Perimeter Solutions (PRM) is a company which fire safety products such as foams and fire retardants to prevent wildfires.
Previously I had looked into this company a couple of times after some solid earnings results but my general impression was that the wildfire season was unpredictable and revenue would be lumpy. However, with the recent LA fires I believe this companies products may become in higher demand. I like that this company’s products have a beneficial impact as they say “failure in this business is measured in lives and property”.
Here’s what I wrote about this company on previous monthly writeups,
They are a global provider of firefighting products. 2B market cap with just 219 employees. Even though they put up some big numbers the revenue is all over the map, 44M → 76M → 143M → 60M → 59M → 127M. While there is a lot of seasonality for the product especially during fire season, there is so much variability when it comes to this business. A lot depends how bad the forrest fires are each year.
Revenue is 288M with 102% yoy growth as they sell fire safety specialty products. They’ve had a huge jump up in revenue sequentially the last year but they still have lumpy results on EBITDA and net income. It turns out this lumpiness is from “Founders Advisory fees” and in one quarter there was 184M of these and other quarters this is a negative number. I’m not really clear why these advisory fees are so massive.
Currently Perimeter’s products are the only qualified products for use by the USDA Forest Service, and the Forest Service along with the state of California are the two biggest customers. The name of the game seems to be creating the most environmentally friendly product that works against fires. There is a white paper on their website explaining the evolution of fire retardants.
The company also has gotten increasingly international with about 80% of sales being US based from the IPO in 2020, to 65% US based as of today. Having some customers in the Southern hemisphere helps balance out the revenue, although there is still a ton of seasonality in this business with Q3 being a boom quarter typically.
Some of the more impressive points on this company from their last Q3 earnings include,
- fire safety +113% yoy, 252M
- specialty products +50% yoy, 37M
- adj EBITDA +177%, 170M
- FCF of 179M
- gross margin 63%, a record for the company
My biggest concerns for this company are,
- Their founding is a bit complex as they recently re-domiciled from Luxembourg to Delaware. There was a holding company involved in the merger to create Perimeter solutions called EverArc, and they pay “Founder Advisory Fees” to them which is why the company’s net income is negative this past quarter.
- My investment here is making a prediction that sales will be increasing because of the fires happening in the off season. Typically I like to avoid making any predictions and let company results drive my decisions, but in this case I believe governments may be eager to stock up on these products.
- 800M of debt, and 200M of cash. The debt comes from an acquisition a few years ago called Invictus. However, the long term rate is attractively low on this loan so I do not expect them to be looking to pay back early. On the positive side, the shares outstanding for PRM has gone down since IPO, and I believe this is from buybacks.
Here is a video showing how one of their products works to spray trees as a preventative measure,
Reviewing some items from the last Q3 report back in November 2024,
- three main product lines: retardants, suppressants, specialty products - all of which share very attractive structural traits
- “the reason every meaningful retardant program globally partners with Perimeter is our unfailing service record”
- in the midst of busiest Canadian wildfire season on record
- Perimeter helping with Yellowknife fires and Northwest Territories
- similar examples from all corners of the world including North America, Central and South America, Europe, Middle East, Australia, and Asia
- deployed a dozen Mobile Retardant Bases or MRBs to states including California, Washington, Oregon, Idaho, Wyoming, and Oklahoma
- reinvesting in the business via both OpEx and CapEx
- “2023 destock activity is behind us”
- expecting to complete transition from Luxembourg to Delaware in later November
- “as of Q3, we were levered 1.7x net debt to LTM adjusted EBITDA” (doesn’t sound very encouraging but the debt is from buying a company, and the debt has a low interest rate)
- analyst “I assume given the strength in the fire season, you probably couldn’t fill all the orders you had”
- CEO, “certainly periods in Q3 where the entire aerial firefighting industry was running at max capacity”
- “we could have sold more Retardants had there been more industry capacity”, “now on a go forward basis, there is capacity very consistently being added”
- CalFire is planning to double capacity over the next few years and put the first large air tanker into service in the 2024 fire season
- increasing capacity at air bases, means adding more loading pits
- “Central America is a good market for us”
- Europe, the Middle East, Asia are important, many countries in those markets are very important for us
- Australia is a very important market for us
I am impressed that this company was has what seems to be a very strong foothold in a niche business. They seem like a company which can provide effective solutions to combat wildfires in California and elsewhere. I believe this company has a positive mission which is protecting lives and property.
Currently I have a very small position in this company. What is holding me back is some of the items surrounding the founding of the company and accounting for advisory fees in a strange way. I was looking at some of the details surrounding this in the S1 filing from a few years ago and will look to update the thread when I learn more.
Overall, this company seems promising, and they may have a tailwind because of current events. Still I want to be cautious on a prediction that they could get more business soon.