transaction, a normal inventory purchase transaction. There's about $5 million of book value of those two buckets of assets that came with the transaction.

Okay, thanks for that. And then last, just another follow-up around kind of the US wildfire management tactics here. I mean, you talked about helping with plane availability and that being a factor. I know for years you guys have been talking about trying to maybe change how you're paid on some of your suppressants, make sure you guys get more of maybe a fixed payment in the slower parts of the year to start, or you have a sliding scale, I think, in place now to help you maintain your profitability. Is there any changes you foresee with your basically contract structure with the government around this to help enable more investments, profitability, et cetera, through any of this? Or are you thinking about it more in terms of the aerial fleet as where you see potential changes?

So it's both. And Kyle did a very clear job addressing the opportunities with the aerial fleet where we're very involved primarily through the industry association, UEFA. Separate from that, we have for the past couple of years been working, I would say, slowly and steadily with our customers around the world to mutually, beneficially devariabilize our business and make it so we have more predictability on our cash flows and our customers have more predictability on their spend with us, which mutes, it doesn't eliminate, we'll never be able to eliminate, I don't think, but mutes the impact of fire seasonality. And again, it's not a step function change with a single customer. It's something we've been increasingly doing over the past couple of years. We pretty clearly see evidence of it in our financial results. We're very happy with it. Our customers are very happy with it. And you'll see, and you'll find that we will continue to push for these mutually beneficial changes going forward. And we'll continue to see our financial results devariabilize going forward, but emphasize we'll never quite be able to decouple from acres burned.

Understood, thank you very much.

Thank you, I would like to turn the floor over to Hazem for closing remarks.

Thank you everybody for the time and support and we'll speak in 90 days or so.

This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.