Filed Pursuant to Rule 424(b)(3) and Rule 424(c)
Registration Statement No. 333-260798
November 22, 2022
PROSPECTUS SUPPLEMENT NO. 3
PERIMETER SOLUTIONS, SA
8,505,000 Ordinary Shares and
116,304,810 Ordinary Shares
This prospectus supplement amends the prospectus dated November 12,
2021, as supplemented on August 9, 2022 (the “Prospectus”) of
Perimeter Solutions, SA, a public company limited by shares
(société
anonyme)
governed by the laws of the Grand Duchy of Luxembourg (the
“Company”), which forms a part of the Company’s Registration
Statement on Form S-1, as amended (No. 333-260798). This prospectus
supplement is being filed to update and supplement the information
included or incorporated by reference in the Prospectus with the
information contained in our Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
2022, filed with the SEC on November 4, 2022, as set forth
below.
This prospectus supplement should be read in conjunction with the
Prospectus, which is to be delivered with this prospectus
supplement.
The ordinary shares of the Company are listed on the New York Stock
Exchange (the “NYSE”) under the ticker symbol “PRM” The closing
sale price on the NYSE for the ordinary shares of the Company on
November 21, 2022 was $9.38
per
share.
Investing in the Company’s ordinary shares involves risks. See
“Risk Factors” beginning on page 18 of the Prospectus and under
similar headings in any amendments or supplements to the
Prospectus.
Neither the SEC nor any other regulatory body has approved or
disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this Prospectus Supplement No. 3 is November 22,
2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10-Q
__________________________
(Mark One)
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x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
OR
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number 001-41027
_______________________________
PERIMETER SOLUTIONS, SA
(Exact name of Registrant as specified in its Charter)
_______________________________
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Grand Duchy of Luxembourg |
98-1632942 |
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(State or other jurisdiction of incorporation or
organization) |
(I.R.S. Employer Identification No.) |
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12E rue Guillaume Kroll, L-1882 Luxembourg
Grand Duchy of Luxembourg
352 2668 62-1
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(Address of principal executive offices and zip code) |
Registrant’s telephone number, including area code: (314)
396-7343
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Ordinary Shares, nominal value $1.00 per share |
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PRM |
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New York Stock Exchange |
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Warrants for Ordinary Shares
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PRMFF |
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OTC Markets Group Inc. |
Indicate by check mark whether the Registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
x
No
o
Indicate by check mark whether the Registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
Registrant was required to submit such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
o
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Accelerated filer |
o
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Non-accelerated filer |
x
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Smaller reporting company |
o
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Emerging growth company |
x
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
As of November 1, 2022, there were 157,261,470 ordinary
shares, nominal value $1.00 per share, outstanding.
Table of Contents
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Item 1A.
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Risk Factors
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This quarterly report on Form 10-Q for the period ended
September 30, 2022 (this “Quarterly Report”) contains certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). These forward-looking statements involve risks and
uncertainties and reflect our current views with respect to, among
other things, future events and our financial performance.
When used in this Quarterly Report, the words
“believe,” “may,” “could,” “will,” “estimate,” “continue,”
“anticipate,” “intend,” “expect,” “indicate,” “seek,” “should,”
“would,” and similar expressions
are intended to identify forward-looking statements, though not all
forward-looking statements contain these identifying words.
These forward-looking statements are not historical facts, and are
based on current expectations, estimates and projections about our
industry, management’s beliefs and certain assumptions made by
management, many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, we caution you that
any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions, estimates and
uncertainties that are difficult to predict.
These forward-looking statements include, without limitation,
statements about the following matters:
•our
expectations regarding the impact of the COVID-19
(as defined below)
pandemic on our business;
•our
expectations regarding the impact of the conflict in Ukraine on our
business;
•future
financial performance, including any growth or expansion plans and
opportunities;
•our
ability to expand our Fire Safety segment;
•our
beliefs regarding certain growth drivers in our Fire Safety
segment;
•our
ability to grow long-term value through, among other things, the
continuing performance improvement of our existing operations,
execution of a disciplined capital allocation and management of our
capital structure;
•our
expectations regarding future capital expenditures;
•cash
flow projections;
•our
ability to maintain a leadership position in any
market;
•expectations
concerning sources of revenue;
•expectations
about demand for fire retardant products, equipment and
services;
•the
size of the markets we compete in and potential opportunities in
such markets or new markets;
•expectations
concerning certain of our products’ ability to protect life and
property as population settlement locations change;
•expectations
concerning the markets in which we will operate in the coming
years, overall economic conditions and disruptive weather
events;
•expectations
concerning repurchases of our ordinary shares under the Share
Repurchase Plan (as defined below);
•our
beliefs regarding the sufficiency of our current sources of
liquidity to fund our future liquidity requirements, our
expectations regarding the types of future liquidity requirements
and our expectations regarding the availability of future sources
of liquidity;
•our
expectations regarding our status as an emerging growth
company;
•our
expectations and beliefs regarding accounting and tax matters;
and
•the
expected outcome of litigation matters and the effect of such
claims on business, financial condition, results of operations or
cash flows.
Although we believe that the expectations reflected in these
forward-looking statements are reasonable as of the date of this
Quarterly Report, actual results may prove to be materially
different from the results expressed or implied by the
forward-looking statements. Important factors that could cause
actual results to differ materially from those in the
forward-looking statements include, but are not limited to those
summarized below:
•the
direct and indirect adverse impact of the novel strain of
coronavirus, SARS-CoV-2, which causes COVID-19 (“COVID-19”) on the
global economy and the related governmental regulations and
restrictions;
•the
impact of the conflict in Ukraine on the global economy and our
business;
•negative
or uncertain worldwide economic conditions;
•volatility,
seasonality and cyclicality in the industries in which we
operate;
•our
ability to realize the strategic and financial benefits of the
Business Combination;
•our
substantial dependence on sales to the U.S. Department of
Agriculture (“USDA”) Forest Service and the state of California and
the risk of decreased sales to these customers;
•changes
in the regulation of the petrochemical industry, a downturn in the
lubricant additives and/or fire retardant end markets or our
failure to accurately predict the frequency, duration, timing, and
severity of changes in demand in such markets;
•changes
in customer relations or service levels;
•a
small number of our customers represent a significant portion of
our revenue;
•failure
to continuously innovate and to provide products that gain market
acceptance, which may cause us to be unable to attract new
customers or retain existing customers;
•improper
conduct of, or use of our products, by employees, agents,
government contractors or collaborators;
•changes
in the availability of products from our suppliers on a long-term
basis;
•production
interruptions or shutdowns, which could increase our operating or
capital expenditures or negatively impact the supply of our
products resulting in reduced sales;
•changes
in the availability of third-party logistics suppliers for
distribution, storage and transportation;
•increases
in supply and raw material costs, supply shortages, long lead times
for components or supply changes;
•adverse
effects on the demand for our products or services due to the
seasonal or cyclical nature of our business or severe weather
events;
•introduction
of new products, which are considered preferable, which could cause
demand for some of our products to be reduced or
eliminated;
•current
ongoing and future litigation, including multi-district litigation
and other legal proceedings;
•heightened
liability and reputational risks due to certain of our products
being provided to emergency services personnel and their use to
protect lives and property;
•future
products liabilities claims where indemnity and insurance coverage
could be inadequate or unavailable to cover these claims due to the
fact that some of the products we produce may cause adverse health
consequences;
•compliance
with export control or economic sanctions laws and
regulations;
•environmental
impacts and side effects of our products, which could have adverse
consequences for our business;
•compliance
with environmental laws and regulations;
•our
ability to protect our intellectual property rights and
know-how;
•our
ability to generate the funds required to service our debt and
finance our operations;
•fluctuations
in foreign currency exchange;
•potential
impairments or write-offs of certain assets;
•the
adequacy of our insurance coverage; and
•challenges
to our decisions and assumptions in assessing and complying with
our tax obligations.
For additional information regarding known material factors that
could cause our actual results to differ from our projected
results, please read (1) Part I, Item 1A. “Risk Factors” in the
annual report on Form 10-K for the fiscal year ended
December 31, 2021 (the “2021 Annual Report”);
(2) Part II, “Item 1A. Risk Factors” in this Quarterly Report; (3)
our reports and registration statements filed from time to time
with the Securities and Exchange Commission (the “SEC”), and (4)
other public announcements we make from time to time. Given these
uncertainties, you should not place undue reliance on these
forward-looking statements. Except as required by law, we assume no
obligation to update or revise these forward-looking statements for
any reason, even if new information becomes available in the
future.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PERIMETER SOLUTIONS, SA AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
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September 30,
2022 |
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December 31,
2021 |
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ASSETS |
(Unaudited) |
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Current assets: |
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Cash and cash equivalents |
$ |
166,256 |
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$ |
225,554 |
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Accounts receivable, net |
85,612 |
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24,319 |
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Inventories |
120,467 |
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110,087 |
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Income tax receivable |
655 |
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816 |
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Prepaid expenses and other current assets |
4,876 |
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14,161 |
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Total current assets |
377,866 |
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374,937 |
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Property, plant and equipment, net |
57,187 |
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62,247 |
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Goodwill |
1,019,387 |
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1,041,325 |
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Customer lists, net |
715,829 |
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753,459 |
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Technology and patents, net |
233,861 |
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247,368 |
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Tradenames, net |
95,047 |
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100,005 |
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Other assets, net |
1,877 |
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2,219 |
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Total assets |
$ |
2,501,054 |
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$ |
2,581,560 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ |
31,856 |
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$ |
27,469 |
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Accrued expenses and other current liabilities |
124,429 |
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|
19,025 |
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Founders advisory fees payable - related party |
9,836 |
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53,547 |
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Deferred revenue |
1,272 |
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|
445 |
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Total current liabilities |
167,393 |
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100,486 |
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Long-term debt |
664,986 |
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|
664,128 |
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Deferred income taxes |
222,952 |
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298,633 |
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Founders advisory fees payable - related party |
134,598 |
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|
312,242 |
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Redeemable preferred shares |
100,263 |
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|
96,867 |
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Redeemable preferred shares - related party |
3,245 |
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|
3,699 |
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Other non-current liabilities |
8,951 |
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|
22,195 |
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Total liabilities |
1,302,388 |
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1,498,250 |
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Commitments and contingencies (Note 8) |
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Shareholders’ equity: |
|
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Ordinary shares, $1 nominal value per share, 4,000,000,000 shares
authorized; 163,234,542 and 157,237,435 shares issued; 162,316,326
and 157,237,435 shares outstanding at September 30, 2022 and
December 31, 2021, respectively
|
163,235 |
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157,237 |
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Treasury shares, at cost; 918,216 shares at September 30, 2022
and no shares at December 31, 2021
|
(7,572) |
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— |
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Additional paid-in capital |
1,697,644 |
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1,670,033 |
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Accumulated other comprehensive loss |
(41,561) |
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(7,135) |
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Accumulated deficit |
(613,080) |
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(736,825) |
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Total shareholders’ equity |
1,198,666 |
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|
1,083,310 |
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Total liabilities and shareholders’ equity |
$ |
2,501,054 |
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$ |
2,581,560 |
|
See accompanying notes to condensed consolidated financial
statements.
PERIMETER SOLUTIONS, SA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS)
(in thousands, except share and per share data)
(Unaudited)
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Successor |
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Predecessor |
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Successor |
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Predecessor |
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Three Months Ended
September 30, 2022 |
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Three Months Ended
September 30, 2021 |
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Nine Months Ended
September 30, 2022 |
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Nine Months Ended
September 30, 2021 |
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Net sales |
$ |
160,509 |
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$ |
195,414 |
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$ |
319,232 |
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$ |
316,460 |
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Cost of goods sold |
74,707 |
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|
86,081 |
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|
191,757 |
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|
159,895 |
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Gross profit |
85,802 |
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|
109,333 |
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|
127,475 |
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|
156,565 |
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Operating expenses: |
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Selling, general and administrative expense |
22,381 |
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15,333 |
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64,803 |
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|
42,544 |
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Amortization expense |
13,738 |
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|
13,276 |
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|
41,395 |
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|
39,818 |
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Founders advisory fees - related party |
(73,713) |
|
|
|
— |
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|
(154,026) |
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|
— |
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Other operating expense |
(51) |
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|
313 |
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|
405 |
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|
1,066 |
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Total operating expenses |
(37,645) |
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|
28,922 |
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|
(47,423) |
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|
83,428 |
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Operating income |
123,447 |
|
|
|
80,411 |
|
|
174,898 |
|
|
|
73,137 |
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Other expense (income): |
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|
|
|
|
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Interest expense, net |
9,944 |
|
|
|
8,065 |
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|
32,582 |
|
|
|
23,951 |
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(Gain) loss on contingent earn-out |
(3,644) |
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|
— |
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|
(13,042) |
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|
2,763 |
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Unrealized foreign currency loss |
4,705 |
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|
|
1,634 |
|
|
8,741 |
|
|
|
3,892 |
|
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Other (income) expense, net |
(785) |
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|
66 |
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|
(820) |
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|
|
(252) |
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Total other expense, net |
10,220 |
|
|
|
9,765 |
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|
27,461 |
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|
30,354 |
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Income before income taxes |
113,227 |
|
|
|
70,646 |
|
|
147,437 |
|
|
|
42,783 |
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Income tax expense |
(34,516) |
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|
|
(18,637) |
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|
(23,692) |
|
|
|
(13,151) |
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Net income |
78,711 |
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|
|
52,009 |
|
|
123,745 |
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|
29,632 |
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Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
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Foreign currency translation adjustments |
(18,181) |
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|
|
(2,020) |
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|
(34,426) |
|
|
|
(2,424) |
|
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Total comprehensive income |
$ |
60,530 |
|
|
|
$ |
49,989 |
|
|
$ |
89,319 |
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|
|
$ |
27,208 |
|
|
Earnings per share: |
|
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|
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Basic |
$ |
0.48 |
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|
$ |
0.98 |
|
|
$ |
0.76 |
|
|
|
$ |
0.56 |
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|
Diluted |
$ |
0.45 |
|
|
|
$ |
0.98 |
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|
$ |
0.70 |
|
|
|
$ |
0.56 |
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|
Weighted average number of ordinary shares outstanding: |
|
|
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|
|
|
|
|
|
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Basic |
162,635,592 |
|
|
|
53,045,510 |
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|
161,943,492 |
|
|
|
53,045,510 |
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Diluted |
176,777,958 |
|
|
|
53,045,510 |
|
|
176,085,858 |
|
|
|
53,045,510 |
|
See accompanying notes to condensed consolidated financial
statements.
