Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fire safety revenue increased by 85% year-over-year, with adjusted EBITDA more than tripling.
- Significant improvement in fire safety's financial results driven by both external and internal factors.
- Strong conversion activity from fluoridated to fluorine-free foams, where Perimeter Solutions SA (PRM, Financial) is a market leader.
- Specialty products' adjusted EBITDA roughly doubled year-over-year, driven by both external market recovery and internal operational improvements.
- Aggressive investments in air tanker bases and other infrastructure have significantly increased operational capacity and efficiency.
Negative Points
- Q2 2024 experienced slightly lower US acres burned ex-Alaska compared to Q2 2023, which could impact future revenue.
- High dependency on aerial firefighting contracts and the proactive posture of customers, which may vary year-to-year.
- Potential challenges in maintaining high incremental margins as the business scales.
- Significant capital expenditure required for infrastructure upgrades, which may impact short-term cash flow.
- Complexity and costs associated with redomiciling the parent company from Luxembourg to Delaware.
Q & A Highlights
Q: Could you talk us through the relative spending per acre burned across different regions in the US, particularly California versus the rest of the lower 48?
A: Haitham Khouri, CEO: I would advise against getting too caught up in exactly where the acres burn from a geographic perspective. California is on the cutting edge from a sophistication and technological perspective in firefighting, particularly aerial firefighting. However, differences in spending per acre burned across regions are relatively minor.
Q: When thinking about M&A, are you looking for synergy or vertical integration with companies in similar industries to your existing businesses?
A: Haitham Khouri, CEO: We focus on businesses where we have a clear right to win and can implement our operational value driver strategy. We prioritize businesses that meet our five target economic criteria, regardless of industry or geography. We do not prioritize synergies with existing businesses as we keep acquisitions as standalone entities.
Q: Can you confirm if the $10 million to $15 million CapEx number for this year includes capitalized investments in air bases?
A: Kyle Sable, CFO: Yes, the $10 million to $15 million CapEx includes both maintenance and growth CapEx. We are excited about the potential to invest in projects like the Albuquerque airbase, which support our customers' missions and drive high IRR for the company.
Q: What were the drivers behind the strong sales performance in fire safety during the second quarter, despite lower acres burned?
A: Haitham Khouri, CEO: The strong performance was driven by proactive and aggressive aerial firefighting by our customers, significant investments in our capacity and capabilities, and a distribution of fires more conducive to retardant usage. There were no anomalous or nonrecurring factors.
Q: How should we think about the third quarter given the strong start in July?
A: Haitham Khouri, CEO: While July has been above the 10-year average for acres burned, the book on Q3 is far from written. We should be cautious with comparisons and extrapolations until we see more of the quarter. However, our rigorous operational driver work should result in higher earnings in a like-for-like volume scenario.
Q: Can you explain the high incremental margins during the second quarter?
A: Haitham Khouri, CEO: The high incremental margins were driven by strong volume growth at high margins, rigorous cost reduction efforts, and value-based pricing. Our suppressants business also performed exceptionally well, contributing to the overall strong financial results.
Q: Are there any historical seasons where aerial firefighting resources were exhausted?
A: Haitham Khouri, CEO: It is common to run out of aerial resources during short periods of high activity, even in mild seasons. This happens virtually every year and is more pronounced in severe seasons. We have seen some of this in July.
Q: Can you provide more details on the investments made in air tanker bases?
A: Haitham Khouri, CEO: We have made significant investments in upgrading existing bases, building new bases, and converting bulk bases to full service. Examples include the Albuquerque air tanker base upgrade, a new base at Colorado Springs, and a rebuilt base at Redding. These investments increase our capacity and capabilities to support our customers' missions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
