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2Q26 Update.
Perimeter Solutions reported 2Q26 earnings and the stock was down 15% the following day (but has since slightly rebounded).
Net revenues were up +31%, but operating income (after adjusting out the Founder’s Advisory Fees) fell -11% y/y to $63mn.
Fire Safety revenues grew +7%, but their EBITDA only grew +1% y/y. There were two big headwinds that drove the soft performance in this segment. The first was a 5% pricing step down due to the first year of their USDA retardant contract. In this contract they basically lowered their prices in exchange for more revenue consistency (previously they charged by retardant volume with higher price and now they set a floor, so revenues will vary less with fire seasons). The second was minimal foam deliveries to the DLA (U.S. Defense Logistics Agency) as they transitioned to a vendor managed inventory structure, which is being implemented under a 5 year contract with a max value of $500mn. Excluding these two factors Fire Safety EBITDA would have grown double digits.
Separately, they noted several encouraging developments for the back half of 2026. The first was the first federally funded firefighting aerial fleet in Canada, including 4 retardant capable air tankers. These are new markets that they are entering. Ontario, for instances, used fire retardant for the first time in decades in their firefighting operations. Perimeter is seeing a similar trend elsewhere, especially Europe, where elevated fire activity draws interest of utilizing fire retardant for future fires.
At the end of July, they expanded their fire safety business with the acquisition of Monaco Enterprises for $120mn, which was at a 10.5x EV/Adjusted EBITDA or about 4x sales. Monaco is used in over 200 military bases, where their system connects hundreds of buildings on a military base into a single base-wide fire and life safety dispatch and response network using proprietary communication protocols transmitted over dedicated, hard-to-disrupt radio frequences. They mentioned that more than 95% of Monaco sales comes from its existing installed base. Monaco volume growth is in the low single digits, and they want to expand into other military bases where they are present, but do not have dominant market share. They already have majority market share with the Air Force and the National Guard.
For the year, they expect Monaco to contribute $31mn in revenue and $11mn in Adjusted EBITDA for the Fire Safety Segment. This looks like another good, high quality business and it is encouraging that they have continued to find new areas to deploy capital in to, in addition to their recent acquisitions of IMS (printed circuit boards) and MMT (medical device manufacturing business).
Turning to their Specialty Products, revenues grew +100% and Adjusted EBITDA grew +96% y/y. PDI (oil additive) is still experiencing production disruption at the Sauget P2S5 plant operated by Flexsys. However, they noted on the call that a circuit court found evidence of mishandling by Flesxys and they expect production capacity to be restored in the second half of the year, as a court-appointed receiver is now managing the operations. IMS and MMT continue to perform well, which is very encouraging as these new businesses are outside of their wheelhouse. The largest driver of the Specialty Product’s Adjusted EBITDA growth came from the MMT acquisition.
They also note that they have a promising organic growth story with MMT. On the call they noted, “The business continues to perform ahead of our underwriting model, supported by its large and growing installed base, which generates recurring aftermarket demand. Since acquiring MMT, we have invested behind research and development, new product introductions and productivity initiatives… While these initiatives remain in the early stages, we believe they establish a meaningfully runway for long-term earnings growth.”
Valuation.
While their LTM net loss is -$383mn, that is primarily a result of the $609mn in advisory fees (which we account through with dilution instead of a P&L charge). After adding that back, we also add back amortization of $78mn because it does not represent a true economic cost (it is largely the result of acquisition premiums). This gets us to $304mn in LTM earnings.
The MMT acquisition closed in January and was estimated to contribute $50mn in EBITDA for the 2025 year. If we estimate depreciation at 5% of sales and assume full year ownership, that would be an additional $25mn of EBITDA (there was already ~5 months in the LTM figures). Their Monaco acquisition is expected to add a further $11mn of EBITDA (for 2026). Assuming depreciation is 5% of sales, that is another ~$9mn of operating profits. Together that gets us $338mn in operating income. If we add their LTM interest expense of $64mn that gets us $274mn of pre-tax profits. Assuming a 20% tax rate, that is $219m of after-tax earnings.
With 171mn estimated future shares outstanding (including 7.7mn in options granted that are not included in diluted shares outstanding because they are anti-dilutive), that is an LTM EPS of $1.28. Due to the founders agreement, PRM will issue a further 8.5mn shares (6.1mn for variable performance + 2.4mn fixed share agreement giving us a total future diluted share count of 180.5mn). That brings down LTM adjusted EPS to $1.21 (assuming they owned MMT and Monaco for the full TTM period). At today’s stock price of $33, that is a LTM adjusted earnings multiple of 24.5x.
If you look at our 4Q25 update, our last earnings estimate was $205mn in after-tax profits and an adjusted EPS of $1.22. So, despite earnings growing $14mn in 2 quarters, EPS is lower because of dilution, which is certainly disappointing to see. The incentive structure is one of the key reasons investors have scoffed at owning PRM stock and while that is a fair criticism, the incentives are only so large because the stock performance has been so strong (in the last year the stock is +110%).
It’s hard to have clear visibility into their long-term growth as 1) the fire season can be unpredictable in a given year, 2) they have lumpy inorganic growth from acquisitions, and 3) the history of their newly acquired businesses is very limited. Nevertheless, based off their history and what management has suggested, investors would probably think a long-term high single digit topline organic growth rate and mid-teen earnings growth is fairly doable, with upside optionality from acquisitions.
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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