PERIMETER SOLUTIONS, SA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY
(in thousands, except share data)
(Unaudited)
|
|
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|
|
|
|
|
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|
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|
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|
Common Stock |
|
Treasury Shares |
|
Additional
Paid-in
Capital |
|
Accumulated
Other
Comprehensive
Loss |
|
Accumulated
Deficit |
|
Total
Shareholders'
Equity |
|
Predecessor |
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
|
|
|
Balance, December 31, 2020
|
53,045,510 |
|
|
$ |
53,046 |
|
|
— |
|
|
$ |
— |
|
|
$ |
289,344 |
|
|
$ |
(3,174) |
|
|
$ |
(47,794) |
|
|
$ |
291,422 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,529) |
|
|
(18,529) |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(966) |
|
|
— |
|
|
(966) |
|
|
Balance, March 31, 2021 |
53,045,510 |
|
|
53,046 |
|
|
— |
|
|
— |
|
|
289,344 |
|
|
(4,140) |
|
|
(66,323) |
|
|
271,927 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,848) |
|
|
(3,848) |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
562 |
|
|
— |
|
|
562 |
|
|
Balance, June 30, 2021 |
53,045,510 |
|
|
53,046 |
|
|
— |
|
|
— |
|
|
289,344 |
|
|
(3,578) |
|
|
(70,171) |
|
|
268,641 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
52,009 |
|
|
52,009 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,020) |
|
|
— |
|
|
(2,020) |
|
|
Balance, September 30, 2021
|
53,045,510 |
|
|
$ |
53,046 |
|
|
— |
|
|
$ |
— |
|
|
$ |
289,344 |
|
|
$ |
(5,598) |
|
|
$ |
(18,162) |
|
|
$ |
318,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares |
|
Treasury Shares |
|
Additional
Paid-in
Capital |
|
Accumulated
Other
Comprehensive
Loss |
|
Accumulated
Deficit |
|
Total
Shareholders'
Equity |
|
Successor |
Shares |
|
Amount |
|
Shares |
|
Amount |
|
|
|
|
|
Balance, December 31, 2021
|
157,237,435 |
|
|
$ |
157,237 |
|
|
— |
|
|
$ |
— |
|
|
$ |
1,670,033 |
|
|
$ |
(7,135) |
|
|
$ |
(736,825) |
|
|
$ |
1,083,310 |
|
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
5,724 |
|
|
— |
|
|
— |
|
|
5,724 |
|
|
Ordinary shares issued related to founders advisory fees - related
party |
5,952,992 |
|
|
5,954 |
|
|
— |
|
|
— |
|
|
7,829 |
|
|
— |
|
|
— |
|
|
13,783 |
|
|
Warrants exercised |
44,115 |
|
|
44 |
|
|
— |
|
|
— |
|
|
485 |
|
|
— |
|
|
— |
|
|
529 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
37,811 |
|
|
37,811 |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
126 |
|
|
— |
|
|
126 |
|
|
Balance, March 31, 2022 |
163,234,542 |
|
|
163,235 |
|
|
— |
|
|
— |
|
|
1,684,071 |
|
|
(7,009) |
|
|
(699,014) |
|
|
1,141,283 |
|
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,741 |
|
|
— |
|
|
— |
|
|
6,741 |
|
|
Ordinary shares repurchased |
— |
|
|
— |
|
|
597,513 |
|
|
(5,008) |
|
|
— |
|
|
— |
|
|
— |
|
|
(5,008) |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,223 |
|
|
7,223 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(16,371) |
|
|
— |
|
|
(16,371) |
|
|
Balance, June 30, 2022 |
163,234,542 |
|
|
163,235 |
|
|
597,513 |
|
|
(5,008) |
|
|
1,690,812 |
|
|
(23,380) |
|
|
(691,791) |
|
|
1,133,868 |
|
|
Share-based compensation |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6,832 |
|
|
— |
|
|
— |
|
|
6,832 |
|
|
Ordinary shares repurchased |
— |
|
|
— |
|
|
320,703 |
|
|
(2,564) |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,564) |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
78,711 |
|
|
78,711 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,181) |
|
|
— |
|
|
(18,181) |
|
|
Balance, September 30, 2022
|
163,234,542 |
|
|
$ |
163,235 |
|
|
918,216 |
|
|
$ |
(7,572) |
|
|
$ |
1,697,644 |
|
|
$ |
(41,561) |
|
|
$ |
(613,080) |
|
|
$ |
1,198,666 |
|
See accompanying notes to condensed consolidated financial
statements.
PERIMETER SOLUTIONS, SA AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Nine Months Ended
September 30, 2022 |
|
|
Nine Months Ended
September 30, 2021 |
|
Cash flows from operating activities: |
|
|
|
|
|
Net income |
$ |
123,745 |
|
|
|
$ |
29,632 |
|
|
Adjustments to reconcile net income to net cash (used in) provided
by operating activities: |
|
|
|
|
|
Founders advisory fees - related party (change in accounting fair
value) |
(154,026) |
|
|
|
— |
|
|
Depreciation and amortization expense |
49,536 |
|
|
|
45,593 |
|
|
Interest and payment-in-kind on preferred shares |
4,903 |
|
|
|
— |
|
|
Share-based compensation |
19,297 |
|
|
|
— |
|
|
|
|
|
|
|
Deferred income taxes |
(72,441) |
|
|
|
(5,195) |
|
|
Amortization of deferred financing costs |
1,196 |
|
|
|
2,432 |
|
|
Amortization of acquisition related inventory step-up |
27,973 |
|
|
|
— |
|
|
(Gain) loss on contingent earn-out |
(13,042) |
|
|
|
2,763 |
|
|
Unrealized loss on foreign currency |
8,741 |
|
|
|
3,892 |
|
|
Loss on disposal of assets |
9 |
|
|
|
— |
|
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
|
|
Accounts receivable |
(63,838) |
|
|
|
(72,103) |
|
|
Inventories |
(40,759) |
|
|
|
(5,554) |
|
|
Prepaid expenses and other current assets |
9,058 |
|
|
|
3,104 |
|
|
Other assets |
— |
|
|
|
346 |
|
|
Accounts payable |
4,975 |
|
|
|
12,971 |
|
|
Deferred revenue |
889 |
|
|
|
831 |
|
|
Income taxes payable, net |
88,673 |
|
|
|
11,180 |
|
|
Accrued expenses and other current liabilities |
15,547 |
|
|
|
2,725 |
|
|
Founders advisory fees - related party (cash settled) |
(53,547) |
|
|
|
— |
|
|
Other liabilities |
(73) |
|
|
|
(200) |
|
|
Net cash (used in) provided by operating activities |
(43,184) |
|
|
|
32,417 |
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
(6,024) |
|
|
|
(5,149) |
|
|
Purchase price adjustment under Business Combination
Agreement |
(1,638) |
|
|
|
— |
|
|
Purchase of businesses, net of cash acquired |
— |
|
|
|
(7,464) |
|
|
Net cash used in investing activities |
(7,662) |
|
|
|
(12,613) |
|
|
Cash flows from financing activities: |
|
|
|
|
|
Ordinary shares repurchased |
(7,572) |
|
|
|
— |
|
|
Proceeds from exercise of warrants |
529 |
|
|
|
— |
|
|
|
|
|
|
|
Proceeds from revolving credit facility |
— |
|
|
|
19,500 |
|
|
Repayments of revolving credit facility |
— |
|
|
|
(19,500) |
|
|
|
|
|
|
|
Repayments of long-term debt |
— |
|
|
|
(4,211) |
|
|
|
|
|
|
|
Net cash used in financing activities |
(7,043) |
|
|
|
(4,211) |
|
|
Effect of foreign currency on cash and cash equivalents |
(1,409) |
|
|
|
1,510 |
|
|
Net change in cash and cash equivalents |
(59,298) |
|
|
|
17,103 |
|
|
Cash and cash equivalents, beginning of period |
225,554 |
|
|
|
22,478 |
|
|
Cash and cash equivalents, end of period |
$ |
166,256 |
|
|
|
$ |
39,581 |
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
Cash paid for interest |
$ |
18,299 |
|
|
|
$ |
21,502 |
|
|
Cash paid for income taxes |
$ |
7,588 |
|
|
|
$ |
7,092 |
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
Liability portion of founders advisory fees - related party
reclassified to additional paid in capital |
$ |
13,783 |
|
|
|
$ |
— |
|
See accompanying notes to condensed consolidated financial
statements
PERIMETER SOLUTIONS, SA AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Organization and General
Perimeter Solutions, SA, (“PSSA”), a public company limited by
shares (société
anonyme)
was incorporated on June 21, 2021 under the laws of the Grand Duchy
of Luxembourg for the purpose of effecting a business combination.
PSSA is headquartered in the Grand Duchy of Luxembourg with global
operations in North America, Europe, and Asia Pacific. PSSA's
ordinary shares, nominal value, $1.00 per share (the “Ordinary
Shares”), are listed on the New York Stock Exchange (“NYSE”) and
trade under the symbol “PRM.”
Business Combination
On November 9, 2021 (the “Closing Date”), PSSA consummated the
transactions contemplated by the business combination (the
“Business Combination”) with EverArc Holdings Limited, the former
parent company of PSSA (“EverArc”), SK Invictus Holdings, S.à r.l.,
(“SK Holdings”), SK Invictus Intermediate S.à r.l., (“SK
Intermediate”), doing business under the name Perimeter Solutions
(“Perimeter” or “Perimeter Solutions”) and EverArc (BVI) Merger Sub
Limited, incorporated in the British Virgin Islands and a
wholly-owned subsidiary of PSSA (the “Merger Sub”) pursuant to a
business combination agreement (the “Business Combination
Agreement”) dated June 15, 2021. The term the “Company” refers to
PSSA and its consolidated subsidiaries, including SK Intermediate
after the closing of the Business Combination (the “Closing”). Upon
the acquisition of SK Intermediate, PSSA was determined to be the
legal and accounting acquirer (the “Successor”) and SK Intermediate
was deemed to be the accounting predecessor (the
“Predecessor”).
Business Operations
The Company’s business is organized and managed in two reporting
segments: Fire Safety and Specialty Products, formerly Oil
Additives. Approximately 73% of the Company's 2021 annual revenues
were derived in the United States, approximately 13% in Europe,
approximately 7% in Canada and approximately 2% in Mexico, with the
remaining approximately 5% spread across various other
countries.
The Fire Safety segment is a formulator and manufacturer of fire
management products that help the Company’s customers combat
various types of fires, including wildland, structural, flammable
liquids and other types of fires. The Company’s Fire Safety segment
also offers specialized equipment and services, typically in
conjunction with its fire management products, to support its
customers’ firefighting operations. The Company’s specialized
equipment includes air base retardant storage, mixing, and delivery
equipment; mobile retardant bases; retardant ground application
units; mobile foam equipment; and equipment that it custom designs
and manufactures to meet specific customer needs. The Company’s
specialized service network is designed to meet the emergency
resupply needs of air tanker bases and other customer locations in
North America and globally. Significant end markets primarily
include government-related entities and are dependent on
concessions, licenses, and permits granted by the respective
governments and commercial customers around the world.
In June 2022, the Oil Additives segment, which produces and sells
Phosphorus Pentasulfide (“P2S5”),
was renamed the Specialty Products segment to better reflect the
current and expanding applications for P2S5
in several end markets and applications, including lubricant
additives, various agricultural applications, various mining
applications, and emerging electric battery technologies. Within
the lubricant additive end market, currently the Company’s largest
end market application, P2S5
is primarily used in the production of a family of compounds called
Zinc Dialkyldithiophosphates (“ZDDP”), which is considered an
essential component in the formulation of engine oils with its main
function to provide anti-wear protection to engine
components.
Global Economic Environment
Russia’s Invasion of Ukraine
In February 2022, Russia invaded Ukraine. While Perimeter has
limited exposure in Russia and Ukraine, the Company continues to
monitor any broader impact to the global economy, including with
respect to inflation, supply chains and fuel prices. The full
impact of the conflict on the Company’s business and financial
results remains uncertain and will depend on the severity and
duration of the conflict and its impact on regional and global
economic conditions.
Inflationary Cost Environment
During fiscal 2021 and continuing into the current fiscal year,
global commodity and labor markets experienced significant
inflationary pressures attributable to ongoing economic recovery
and supply chain issues. Perimeter is subject to inflationary
pressures with respect to raw materials, labor and transportation.
Accordingly, the Company continues to take actions with its
customers and suppliers to mitigate the impact of these
inflationary pressures in the future. Actions to mitigate
inflationary pressures with suppliers include aggregation of
purchase requirements to achieve optimal volume benefits,
negotiation of cost-reductions and identification of more cost
competitive suppliers. While these actions are designed to offset
the impact of inflationary pressures, the Company cannot provide
assurance that it will be successful in fully offsetting increased
costs resulting from inflationary pressure.
Interest payments for borrowings under the Company’s revolving
credit facility are based on variable rates. As a result, an
increase in interest rates may reduce the Company’s cash flow
available for other corporate purposes.
Ongoing COVID-19 Pandemic
The pandemic,
caused by an outbreak of a novel strain of coronavirus, SARS-CoV-2,
which causes COVID-19 that
began in December 2019,
introduced significant volatility to the global health and economic
environment, including millions of confirmed COVID-19 cases,
business slowdowns or shutdowns, government challenges and market
volatility throughout 2020
into 2022.
While the ongoing direct impact from the COVID-19 pandemic has
subsided, disruptions to supply chains, transportation efficiency,
and availability of raw materials and labor continue to persist.
The exact pace and timing of the economic
recovery
remains uncertain and is expected to continue to be uneven
depending on various factors. As the consequences of the pandemic
and adverse impact to the global economy continue to evolve, the
future adverse impact on the Company's business and financial
statements remains subject to uncertainty as of the date of this
filing.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING
PRONOUNCEMENTS
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial statements.
In the opinion of management, all adjustments of a normal and
recurring nature considered necessary for a fair presentation have
been included in the accompanying condensed consolidated financial
statements. The results of operations for the interim period are
not necessarily indicative of the results that will be realized for
the entire fiscal year. These condensed consolidated financial
statements should be read in conjunction with the Company’s audited
financial statements and accompanying notes thereto included in the
Company’s 2021 Annual Report. The condensed consolidated financial
statements for the prior periods include certain reclassifications
that were made to conform to the current period presentation. Such
reclassifications have no impact on previously reported condensed
consolidated financial position, results of operations or cash
flows.
