There's a subtle shift happening at Perimeter Solutions (PRM), a transformation that appears to be flying under the radar of most analysts. While headlines focus on the unpredictable nature of fire seasons and the volatility of specialty chemicals, a deeper dive into the Q1 2024 earnings call transcript reveals a story of meticulous operational improvement, particularly within the oft-overlooked suppressants business. This unassuming segment might be the key to unlocking significant, and potentially undervalued, growth for Perimeter Solutions.

Haitham Khouri, CEO of Perimeter, consistently emphasizes the company's "3Ps" operating strategy: Profitable New Business, Continual Productivity Improvements, and Pricing to reflect the value provided. This mantra echoes the efficiency-focused approach of private equity firms, a fitting comparison considering Perimeter's stated goal of delivering private equity-like returns with the liquidity of a public market.

While the 3Ps are actively applied across all of Perimeter's businesses, the Q1 results highlight their remarkable impact on suppressants. In this market, Perimeter has quietly been revolutionizing firefighting foam technology, focusing on fluorine-free products. This strategic R&D investment, a cornerstone of the "Profitable New Business" pillar, is directly addressing growing environmental concerns about traditional firefighting foams containing PFAS (per- and polyfluoroalkyl substances).

This foresight has positioned Perimeter as a leader in the fluorine-free segment, attracting new customers seeking environmentally responsible solutions. But the strategic brilliance doesn't stop there. Perimeter has shrewdly coupled this new product development with a focus on "Pricing to reflect the value provided." They understand that customers are willing to pay a premium for superior, eco-friendly products, particularly when those products address significant regulatory and reputational risks associated with PFAS.

"The results speak for themselves. While the Q1 earnings call doesn't break out specific segment performance, Khouri highlights that the Fire Safety segment's impressive 34% year-over-year revenue growth and near breakeven adjusted EBITDA (compared to a $3.4 million loss in Q1 2023) were "primarily driven by our suppressants business." This implies a significant contribution from suppressants, a segment that has historically been overshadowed by the more volatile, fire season-dependent retardant business."

Adding further weight to this hypothesis is Khouri's mention of "mil-spec" approvals. Perimeter achieved a key milestone in late 2023 by becoming the first company to receive a specific mil-spec approval for its fluorine-free foam. This opens the door to a large, previously untapped market within the U.S. military. Khouri emphasizes the "razor, razor blade" nature of the suppressants business, where initial equipment installations lead to recurring foam sales. This suggests that the mil-spec win, secured late in 2023, will contribute significantly to suppressants revenue in 2024 and beyond.

Estimating the Impact of Mil-Spec Wins

To quantify this potential impact, let's consider some rough estimations based on the information provided in the Q1 2024 Earnings Call transcript.

Fire Safety Revenue Q1 2024: $25.2 million

Estimated Suppressants Revenue Q1 2024: $12.6 million (assuming even split with retardants)

Potential Additional Revenue in 2024: $3 million (assuming conservative 20% growth from mil-spec win)

These are conservative estimations. The actual impact could be significantly higher, especially considering:

Further market penetration of fluorine-free suppressants beyond the initial mil-spec win

The "razor blade" effect: recurring sales of fluorine-free foam for equipment already installed

Perimeter's pursuit of additional mil-spec approvals for different applications, expanding their reach within the military market.

Revenue Growth: Suppressants vs. Retardants

The following chart illustrates a hypothetical scenario of Perimeter's Fire Safety revenue, showcasing the potential for suppressants to outpace retardants in the long run.

Perimeter's strategic shift towards suppressants, while subtle, represents a powerful story of proactive innovation and smart pricing strategies. While the market may be fixated on fire season forecasts, this quiet transformation is laying the foundation for a potentially significant, and potentially undervalued, growth trajectory for Perimeter Solutions. This is a company worth watching, not just for its ability to weather the storms of volatile markets, but for its quiet determination to carve out its own path to success.

"Fun Fact: The world's largest firefighting aircraft, the Global SuperTanker, can carry up to 19,200 gallons of fire retardant. That's enough to cover an area the size of several football fields! Perimeter's retardants are used by a variety of aerial firefighting resources, helping to protect lives and property from wildfires."