Perimeter Solutions, Inc. (Perimeter Solutions, S.A.) — Q2 2023 Form 10-Q
Business context and period: The filing covers the quarter and six months ended June 30, 2023. The company supplies fire-management products, equipment and services through Fire Safety, and phosphorus pentasulfide through Specialty Products. Results are seasonal and influenced by wildfire activity and industrial-customer demand.
Financial performance
Amounts below are in millions of dollars except per-share data. Comparisons are with the corresponding 2022 period.
- Q2 revenue: $76.1, down 24.6% from $101.0. Fire Safety revenue was $53.1, down 20.2%; Specialty Products was $23.0, down 33.1%. Lower retardant sales reflected reduced fire activity in the Americas and Asia Pacific; Specialty Products declined amid customer inventory destocking.
- Q2 gross profit and margin: $32.0 versus $28.9; margin increased to 42.0% from 28.6%. Lower cost of goods sold included the absence of $18.0 million of prior-year acquisition inventory step-up amortization.
- Q2 net income and EPS: Net income was $52.0 versus $8.9; diluted EPS was $0.31 versus $0.05. Results included a $60.0 million noncash reduction in founder advisory-fee expense from fair-value changes, which materially increased reported operating income. The filing does not present this item as recurring operating performance.
- First-half revenue: $120.0, down 24.4% from $158.7. Gross profit was $44.8 versus $45.3, with margin of 37.4% versus 28.6%. Net income was $61.4 versus $45.9; diluted EPS was $0.36 versus $0.26. The $84.3 million reduction in founder advisory-fee expense was a significant noncash contributor to earnings.
- Segment Adjusted EBITDA: Q2 Fire Safety was $16.5 versus $24.2 and Specialty Products $4.5 versus $11.5. First-half Fire Safety was $13.2 versus $20.9 and Specialty Products $10.9 versus $26.8. Both segments were affected by lower sales.
- Cash flow and liquidity: First-half operating cash use was $72.9, compared with $89.4 used in 2022; investing cash use was $4.4 and financing cash use was $27.3, including $27.2 of share repurchases. Cash fell to $22.1 from $126.8 at year-end, principally reflecting seasonal working-capital needs and repurchases. Accounts receivable rose to $62.6 and inventory to $163.1. Management said cash, expected operating cash flows and revolver availability should fund needs for at least 12 months from the filing date.
- Debt and other obligations: Senior Notes principal was $675.0, due October 2029, bearing 5.00% interest; carrying value was $665.9 net of issuance costs. The $100.0 million revolving facility had no borrowings at June 30, 2023; the company reported covenant compliance. Redeemable preferred shares were recorded as liabilities of $103.8, with a 6.50% cumulative annual dividend; $6.5 million of dividends were in arrears.
Material changes, outlook and risks
- Revenue and segment EBITDA contracted as wildfire activity was lower in key regions and specialty-chemical customers reduced purchases to destock inventories. Management also cited growth in suppressant sales, including fluorine-free products and foam systems.
- No specific revenue or earnings guidance was provided. The company estimated approximately $5.6 million of capital expenditures remained in its 2023 budget.
- Management highlighted wildfire season severity and timing, weather, customer concentration—including dependence on the USDA Forest Service and California—industrial demand, supply and raw-material costs, inflation, foreign exchange and interest rates as risks. Variable-rate facility borrowings could raise cash costs if used as rates increase.
- Legal proceedings include aqueous film-forming foam (AFFF) multidistrict litigation and similar matters. The company said potential losses were not considered probable or reasonably estimable at the filing date.
- Disclosure controls remained ineffective as of June 30, 2023 because material weaknesses persisted, including controls over performance-based stock compensation and complex accounting and business-combination matters. Management described remediation efforts, including additional controls and qualified resources.
- Share repurchases totaled 4.1 million shares for $27.2 million in the first half. The CEO also entered a Rule 10b5-1 plan to sell up to 600,000 shares.
Important facts for investors to verify
- Whether wildfire activity and specialty-customer destocking improve, and how those trends affect revenue and segment EBITDA.
- Cash conversion and seasonal working-capital requirements, given first-half operating cash outflow and the decline in cash; confirm revolver availability and covenant headroom.
- Underlying earnings excluding the sizable, noncash founder advisory-fee fair-value benefit; also monitor advisory-fee settlement terms and preferred dividends in arrears.
- Progress remediating material weaknesses and any subsequent changes in control effectiveness.
- Developments in AFFF litigation, customer concentration, raw-material supply and inflation exposure.