Perimeter Solutions is an emerging growth company (“EGC”) as
defined in Section 2(a) of the Securities Act of 1933, as amended
(the “Securities Act”), as modified by the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”) and are eligible to take
advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not EGC. As
an EGC, the Company has elected, under Section 107(b) of the JOBS
Act, to take
advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised
accounting standards. As of June 30, 2022, the Company’s public
float was greater than $700.0 million. As a result, for the fiscal
year ending December 31, 2022, the Company will not qualify as an
EGC.
Principles of Consolidation
The unaudited condensed consolidated financial statements include
the accounts of the Company and its subsidiaries after elimination
of intercompany transactions and balances.
Use of Estimates
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the reporting period. Significant estimates made by
management in connection with the preparation of the accompanying
unaudited condensed consolidated financial statements include the
useful lives of long-lived and intangible assets, the allowance for
doubtful accounts, the fair value of financial assets and
liabilities, stock options, founder advisory fees, contingent
earn-out liability and realizability of deferred tax assets. Actual
results could differ from those estimates.
As of September 30, 2022, the Company’s significant accounting
policies are consistent with those discussed in Note 2 - “Summary
of
Significant
Accounting Policies and Recent Accounting Pronouncements” in its
consolidated financial statements included in the Company’s 2021
Annual Report.
Recently Issued and Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02,
Leases (Topic 842), which will require lessees to recognize a right
of use asset and a lease liability on their balance sheet for all
leases, including operating leases, with a term of greater than 12
months. In July 2018, the FASB issued ASU 2018-11, which adds a
transition option permitting entities to apply the provisions of
the new standard at its adoption date instead of the earliest
comparative period presented in the consolidated financial
statements. Under this transition option, comparative reporting
would not be required, and the provisions of the standard would be
applied prospectively to leases in effect at the date of
adoption.
The Company has determined its portfolio of leased assets and is
completing its review of all related contracts to determine the
impact the adoption will have on its consolidated financial
statements and related disclosures. Upon adoption, the Company will
recognize right of use assets and lease liabilities for certain
commitments related to real estate, vehicles, and field equipment
that are currently accounted for as operating leases. To track
these lease arrangements and facilitate compliance with this ASU,
the Company is implementing a third-party lease accounting software
solution and is in the process of designing processes and internal
controls.
The adoption of this ASU will increase asset and liability balances
on the consolidated balance sheets due to the required recognition
of right of use assets and corresponding lease liabilities and will
result in changes to the Company’s existing accounting policies,
business processes, and internal controls. The Company plans to
elect the available package of practical expedients provided in the
standard and adopt Topic 842 as of January 1, 2022 on its Form 10-K
for the year ending December 31, 2022, using the optional
transition method provided by ASU 2018-11 and continues to assess
potential effects of the standard.
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments – Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments and issued subsequent amendments to
the initial guidance within ASU 2019-04, ASU 2019-05 and ASU
2019-11. The amendments require an entity to replace the incurred
loss impairment methodology in current U.S. GAAP with a methodology
that reflects current expected credit losses and requires
consideration of a broader range of reasonable and supportable
information to determine credit loss estimates. The Company plans
to adopt the new standard as of January 1, 2022 on its Form 10-K
for the year ending December 31, 2022.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes
(Topic 740), which simplifies the accounting for income taxes by
removing certain exceptions to the general principles in ASC 740.
The amendments also improve consistent application of and simplify
U.S. GAAP for other areas of ASC 740 by clarifying and amending
existing guidance. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning
after
December 15, 2020. The Company adopted ASU 2019-12 on January 1,
2021 and the adoption of this standard did not have a material
impact on its consolidated financial statements and
disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate
Reform (Topic 848): Facilitation of the Effects of Reference Rate
Reform on Financial Reporting, and in January 2021 issued ASU No.
2021-01, Reference Rate Reform (Topic 848): Scope. These ASUs
provide temporary optional expedients and exceptions to existing
guidance on contract modifications and hedge accounting to
facilitate the market transition from existing reference rates,
such as London Interbank Offered Rate (“LIBOR”) which is being
phased out, to alternate reference rates, such as Secured Overnight
Financing Rate (“SOFR”). These standards are elective and are
effective upon issuance for all entities through December 31, 2022.
The Company continues to evaluate the optional relief guidance
provided within these ASUs and the impact of adopting these
standards on the Company’s consolidated financial statements and
disclosures.
3. BUSINESS ACQUISITIONS
Successor
Business Combination – Perimeter Solutions
Pursuant to the Business Combination Agreement, EverArc entered
into an escrow agreement with SK Holdings and Wilmington Trust,
N.A., a
national
banking association, as escrow agent, which provided that
approximately $7.6 million of the cash consideration payable
pursuant to the Business Combination Agreement be held in escrow
pending a determination of the post-Closing purchase price
adjustments under the Business Combination Agreement.
On March 3, 2022, the post-Closing purchase price adjustments under
the Business Combination Agreement were finalized. Approximately
$7.6 million held in escrow was released and an additional
$1.6 million related to the difference in estimated and actual
working capital as of the Closing Date was also paid to SK
Holdings.
Predecessor
Magnum Acquisition
On July 1, 2021, the Company used cash provided by operations
to purchase all of the assets of Magnum Fire & Safety Systems
("Magnum"). The asset purchase agreement provided for approximately
$1.2 million in cash to be paid at closing. The Magnum acquisition
expands the Company’s access to new markets and is expected to
result in additional revenue in firefighting foam equipment and
systems within the Fire Safety segment. The Company has performed a
purchase price allocation, where the Company allocated $1.2 million
to goodwill in the predecessor entity. Individual assets and
liabilities included within the balance sheet were
not
material.
PC Australasia Asset Acquisition
On April 1, 2021, the Company used cash on hand to purchase
all of the wildfire retardant and foam assets of PC Australasia Pty
Ltd (“PC Australasia”). The asset purchase agreement provided for
approximately $2.7 million in cash to be paid at closing. The PC
Australasia acquisition provides the Company direct access to
existing markets within the Fire Safety segment. The Company has
performed a purchase price allocation, where the Company allocated
$1.0 million to goodwill in the predecessor entity. Other amounts
allocated to the individual assets and liabilities included within
the condensed consolidated balance sheet were not
material.
Budenheim Asset Acquisition
On March 2, 2021, the Company used cash on hand to purchase
all of the wildfire retardant and foam assets of Budenheim Iberica,
S.L.U (“Budenheim”). The asset purchase agreement provided for
approximately $3.6 million in cash to be paid at closing. The
Budenheim acquisition expands the Company’s access to new markets
and is expected to result in additional revenue within the Fire
Safety segment. The Company performed a purchase price allocation,
where the Company allocated $3.2 million to goodwill in the
predecessor entity. Other amounts allocated to the individual
assets and liabilities included within the condensed consolidated
balance sheet were not material.
For segment reporting purposes, the results of operations and
assets from the above predecessor acquisitions have been included
in the Company’s Fire Safety segment since the acquisition dates.
For the three and nine months ended
September 30, 2021, sales, earnings related to the operations
consisting of the assets and liabilities and direct costs related
to Magnum, PC Australasia and Budenheim were not material. Pro
forma financial information has not been presented for these
acquisitions as the net effects were neither significant nor
material to the Company’s results of operations or financial
position.
4. BALANCE SHEET COMPONENTS
Details of certain balance sheet items are presented below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Inventory: |
|
|
|
|
Raw materials and manufacturing supplies |
$ |
52,013 |
|
|
$ |
34,008 |
|
|
Work in process |
204 |
|
|
213 |
|
|
Finished goods |
68,250 |
|
|
75,866 |
|
|
Total inventory |
$ |
120,467 |
|
|
$ |
110,087 |
|
|
|
|
|
|
|
Prepaid Expenses and Other Current Assets: |
|
|
|
|
Advance to vendors |
$ |
22 |
|
|
$ |
2,984 |
|
|
Prepaid insurance |
1,099 |
|
|
8,441 |
|
|
Prepaid value-added taxes |
2,518 |
|
|
1,202 |
|
|
Other |
1,237 |
|
|
1,534 |
|
|
Total prepaid expenses and other current assets |
$ |
4,876 |
|
|
$ |
14,161 |
|
|
|
|
|
|
|
Property, Plant and Equipment: |
|
|
|
|
Buildings |
$ |
3,836 |
|
|
$ |
4,021 |
|
|
Leasehold improvements |
2,041 |
|
|
2,301 |
|
|
Furniture and fixtures |
336 |
|
|
558 |
|
|
Machinery and equipment |
51,680 |
|
|
50,177 |
|
|
Vehicles |
4,097 |
|
|
4,579 |
|
|
Construction in progress |
4,493 |
|
|
1,983 |
|
|
Total property, plant and equipment, gross |
66,483 |
|
|
63,619 |
|
|
Less: Accumulated depreciation |
(9,296) |
|
|
(1,372) |
|
|
Total property, plant and equipment, net |
$ |
57,187 |
|
|
$ |
62,247 |
|
|
|
|
|
|
|
Accrued Expenses and Other Current Liabilities: |
|
|
|
|
Accrued bonus |
$ |
3,161 |
|
|
$ |
7,728 |
|
|
Accrued salaries |
2,274 |
|
|
900 |
|
|
Accrued employee benefits |
917 |
|
|
591 |
|
|
Accrued interest |
16,019 |
|
|
5,341 |
|
|
Accrued purchases |
6,870 |
|
|
1,930 |
|
|
Accrued taxes |
91,783 |
|
|
355 |
|
|
|
|
|
|
Other |
3,405 |
|
|
2,180 |
|
|
Total accrued expenses and other current liabilities |
$ |
124,429 |
|
|
$ |
19,025 |
|
|
|
|
|
|
|
Other Non-Current Liabilities: |
|
|
|
|
LaderaTech contingent earn-out |
$ |
6,937 |
|
|
$ |
19,979 |
|
|
Other |
2,014 |
|
|
2,216 |
|
|
Total other non-current liabilities |
$ |
8,951 |
|
|
$ |
22,195 |
|
Depreciation expense related to property, plant and equipment was
$2.7 million and $8.1 million for the three and nine months ended
September 30, 2022, respectively, and $1.9 million and $5.4
million for the three and nine months ended September 30,
2021, respectively, substantially all of which was presented in
cost of goods sold in the accompanying condensed consolidated
statements of operations and comprehensive income
(loss).
The Company had an allowance for doubtful accounts, included in
accounts receivable, net of $0.8 million and $1.0 million as of
September 30, 2022 and December 31, 2021,
respectively.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill by reportable
segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fire Safety |
|
Specialty Products |
|
Total |
|
Balance, December 31, 2021
|
$ |
867,807 |
|
|
$ |
173,518 |
|
|
$ |
1,041,325 |
|
|
Purchase price adjustment under Business Combination
Agreement |
1,638 |
|
|
— |
|
|
1,638 |
|
|
Foreign currency translation |
(17,571) |
|
|
(6,005) |
|
|
(23,576) |
|
|
Balance, September 30, 2022
|
$ |
851,874 |
|
|
$ |
167,513 |
|
|
$ |
1,019,387 |
|
Intangible assets and related accumulated amortization as of
September 30, 2022 and December 31, 2021 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2022
|
|
Estimated
Useful Life
(in years) |
|
Gross Value |
|
Foreign
Currency
Translation |
|
Accumulated
Amortization |
|
Net Book
Value |
|
Definite Lived Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
Technology and patents |
20 |
|
$ |
250,000 |
|
|
$ |
(5,058) |
|
|
$ |
(11,081) |
|
|
$ |
233,861 |
|
|
Customer lists |
20 |
|
761,000 |
|
|
(11,342) |
|
|
(33,829) |
|
|
715,829 |
|
|
Tradenames |
20 |
|
101,000 |
|
|
(1,463) |
|
|
(4,490) |
|
|
95,047 |
|
|
Balance, September 30, 2022
|
|
|
$ |
1,112,000 |
|
|
$ |
(17,863) |
|
|
$ |
(49,400) |
|
|
$ |
1,044,737 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
Estimated
Useful Life
(in years) |
|
Gross Value |
|
Foreign
Currency
Translation |
|
Accumulated
Amortization |
|
Net Book
Value |
|
Definite Lived Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
Technology and patents |
20 |
|
$ |
250,000 |
|
|
$ |
(836) |
|
|
$ |
(1,796) |
|
|
$ |
247,368 |
|
|
Customer lists |
20 |
|
761,000 |
|
|
(2,059) |
|
|
(5,482) |
|
|
753,459 |
|
|
Tradenames |
20 |
|
101,000 |
|
|
(268) |
|
|
(727) |
|
|
100,005 |
|
|
Balance, December 31, 2021
|
|
|
$ |
1,112,000 |
|
|
$ |
(3,163) |
|
|
$ |
(8,005) |
|
|
$ |
1,100,832 |
|
Amortization expense for definite-lived intangible assets was $13.7
million and $41.4 million for the three and nine months ended
September 30, 2022, respectively, and $13.3 million and $39.8
million for the three and nine months ended September 30,
2021, respectively.
Estimated annual amortization expense of intangible assets for the
next five years ended December 31 and thereafter is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
2022 remaining |
|
$ |
13,900 |
|
|
2023 |
|
55,600 |
|
|
2024 |
|
55,600 |
|
|
2025 |
|
55,600 |
|
|
2026 |
|
55,600 |
|
|
Thereafter |
|
808,437 |
|
|
Total |
|
$ |
1,044,737 |
|
6. LONG-TERM DEBT AND REDEEMABLE PREFERRED SHARES
Long-term debt consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2022 |
|
December 31,
2021 |
|
Senior Notes |
$ |
675,000 |
|
|
$ |
675,000 |
|
|
Less: unamortized debt issuance costs |
(10,014) |
|
|
(10,872) |
|
|
Long-term debt |
$ |
664,986 |
|
|
$ |
664,128 |
|
Successor
Revolving Credit Facility
On November 9, 2021, SK Invictus Intermediate II
S.à r.l., a private limited liability company governed by the laws
of the Grand Duchy of Luxembourg (“SK
Intermediate II”), as borrower, entered into a five-year revolving
credit facility (the “Revolving Credit Facility”), which provides
for a senior secured Revolving Credit Facility in an aggregate
principal amount of up to $100.0 million.
