Ladies and gentlemen, good morning, and welcome to the Perimeter Solutions Fourth Quarter and Year End 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Seth Barker, Head of Investor Relations. Please go ahead..

Thank you, operator. Good morning, everyone, and thank you for joining Perimeter Solutions’ fourth quarter 2024 earnings call. Speaking on today's call are Haitham Khouri, 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, February 20, 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 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 adjusted EBITDA and adjusted EPS.

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 and on the SEC's website. With that, I will turn the call over to Haitham Khouri, Chief Executive Officer..

number one, profitable new business; number two, continual productivity improvements and number three, pricing our products and services to the value they provide.

In addition to our three operational value drivers, we seek to maximize equity value creation through a clear focus on the allocation of our capital as well as the management of our capital structure.

Slide 4 provides a snapshot of our three main product lines, retardants, suppressants, and specialty products, all of which share the following attractive structural traits. Each provides a mission critical function where failure is not an option. Each is a clear leader in its market.

Each serves an extremely challenging and complex end market through a tightly integrated solution offering that spans product, equipment, and service. And finally, each has an attractive organic or inorganic long term growth profile. Turning to Slide 5. Perimeter reported a solid fourth quarter to close out a solid 2024.

In my public remarks over the last two years, I have repeatedly asserted my confidence in the consistent and significant progress we've made to increase the normalized earnings power of our business via the consistent and rigorous application of our value driver operating strategy.

Specifically, we've increased our organic growth rate via significant and successful investments in profitable new business initiatives.

We've increased the value our products, services, and solutions provide our customers and have shared in this value creation through value based pricing, and we've driven significant operating efficiencies via our productivity initiatives, which have allowed us to maintain strong overall cost discipline while reinvesting record sums into activities that enhance customer value, including research and development, sales and marketing, and capital expenditures.

Virtually every time I've asserted my confidence in our operational improvements, I have also asserted confidence that this progress should be evident to investors when we experience normalized end markets which allow for more apples to apples comparisons versus our historical financial results.

While no comparison is perfect, we believe that 2021 and 2024 are comparable years, with roughly normalized demand environments in both our fire safety and specialty products businesses in both years. I'm proud to report that our consolidated adjusted EBITDA approximately doubled over this period from $141 million in 2021 to $280 million in 2024.

This represents a three year adjusted EBITDA CAGR of 26% and extends our adjusted EBITDA CAGR since 2010 to 19%. Our consolidated adjusted EBITDA margin expanded approximately 1,100 basis points over the three year period or approximately 360 basis points per year.

Given our belief that both 2021 and 2024 represent normalized and comparable years, we are confident that the improvement in our adjusted EBITDA over the three year period is the direct and sustainable result of our value driver focused operating strategy. Moving to Slide 6.

I'd like to acknowledge our team members who sprang into action to help combat the devastating January fires in Southern California.

January is traditionally a quieter month for our North American retardant business, where we primarily focus on base builds and upgrades, equipment maintenance, operational training and safety programs, and other preparedness activities. However, there is no off season in wildfire firefighting.

As I've often stated, our job is to support our customers by loading 100% of air tankers with 100% reliability 100% of the time, irrespective of season, location, or any other variable. Our team sprang into immediate action when called upon in LA.

We quickly had six air tanker bases open and loading air tankers, Santa Maria, San Bernardino, Lancaster, McClellan, Ramona, and Channel Islands.

We also deployed three fully crewed mobile retardant bases to support close range helicopter operations, two at the Palisades Fire, and one at the Eaton Fire, as well as several ground applied retardant units.

All six of our tanker bases, all three of our deployed MRVs, and all of our deployed ground applied units remain fully inventoried and active during the wildfires. This was made possible by the virtually irreplaceable breadth and depth of Perimeter's operational preparedness.

We have the product, infrastructure, equipment, and personnel to respond and react with virtually perfect reliability in virtually any scenario. This incident also illustrates why a highly distributed and localized manufacturing footprint is essentially a requirement for any competitive retirement program.

We continually supplied our air bases, our MRVs, and our ground applied units from our manufacturing facility in Rancho Cucamonga, just East of Los Angeles. We have five retardant manufacturing facilities located throughout the Western United States with a six under construction with expected completion in spring of 2025.

We also have a retardant manufacturing facility in each of British Columbia and Alberta for a total of seven and soon to be eight retardant plants in North America. This distributed and localized manufacturing footprint is essential as we support our customers' wildfire response irrespective of location.

