Thank you, operator. Good morning, everyone and thank you for joining Perimeter Solutions' first 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 May 9, 2024, 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.

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.

Thank you, Seth. Good morning, everyone and thanks for joining us.

As always, I'll start on Slide 3 with summary comments on our strategy. As we stated repeatedly, 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 five economic criteria are present in our current businesses and we use these criteria to evaluate potential new acquisitions.

As described on Slide 4, we seek to drive long-term equity value creation by a consistent improvement in our three operational value drivers, which are: number one, profitable new business; number two, continual productivity improvements; and number three, pricing to reflect the value our products and services 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.

Turning now to our financial results on Slide 5 and starting with Fire Safety. Recall that the first quarter is usually Fire Safety smallest quarter of the year and a quarter in which the business has typically historically reported an adjusted EBITDA loss.

Fire Safety delivered markedly improved year-over-year financial results in the first quarter of 2024 much as the business did in the prior quarter. Fire Safety revenue increased 34% year-over-year in Q1, while the business was close to breakeven on an adjusted EBITDA basis versus a negative $3.4 million adjusted EBITDA loss in the first quarter of 2023.

The year-over-year improvement in Fire Safety's revenue and adjusted EBITDA was primarily driven by our suppressants business, where our 3P's operating strategy continues to drive performance. Specifically, our focused R&D investments into fluorine-free technology is driving profitable new business by our market-leading product portfolio.

Our focus on pricing our products as a significant value they provide is driving higher per unit revenue and profitability. And finally, our rigor around eliminating excess costs via consistent and measurable productivity initiatives is contributing to adjusted EBITDA growth in excess of revenue growth.

Turning to Specialty Products. After several slow quarters, which we attributed to destock activity throughout the specialty chemicals supply chain, Specialty Products delivered solid financial results in the first quarter.

The business is 37% adjusted EBITDA margin roughly in line with the business' margins prior to the destock period illustrates the point where we repeatedly emphasized around Specialty Products' resilient underlying unit economics through the destock period. While we're clearly encouraged by Specialty Products' first quarter performance, we've also been candid around our surprise at the depth and duration of the destock.

As such, we will allow more time to pass before offering projections around end market demand in this business. Turning to cash and capital allocation.

We repurchased approximately three million shares in the first quarter at an average price of $4.79. Recall that we repurchased approximately 12.2 million shares last year at an average price of $5.24.

We have approximately $97 million remaining on our existing repurchase authorization and we ended the first quarter with approximately $34 million of cash on our balance sheet. As I did last call I'll touch on our approach to capital allocation including M&A.

We're confident that our 3P's operating strategy will create significant value when applied to the right businesses. The right businesses are defined by the five targeted economic criteria I covered on slide 3.

Our confidence in M&A-driven value creation is based on the improvement our 3P's operating strategy has delivered in each of our retardants, suppressants and Specialty Products businesses over the past two years. Much of this improvement is evident in our reported results and commentary including in Specialty Products and suppressants.

We expect the balance of this 3P-driven improvement particularly in our retardants business to be evident in a more normalized fire season. As enthusiastic as we are about M&A-driven value creation we're constantly evaluating the IRR trade-offs between our different capital allocation alternatives.

We ultimately expect to deploy all of our excess free cash flow as well as the incremental leverage capacity we expect to generate through organic EBITDA growth, towards the highest expected IRR combination of M&A, share repurchases and special dividends. Finally and as I have done over the last several earnings calls I will reassert our conviction that Perimeter is the gold standard as far as the efficacy and safety of our products, the quality of our service and the passion dedication and integrity of our team.

This is reflected in our ongoing strong market positions. I will also reassert that we will never take our market leadership positions for granted.

Rather we will always relentlessly push to raise the bar on ourselves. Between the clear superiority of our products, services and people our fiercely competitive spirit and our ever-vigilant mindset we expect to thrive in all future environments.

And with that I will turn the call over to Kyle.

Thanks, Haitham. First quarter sales in our Fire Safety business increased 34% year-over-year to $25.2 million, while first quarter adjusted EBITDA was negative $0.2 million an improvement from negative $3.4 million in the first quarter of 2023.

As Haitham noted consistent with the past several quarters the year-over-year improvement was driven by a particularly strong year-over-year performance in our suppressants business as well as continued solid 3P's implementation across our entire Fire Safety business. As is typical our retardant sales were relatively modest in the first quarter and concentrated amongst customers in South America and Australia.

I'll call out the significant February fires across Texas and Oklahoma drove very modest Q1 retardant activity due primarily to the fact that regional air bases were not open when the fires ignited and quickly spread as well as significant turn in weather conditions once bases did open. First quarter sales in our Specialty Products business increased 35% year-over-year to $33.9 million, while first quarter adjusted EBITDA increased 91% to $12.4 million.

The year-over-year improvement was due primarily to higher market demand as well as continued strong unit economics driven by our pricing and productivity actions. First quarter consolidated sales increased 35% year-over-year to $59 million while first quarter consolidated adjusted EBITDA increased almost fourfold year-over-year to $12.1 million.