The Revolving Credit Facility matures on November 9, 2026. The
Revolving Credit Facility includes a $20.0 million swingline
sub-facility and a $25.0 million letter of credit sub-facility. The
Revolving Credit Facility allows SK Intermediate II to increase
commitments under the Revolving Credit Facility up to an aggregate
amount not to exceed the greater of (i) $143.0 million and (ii)
100.00% of consolidated earnings before interest, taxes,
depreciation and amortization (“EBITDA”) for the most recent
four-quarter period (minus the aggregate outstanding principal
amount of certain ratio debt permitted to be incurred thereunder).
All borrowings under the Revolving Credit Facility are subject to
the satisfaction of customary conditions, including the absence of
a default and the accuracy of representations and warranties,
subject to customary exceptions.
Solely to the extent that on the last day of the applicable fiscal
quarter, the utilization of the Revolving Credit Facility
(excluding cash collateralized letters of credit and up to
$10.0 million of undrawn letters of credit) exceeds 40% of the
aggregate commitments, the Revolving Credit Facility requires
compliance on a quarterly basis with a maximum secured net leverage
ratio of 7.50:1.00.
The Revolving Credit Facility is fully and unconditionally
guaranteed by the Company and each of SK Intermediate II’s existing
and future wholly-owned material restricted subsidiaries, subject
to customary exceptions, and is secured by a first priority lien,
subject to certain permitted liens, on substantially all of SK
Intermediate II’s and each of the guarantors’ existing and future
property and assets, subject to customary exceptions.
Deferred financing costs incurred in connection with securing the
Revolving Credit Facility were $2.3 million, which is carried
as a long-term asset in the accompanying condensed consolidated
balance sheets and is amortized on a straight-line over the term of
the Revolving Credit Facility and included in interest expense in
the accompanying condensed consolidated statements of operations
and comprehensive income (loss).
As of September 30, 2022 and December 31, 2021, the
Company did not have any outstanding borrowings under the Revolving
Credit Facility and was in compliance with all covenants, including
the financial covenants.
Senior Notes
On the Closing Date, SK Intermediate II assumed
$675.0 million
principal amount of 5.00% senior secured notes due October 30, 2029
(“Senior Notes”)
issued by EverArc Escrow S.à r.l. (“Escrow
Issuer”),
a newly-formed limited liability company governed by the laws of
the Grand Duchy of Luxembourg and a wholly owned subsidiary of
EverArc under an indenture dated as of October 22, 2021
(“Indenture”). The Senior Notes bear interest at an annual rate of
5.00%. Interest on the Senior Notes is payable in cash
semi-annually in arrears on April 30 and October 30 of each year,
commencing on April 30, 2022.
The Senior Notes are general, secured, senior obligations of SK
Intermediate II; rank equally in right of payment with all existing
and future senior indebtedness of SK Intermediate II (including,
without limitation, the Revolving Credit Facility); and together
with the Revolving Credit Facility, are effectively senior to all
existing and future indebtedness of SK Intermediate II that is not
secured by the collateral. The Senior Notes are fully and
unconditionally guaranteed on a senior secured basis, jointly and
severally, by all of SK Intermediate II’s existing or future
restricted subsidiaries (other than certain excluded subsidiaries)
that guarantee the Revolving Credit Facility. The Senior Notes
contain certain covenants limiting SK Intermediate II’s ability and
the ability of the restricted subsidiaries (as defined in the
indenture governing the Senior Notes) to, under certain
circumstances, prepay subordinated indebtedness, pay distributions,
redeem stock or make certain restricted investments; incur
indebtedness; create liens on the SK Intermediate II’s assets to
secure debt; restrict dividends, distributions or other payments;
enter into transactions with affiliates; designate subsidiaries as
unrestricted subsidiaries; sell or otherwise transfer or dispose of
assets, including equity interests of restricted subsidiaries;
effect a consolidation or merger; and change the Company’s line of
business.
Deferred financing costs incurred in connection with securing the
Senior Notes were $11.0 million, which were capitalized and
are amortized using the effective interest method over the term of
the Senior Notes and included in interest expense in the
accompanying condensed consolidated statements of operations and
comprehensive income (loss). The unamortized portion of the
deferred financing costs is included as a reduction to the carrying
value of the Senior Notes which have been recorded as long-term
debt, net in the accompanying condensed consolidated balance
sheets.
Redeemable Preferred Shares
In connection with the Business Combination, the Company issued 10
million redeemable preferred shares of PSSA (“Redeemable Preferred
Shares”), nominal value $10 per share, valued at $100.0 million.
The Redeemable Preferred Shares are entitled to a preferred annual
cumulative right to a dividend equal to 6.50% of its nominal value.
The preferred dividend will generally be paid 40.00% in cash and
60.00% in kind each year within three business days following the
Company's annual general meeting.
Holders of the Redeemable Preferred Shares generally have no voting
rights.
The Company, under its articles of association (the “Articles”) is
mandatorily required to redeem the Redeemable Preferred Shares at
any time prior to the earliest of (i) six months following the
latest maturity date of the above-mentioned Senior Notes, (ii) nine
years after the date of issuance of the Redeemable Preferred Shares
or (iii) upon the occurrence of a change of control, as defined in
the Company’s Articles. Due to the fact that the
Redeemable Preferred Shares
are mandatorily redeemable, the
Redeemable Preferred Shares
are classified as a liability in the accompanying unaudited
condensed consolidated balance sheets, and $1.6 million and $4.9
million of dividends on these
Redeemable Preferred Shares
for the three and nine months ended September 30, 2022,
respectively, is recorded as interest expense in the accompanying
unaudited condensed consolidated statements of operations and
comprehensive income (loss). At September 30, 2022, $3.5
million of preferred dividends were in arrears.
The Redeemable Preferred Shares
have an aggregate liquidation preference of $100.0 million, plus
any accrued and unpaid dividends thereon and is senior to the
Ordinary Shares with respect to dividends and with respect to
dissolution, liquidation or winding up of the Company. At
September 30, 2022, the redemption price was
$103.5 million.
Predecessor
On March 28, 2018, Invictus U.S., LLC and SK Intermediate II,
two wholly owned subsidiaries of SK Intermediate, entered into
credit agreements providing for committed credit facilities of
$815.0 million, a substantial portion of which was used to fund the
acquisition of the Company’s assets.
Pursuant to the credit agreements, the
Company’s First Lien Credit Facility (the “First Lien”) consisted
of a $545.0 million U.S. dollar term loan with a maturity of March
28, 2025, a multicurrency revolving credit facility (the
“Revolver”),
and a $16.0 million extension on the original term loan. The Second
Lien Credit Facility (the “Second Lien”) consisted of a $155.0
million U.S. dollar term loan with a maturity of March 28,
2026.
The Revolver provided for maximum borrowings of $100.0 million with
a maturity of March 28, 2023. Interest was based on the same terms
as the First Lien and was subject to a 0.50% unused commitment fee.
The Revolver also contained a $10.0 million standby letter of
credit sub-facility and a $10.0 million swing line
sub-facility.
On the Closing Date, $541.5 million outstanding under the First
Lien and $155.0 million outstanding under the Second Lien were
repaid and the related unamortized debt issue costs of $11.0
million was charged to interest expense.
7. INCOME TAXES
The Company is subject to U.S. federal income tax, U.S. state and
local tax and tax in foreign jurisdictions. The Company estimates
its annual effective tax rate in recording its quarterly provision
for income taxes in the various jurisdictions in which it operates.
The Company’s effective tax rate was 30.48% and 16.07% for the
three and nine months ended September 30, 2022, respectively,
and 26.39% and 30.74% for the three and nine months ended
September 30, 2021, respectively. The primary differences
between the effective tax rate and the amount computed by applying
the Luxembourg statutory rate of 24.94% are related to losses not
expected to be benefited in certain jurisdictions that have a
valuation allowance, permanently non-deductible compensation,
non-taxable gain on contingent earn-out, withholding taxes accrued
on unremitted earnings and the impact of foreign tax rate
differences.
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those
temporary differences become deductible. The Company considers the
scheduled reversal of deferred tax liabilities (including the
impact of available carryback and carryforward periods), projected
future taxable income, and tax-planning strategies in making this
assessment. While the Company expects to realize the remaining net
deferred tax assets, changes in future taxable income or in tax
laws may alter this expectation and result in future increases to
the valuation allowance. The valuation allowance for deferred tax
assets as of September 30, 2022 and 2021 primarily relates to
net operating loss that, in the judgment of the Company, are not
more likely than not to be realized.
The Company evaluates its tax positions and recognizes only tax
benefits that, more likely than not, will be sustained upon
examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the
position. The tax position is measured at the largest amount of
benefit that has a greater than 50.0% likelihood of being realized
upon settlement. The Company did not have any uncertain tax
benefits as of September 30, 2022 and 2021. As of
September 30, 2022 and 2021, the Company had no accrued
interest or penalties related to uncertain tax
positions.
The Company files income tax returns in Luxembourg, U.S. federal
and state jurisdictions, and other foreign jurisdictions. As of
September 30, 2022, tax years 2018 through 2020 are subject to
examination by the tax authorities in the U.S. The Alberta, Canada
audit concluded as of January 12, 2022 and no material adjustments
were identified.
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in various claims, actions, and legal
proceedings arising in the ordinary course of business, including a
number of matters related to the aqueous film forming foam
litigation consolidated in the District of South Carolina
multi-district litigation and other similar matters pending in
other jurisdictions in the United States. The Company’s exposure to
losses, if any, is not considered probable or reasonably estimable
at this time.
Commitments
The Company has a supply agreement to purchase elemental phosphorus
(“P4”) from a supplier through 2023. The contract price is tied to
the contract year cost times a multiplier, subject to a
market-driven benchmark price adjustment, which is generally
settled once per year. The Company did not purchase the anticipated
minimum pounds of P4 for the three and nine months ended
September 30, 2022 and 2021. However, the Company has no
obligation to record a liability, as there is no financial penalty
owed to the vendor. Costs incurred under this supply agreement were
$9.6 million and $34.0 million for the three and nine months ended
September 30, 2022, respectively, and $9.7 million and $26.9
million for the three and nine months ended September 30,
2021, respectively.
Leases
The Company leases facilities and other machinery and equipment
under long-term noncancelable operating leases through August 14,
2037. As of September 30, 2022, the future minimum rental
payments required by the long-term noncancelable operating leases
are as follows (in thousands):
|
|
|
|
|
|
|
Amount |
|
Remainder of 2022 |
$ |
1,117 |
|
|
2023 |
4,401 |
|
|
2024 |
3,669 |
|
|
2025 |
3,268 |
|
|
2026 |
3,083 |
|
|
Thereafter |
3,873 |
|
|
Total |
$ |
19,411 |
|
Minimum rental payments under operating leases are recognized on a
straight-line basis over the term of the lease including any
periods of free rent. Rent expense for operating leases was $1.2
million and $3.7 million for the three and nine months ended
September 30, 2022, respectively, of which $1.0 million and
$3.2 million, respectively, was presented in cost of goods sold and
$0.2 million and $0.5 million, respectively, was presented in
selling, general, and administrative expense in the accompanying
condensed consolidated statements of operations and comprehensive
income (loss). Rent expense for operating leases was $0.5 million
and $2.3 million for the three and nine months ended
September 30, 2021, respectively, of which $0.3 million and
$1.9 million, respectively, was presented in cost of goods sold and
$0.2 million and $0.4 million, respectively, was presented in
selling, general, and administrative expense in the accompanying
condensed consolidated statements of operations and comprehensive
income (loss).
9. EQUITY
The Company’s authorized share capital is $4,100.0 million,
consisting of 4.0 billion Ordinary Shares with a nominal value of
$1.00 per share and 10.0 million Redeemable Preferred Shares
with a nominal value of $10.00 per share. Each Ordinary Share
entitles the holder thereof to one vote.
Due to the fact that the Redeemable Preferred Shares are
mandatorily redeemable, the Redeemable Preferred Shares are
classified as a liability on the accompanying unaudited condensed
consolidated balance sheets.
On December 7, 2021, subject to the approval of the shareholders of
the Company, the Company's board of directors (the “Board”)
authorized a share repurchase plan (the “Share Repurchase Plan”).
Under the Share Repurchase Plan, the Company is authorized to
repurchase up to $100.0 million of its issued and outstanding
Ordinary Shares at any time during the next 24 months or, if
different, such other timeframe as approved by the shareholders of
the Company. Until such time as the Share Repurchase Plan was
approved by the shareholders of the Company, the Board authorized
any subsidiary of the Company to take such actions necessary to
purchase Ordinary Shares of the Company. Repurchases under the
Share Repurchase Plan may be made, from time
to time, in such quantities, in such manner and on such terms and
conditions and at prices the Company deems appropriate.
On July 21, 2022, subject to certain limits, the shareholders’ of
the Company approved a proposal authorizing the Board to repurchase
up to 25% of the Company’s Ordinary Shares outstanding as of the
date of the shareholders’ approval, being 40,659,257 Ordinary
Shares, at any time during the next five years.
On November 3, 2022, the Board approved the repurchase of up to
$100.0 million of the Company's ordinary shares during the next 24
months.
The
Company repurchased 320,703 and 918,216 Ordinary Shares for the
three and nine months ended September 30, 2022, respectively,
of which 597,513 Ordinary Shares were repurchased on behalf of a
wholly-owned subsidiary. The repurchased Ordinary Shares were
recorded at cost and are being held in treasury.
During the period from October 1, 2022 to November 1, 2022, the
Company repurchased approximately 5,054,856 of its Ordinary Shares
at an average price per share of approximately $7.55.
As of September 30, 2022, there were 162,316,326 Ordinary
Shares, 33,843,440 warrants and 10,000,000 Redeemable Preferred
Shares outstanding.
10. SHARE-BASED COMPENSATION AND EMPLOYEE BENEFIT
PLANS
2021 Equity Plan
In connection with the Business Combination, the Board adopted, and
its shareholders approved, the 2021 Equity Incentive Plan (the
“2021 Equity Plan”).
A total of 31,900,000 Ordinary
Shares are authorized and reserved for issuance under the 2021
Equity Plan which provides for the grant of stock options (either
incentive or non-qualified), stock appreciation rights (“SARs”),
restricted stock, restricted stock units (“RSUs”), performance
shares, performance share units and other share-based awards with
respect to the Ordinary Shares. Shares associated with underlying
awards that are expired, forfeited, or otherwise terminated without
the delivery of shares, or are settled in cash, and any shares
tendered to or withheld by the Company for the payment of an
exercise price or for tax withholding will again be available for
issuance under the 2021 Equity Plan.