Thank you to our team members who so valiantly responded to these wildfires, to the firefighters and first responders who stepped into harm's way to keep others safe, and to everyone still dealing with the challenging aftermath of these devastating fires. Moving to capital allocation on Slide 7.

As I've repeatedly stated, we expect to deploy all of our free cash flow as well as the incremental leverage capacity we generate through organic EBITDA growth towards the highest expected IRR combination of internal reinvestment into our business, M&A, share repurchases, and special dividends.

I'll recap our capital allocation results from 2024, starting with internal reinvestment into our business. We reinvested a record amount of capital back into perimeter in 2024.

This is most evident in our capital expenditures, which grew substantially versus our historical levels with the growth focused on investments that we expect to drive attractive returns via profitable new business, value based pricing, and productivity. Our higher OpEx reinvestment is less evidence since this spend hits the income statement.

However, we've significantly increased our sustainable OpEx spend levels on R&D, sales and marketing, field service, customer relations, and several other customer facing and value generating OpEx categories. Moving to M&A.

We closed our first acquisition since going public on December 24, 2024, when we acquired Intelligent Manufacturing Solutions or IMS for approximately $33 million.

This purchase price represents an approximately 10 times multiple on IMS's 2024 adjusted EBITDA pro form a for specific recurring expenses we're adding to the business to execute on our long term strategy for IMS. Based in Manchester, New Hampshire, IMS is a manufacturer of highly specialized printed circuit boards or PCBs.

PCBs are electronic components which are critical to the functioning of much larger assemblies, including large medical devices, communications infrastructure, energy infrastructure, defense systems, and industrial systems.

Our market research led us to PCBs as an excellent fit for our value driver based operating strategy and highly consistent with our often stated target economic criteria. Specifically, many of the largest PCB end markets would experience solid long term organic growth.

A very significant portion of PCB sales are what we describe as spares and repairs, which constitute a predictable and recurring aftermarket demand stream. PCBs are relatively inexpensive components, which are critical to the functioning of much larger and more expensive instruments and machines.

A well run PCB business should enjoy strong free cash flow margins and high returns on tangible capital.

And finally, we believe that there's a long runway to acquire and license in production PCB product lines in attractive multiples, bring these product lines into IMS for manufacturing, drive profitability improvements into these products via the implementation of our value driver operating strategy, and sell these products into established, recurring and predictable aftermarkets.

Note that we will report IMS in our Specialty Products segment going forward. I'll conclude the 2024 capital allocation discussion with share repurchases. We repurchased approximately 3 million shares in 2024 at an average price of $4.81 representing an approximately 160% return on our investment.

Since going public in late 2021, we've repurchased approximately 21.6 million shares at an average price of $5.90 representing an approximately 100% return. Looking ahead, we believe that we're very well positioned to drive shareholder value via active capital allocation as well as capital structure management.

With that, I'll turn the call over to Kyle..

to fulfill our sacred and life saving mission and to drive shareholder value. We are exceptionally proud that our team delivered on both elements in 2024 and remain focused on those two aims for 2025. With that, I'll hand the call back to the operator for Q&A..

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Josh Spector from UBS. Please go ahead..

Hi, good morning. It's Chris [Indiscernible] on for Josh.

Could you dig in a little bit more about the PCB market and how it fits in the Perimeter's strategy?.

Well, for our strategy, as you've witnessed, we've been extremely patient, keeping the bat on our shoulders, so to speak, as far as pulling the trigger on M&A over the past couple of years, and that's because we set both a very high and very specific bar for ourselves. We want to buy assets we described as exceptionally high quality.

And we want to buy assets that fit very, very neatly into what we do best, which is significantly driving post-acquisition value through the implementation of our operational value driver strategy. And we're very clear about what that means. We've clearly and repeatedly articulated five target economic criteria.

And we believe when we find the business consistent with the five, again, often articulated and repeated, target economic criteria, that means it's a great fit for our strategy that means it's exceptionally high quality business.

And very specifically, I tried to tick through or not I tried to tick through, I ticked through all five in my prepared remarks. We think PCBs fit hand in glove based on the first four, which talk about the intrinsic business quality, both of IMS and of the PCB market.

And then number five is the potential for opportunistic consolidation within any industry we enter, and we think that's one of the true highlights of IMS.

While IMS itself is a very high quality asset and a very attractive business where we think we can drive significant value, we additionally believe that IMS is going to be an excellent platform for us to deploy meaningful capital going forward, acquiring or in licensing in production PCBs to greatly expand the portfolio of essentially IP ownership of PCBs.

