Perimeter Solutions, Inc. (Perimeter Solutions, SA) — Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and nine months ended September 30, 2021. The operating results are for SK Invictus Intermediate S.à r.l. and subsidiaries, Perimeter’s predecessor; the newly formed public parent had no operating business through September 30. Perimeter supplies fire-safety products and services and oil additives. Unless otherwise stated, amounts below are in millions of U.S. dollars.
The business combination closed in November 2021, after the reporting date. The filing gives November 8 for certain merger steps and November 9 as the closing date; it reports 157.1 million ordinary shares outstanding as of December 10, 2021.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $195.4 | $174.3 | $316.5 | $283.8 |
| Gross profit / margin | $109.3 / 56% | $98.0 / 56% | $156.6 / 49% | $138.1 / 49% |
| Operating income | $80.4 | $76.0 | $73.1 | $72.2 |
| Net income | $52.0 | $52.6 | $29.6 | $30.5 |
| Adjusted EBITDA (non-GAAP) | $100.4 | $92.2 | $134.6 | $120.0 |
| Adjusted EBITDA margin | 51% | 53% | 43% | 42% |
Q3 sales increased 12% year over year, led by Fire Safety growth associated primarily with increased Canadian fire activity. Nine-month sales also rose 12%: Fire Safety increased 11%, while Oil Additives increased 13%. Q3 net income edged down despite higher sales; nine-month net income also declined slightly. Q3 adjusted EBITDA increased 9%, while its margin fell two percentage points. Nine-month adjusted EBITDA rose 12%.
- Segments: Q3 Fire Safety sales were $172.4 million and adjusted EBITDA was $97.9 million; Oil Additives sales were $23.0 million and adjusted EBITDA was $2.5 million. Oil Additives adjusted EBITDA fell from $5.6 million a year earlier, mainly due to higher materials and transportation costs.
- Cash flow: Nine-month operating cash flow was $32.4 million, investing cash outflow $12.6 million, and financing cash outflow $4.2 million. Cash increased $17.1 million to $39.6 million. Higher receivables—associated with the seasonal sales increase—absorbed working capital.
- Balance sheet at September 30: Current assets were $209.5 million versus current liabilities of $50.9 million; cash was $39.6 million. Total debt carrying value was $685.2 million, including $5.6 million current; principal outstanding was approximately $696.5 million. The company reported covenant compliance and no revolver balance at quarter-end.
- Cash generation and margins: Gross margin was unchanged year over year in both comparison periods. Management attributed the higher Q3 margin relative to the nine-month margin to the seasonal concentration of higher-margin Fire Safety sales in summer.
Material changes, transaction, and outlook
- SG&A rose 73% in Q3 and 60% for the nine months, primarily reflecting business-combination professional fees of $3.2 million and $12.1 million, respectively, plus higher customer freight and transportation costs.
- Interest expense declined year over year, primarily due to lower LIBOR rates and lower average revolver borrowings. Foreign currency movements shifted from gains in 2020 to losses in 2021; nine-month results also included a $2.8 million loss from revaluing the LaderaTech contingent earnout.
- After quarter-end, Perimeter was acquired for preliminary consideration of $1.39 billion, comprising $1.29 billion cash and $100 million of preferred equity contributions. The transaction also used $702.4 million to pay down existing debt. Funding included a $675 million offering of 5.0% senior secured notes due 2029, equity proceeds, cash on hand, and revolver borrowings. A $40 million revolver draw was repaid on December 9. The preliminary purchase-price allocation included $1.08 billion goodwill and was subject to valuation uncertainty.
- A new five-year, $100 million revolving facility was established at closing, maturing in November 2026. The filing also reports a December 2021 authorization to repurchase up to $100 million of shares over 24 months.
- Outlook: No numerical earnings or revenue guidance is provided. Management said operating cash flows were expected to cover current capital expenditure, working-capital and debt-service needs for at least 12 months, while noting additional capital might be sought. Management expects public-company costs and SG&A dollars to increase; it expects SG&A as a share of sales to decline over time.
Risks, contingencies, and unusual items
- Fire Safety revenue is seasonal and weather-dependent; sales are concentrated among a small number of customers. Two Fire Safety customers accounted for 63% of Q3 sales, and three customers represented 93% of receivables at September 30. The filing says USDA Forest Service and California sales represented about 58% of Fire Safety revenue in fiscal 2020.
- The company cites supply-chain and raw-material cost risks, including phosphorus, and notes COVID-related supply delays during 2020 and the first nine months of 2021. It says the full future pandemic impact is uncertain.
- The company is involved in aqueous film-forming foam (AFFF) and other litigation, including PFAS-related multidistrict litigation. Management said exposure was not considered probable or reasonably estimable at the reporting date; outcomes and potential costs remain uncertain.
- Two material weaknesses in internal control over financial reporting were identified: segregation of journal-entry duties and review of assumptions used to value acquired intangible assets. Remediation was ongoing and not assured to be effective. The weaknesses had not resulted in a financial-statement misstatement.
- Other key exposures include floating-rate debt, foreign-exchange movements, environmental and product-liability claims, regulatory approvals, customer and supplier concentration, and the risk that the business combination’s anticipated benefits may not be achieved.
Important facts for investors to verify
- Review post-combination filings for final purchase accounting, actual debt balances, financing costs, preferred-equity liability classification, and the impact of transaction funding on leverage and interest expense.
- Track customer concentration, receivable collections, seasonal cash conversion, Fire Safety demand, and Oil Additives material and freight costs.
- Monitor progress in remediating the two material weaknesses and any subsequent control findings.
- Follow developments in AFFF/PFAS litigation and regulation; the filing does not provide a clear estimated loss range.
- Compare future results with the non-GAAP adjusted EBITDA measure alongside GAAP earnings and cash flow; adjusted EBITDA excludes specified costs and is not a substitute for GAAP measures.