The table below summarizes the performance-based non-qualified
stock options (“PBNQSO”) activity for the nine months ended
September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Options |
|
Weighted-Average
Exercise/Conversion
Price
|
|
Weighted-Average
Remaining Contractual
Life (years) |
|
Aggregate
Intrinsic Value
(in thousands) |
|
Outstanding at December 31, 2021
|
8,763,754 |
|
|
$ |
10.04 |
|
|
|
|
|
|
Granted |
2,579,167 |
|
|
$ |
8.87 |
|
|
|
|
|
|
Exercised |
— |
|
|
$ |
— |
|
|
|
|
|
|
Forfeited |
(943,750) |
|
|
$ |
10.09 |
|
|
|
|
|
|
Outstanding at September 30, 2022
|
10,399,171 |
|
|
$ |
9.75 |
|
|
9.23 |
|
$ |
— |
|
|
Options vested and exercisable |
32,813 |
|
|
$ |
10.00 |
|
|
|
|
|
The weighted-average assumptions used to fair value the PBNQSO on
the grant date using the Black-Scholes option-pricing model were as
follows:
|
|
|
|
|
|
|
2022 |
|
Dividend yield |
— |
% |
|
Risk-free interest rate |
1.71% to 3.11%
|
|
Expected volatility |
39.04% to 43.00%
|
|
Expected term (years) |
6.50 |
|
Weighted average exercise price of options granted |
$ |
8.87 |
|
|
Weighted average fair value of options granted |
$ |
4.04 |
|
Non-cash share-based compensation expense recognized by the Company
for the three and nine months ended September 30, 2022 was
$6.8 million and $19.3 million, respectively. Compensation expense
is recognized based upon probability assessments of PBNQSOs that
are expected to vest in future periods. Such probability
assessments are subject to revision and, therefore, unrecognized
compensation expense is subject to future changes in estimate. As
of September 30, 2022, there was approximately $35.5 million
of total unrecognized compensation expense related to non-vested
PBNQSOs expected to vest, which is expected to be recognized over a
weighted-average period of 2.1 years.
Founder Advisory Amounts
Upon consummation of the Business Combination, the Company assumed
the advisory agreement entered into on December 12, 2019 by EverArc
(“Founder Advisory Agreement”) with EverArc Founders, LLC, a
Delaware limited liability company (“EverArc Founder Entity”),
which is owned and operated by William N. Thorndike, Jr., W.
Nicholas Howley, Tracy Britt Cool, Vivek Raj and Haitham Khouri
(“EverArc Founders”), pursuant to which the EverArc Founder Entity,
for the services provided to the Company, including strategic and
capital allocation advice, is entitled to receive both a fixed
amount (the “Fixed Annual Advisory Amount”) and a variable amount
(the “Variable Annual Advisory Amount,” each an “Advisory Amount”
and collectively, the “Advisory Amounts”) until the years ending
December 31, 2027 and 2031, respectively.
The Variable Annual Advisory Amount for each year through December
31, 2031 is based on the appreciation of the market price of
Ordinary Shares if such market price exceeds certain trading price
minimums at the end of each reporting period and is valued using a
Monte Carlo simulation model. The Fixed Annual Advisory Amount will
be equal to 2,357,061 Ordinary Shares (1.5% of 157,137,410 Ordinary
Shares outstanding as of November 9, 2021)
for each year through December 31,
2027 and valued using the period end volume weighted average
closing share price for ten consecutive trading days of Ordinary
Shares. Because up to 50% of the aggregate shares could be settled
through a cash payment, 50% are classified as a liability and the
remaining 50% is classified within equity. For Advisory Amounts
classified within equity, the Company does not subsequently
remeasure the fair value. For the Advisory Amounts classified as a
liability, the Company remeasures the fair value at each reporting
date, accordingly, the compensation expense recorded by the Company
in the future will depend upon changes in the fair value of the
liability-classified Advisory Amounts.
As of September 30, 2022, the fair value of the Variable
Annual Advisory Amount was determined to be $170.8 million using a
Monte Carlo simulation model and the fair value of the Fixed Annual
Advisory Amount was calculated to be $118.0 million based on the
period end volume weighted average closing share price for ten
consecutive trading days of Ordinary Shares of $8.35.
For the three and nine months ended September 30, 2022, the
Company recognized a reduction in share-based compensation expense
related to a decrease in fair value for liability-classified
Advisory Amounts of $73.7 million and $154.0 million,
respectively.
11. FAIR VALUE MEASUREMENTS
Fair Value Measurement
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable, accrued expenses and other current
liabilities approximates fair value due to the short-term nature of
their maturities. Borrowings under the Company’s Revolving Credit
Facility accrues interest at a floating rate tied to a standard
short-term borrowing index, selected at the Company’s option, plus
an applicable margin. The carrying amount of this floating rate
debt approximates fair value based upon the respective interest
rates adjusting with market rate adjustments. The carrying amount
of the Company's Redeemable Preferred Shares also approximates fair
value. At September 30, 2022 and December 31, 2021, the
estimated fair value of the Company's Senior Notes, calculated
using Level 2 inputs, based on bid prices obtained from a broker
was approximately $550.1 million and $675.0 million,
respectively.
The Company uses valuation approaches that maximize the use of
observable inputs and minimize the use of unobservable inputs to
the extent possible. The Company determines fair value based on
assumptions that market participants would use in pricing an asset
or a liability in the principal or most advantageous market. When
considering market participant assumptions in fair value
measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized
in one of the following levels:
•Level
1 inputs: Unadjusted quoted prices in active markets for identical
assets or liabilities accessible to the reporting entity at the
measurement date.
•Level
2 inputs: Other than quoted prices in Level 1 inputs that are
observable for the asset or liability, either directly or
indirectly, for substantially the full term of the asset or
liability.
•Level
3 inputs: Unobservable inputs for the asset or liability used to
measure fair value to the extent that observable inputs are not
available, thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at the
measurement date.
Liabilities by Hierarchy Level
The following tables set forth the Company’s liabilities that were
measured at fair value on a recurring basis, by level, within the
fair value hierarchy as of September 30, 2022 and
December 31, 2021 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|
|
September 30, 2022
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
Liabilities: |
|
|
|
|
|
|
|
|
Founders advisory fees payable - related party |
$ |
59,013 |
|
|
$ |
— |
|
|
$ |
85,421 |
|
|
$ |
144,434 |
|
|
LaderaTech contingent earn-out included in other liabilities,
non-current |
— |
|
|
— |
|
|
6,937 |
|
|
6,937 |
|
|
Total liabilities |
$ |
59,013 |
|
|
$ |
— |
|
|
$ |
92,358 |
|
|
$ |
151,371 |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Founders advisory fees payable - related party |
$ |
114,276 |
|
|
$ |
— |
|
|
$ |
251,513 |
|
|
$ |
365,789 |
|
|
LaderaTech contingent earn-out included in other liabilities,
non-current |
— |
|
|
— |
|
|
19,979 |
|
|
19,979 |
|
|
Total liabilities |
$ |
114,276 |
|
|
$ |
— |
|
|
$ |
271,492 |
|
|
$ |
385,768 |
|
At September 30, 2022 and December 31, 2021, the fair
value of the contingent earn-out related to the May 2020 purchase
of LaderaTech, Inc. (“LaderaTech”) is measured on a recurring basis
using Level 3 fair value inputs. The earn-out is based on 20% of
gross profits upon achieving a revenue threshold exceeding $5.0
million through December 31, 2026 and is valued using a Monte
Carlo simulation model. As of September 30, 2022, the fair
value of the contingent earn-out decreased primarily due to a
change in the forecast of the product mix from an earn-out eligible
fire retardant to a non earn-out eligible Company developed fire
retardant. Significant changes in the projected revenue, projected
gross margin, or discount rate would have a material impact on the
fair value of the contingent consideration.
See Note 10, “Share-Based Compensation” for discussion of the fair
value estimation on the founders advisory fees payable - related
party.
Changes in Level 3 Liabilities
The reconciliations for all liabilities measured at fair value on a
recurring basis using significant unobservable inputs (Level 3) are
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2022
|
|
Nine Months Ended September 30, 2022
|
|
Founders Advisory Fees Payable - Related Party |
|
LaderaTech
Contingent
Earn-out |
|
Founders Advisory Fees Payable - Related Party |
|
LaderaTech
Contingent
Earn-out |
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
Fair value, beginning of period |
$ |
138,637 |
|
|
$ |
10,581 |
|
|
$ |
251,513 |
|
|
$ |
19,979 |
|
|
Settlements |
— |
|
|
— |
|
|
(40,776) |
|
|
— |
|
|
Reclassification from liability to equity |
— |
|
|
— |
|
|
(10,495) |
|
|
— |
|
|
Founders advisory fees - related party, change in fair
value |
(53,216) |
|
|
— |
|
|
(114,821) |
|
|
— |
|
|
Gain on contingent earn-out, change in fair value |
— |
|
|
(3,644) |
|
|
— |
|
|
(13,042) |
|
|
Fair value, end of period |
$ |
85,421 |
|
|
$ |
6,937 |
|
|
$ |
85,421 |
|
|
$ |
6,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LaderaTech Contingent Earn-out |
|
Three Months Ended
September 30, 2021 |
|
Nine Months Ended
September 30, 2021 |
|
Predecessor |
|
|
|
|
Fair value, beginning of period |
$ |
22,579 |
|
|
$ |
19,816 |
|
|
|
|
|
|
Loss on contingent earn-out, change in fair value |
— |
|
|
2,763 |
|
|
Fair value, end of period |
$ |
22,579 |
|
|
$ |
22,579 |
|
The fair value of the LaderaTech contingent earn-out as of
September 30, 2021 also included a contingency payment for the
acquired technology being listed on the USDA Forest Service’s
Qualified Product List (“QPL”). The QPL payment was also measured
on a recurring basis using Level 3 fair value inputs and was valued
using a scenario-based method with inputs based upon the
probability and timing of achieving the QPL listing. The Company
made the QPL payment of $3.0 million in the fourth quarter of 2021.
As of September 30, 2021, the contingent earn-out had an
estimated fair value of $19.6 million and the QPL was valued at
$3.0 million.
12. RELATED PARTIES
Successor
On November 9, 2021, in connection with the consummation of the
Business Combination, the Company, EverArc and the EverArc Founder
Entity entered into an Assignment and Assumption Agreement (the
“Founder Assignment Agreement”) pursuant to which the Company
assumed, and agreed to pay, perform, satisfy and discharge in full,
all of EverArc’s liabilities and obligations under the Founder
Advisory Agreement.
In exchange for the services provided to the Company, including
strategic and capital allocation advice, the EverArc Founder Entity
is entitled to receive both the Variable Annual Advisory Amount and
the Fixed Annual Advisory Amount from the Company.
The Variable Annual Advisory Amount for each year through December
31, 2031 is based on the appreciation of the market price of
Ordinary Shares if such market price exceeds certain trading price
minimums at the end of each reporting period and is valued using a
Monte Carlo simulation model. The Fixed Annual Advisory Amount will
be equal to 2,357,061 Ordinary Shares (1.5% of 157,137,410 Ordinary
Shares outstanding as of November 9, 2021)
for each year through December 31,
2027 and valued using the period end volume weighted average
closing share price for ten consecutive trading days of Ordinary
Shares.
For 2021, the average price was $13.63 per Ordinary Share,
resulting in a total Variable Annual Advisory Amount for 2021 of
7,525,906 Ordinary Shares, or a value of $102.5 million (the “2021
Variable Amount”). The EverArc Founder Entity also received the
Fixed Annual Advisory Amount which was equal to 1.5% of 157,137,410
Ordinary Shares outstanding on the Closing Date: 2,357,061 Ordinary
Shares or a value of $32.1 million, based on average price of
$13.63 per Ordinary Share (the “2021 Fixed Amount” and together
with the 2021 Variable Amount, the “2021 Advisory Amounts”). Per
the Founder Advisory Agreement, the EverArc Founder Entity elected
to receive approximately 60% of the 2021 Advisory Amounts in
Ordinary Shares (5,952,992 Ordinary Shares) and approximately 40%
of the Advisory Amounts in cash ($53.5 million). The 2021 Advisory
Amounts of $134.7 million was disbursed, 60% in Ordinary Shares and
40% in cash, to the EverArc Founder Entity on February 15,
2022.
As of September 30, 2022, the Company used a Monte Carlo
simulation model to calculate the fair value of the Variable Annual
Advisory Amount. The Company calculated the fair value of the Fixed
Annual Advisory Amounts using the period end volume weighted
average closing share price of Ordinary Shares for ten consecutive
trading days of $8.35. These approaches resulted in fair values of
$170.8 million
for the Variable Annual Advisory Amount and $118.0 million
for
the Fixed Annual Advisory Amount, of which 50% may be paid in cash
and recorded as a liability and the remaining 50% would be settled
in Ordinary Shares.
While the entire instrument
is subject to the fair value calculation described above, the
amount classified and recorded as equity remains consistent while
the amount classified and recorded as a liability is updated each
period. For the three and nine months ended September 30,
2022, the Company recognized a reduction in share-based
compensation expense related to a decrease in fair value for
liability-classified Advisory Amounts of $73.7 million and $154.0
million, respectively,
primarily due to the decrease in stock price.
The Company continues to have a purchase and sales agreement with
the former owners of the original Invictus business (the “Sellers”)
for specific raw materials. During the three and nine months ended
September 30, 2022, the Company purchased $0.5 million and
$1.4 million, respectively, from the Sellers in the ordinary course
of business. Additionally, during the three and nine months ended
September 30, 2022, the Company sold raw materials at cost of
$1.7 million and $9.7 million, respectively, to the Sellers and
paid $0.1 million and $0.3 million, respectively, to lease real
property from the sellers of First Response Fire Rescue, LLC, River
City Fabrication, LLC, and H&S Transport, LLC (collectively,
“Ironman”).
Predecessor
During the three and nine months ended September 30, 2021, the
Company purchased $0.1 million and $0.6 million, respectively, from
the Sellers in the ordinary course of business. Additionally,
during the three and nine months ended September 30, 2021, the
Company sold raw materials at cost of $2.8 million and $6.3
million, respectively, to the Sellers. Sales of raw materials are
recorded net as “the agent” since the Company does not have the
following: a) primary responsibility for fulfilling the promise to
provide the specified good, b) inventory risk before the specified
good is transferred to the customer, or c) discretion in
establishing the prices for the specified good. This related party
transaction is not at arm’s length.
SK Capital Partners IV-A, L.P. and SK Capital Partners IV-B, L.P.