And each time we acquire or license a product line. We'll look to add real value to our customers and sharing that through value pricing. We'll look to innovate and drive profitable new business. And we'll look to deploy our productivity playbook and grind down costs..

I appreciate that, Haitham. And then I guess as a follow-up, the higher CapEx spending, is that a function of investments in fire safety or is that your expected step up to grow the potential PCB business organically, realizing I know that you're going to do some bolt ons and you're going to use it as a M&A platform.

Just, I guess, what's driving the uptick in CapEx?.

Hey, Chris, it's Kyle here. Thanks for the question. Excellent question. I think when we think about this, it's predominantly in that fire safety platform where we see the increase in CapEx.

We've already spent a lot of dollars on both OpEx and CapEx working to kind of better fulfill customer missions, drive improved products and expanded services and that's what we're seeing here. We're very excited about the projects that we're seeing in our CapEx pipeline. They do two things.

They help us fulfill our customers' missions and they come with extremely attractive IRRs. Our CapEx pipeline is just it's filled with a lot of value creating opportunities largely in the fire safety side for right now and we'll expand that scope as we go forward..

Thank you. I appreciate that. I’ll jump back in queue..

Thank you. The next question comes from the line of Dan Kutz from Morgan Stanley Investment Management. Please go ahead..

Hey, thanks. Good morning..

Hey, Dan..

So I feel like you guys have already kind of addressed this question, but I think it's on a lot of folks' mind. So I figured it's still worth asking. And firstly, thoughts and prayers go out to the families impacted by the Southern California wildfires.

But basically the question is, it seems like undoubtedly the California catastrophe will catalyze an increased focus on resilience and preparedness.

And basically what I'm trying to ask is, are there any implications for Perimeters’ business as there's kind of heightened efforts around fire suppression, fire prevention or is it as you've kind of consistently reiterated that you are committed to and have executed on loading 100% of their tankers 100% of the time basically 100% preparedness.

Just wondering if there's any implications for Perimeter specifically as the country kind of bolsters its wildfire fighting efforts? Thanks..

Hey, Dan, it's Kyle. Thanks for the question. First, let me note that any fire that takes lives or consumes property is a tragedy, but the scale of the LA Fires, it's breathtaking. Our hearts go out to those affected and we're really proud that we've been able to support our customers' efforts to contain the fires.

Second, while that was a widespread and near instantaneous response from us and it was critical for fulfilling our mission, in the near term, it had a relatively modest financial impact relative to our full year earnings power. The LA fires impact would account for only a small fraction of the variation we typically see in the full year fire season.

And so it's not in the near term impact to our financial statements. Or the longer term, though I think Kato would probably want to add since that..

Yeah, thanks, Kyle. Yeah, Dan. Longer term, the LA fires will almost inevitably attract more attention, more focus, more proactiveness and ultimately more resources towards wildland firefighting in general and towards the aerial element of wildland firefighting in particular.

And that's just going to greatly benefit our nation, and certainly our industry and as part of that perimeter. As we've often stated, we are a capacity constrained industry. We run out of air tanker capacity at least a point in time, if not multiple points in time, literally every single fire season.

We need to have, should have as a nation more air tankers, more helicopters, more MRVs, more ground applied units, more preventative retardant application, etcetera.

And it's hard to believe that the attention the LA priors and the spotlight they've put on the importance of these preparedness and resiliency activities won't lead to more investment, which simply increases industry capacity and neutral response capability of which perimeter is a critical part. And I'll tell you, we have a part to play here.

Part of it is air tankers are added and we indirectly and very clearly benefit. Part of the onus is on us to continually build bigger, more capable basis at VLAP capability, add multi-bit loading, add newer equipment. And we've been very, very aggressively doing that over the past couple of years.

And you really saw that impact in LA Channel Islands is a brand new base we built a couple of years ago that played a huge role. San Bernardino is a base we put a lot of investment in over the past couple of years, which played a huge role.

McClellan is a base we've put tremendous investment into over the past couple of years, again, played a huge role in the LA Fire. So we will do our part, I think quasi inevitably others will as well going forward and I think the industry and the nation will benefit..

Awesome. That's all super helpful color. And then for the next question, kind of two parts, but both related to the new administration in the U.S.

I guess firstly, any implication for the PRM manufacturing supply chain kind of input costs from tariffs and trade wars? And then I guess more broadly, are there any implications from proposed or implemented policies from new administration that could impact PRM's businesses one way or another? I guess the one that comes to mind is that kind of the less supportive electric vehicle legislation seems like a tailwind for ICE miles driven in specialty products demand.

