Perimeter Solutions: 2Q25 Business Update
Stock +72% YTD, Platform Acquisition Ahead of Expectations, Normalized Fire Season Driving Strong Results
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2Q25 Business Update.
Perimeter reported 2Q25 and their revenues were up +28% y/y to $163mn. Their Fire Safety Segment grew +22% y/y to $120mn, with their Specialty Products Segment growing even more at 47% y/y to $42mn.
EBITDA growth was even stronger, with the company growing adjusted EBITDA to $91mn with strong contributions from both segments. The Fire Safety Segment enjoyed an incremental 98% margin (on adjusted EBITDA) showing the operating leverage in this segment during a stronger fire season. Since there are real COGS associated with these sales, this strong operating leverage is likely the byproduct of better fixed asset utilization and improved operational efficiency.
Management noted that this quarters fire retardant business was helped by more typical first-half fire activity in the United States, strong performance in international markets, and execution on operational value drivers. Internationally, the regions they called out as being contributors included Canada, Europe, the Middle East, and Asia-Pacific. They opened a new 110k square foot retardant production facility in Sacramento, California which will bolster their production capacity and supply chain resiliency. They reminded investors that they now have a 60 year history of reliability and this facility also helps improve redundancy in their supply chain.
As a reminder there are two main sub-segments to the Fire Safety business, fire retardant and fire suppressants. (The fire retardant business is a much larger contributor.) The suppressant business returned to growth after nine consecutive quarters of expansion were interrupted last quarter by a strong product release in the comp period.
Their other segment, Specialty Products, is 26% of total revenues. Their +47% y/y growth in this segment was underpinned by their newly acquired IMS business, which contributed $9.3mn in revenues. As a reminder, back in December 2024, they acquired Intelligent Manufacturing Solutions (IMS) for approximately $33 million. IMS is a manufacturer of a highly specialized product called printed circuit boards or PCBs. Their attraction to this industry is partly because these PCBs are a relatively small cost component of a product and are critical to the function of the product. This was a platform acquisition that got them into this space.
On the call they noted that, “IMS is performing ahead of our underwriting assumptions and is poised to deliver returns that meaningfully exceed our targeted IRR threshold.” IMS has attributed $17 million of sales YTD (which is ~22% of Specialty Product revenue). Showcasing their confidence in the IMS business, they recently tripped capacity by leasing a new 87k square foot facility.
To support IMS’s growth, they recently executed an 87,000 square foot lease, more than tripling its capacity. On the call, CEO Haitham Khouri elaborated:
Their other sub-segment that is housed in this segment is the P2S5 business, which has been a bit of a soar thumb for them. In specific, one of their plants that they contract with under a tolling arrangement in Sauget, Illinois was taken over by a private equity company (One Rock, which renamed to Flexsys) in 2021 and hasn’t been run properly since. They have experienced more downtime with this plant in one quarter then they did in the entire decade of their Germany-based plant. This was called out last quarter as impacting revenues to the tune of $2.3mn and continues to weigh on this business. They have a contractual right to take over operations of this plant if it is run poorly, which they exercised and are currently in litigation to take control.
In other litigation news, they settled a trade secret lawsuit with Compass Materials for a $20mn payment. Compass Materials acquired the Fortress fire retardarnt business, which was Perimeter’s only competition over the last decade. However, Fortress quickly failed a field test and lost their approval to sell fire retardand, which effectively ended their business. As part of the settlement, Perimeter will receive intangible assets as well as $1.7mn in raw materials and $3.1mn in PPE. (The nature of what trade secrets Perimeter was accused of using was not disclosed).
Business Commentary.
All in all, this was a strong quarter of growth that benefited from a more normalized fire season. Perhaps the most positive development though was their commentary on the PCB business. While the Fire Retardant business has very strong moats, there is a limit to how much they can invest into it because demand is dictated by fires. This business will continue to grow as aerial assets increase (which is typically the bottleneck to using more fire retardant during a fire) and as they increase penetration internationally. Additionally, it is expected that the incidence of fires continues to increase, which is an extrapolation of the observed trend over the past 3 decades.
The PCB business though is an entirely different industry that they are a very small part of and have ample ability to grow organically and through acquisitions. In isn’t impossible to think that one day the PCB business surpasses their Fire Retardant sales. The success they have already observed here also significantly derisks the likelihood that they would never have been able to fund a new and lucrative area to deploy capital into.
Their capital allocation continues to be superb. Perimeter deployed approximately $62mn in capital during the quarter. They invest into 3: internal capex, stock repurchases, and M&A, all of which they expect to generate a 15% or higher return on. Organic investments included $12.8 million in capital expenditures, primarily tied to production expansion in Fire Safety and Specialty. They repurchased 2.9 million shares for roughly $32 million, noting that they only opportunistically repurchase shares when they see a 15%+ IRR.