(collectively, the “Sponsor”) provided board oversight, operational
and strategic support, and assistance with business development in
return for a quarterly management fee. For the three and nine
months ended September 30, 2021 total management consulting
fees and expenses were $0.3 million and $0.9 million, respectively,
and are presented in other operating expenses in the accompanying
condensed consolidated statements of operations and comprehensive
income (loss).
The Company entered into multiple lease arrangements for real
property with the sellers of Ironman in 2020 that the Company
continues to occupy post-acquisition. During the three and nine
months ended September 30, 2021, the Company paid $0.1 million
and $0.3 million, respectively, in rent and related
expenses.
13. REVENUE RECOGNITION
Disaggregation of revenues
Amounts recognized at a point in time primarily relate to products
sold whereas amounts recognized over time primarily relate to
services associated with the full-service retardant contracts.
Revenues for the three and nine months ended September 30,
2022 and 2021 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
Three Months Ended
September 30, 2022 |
|
|
Three Months Ended
September 30, 2021 |
|
Nine Months Ended
September 30, 2022 |
|
|
Nine Months Ended
September 30, 2021 |
|
Revenues from products |
$ |
139,941 |
|
|
|
$ |
173,364 |
|
|
$ |
292,603 |
|
|
|
$ |
290,935 |
|
|
Revenues from services |
20,126 |
|
|
|
21,462 |
|
|
24,116 |
|
|
|
24,630 |
|
|
Other revenues |
442 |
|
|
|
588 |
|
|
2,513 |
|
|
|
895 |
|
|
Total net sales |
$ |
160,509 |
|
|
|
$ |
195,414 |
|
|
$ |
319,232 |
|
|
|
$ |
316,460 |
|
14. EARNINGS PER SHARE
Basic earnings per share represents income available to ordinary
shareholders divided by the weighted average number of Ordinary
Shares outstanding during the reported period. Diluted earnings per
share is based upon the weighted-average number of Ordinary Shares
outstanding during the period plus additional weighted-average
potentially dilutive Ordinary Share equivalents during the period
when the effect is dilutive.
Basic and diluted weighted average shares outstanding and earnings
per share were as follows (in thousands, except share and per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
Three Months Ended
September 30, 2022 |
|
|
Three Months Ended
September 30, 2021 |
|
Nine Months Ended
September 30, 2022 |
|
|
Nine Months Ended
September 30, 2021 |
|
|
|
|
|
|
|
Net income |
$ |
78,711 |
|
|
|
$ |
52,009 |
|
|
$ |
123,745 |
|
|
|
$ |
29,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing earnings per share,
basic |
162,635,592 |
|
|
|
53,045,510 |
|
|
161,943,492 |
|
|
|
53,045,510 |
|
|
Founders advisory fees |
14,142,366 |
|
|
|
— |
|
|
14,142,366 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing earnings per share,
diluted |
176,777,958 |
|
|
|
53,045,510 |
|
|
176,085,858 |
|
|
|
53,045,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
$ |
0.48 |
|
|
|
$ |
0.98 |
|
|
$ |
0.76 |
|
|
|
$ |
0.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
$ |
0.45 |
|
|
|
$ |
0.98 |
|
|
$ |
0.70 |
|
|
|
$ |
0.56 |
|
As of September 30, 2022, 10.4 million PBNQSOs and 15.3
million Ordinary Shares issuable under the Founder Advisory
Agreement were excluded from the diluted earnings per share
calculation as the contingencies related to such instruments had
not been met. In addition, 8.5 million Ordinary Shares equivalent
warrants were excluded from the diluted earnings per share
calculation as their effect would have been
anti-dilutive.
15. SEGMENT INFORMATION
The Company’s products and operations are managed and reported in
two operating segments: Fire Safety and Specialty Products,
formerly Oil Additives.
The Fire Safety segment manufactures and sells fire retardant and
firefighting foam products, as well as specialized equipment and
services typically offered in conjunction with these retardant and
foam products.
In June 2022, the Oil Additives segment, which produces and sells
P2S5
was renamed the Specialty Products segment to better reflect the
current and expanding applications for P2S5
in several end markets and applications, including lubricant
additives, various agricultural applications, various mining
applications, and emerging electric battery technologies. Within
the lubricant additive end market, currently the Company’s largest
end market application, P2S5
is primarily used in the production of a family of compounds called
ZDDP, which is considered an essential component in the formulation
of engine oils with its main function to provide anti-wear
protection to engine components.
Interest income, interest expense, other income (expense) and
certain corporate operating expenses are neither allocated to the
segments nor included in the measure of segment performance
reviewed by the chief operating decision-maker (“CODM”). The
corporate category includes unallocated costs related to the
Company’s corporate headquarter activities, including selling,
general and administrative costs, which do not meet the
requirements for being classified as an operating segment. The CODM
is the Company's CEO.
The Company’s CODM uses the segment net sales and
segment Adjusted EBITDA to assess the ongoing performance of the
Company’s business segments and to allocate resources. The Company
defines segment Adjusted EBITDA as earnings before interest, taxes,
depreciation and amortization, as adjusted on a consistent basis
for certain non-recurring or unusual items in a balanced manner and
on a segment basis. These non-recurring or unusual items may
include acquisition and integration related costs, management fees
and other non-recurring items.
Information related to net sales and Adjusted EBITDA for the
Company’s operations are summarized below (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Successor |
|
|
Predecessor |
|
Three Months Ended
September 30, 2022 |
|
|
Three Months Ended
September 30, 2021 |
|
Nine Months Ended
September 30, 2022 |
|
|
Nine Months Ended
September 30, 2021 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
Fire safety |
$ |
121,963 |
|
|
|
$ |
172,445 |
|
|
$ |
207,010 |
|
|
|
$ |
237,256 |
|
|
Specialty products |
38,546 |
|
|
|
22,969 |
|
|
112,222 |
|
|
|
79,204 |
|
|
Total |
$ |
160,509 |
|
|
|
$ |
195,414 |
|
|
$ |
319,232 |
|
|
|
$ |
316,460 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Fire safety |
$ |
60,363 |
|
|
|
$ |
97,854 |
|
|
$ |
81,248 |
|
|
|
$ |
116,680 |
|
|
Specialty products |
15,264 |
|
|
|
2,496 |
|
|
42,038 |
|
|
|
17,919 |
|
|
Total segment Adjusted EBITDA |
75,627 |
|
|
|
100,350 |
|
|
123,286 |
|
|
|
134,599 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
16,450 |
|
|
|
15,212 |
|
|
49,536 |
|
|
|
45,593 |
|
|
Interest and financing expense |
9,944 |
|
|
|
8,065 |
|
|
32,582 |
|
|
|
23,951 |
|
|
Founders advisory fees - related party |
(73,713) |
|
|
|
— |
|
|
(154,026) |
|
|
|
— |
|
|
Non-recurring expenses |
1,168 |
|
|
|
3,855 |
|
|
4,788 |
|
|
|
12,805 |
|
|
Share-based compensation expense |
6,832 |
|
|
|
— |
|
|
19,297 |
|
|
|
— |
|
|
Non-cash purchase accounting impact |
658 |
|
|
|
— |
|
|
27,973 |
|
|
|
— |
|
|
(Gain) loss on contingent earn-out |
(3,644) |
|
|
|
— |
|
|
(13,042) |
|
|
|
2,763 |
|
|
Management fees |
— |
|
|
|
313 |
|
|
— |
|
|
|
937 |
|
|
Contingent future payments |
— |
|
|
|
625 |
|
|
— |
|
|
|
1,875 |
|
|
Unrealized foreign currency loss |
4,705 |
|
|
|
1,634 |
|
|
8,741 |
|
|
|
3,892 |
|
|
Income before income taxes |
$ |
113,227 |
|
|
|
$ |
70,646 |
|
|
$ |
147,437 |
|
|
|
$ |
42,783 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion and analysis should be read in conjunction
with the unaudited condensed consolidated financial statements and
notes thereto included in Part I, Item 1 of this quarterly report
on Form 10‑Q for the quarter ended September 30, 2022 (this
“Quarterly Report”). This Quarterly Report contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, Section 21E of the Securities Exchange Act of
1934, as amended, and the Private Securities Litigation Reform Act
of 1995, such statements are subject to the “safe harbor” created
by those sections and involve risks and uncertainties.
Forward-looking statements are based on our management’s beliefs
and assumptions and on information available to our management as
of the date hereof. As a result of many factors, such as those set
forth under “Item 1A. Risk Factors” included in our 2021 Annual
Report and Part II, “Item 1A. Risk Factors” in this Quarterly
Report, our actual results may differ materially from those
anticipated in these forward-looking statements, accordingly, you
should not place undue reliance on these forward-looking
statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the
reasons actual results could differ materially from those
anticipated in these forward-looking statements, even if new
information becomes available in the future. Such factors may be
amplified by the COVID-19 pandemic and its potential impact on our
business and the global economy.
Overview
Perimeter Solutions, S.A. (“PSSA”), a public company limited by
shares (société
anonyme)
was incorporated on June 21, 2021 under the laws of the Grand Duchy
of Luxembourg for the purpose of effecting a business combination.
PSSA is headquartered in the Grand Duchy of Luxembourg with global
operations in North America, Europe, and Asia Pacific. PSSA's
ordinary shares, nominal value, $1.00 per share (the “Ordinary
Shares”), are listed on New York Stock Exchange (“NYSE”) and trade
under the symbol “PRM.”
On November 9, 2021 (the “Closing Date”), PSSA consummated the
transactions contemplated by the business combination (the
“Business Combination”)
with EverArc Holdings Limited, the former parent company of PSSA
(“EverArc”), SK Invictus Holdings, S.à r.l., (“SK Holdings”), SK
Invictus Intermediate S.à r.l., (“SK Intermediate”), doing business
under the name Perimeter Solutions (“Perimeter” or “Perimeter
Solutions”) and EverArc (BVI) Merger Sub Limited, incorporated in
the British Virgin Islands and a wholly-owned subsidiary of PSSA
(the “Merger Sub”) pursuant to a business combination agreement
(the
“Business Combination Agreement”) dated
June 15, 2021. The term the “Company” refers to PSSA and its
consolidated subsidiaries, including SK Intermediate and Perimeter,
after the closing of the Business Combination (the
“Closing”).
Upon the acquisition of SK Intermediate, PSSA was determined to be
the legal and accounting acquirer (the “Successor”) and SK
Intermediate was deemed to be the accounting predecessor (the
“Predecessor”).
Our business is organized and managed in two reporting segments:
Fire Safety and Specialty Products, formerly Oil Additives.
Approximately 73% of our 2021 annual revenues were derived in the
United States, approximately 13% in Europe, approximately 7% in
Canada and approximately 2% in Mexico, with the remaining
approximately 5% spread across various other
countries.
The Fire Safety segment is a formulator and manufacturer of fire
management products that help our customers combat various types of
fires, including wildland, structural, flammable liquids and other
types of fires. Our Fire Safety segment also offers specialized
equipment and services, typically in conjunction with its fire
management products, to support its customers’ firefighting
operations. Our specialized equipment includes air base retardant
storage, mixing, and delivery equipment; mobile retardant bases;
retardant ground application units; mobile foam equipment; and
equipment that we custom design and manufacture to meet specific
customer needs. Our service network can meet the emergency resupply
needs of over 150 air tanker bases in North America, as well as
many other customer locations globally. The segment is built on the
premise of superior technology, exceptional responsiveness to our
customers’ needs, and a “never-fail” service network. Significant
end markets primarily include government-related entities and are
dependent on concessions, licenses, and permits granted by the
respective governments and commercial customers around the
world.
In June 2022, the Oil Additives segment, which produces and sells
Phosphorus Pentasulfide (“P2S5”),
was renamed the Specialty Products segment to better reflect the
current and expanding applications for P2S5
in several end markets and applications, including lubricant
additives, various agricultural applications, various mining
applications, and emerging electric battery technologies. Within
the lubricant additive end market, currently our largest end market
application, P2S5
is primarily used in the production of a family of compounds called
Zinc Dialkyldithiophosphates (“ZDDP”), which is
considered an essential component in the formulation of engine oils
with its main function to provide anti-wear protection to engine
components.
Known Trends and Uncertainties
Growth in Fire Safety
We believe that our Fire Safety segment benefits from several
secular growth drivers, including increasing fire severity, as
measured by higher acres burned and longer fire seasons, a growing
wildland urban interface, and increasing airtanker capacity. We
believe that these trends are prevalent in North America, as well
as globally.
We are also attempting to grow our fire prevention and protection
business, which is primarily focused on high hazard industries like
electrical utilities, railroads and transportation agencies. Fire
prevention products can be used to prevent fire ignitions and
protect property from potential fire danger by providing proactive
retardant treatment in high-risk areas. Treating these areas ahead
of the fire season can potentially stop ignitions from equipment
failures or sparks. Our new Phos-Chek Fortify products, applied
before or early in the fire season, may provide protection all
season. In addition, Phos-Chek Fortify can proactively be applied
to protect high value assets and critical infrastructure from the
danger of wildfire.
We expect these trends to continue and drive growth in demand for
fire retardant products.
We have invested and intend to continue investing in the expansion
of our fire safety business through acquisitions in order to
further grow our global customer base.
Acquisitions for all periods presented are described in Note 3,
“Business Acquisitions,” in the notes to the condensed consolidated
financial statements included in this Quarterly
Report.
Weather Conditions and Climate Trends
Our business is highly dependent on the needs of government
agencies to suppress fires. As such, our financial condition and
results of operations are significantly impacted by weather as well
as environmental and other factors affecting climate change, which
impact the number and severity of fires in any given year.
Historically, sales of our products have been higher in the summer
season of each fiscal year due to weather patterns which are
generally correlated to a higher prevalence of wildfires. This is
in part offset by the disbursement of our operations in both the
northern and southern hemispheres, where the summer seasons
alternate.
Global Economic Environment
Russia’s Invasion of Ukraine
In February 2022, Russia invaded Ukraine. While we have limited
exposure in Russia and Ukraine, we continue to monitor any broader
impact to the global economy, including with respect to inflation,
supply chains and fuel prices. The full impact of the conflict on
our business and financial results remains uncertain and will
depend on the severity and duration of the conflict and its impact
on regional and global economic conditions.
Inflationary Cost Environment
During fiscal 2021 and continuing into the current fiscal year,
global commodity and labor markets experienced significant
inflationary pressures attributable to ongoing economic recovery
and supply chain issues. We are subject to inflationary pressures
with respect to raw materials, labor and transportation.
