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4Q25 Business Update.
Perimeter Solutions reported 4Q and stock dropped 9%.
While revenues were up 19%, operating income (adjusting out the Founder’s Advisory Fees were roughly flat).
For the full year net sales increased 16% y/y with the Fire Safety Segment growing 12% y/y and the Specialty Segment up 31% y/y.
On an adjusted EBITDA basis they grew 18% y/y. Management notes that this is despite having a weaker fire season.
The Fire Safety Segment EBITDA grew 21% and Specialty Products grew 3%. The Specialty Products business continues to be impacted by weakness at the P2S5 plant.
These figures do not include their MMT acquisition, which they estimated would have contributed ~$140mn in revenues and $50mn in EBITDA if they owned it at the beginning of last year.
It is worth emphasizing how they have transitioned the fire safety business to be less cyclical by restructuring their fire retardant contracts. As they note on the call:
They also noted success in further penetrating international markets, mentioning that Australia and France delivered “robust results” and they made early progress in Italy.
While they still have ample room to expand their fire retardant business, it is good to see that they have found new places to deploy capital including IMS and MMT. As a reminder IMS is in the printed circuit boards industry and MMT manufacturers machinery and proprietary aftermarket components “used in the production of complex, minimally invasive medical devices, specifically catheters and guidewires”.
They expanded a bit on the MMT acquisition on the call saying:
They also noted that IMS has the opportunity to absorb “tens of millions of dollars annually into high IRR product line acquisitions”. They are buying specific IP in the PCB industry that often carries higher returns than a full acquisition.
Perimeter Solutions continues to execute well and will likely be able to flex their ability to find operational improvements in the MMT acquisition. The only thing you can really knock them for is their very excessive Founder’s Advisory Fees that give the Founders 1.9mn annually (until the end of 2027) and 18% of the price appreciation (until the end of 2031). This shows up as a massive $435mn expense on the P&L, pushing them from a >$200mn profit to a >$200mn loss. While the variable component of the expense can reverse if the stock price goes back down, it still represents significant dilution—and it also likely contributes to investor confusion, making this business much harder to decipher.
Valuation.
It is hard to get a clean EPS figure, but we can approximate it as follows: we start with their net loss of $206mn for 2025 and add back $435mn in advisory fees (we will account for this with dilution), then add back amortization of $59.6mn. This gets us $288.6mn. Their MMT acquisition would have delivered $50mn in EBITDA for the full year, which if we assume full year ownership increases operating income to $332mn (we don’t have MMT depreciation, but estimate it at 5% of sales or $7mn). Their next year’s interest expense is estimated to be $75mn ($35mn higher than reported), which we are applying to this estimate since we are including MMT. This gets us $257mn in pre-tax profits or $205mn in after tax profits (20% tax rate).
With 155mn estimated future shares outstanding (including 7mn in options granted that are not included in diluted shares outstanding because they are anti-dilutive), that is an EPS of $1.32. However, because of the founders agreement, PRM will issue a further 13.4mn shares (11.5mn for variable performance + 1.9mn fixed share agreement giving us a total future diluted share count of 168.4mn). This brings adjusted EPS down to $1.22. It is important to remember though that if the stock price declines, then the variable shares rewarded will fall.
At today’s stock price of $24, that is a TTM adjusted earnings multiple of 20x. In the past they’ve talked about growing the Fire Safety business high single digits long-term, but we have less insight on the newer specialty business’s. A low double digit to mid-teens operating income growth rate across the two business’s seems plausible given how much success they had in improving operations in the other businesses.
For further reading, check out our Perimeter Solutions Extensive Research Report here. (First half has no paywall).
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*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.
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