Perimeter Solutions: 1Q25 Business Recap

In case you missed it, we are rolling out a new post format. Most companies do not have much change quarter to quarter and so rather than make each update 2-3k words, as we have in the past, we will publish shorter updates when warranted. We will still do longer business updates for each company about twice a year, and sometimes more, but we also don’t want to waste your time saying more, when less will do.

These shorter posts will be called Business Recaps.

1Q25 Summary.

In total net sales increased +22% y/y. Fire Safety revenues were +48% y/y, driven by outsized activity in the fire retardant business due to increased wildfire activity (notably in California). This was slightly offset by weakness in the suppressant business attributable to them lapping a product launch of a fluoride-free foam.

The Specialty Products segment suffered from an unplanned plant outage of their P2S5 manufacturing partner. They will not recover these sales. The Specialty Segment now also includes IMS, their PCB (printed circuit board) acquisition. Adjusted EBITDA increased +49% y/y to driven by the fire safety segment.

All in all, it was a good quarter, with some externals working for them (fire season) and others against (manufacturing issues). Most important though to the future of Perimeter solutions is how they deploy incremental capital, and this quarter we got a lot of disclosure around that. They invested capital into 3 areas: internal capex, stock repurchases, and M&A, all of which they expect to generate a 15% or higher return on.

Most interesting though was the new disclosures they gave around their recent platform acquisition of IMS, which launches them into the PCB industry. We call this a platform acquisition because they are going to continue to do more bolt-on acquisitions in this area. This quarter they did their first one for $10mn.

While PCB may seem like a commoditized industry, they emphasis that their products benefit from two competitive differentiators. The first is design IP and production know how. Their second factor insulating them from competition is the fact that IMS is focused on small, niche markets that cannot support much volume.

Their flexible production lines allow them to serve these customers well. This advantage is sort of reminiscent of Texas Instrument who has a large catalogue of SKUs, where many bring in under $1mn in revenues each. Because it is such a small amount of revenue per product and a competitor has to recreate a new design for each product, it usually is uneconomic to bother going after that business—especially when the customer is already satisfactorily served. By IMS being first to adequately serve these niche markets, competitors don’t have an incentive to compete here as they would have to go after each and every design to win business.

All in all this quarter helps support the thesis that they will be able to deploy capital into new areas and find more high quality businesses that fit their 5 economic criteria they filter for. Before including contributions from the PCB business we estimated earnings to be around $1.05 for the year, which puts them around 11-12x earnings today.

Call Notes.

Decentralization

“Perimeter currently consists of multiple business units, and we expect that number to grow through future acquisitions. Each of our business units operates independently with minimal integration at the corporate level. Our general managers have full autonomy to run their businesses and drive long-term performance. In turn, they’re held accountable to deliver results across each of our three operational value drivers. And finally, they are incentivized to do so as we closely align compensation to outcomes.”

“This decentralized approach accelerates and improves operational decision-making by placing it in the hands of those closest to the customer. We believe that there is no substitute for empowered and incentivized managers focused on driving value creation via the rigorous implementation of our three operational value drivers. Our highly decentralized operating philosophy also supports our acquisition strategy. If a business meets our exceptional quality criteria, we believe we can drive value creation through our proven operational playbook and without relying on unproven synergies.”

IMS Acquisition

“Our recently acquired IMS business described in detail on Slide 4 demonstrates this point well. IMS is a high quality platform where we see meaningful opportunity to apply our operational value drivers and deploy capital into targeted product line acquisitions to generate returns above our threshold. ”

Quarterly Comp Impacts

Suppressants product line faced a more difficult comparison in Q1 as it lapped a stronger prior year period due to the launch of the fluorine-free MIL-SPEC products in late 2023.
Specialty Products business experienced operational challenges at our U.S. P2S5 manufacturing facility, which is operated by a third party via tolling arrangement.

Capital Allocation

“We allocated nearly $23mn of capital in the quarter, the returns on which we expect will exceed our targeted equity returns of 15% or higher. We continue to invest in our business organically with $4.8 million allocated to capital expenditures, the majority of which supported our growth and productivity initiatives.”
Invested $10mn in Q1, “kicking off the inorganic expansion of IMS that was a key part of the original investment thesis”
Repurchased 900,000 shares for approximately $8mn

Economic Sensitivity

“So, our retardant business has close to no economic sensitivity. As you can imagine, based on the use case, what’s happening in the broader economic environment has close to 0, if not in fact, 0 impact. Our suppressant business is largely an aftermarket replenishment, replacement and emergency response business. So, when there’s a fire in a facility with flowable liquids such as an airport, we’re going to respond. Again, very, very little, if not no economic sensitivity to that part of the business.”
“There is a portion of our suppressants business that is new installed. So, if new chemical plant is built, for example, or a new airport is built, we’ll go in there and [get it] out and put in a stocking order, you may see that portion of the business slow a little bit if the economy slows, but we expect any impact there to be pretty modest.”
“Our phosphorus pentasulfide business is very, very closely tied to miles driven by internal combustion engine vehicles in BOECD. It really is just that simple, and that metric will move in very, very small 1%, 2% increments in periods of economic fluctuation. You just don’t see huge changes in miles driven, and therefore, we expect to see a modest impact there as well.”

For more on Perimeter Solutions, check out our PRM research report here and our last PRM update here.

Speedwell Research Reports.

Become a Speedwell Research Member to receive all of our in-depth research reports, shorter exploratory reports, updates, and Plus members also receive Excels.

Become a Speedwell Member

(Many members have gotten their memberships expensed. If you need us to talk with your compliance department to become an approved vendor, please reach out at info@speedwellresearch.com).

*At the time of this writing, one or more contributors to this report has a position in PRM. Furthermore, accounts one or more contributors advise on may also have a position in PRM. This may change without notice.