However, we haven’t changed our normalized earnings estimate for the year, which is still around $1.05 earnings. This assumes a full fire season with 6-7mn burned acres, which is what they believe is typical. The IMS business or a stronger fire season could provide upside to this figure. At today’s stock price of $22, which is up +73% YTD, they trade at 21x earnings. For more on their growth expecations, see our orginal research report.
Call Notes
Fire Safety
Fire Safety's financial results were driven by execution on our operational value drivers, normalized first half fire activity in the United States and strong results from our international retardant markets and our suppressants business including the opening of 110,000 square foot retardant production facility in Sacramento, California.
Network of manufacturing facilities, logistics and distribution systems and air-based infrastructure has a 60-year track record of performance reliability.
The cost of the facility, along with other investments we're making in our business is reflected in our first half capital expenditures, which nearly equal our capital expenditures for the entirety of 2024 and which exceed our total capital expenditures in any full year prior to 2024 over our company's history
Compass Minerals Litigation
We concluded our trade secret litigation against Compass Minerals during the second quarter, culminating in a settlement that returned our intellectual property and allowed us to acquire surplus assets for our retardant business
Relative to the time and expense of litigation and combined with the excess assets of the Shutter business, which we acquired in conjunction with the settlement, we believe the $20 million paid to resolve this matter is a fair outcome. With our trade secrets resecured, we can continue to invest in the R&D innovation that jointly drives our customers' success and our performance.
We invested $20 million in select Compass assets comprised of $1.7 million of raw materials and $3.1 million of property and equipment, with the remainder allocated to intangibles. More broadly, we continue to search diligently for acquisitions that meet our investment criteria.
Flexsys
The Flexsys-operated plant experienced more unplanned downtime in a single quarter this year than the Perimeter operated plants that experienced in an entire decade.
As a result of escalating safety and operational issues, we exercised our contractual right to assume operation of the Sauget plant. Unfortunately, and in what we believe is a clear violation of our contracts, One Rock and Flexsys have prevented us from taking over the plant
Given that Flexsys maintains operational control over the plant while our complaint is litigated, we expect to encounter ongoing operational and financial challenges
IMS
IMS is performing ahead of our underwriting assumptions and is poised to deliver returns that meaningfully exceed our targeted IRR threshold. In support of IMS' recent growth and reflective of our confidence in IMS' future organic and inorganic growth, we recently expanded our production capacity by executing on a new 87,000 square foot lease, more than tripling IMS' space. We look forward to investing significantly more capital behind IMS primarily through additional product line acquisitions
Fire Retardant
U.S. fire retardant volumes benefited from a more typical wildfire pattern in Q2 compared to a milder season last year, while our international operations, including Canada, Europe, the Middle East and Asia Pacific, gained from ongoing contributions from our value drivers alongside more severe conditions
Suppressants
Recall that after 9 consecutive quarters of growth, our suppressants revenue declined on a year-over-year basis in Q1, primarily due to an unusually strong product introduction benefiting the prior year period.
In the second quarter, our fire suppressant sales returned to growth, increasing $2.7 million from the prior year quarter
U.S. Wildfire Activity
U.S. wildfire activity was approximately normal in the 6 months ending June 30, 2025, and wildfire risk conditions across our footprint are also within a range we would consider normal. Having observed normal activity levels through Q2 and into early Q3, we believe it unlikely that the full season will be exceptionally mild.
Specialty Segment
This performance reflects a $9.3 million contribution from the IMS acquisitions and a $4.4 million uplift from the base business. Partially offset by a $2.3 million decline attributable to the previously noted unplanned downtime at the Sauget plant in Q1.
While Q2's operational challenges were less severe than those in Q1, ongoing downtime contributed to elevated costs in the business and dampened EBITDA
Capital Allocation
We allocated nearly $62 million of capital in the quarter, the returns on which we expect will exceed our minimum targeted equity returns of 15%. We continue to invest in our business organically with $12.8 million allocated to capital expenditures in the quarter.
Moving to M&A, as discussed previously, we invested $20 million in select Compass assets comprised of $1.7 million of raw materials and $3.1 million of property and equipment, with the remainder allocated to intangibles. More broadly, we continue to search diligently for acquisitions that meet our investment criteria
We repurchased 2.9 million shares for approximately $32 million in Q2
Guidance
We are increasing the high end of our assumptions for capital expenditures from $20 million to $30 million
Assuming normal fire season (6-7mn acres burned)
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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.