Accordingly, we continue to take actions with our customers and
suppliers to mitigate the impact of these inflationary pressures in
the future. Actions to mitigate inflationary pressures with
suppliers include aggregation of purchase requirements to achieve
optimal volume benefits, negotiation of cost-reductions and
identification of more cost competitive suppliers. While these
actions are designed to offset the impact of inflationary
pressures, we cannot provide assurance that it will be successful
in fully offsetting increased costs resulting from inflationary
pressure.
Interest payments for borrowings under our revolving credit
facility are based on variable rates. As a result, an increase in
interest rates may reduce our cash flow available for other
corporate purposes.
Ongoing COVID-19 Pandemic
The pandemic
caused by an outbreak of a novel strain of coronavirus, SARS-CoV-2,
which causes COVID-19 that
began in December 2019
introduced significant volatility to the global health and economic
environment, including
millions of confirmed COVID-19 cases, business slowdowns or
shutdowns, government challenges and market volatility throughout
2020
into 2022.
While the ongoing impact from the COVID-19 pandemic has subsided,
disruptions to supply chains, transportation efficiency, and
availability of raw materials and labor continue to persist. The
exact pace and timing of the economic
recovery
remains uncertain and is expected to continue to be uneven
depending on various factors. As the consequences of the pandemic
and adverse impact to the global economy continue to evolve, the
future adverse impact on our business and financial statements
remains subject to uncertainty as of the date of this
filing.
Results of Operations
Three Months Ended September 30, 2022 Compared to the Three Months
Ended September 30, 2021
Total Company
The following table sets forth our results of operations for each
of the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Change |
|
Three Months Ended September 30, 2022 |
|
|
Three Months Ended September 30, 2021 |
|
|
|
|
|
$ |
|
% |
|
Net sales |
$ |
160,509 |
|
|
|
$ |
195,414 |
|
|
$ |
(34,905) |
|
|
(18 |
%) |
|
Cost of goods sold |
74,707 |
|
|
|
86,081 |
|
|
(11,374) |
|
|
(13 |
%) |
|
Gross profit |
85,802 |
|
|
|
109,333 |
|
|
(23,531) |
|
|
(22 |
%) |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense |
22,381 |
|
|
|
15,333 |
|
|
7,048 |
|
|
46 |
% |
|
Amortization expense |
13,738 |
|
|
|
13,276 |
|
|
462 |
|
|
3 |
% |
|
Founders advisory fees - related party |
(73,713) |
|
|
|
— |
|
|
(73,713) |
|
|
— |
% |
|
Other operating expense |
(51) |
|
|
|
313 |
|
|
(364) |
|
|
(116 |
%) |
|
Total operating expenses |
(37,645) |
|
|
|
28,922 |
|
|
(66,567) |
|
|
(230 |
%) |
|
Operating income |
123,447 |
|
|
|
80,411 |
|
|
43,036 |
|
|
54 |
% |
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
Interest expense, net |
9,944 |
|
|
|
8,065 |
|
|
1,879 |
|
|
23 |
% |
|
Gain on contingent earn-out |
(3,644) |
|
|
|
— |
|
|
(3,644) |
|
|
— |
% |
|
Unrealized foreign currency loss |
4,705 |
|
|
|
1,634 |
|
|
3,071 |
|
|
188 |
% |
|
Other (income) expense, net |
(785) |
|
|
|
66 |
|
|
(851) |
|
|
(1289 |
%) |
|
Total other expense, net |
10,220 |
|
|
|
9,765 |
|
|
455 |
|
|
5 |
% |
|
Income before income taxes |
113,227 |
|
|
|
70,646 |
|
|
42,581 |
|
|
60 |
% |
|
Income tax expense |
(34,516) |
|
|
|
(18,637) |
|
|
(15,879) |
|
|
85 |
% |
|
Net income |
$ |
78,711 |
|
|
|
$ |
52,009 |
|
|
$ |
26,702 |
|
|
51 |
% |
Net Sales.
Net sales decreased by $34.9 million for the three months ended
September 30, 2022 compared to the same period in 2021. The
decrease in net sales was primarily due to $50.5 million lower
sales generated by the Fire Safety segment. Within the Fire Safety
segment, sales of fire retardants and fire suppressants decreased
by $48.9 million and $1.6 million, respectively. Fire retardant
sales decreased by $50.8 million in the Americas due to a mild fire
season offset by a $1.9 million increase in Europe. Fire retardant
sales in a given geography are generally driven by the severity of
the fire season in that geography. Fire suppressant sales decreased
by $2.3 million in Europe primarily due to lower Class B foam
concentrate sales offset by a $0.7 million increase in Asia Pacific
as a result of higher fluorine free foam concentrates sales in
Australia along with increased shipments to Asia. Fire suppressant
sales in the Americas were unchanged between periods. Net sales in
the Specialty Products segment increased by $15.6 million, of which
$13.4 million was in the Americas and $2.2 million was in Europe.
Specialty Product sales are primarily driven by changes in our
relevant market share in each region; as well as the adoption of
our P2S5
products in several new end markets and applications.
Cost of Goods Sold.
Cost of goods sold decreased by $11.4 million for the three months
ended September 30, 2022 compared to the same period in 2021. The
decrease was primarily as a result of a $13.2 million decrease in
the Fire Safety segment due to lower material and manufacturing
costs of $14.3 million offset by an increase of $0.7 million in
the
amortization of inventory step-up related to the Business
Combination and increased labor and share-based compensation
expense of $0.4 million. The $1.8 million increase in cost of goods
sold in the
Specialty Products segment was due to a
$0.8 million increase in insurance costs, a $0.6 million increase
in depreciation expense and a
$0.4 million increase related to higher material and manufacturing
costs.
Selling, General and Administrative Expense.
Selling, general and administrative expense
increased by $7.0 million for the three months ended September 30,
2022 compared to the same period in 2021.
The increase was primarily driven by a $6.6 million increase in
personnel related and share-based compensation expenses, a $1.6
million increase in insurance costs and a $1.5 million increase in
logistics expenses offset by a $2.7 million decrease in accounting,
legal, consulting and other administrative expenses.
Founder advisory fees - related party.
The reduction in founder advisory fees - related party of $73.7
million
for the three months ended September 30, 2022
represents
a decrease in the fair value of the liability-classified variable
and fixed annual advisory amounts as of September 30,
2022.
The fair value of the variable annual advisory amount decreased by
$53.2 million and the fair value of the fixed annual advisory
amount decreased by $20.5 million.
The variable annual advisory amount at the end of each reporting
period is valued using a Monte Carlo simulation model and the fixed
annual advisory amount is valued using the period end volume
weighted average closing share price of our Ordinary Shares for ten
consecutive trading days.
Interest Expense.
Interest expense
increased by $1.9 million for the three months ended September 30,
2022 compared to the same period in 2021.
The increase was primarily due to the $1.6 million of dividends on
the 6.50% redeemable preferred shares of PSSA (“Redeemable
Preferred Shares”), included in interest expense, and higher
interest rates on outstanding debt compared to the same period in
2021.
Gain on Contingent Earn-out.
The contingent earn-out related to the purchase of LaderaTech
changed
by $3.6 million for the three months ended September 30, 2022
compared to the same period in 2021 due to a reduction in the fair
value of the contingent consideration by $3.6 million in 2022 as a
result of a change in the forecast of the product mix from an
earn-out eligible fire retardant to a non earn-out eligible Company
developed fire retardant. There was no change in the fair value of
the contingent consideration for the three months ended September
30, 2021.
Unrealized Foreign Currency Loss.
Unrealized foreign currency loss increased
by $3.1 million for the three months ended September 30, 2022
compared to the same period in 2021.
The decrease was primarily due to unfavorable foreign currency rate
changes, primarily in the Euro, during the
three months ended September 30, 2022
compared to the
same period in 2021.
Income Tax Expense.
Income tax expense increased
by $15.9 million for the three months ended September 30, 2022
compared to the same period in 2021.
The increase is due primarily to changes in earnings in
jurisdictions that were not covered by a valuation allowance and
the impact of non-deductible compensation, non-taxable gain on
contingent earn-out and accrued withholding taxes on the annualized
effective tax rate.
Nine Months Ended September 30, 2022 Compared to the Nine Months
Ended September 30, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
Change |
|
Nine Months Ended
September 30, 2022 |
|
|
Nine Months Ended
September 30, 2021 |
|
|
|
|
|
$ |
|
% |
|
Net sales |
$ |
319,232 |
|
|
|
$ |
316,460 |
|
|
$ |
2,772 |
|
|
1 |
% |
|
Cost of goods sold |
191,757 |
|
|
|
159,895 |
|
|
31,862 |
|
|
20 |
% |
|
Gross profit |
127,475 |
|
|
|
156,565 |
|
|
(29,090) |
|
|
(19 |
%) |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense |
64,803 |
|
|
|
42,544 |
|
|
22,259 |
|
|
52 |
% |
|
Amortization expense |
41,395 |
|
|
|
39,818 |
|
|
1,577 |
|
|
4 |
% |
|
Founders advisory fees - related party |
(154,026) |
|
|
|
— |
|
|
(154,026) |
|
|
— |
% |
|
Other operating expense |
405 |
|
|
|
1,066 |
|
|
(661) |
|
|
(62 |
%) |
|
Total operating expenses |
(47,423) |
|
|
|
83,428 |
|
|
(130,851) |
|
|
(157 |
%) |
|
Operating income |
174,898 |
|
|
|
73,137 |
|
|
101,761 |
|
|
139 |
% |
|
Other expense (income): |
|
|
|
|
|
|
|
|
|
Interest expense, net |
32,582 |
|
|
|
23,951 |
|
|
8,631 |
|
|
36 |
% |
|
(Gain) loss on contingent earn-out |
(13,042) |
|
|
|
2,763 |
|
|
(15,805) |
|
|
(572 |
%) |
|
Unrealized foreign currency loss |
8,741 |
|
|
|
3,892 |
|
|
4,849 |
|
|
125 |
% |
|
Other income, net |
(820) |
|
|
|
(252) |
|
|
(568) |
|
|
225 |
% |
|
Total other expense, net |
27,461 |
|
|
|
30,354 |
|
|
(2,893) |
|
|
(10 |
%) |
|
Income before income taxes |
147,437 |
|
|
|
42,783 |
|
|
104,654 |
|
|
245 |
% |
|
Income tax expense |
(23,692) |
|
|
|
(13,151) |
|
|
(10,541) |
|
|
80 |
% |
|
Net income |
$ |
123,745 |
|
|
|
$ |
29,632 |
|
|
$ |
94,113 |
|
|
318 |
% |
Net Sales.
Net sales increased by $2.8 million for the nine months ended
September 30, 2022 compared to the same period in 2021.
Net sales in the Fire Safety segment decreased by $30.2 million,
representing lower fire retardant sales of $36.5 million offset by
a $6.3 million increase in fire suppressant sales.
Fire
retardant sales decreased by $40.2 million in the Americas
due to a mild fire season
offset by increases of $2.5 million in Asia Pacific and $1.2
million in Europe.
Fire retardant sales in a given geography are generally driven by
the severity of the fire season in that geography.
Fire suppressant sales increased by $2.7 million in
Asia Pacific because of higher fluorine free concentrates sales in
Australia along with increased shipments to Asia, $2.1 million in
the Americas driven by fluorine free foam concentrate and foam
systems and $1.5 million in Europe due to improved market share and
geographic reach. Net sales in the Specialty Products segment
increased by $33.0 million, of which $24.4 million was in the
Americas and $8.6 million was in Europe. Specialty Product sales
are primarily driven by changes in our relevant market share in
each region; as well as the adoption of our P2S5
products in several new end markets and applications.
Cost of Goods Sold.
Cost of goods sold increased by $31.9 million for the nine months
ended September 30, 2022 compared to the same period in 2021. The
increase was primarily as a result of a $26.4 million increase in
the Fire Safety segment due to an increase of $28.0 million in
amortization of inventory step-up related to the Business
Combination and $2.8 million in increased labor and share-based
compensation expense offset by $4.4 million in lower material and
manufacturing costs. The $5.5
million increase in the Specialty Products segment was due to a
$2.4 million increase in insurance costs, a $1.9 million increase
in depreciation expense, a $0.6 million increase in lease expense
and $0.8 million higher
raw material and manufacturing costs offset by a
$0.2 million decrease in other manufacturing related
expenses.
Selling, General and Administrative Expense.
Selling, general and administrative expense
increased by $22.3 million for the nine months ended September 30,
2022 compared to the same period in 2021.
The increase was primarily driven by a $19.2 million increase in
personnel related and share-based compensation expenses, a $4.9
million increase in insurance costs, a $4.1 million increase in
logistics expenses, offset by a $5.9 million decrease in
accounting, legal, consulting and other administrative
expenses.
Founder advisory fees - related party.
The reduction in founder advisory fees - related party of $154.0
million
for the nine months ended September 30, 2022
represents
a decrease in the fair value of the liability-classified variable
and fixed annual advisory amounts as of September 30,
2022.
The fair value of the variable annual advisory amount decreased by
$114.8 million and the fair value of the fixed annual advisory
amount decreased by $39.2 million. The variable annual
advisory amount at the end of each reporting period is valued using
a Monte Carlo simulation model and the fixed annual advisory amount
is valued using the period end volume weighted average closing
share price of our Ordinary Shares for ten consecutive trading
days.
Interest Expense.
Interest expense
increased by $8.6 million for the nine months ended September 30,
2022 compared to the same period in 2021.
The increase was primarily due to $4.9 million of dividends on the
6.50% redeemable preferred shares of PSSA (“Redeemable Preferred
Shares”), included in interest expense, and higher interest rates
on outstanding debt compared to the same period in
2021.
(Gain) Loss on Contingent Earn-out.
The contingent earn-out related to the purchase of LaderaTech
changed
by $15.8 million for the nine months ended September 30, 2022
compared to the same period in 2021 due to a reduction in the fair
value of the contingent consideration by $13.0 million in 2022 as a
result of a change in the forecast of the product mix from an
earn-out eligible fire retardant to a non earn-out eligible Company
developed fire retardant compared to a $2.8 million increase in
2021 in the fair value of the contingent
consideration.
Unrealized Foreign Currency Loss.
Unrealized foreign currency loss increased
by $4.8 million for the nine months ended September 30, 2022
compared to the same period in 2021.
The increase was primarily due to unfavorable foreign currency rate
changes, primarily in the Euro, during the
nine months ended September 30, 2022
compared to the
same period in 2021.
Income Tax Expense.