Moving below adjusted EBITDA. Interest expense in the first quarter was $10.6 million in line with our quarterly run rate.

Depreciation was $2.6 million in Q1, while amortization expense was $13.8 million. Cash paid for income tax is approximately $800,000 in the first quarter.

CapEx was approximately $1.6 million in the first quarter. Our long-term expectations for interest expense, depreciation, tax rate and CapEx are unchanged and summarized on slide 6.

Our long-term expectations for net working capital is also unchanged, although as I've noted previously, we expect to receive some benefit from working capital in 2024 given our significant inventory position. We ended the quarter with approximately $675 million of senior notes, cash of approximately $34 million and approximately 145 million basic shares outstanding.

With that, I'll hand the call back to the operator for Q&A.

Hi, good morning, everyone. It's Chris Perrella on for Josh.

I wanted to follow-up on the strength in specialty. Is there a restocking that took place in the business in the first quarter?

Or should we think about that as a strong growth and a good run rate for the business for the rest of 2024?

Yeah. Hi, Chris, Haitham here.

So the latter, we don't think there was any restocking in Q1. We think it was a natural rebound off of the depressed levels of the last four, five quarters.

All right. No, I appreciate the color on that.

And then switching over to Fire Safety. The fire season to date, you had the higher burn acreage in Texas.

Given some of the noise in the first quarter, how would you think about the trends in the fire season and how it relates to PRM?

I don't think there's much if anything to extrapolate from Q1 into the balance of the year. The acres burnt numbered due to the Texas and Oklahoma fires were significant.

As Kyle pointed out their financial impact on our Q1 was largely insignificant. And I think disconnected from what may or may not happen over the balance of the year.

As far as what may happen over the balance of the year, Chris, it's just too early to tell. It's unpredictable and we'll find out in the next 90 120 days here but it's very, very hard to prognosticate with any confidence at this point.

No. No, I appreciate that.

And then just one more on working capital. Where are you targeting that for the year?

And is that going to be positive for 2024?

Yeah, Chris, it's Kyle. We do expect that we will receive a benefit compared to our normal long-term guidance that we laid out on slide 6 this year.

And when we look through that the timing of that is going to come through and the big piece of that will come a little bit in Q2 and more predominantly in Q3. As we've talked about previously, we have a more robust inventory position that we usually hold, a good portion of the reduction that will be made in that to the extent that we're able to do so will be during the fire season.

So we'll see some of that benefit coming through predominantly in Q3.

No, thank you very much. I appreciate the color on that.

So, that’s it from me.

Hi, thanks. Good morning.

I just wanted to ask about the UAFA's calling for the US fire service to revisit and revise its QPL qualification process. I guess, the first part of the question is just simply, are any PRM products at risk from this re-qualification process?

I'd assume no because it sounds like in all of the articles that the stress is on new product qualification. But firstly, I just wanted to confirm that.

And then I guess secondly a lot of folks are trying to wrap their head around what the timeline would be for the U.S. fire service to potentially revisit and revamp this process.

It sounds like it's a pretty old process. So, maybe the answer to this question is no not really but I'm just wondering if there's any -- if there's any relatively recent experience you have with revisions or updates to the QPL process and any read-throughs to the potential revision of the process today?

Thanks.

Yes. So, two good questions.

Thanks Dan. On the first one, you're thinking about it right, we feel -- we feel very good about all our products on the QPL and certainly expect no changes there.

On the push from the air tanker community for I would say more safety-focused testing to avoid no -- frankly the pretty close call those guys had with a competing product. We're absolutely on the same page as the air tankers -- air tanker companies as UAFA, which is the industry association; as the forest service which is driving much of this reexamination; and then as the regulatory agencies that are I think very, very appropriately looking at what happened in trying to improve safety NIST, NTSB et cetera.

So, we think this is a very, very healthy process. It's a process -- our industry exists to drive a safety mission.

Our company truly exists to drive a safety mission. Absolutely everything takes a distant back seat to the safety and efficacy or products to keeping the air tanker pilots carry our products in their planes safe to keeping the wildlife firefighters who are risking their lives day in, day out fighting fires with our product being dropped around them to keep them safe and ultimately keeping communities safe.

And any call be it from the industry association, our customers, regulatory agencies to look at the testing and approval process with an eye towards increased safety and efficacy were just huge, huge proponents of and are very, very pleased with some of the developments over the past few weeks.

Great. That's really helpful color.

And sorry to batter this again. But I just wanted to come back to the working capital and inventory question and just confirm so if I look at past first quarters you guys would invest a little bit in inventory this quarter was basically flat.

Is the interpretation of that that there's maybe less runway than you've contemplated a quarter ago for the incremental tailwind versus your normal long-term working capital framework? Or are you guys still pretty confident that are we kind of in a similar place today as we were a quarter ago in terms of the magnitude of what you think that tailwind can be?