But yeah, basically just thoughts on tariffs and trade wars and more broadly policies from the new administration and in terms of the implications for PRM's business lines? Thanks..

Yeah. Good question, Dan. So, we really don't think so. Our supply chain is extremely resilient with multiple redundancies up and down the entire system. I don't think you'll see any impact from tariffs or really any other new governmental policy. Not that we don't pay very, very close attention. We do, of course, we spend a lot of time in Washington.

We're all over the stuff. And as a result, we have a fairly informed opinion that there should be negligible impact on our business, but we also stay vigilant and eyes wide open. On your question specifically on electric vehicles and specialty products, look, it's a rounding error.

Might you see a small uptick in percent of new vehicle sales that are internal combustion engine and a small downtick that are electric? Maybe not, even if you did the impact on the car park is negligible in any given year. This is really tight. Total internal combustion engines miles driven, call it, across the entire OECD.

So any small change in the distribution of U.S. new vehicle sales in any one or two years is just surrounding error..

Sure. That all makes sense. Again, really helpful. Appreciate the color and I'll turn it back..

Thank you. The next question comes from the line of Chris Fidyk from Pacific Asset Management. Please go ahead..

Hi, good morning. Thanks for taking my questions. Just a couple of housekeeping ones, probably for Kyle on the financials. The first one is just there's a bit of it looks like noise with taxes and the cash flow statement this year. The cash taxes look like they've gone up. There's a big drawdown on deferred income taxes.

Is that related to the redomicile or is there something different?.

Yeah, Chris, you have it exactly right. It's related to the redomicile a little bit on the DTA and DTLs, the deferred taxes, that's a redomicile impact. When you look at the cash tax impact, Chris, it's largely just a matter of timing..

Okay, super. And the other one, thanks for the disclosure about adjusted net income.

Would you be willing to offer any kind of guidance on a long term basis about the relationship between free cash flow and adjusted income? Would it be 90%, 100%, 80%? Is there any kind of range we should be thinking about in terms of cash per dollar of adjusted net income, please?.

Okay. Chris, on that specific ratio, we will not. However, what we do is give you a fair bit of detail on how we think about converting from adjusted EBITDA to free cash flow in our earnings deck.

And you should be able to go through and take any underlying business assumptions that you make, bring that to adjusted EBITDA and then use that slide to go from there to free cash flow..

Fair enough. No problem. Thank you very much..

Thank you. The next question comes from the line of Josh Spector from UBS. Please go ahead..

Hi, everybody. It's Chris again. Just a follow-up on the leverage ratio. It's lower historically. You've grown into the leverage.

I think, do you have a target there? Do you want to get back to about 3.5 or over 3.5 times levered? And how quickly now that you have the PCB base acquisition and do you think M&A will progress as part of the strategy?.

Sure. Thanks, Chris. On the target leverage, yeah, we would like to have a higher leverage ratio here and I think your range is a perfectly fine place to think about it. The other data point I always look at point you to is the leverage ratio when we IPOed since we effectively picked that at the time of IPO.

And yes, the main driver that we expect to get back to that leverage ratio will indeed be M&A. We're pretty active in that.

We know we have an extremely high quality portfolio of businesses and we're very focused on maintaining that quality of businesses and it's specifically the applicability of our operational value drivers strategy to any potential acquisition.

We're out there looking for a lot of potential targets and as we put it, we're going to kiss a lot of frogs until we find our prints..

Fair enough. So it's not just focused on PCB at this point.

You're still scouring for other businesses that fit the strategy?.

A 100%, Chris. That's exactly right. I think what you should take away from the IMS acquisition is that when we see an asset that we're extremely excited about, we're going to go out and do that. We have a pretty broad aperture both in size and in the types of businesses that we're going to evaluate at the top of our funnel for M&A.

And this is just a first step on what we hope will be a series of acquisitions where we can put more and more kind of raw material into our operational value drivers framework and continue to drive the sort of value creation you've seen over the last three years in our existing portfolio of businesses..

All right. I appreciate the color. Thanks, guys..

Thank you. [Operator Instructions] As there are no further questions, I would now hand the conference over to Haitham Khouri for his closing comments..

Thank you, everybody, for your time this morning. And thank you, as always, to our investors for your trust and support. We remain very, very hard at work to drive value for you. Thank you..

Thank you. Ladies and gentlemen, the conference of Perimeter Solutions has now concluded. Thank you for your participation. You may now disconnect your lines..