Dan I think you just said it extremely well. We're in the same place we were a quarter ago as regards to our working capital view for the year.

The important point to recognize our working capital and the difference from our long-term assumptions is that inventory position. We entered the year with a substantially more robust inventory position than you normally would.

When you look at the use of working capital specifically as it relates to inventory typically Q2 is a reasonably meaningful use of cash for that as we build that inventory into the fire season. That trend in Q2 will be muted this year.

And then we will see we're likely to see a reduction in that inventory in Q3 as the fire season gets going.

Got it. Super helpful and very clear.

Thank you. Maybe if I could just sneak one last one in and Haitham this might be for you.

But I know sometimes some investors aren't huge fans of special dividends or special dividends versus buybacks. I was just wondering if you could talk us through what scenario or what the situation would be, where special dividends might rank the highest in your capital allocation framework.

Just broadly what kind of would be the circumstances where that might be the preferred capital deployment method? Thanks.

Another very good question. So let me walk you through a principle Dan, and then let me walk you through essentially the process by which we, sort of express the principle.

The first principle is cash on our balance sheet is capital that belongs to our shareholders. And we have an obligation and a duty to put that capital to work on their behalf at appropriately high IRRs.

That's literally how we think about and talk about cash on our balance sheet. And cash sitting on the balance sheet earning a couple of percent interest rates is woefully insufficient for what we -- or our shareholders as far as the return on their cash, which begs the question, all right, if you're not going to stockpile cash on the balance sheet, what are you going to do with it?

And the answer is, we are very focused on deploying it at high IRRs. And I think there's a clear waterfall.

There is no company we know better than Perimeter. There's no company we believe in more than Perimeter.

There's no company where we have a better and more specific view on future value than Perimeter. And therefore, when we believe the IRR on share buybacks is above our long-term return hurdle, which we describe at the opening of every call this private equity-like return to the liquidity of public market, we're going to deploy cash into buybacks as priority one.

Number two is M&A. We are very and increasingly confident that we can take our 3P's playbook based on driving profitable new business, driving constant measurable productivity and pricing our products to the value they provide and meaningfully improve margins and cash flows at acquired businesses.

We believe we're three for three -- with our three businesses at Perimeter. I think the results are clear on two and hopefully will be on our retardant business when we have a more normal season.

And we think we can apply it again and again and drive real value. And therefore, when there is an acquisition opportunity on the table, where we believe the playbook applies, we can get the deal done and again the IRRs are above our status threshold, we're going to do that.

Now we ever find a scenario where we are not buying our stock back because the IRR doesn't justify it. And we don't believe we're going to find actionable acquisitions over the near medium-term that hit our return threshold then our options simply becomes forward cash on the balance sheet or return it to its owners, in which case the answer is very clear.

We'll return it to its owners, our shareholders, and they can decide how to allocate it.

Very clear and nice. Super helpful.

Thanks a lot guys. I’ll turn it back.

Yes. Thanks, Dan.

Hi, guys. It's Chris Perrella, again.

Just a quick one. Can you comment on fire -- your outlook for fire return pricing for the year?

The short answer Chris, and I'm sorry is, no. We just don't talk about current year pricing.

What I -- what I will point you to which I think, will be quite responsive is our very, very consistent philosophy on pricing. I mean this is unwavering, has never changed will never change.

We are truly obsessed -- obsessively focused on listening to our customer, understanding where their pain points are, understanding what they perceive as max value and working really hard be it with our R&D team, with our service team, whatever it may be to improve our product and service and drive more value to the customer. And we think -- we think we're really good at that.

Once you do that and you offer the customer more value it moves us to then take price, so we continue to price our product commensurate, with the value it provides customers and everybody wins in that case. You saw your customers' biggest pain point, you provided them with material value, they're typically more than happy to pay some premium for that incremental value and we're also thrilled.

We've delighted our customer and we've done good work for our bottom line and our shareholders. And therefore, while we're never going to comment on pricing in any given year, we are simply not doing our jobs, if we deviate from that playbook.

I think the direction that the playbook suggests our pricing should go year in year out, is crystal clear.

I appreciate the color on that. And then just one quick one.

For mil-spec, does that have an impact in 2024? Or is that a slow build for that product?

So I would say, both. It had an impact in the second half of 2023.

It had an impact in Q1. It should certainly have an impact throughout the balance of the year, but mil-spec is not a one-shot thing.

I referred to this on my prior call. mil-RA there are a number of chunky important mil-spec approvals, which are separate from one another.

You have aircraft rescue, you have sprinkler, you have salt water, you have commercial airport, so on and so forth. And our hope and certainly, our plan over the coming quarters and years, is to keep being first to market with these various approvals therefore unlocking incremental chunks of mil-spec and continuing to benefit from this opportunity over the long term as we clearly, are in 2024.

Thank you very much. Appreciate the color, Haitham

You bet.

Thank you very much everyone and talk again in 90 or so days.