Income tax expense
increased by $10.5 million for the nine months ended September 30,
2022 compared to the same period in 2021.
The increase is due primarily to changes in earnings in
jurisdictions that were not covered by a valuation allowance and
the impact of non-deductible compensation, non-taxable gain on
contingent earn-out and accrued withholding taxes on the annualized
effective tax rate.
Business Segments
We use segment net sales and segment adjusted earnings before
interest, taxes, depreciation and amortization (“Adjusted EBITDA”),
financial measures that are prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”), to evaluate our operating performance by segment,
for business planning purposes and to allocate resources. The
following tables provide information for our net sales and Adjusted
EBITDA (in thousands):
Three Months Ended September 30, 2022 Compared to the Three Months
Ended September 30, 2021
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Successor |
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Predecessor |
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Three Months Ended September 30, 2022 |
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|
Three Months Ended September 30, 2021 |
|
Fire Safety |
|
Specialty Products |
|
|
Fire Safety |
|
Specialty Products |
|
Net sales |
$ |
121,963 |
|
|
$ |
38,546 |
|
|
|
$ |
172,445 |
|
|
$ |
22,969 |
|
|
Segment Adjusted EBITDA |
$ |
60,363 |
|
|
$ |
15,264 |
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|
|
$ |
97,854 |
|
|
$ |
2,496 |
|
Adjusted EBITDA for our Fire Safety segment during the three months
ended September 30, 2022 decreased by $37.5 million to $60.4
million. The decrease was primarily due to lower sales as a result
of a mild fire season and higher operating expenses offset by lower
cost of goods sold.
Adjusted EBITDA for our Specialty Products segment during the three
months ended September 30, 2022 increased by $12.8 million to $15.3
million. The increase was primarily due to higher sales offset by
higher cost of goods sold and operating expenses.
Nine Months Ended September 30, 2022 Compared to the Nine Months
Ended September 30, 2021
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Successor |
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Predecessor |
|
Nine Months Ended September 30, 2022 |
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|
Nine Months Ended September 30, 2021 |
|
Fire Safety |
|
Specialty Products |
|
|
Fire Safety |
|
Specialty Products |
|
Net sales |
$ |
207,010 |
|
|
$ |
112,222 |
|
|
|
$ |
237,256 |
|
|
$ |
79,204 |
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|
Segment Adjusted EBITDA |
$ |
81,248 |
|
|
$ |
42,038 |
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|
|
$ |
116,680 |
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|
$ |
17,919 |
|
Adjusted EBITDA for our Fire Safety segment during the nine months
ended September 30, 2022 decreased by $35.4 million to $81.2
million. The decrease was primarily due to lower sales as a result
of a mild fire season and higher operating expenses offset by lower
cost of goods sold.
Adjusted EBITDA for our Specialty Products segment during the nine
months ended September 30, 2022 increased by $24.1 million to $42.0
million. The increase was primarily due to higher sales offset by
higher cost of goods sold and operating expenses.
Liquidity and Capital Resources
We have historically funded our operations primarily through cash
flows from operations, borrowings under our revolving credit
facility, and the issuance of debt and equity securities. However,
future cash flows are subject to a number of variables, including
the length and severity of the fire season, growth of the wildland
urban interface and the availability of air tanker capacity, all of
which could negatively impact revenues, earnings and cash flows,
and potentially our liquidity if we do not moderate our
expenditures accordingly.
As of September 30, 2022, our cash requirements, cash flows,
indebtedness and available credit is discussed below.
We believe that our existing cash and cash equivalents of
approximately $166.3 million as of September 30, 2022,
net cash flows generated from operations and
availability
under the Revolving Credit Facility
will be sufficient to meet our current capital expenditures,
working capital, founders advisory fee payments and debt service
requirements for at least 12 months from the filing date of this
Quarterly Report. As of September 30, 2022, we expect our
remaining fiscal year 2022 capital expenditure budget of
approximately $4.0 million will cover both our maintenance and
growth capital expenditures. We
may also utilize borrowings under other various financing sources
available to us, including the issuance of equity and/or debt
securities through public offerings or private placements, to fund
our acquisitions, the Advisory Amounts and long-term liquidity
needs. Our ability to complete future offerings of equity or debt
securities and the timing of these offerings will depend upon
various factors including prevailing market conditions and our
financial condition.
Cash Flows:
The summary of our cash flows is as follows (in
thousands):
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Successor |
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Predecessor |
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Nine Months Ended
September 30, 2022 |
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Nine Months Ended
September 30, 2021 |
|
Cash provided by (used in): |
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|
Operating activities |
$ |
(43,184) |
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|
|
$ |
32,417 |
|
|
Investing activities |
(7,662) |
|
|
|
(12,613) |
|
|
Financing activities |
(7,043) |
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|
|
(4,211) |
|
|
Effect of foreign currency on cash and cash equivalents |
(1,409) |
|
|
|
1,510 |
|
|
Net change in cash and cash equivalents |
$ |
(59,298) |
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|
|
$ |
17,103 |
|
Operating Activities
Cash (used in) provided by operating activities was $(43.2) million
and $32.4 million during the nine months ended September 30,
2022 and 2021, respectively. The change was primarily due to a
founders advisory fee payment of $53.5 million in 2022 and an
increase in inventory of $35.2 million compared to 2021 due to a
mild fire season in 2022 offset by a reduction in accounts
receivable of $8.3 million compared to 2021 also due to a mild fire
season in 2022.
Investing Activities
Cash used in investing activities was $7.7 million and $12.6
million for the nine months ended September 30, 2022 and 2021,
respectively. During the nine months ended September 30, 2022,
we purchased property and equipment of $6.0 million and paid an
additional $1.6 million to SK Holdings upon finalization of the
difference in estimated and actual working capital as of the
Closing Date under the Business Combination Agreement. During the
nine months ended
September 30, 2021, we purchased property and equipment of $5.1
million and paid $7.5 million in cash related to the acquisitions
of
Magnum Fire & Safety Systems,
PC Australasia Pty Ltd and Budenheim Iberica, S.L.U.
Financing Activities
Cash used in financing activities was $7.0 million and $4.2 million
for the nine months ended September 30, 2022 and 2021,
respectively. During the nine months ended September 30, 2022, we
repurchased outstanding Ordinary Shares for $7.6 million offset by
$0.5 million in proceeds from exercise of warrants. During the nine
months ended September 30, 2021, the cash used in financing
activities includes $4.2 million in repayments on long-term debt
and $19.5 million in repayments on the revolving credit facility
offset by $19.5 million in proceeds from the revolving credit
facility.
Revolving Credit Facility
On November 9, 2021, SK Invictus Intermediate II
S.à r.l., a private limited liability company governed by the laws
of the Grand Duchy of Luxembourg (“SK
Intermediate II”),
entered into a five-year revolving credit facility (the
“Revolving
Credit Facility”),
which provides for a senior secured revolving credit facility in an
aggregate principal amount of up to $100.0 million.
The Revolving Credit Facility matures on November 9, 2026. The
Revolving Credit Facility includes a $20.0 million swingline
sub-facility and a $25.0 million letter of credit sub-facility. The
Revolving Credit Facility allows SK Intermediate II to increase
commitments under the Revolving Credit Facility up to an aggregate
amount not to exceed the greater of (i) $143.0 million and (ii)
100.00% of consolidated EBITDA for the most recent four-quarter
period (minus the aggregate outstanding principal amount of certain
ratio debt permitted to be incurred thereunder). All borrowings
under the Revolving Credit Facility are subject to the satisfaction
of customary conditions, including the absence of a default and the
accuracy of representations and warranties, subject to certain
exceptions.
Borrowings under the Revolving Credit Facility bear interest at a
rate equal to (i) an applicable margin, plus (ii) at SK
Intermediate II’s option, either (x) London Interbank Offered Rate
(“LIBOR”) determined by reference to the cost of funds for U.S.
dollar deposits for the interest period relevant to such borrowing,
adjusted for certain additional costs (but which will not be less
than a 0.00% LIBOR floor) or (y) a base rate determined by
reference to the highest of (a) the prime commercial lending rate
published by the Wall Street Journal, (b) the federal funds rate
plus 0.50%, (c) the one-month LIBOR rate plus 1.00% and (d) a
minimum floor of 1.00%. The applicable margin is 3.25% in the case
of LIBOR-based loans and 2.25% in the case of base rate-based
loans, with two step downs of 0.25% each based upon the achievement
of certain leverage ratios.
As of September 30, 2022, the Company did not have any
outstanding borrowings under the Revolving Credit Facility and was
in compliance with all covenants, including the financial
covenants.
Senior Notes
On November 9, 2021, SK Intermediate II assumed $675.0
million
principal amount of 5.00% senior secured notes due October 30, 2029
(“Senior Notes”)
issued by EverArc Escrow S.à r.l. (“Escrow
Issuer”),
a newly-formed limited liability company governed by the laws of
the Grand Duchy of Luxembourg and a wholly owned subsidiary of
EverArc under an indenture dated as of October 22, 2021
(“Indenture”). The Senior Notes bear interest at an annual rate of
5.00%. Interest on the Senior Notes is payable in cash
semi-annually in arrears on April 30 and October 30 of each year,
commencing on April 30, 2022.
The Senior Notes are general, secured, senior obligations of SK
Intermediate II; rank equally in right of payment with all existing
and future senior indebtedness of SK Intermediate II (including,
without limitation, the Revolving Credit Facility); and together
with the Revolving Credit Facility, are effectively senior to all
existing and future indebtedness of
SK Intermediate II that
is not secured by the collateral.
For additional information about our long-term debt,
refer to Note 6, “Long-Term Debt and Redeemable Preferred Shares,”
in the notes to the condensed consolidated financial statements
included in this Quarterly Report.
Share Repurchase Plan
On December 7, 2021, subject to the approval of the shareholders of
the Company, the Company's board of directors (the “Board”)
authorized a share repurchase plan (the “Share Repurchase Plan”).
Under the Share Repurchase Plan, the Company is authorized to
repurchase up to $100.0 million of its issued and outstanding
Ordinary Shares at any time during the next 24 months or, if
different, such other timeframe as approved by the shareholders of
the Company. Until such time as the Share Repurchase Plan was
approved by the shareholders of the Company, the Board authorized
any subsidiary of the Company to take such actions necessary to
purchase Ordinary Shares of the Company. Repurchases under the
Share Repurchase Plan may be made, from time to time, in such
quantities, in such manner and on such terms and conditions and at
prices the Company deems appropriate. On July 21, 2022, subject to
certain limits, the shareholders’ of the Company approved a
proposal authorizing the Board to repurchase up to 25% of the
Company’s Ordinary Shares outstanding as of the date of the
shareholders’ approval, being 40,659,257 Ordinary Shares, at any
time during the next five years. The
Company repurchased 320,703 and 918,216 Ordinary Shares for the
three and nine months ended September 30, 2022, respectively,
of which 597,513 Ordinary Shares were repurchased on behalf of a
wholly-owned subsidiary. The repurchased Ordinary Shares were
recorded at cost and are being held in treasury.
During the period from October 1, 2022 to November 1, 2022, the
Company repurchased approximately 5,054,856 of its Ordinary Shares
at an average price per share of approximately $7.55.
Founder Advisory Agreement
Upon consummation of the Business Combination, the advisory
agreement entered into on December 12, 2019 by EverArc (“Founder
Advisory Agreement”) with EverArc Founders, LLC, a Delaware limited
liability company (“EverArc Founder Entity”), which is owned and
operated by William N. Thorndike, Jr., W. Nicholas Howley, Tracy
Britt Cool, Vivek Raj and Haitham Khouri (“EverArc Founders”),
pursuant to which the EverArc Founder Entity, for the services
provided to the Company, including strategic and capital allocation
advice, is entitled to receive both a fixed amount (the “Fixed
Annual Advisory Amount”) and a variable amount (the “Variable
Annual Advisory Amount,” each an “Advisory Amount” and
collectively, the “Advisory Amounts”) until the years ending
December 31, 2027 and 2031, respectively. Under the Founder
Advisory Agreement, at the election of the EverArc Founder Entity,
at least 50% of the Advisory Amounts will be paid in Ordinary
Shares and the remainder in cash.
For 2021, the average price was $13.63 per Ordinary Share,
resulting in a total Variable Annual Advisory Amount for 2021 of
7,525,906 Ordinary Shares, or a value of $102.5 million (the “2021
Variable Amount”). The EverArc Founder Entity also received the
Fixed Annual Advisory Amount which was equal to 1.5%
of 157,137,410 Ordinary
Shares outstanding on the Closing Date: 2,357,061 ordinary shares
or a value of $32.1 million, based on average price of $13.63 per
Ordinary Share (the “2021 Fixed Amount” and together with the 2021
Variable Amount, the “2021 Advisory Amounts”). Per the Founder
Advisory Agreement, the EverArc Founder Entity elected to receive
approximately 60% of the 2021 Advisory Amounts in Ordinary Shares
(5,952,992 Ordinary Shares) and approximately 40% of the Advisory
Amounts in cash ($53.5 million). On February 15, 2022, the Company
issued 5,952,992 Ordinary Shares and paid $53.5 million in cash in
satisfaction of 2021 Advisory Amounts.
As of September 30, 2022, the Company used a Monte Carlo
simulation model to calculate the fair value of the Variable Annual
Advisory Amount. The Company calculated the fair value of the Fixed
Annual Advisory Amounts using the period end volume weighted
average closing share price of Ordinary Shares for ten consecutive
trading days of $8.35. These approaches resulted in fair values of
$170.8 million
for the Variable Annual Advisory Amount and $118.0 million
for
the Fixed Annual Advisory Amount.
For additional information about the Founder Advisory
Agreement,
refer to Note 10, “Share-Based Compensation” and Note 12, “Related
Parties,” in the notes to the condensed consolidated financial
statements included in this Quarterly Report.
Critical Accounting Estimates and Policies
The discussion and analysis of our financial condition and results
of operations are based upon our unaudited condensed consolidated
financial statements which have been prepared in accordance with
U.S. GAAP.
As of September 30, 2022, the Company’s significant accounting
policies and estimates are consistent with those discussed in Note
2 - “Summary of
Significant
Accounting Policies and Recent Accounting Pronouncements” of its
consolidated financial statements included in the Company’s 2021
Annual Report filed on Form 10-K with the SEC on March 31,
2022.
Significant estimates made by management in connection with the
preparation of the accompanying unaudited condensed consolidated
financial statements include the useful lives of long-lived and
intangible assets, the allowance for doubtful accounts, the fair
value of financial assets and liabilities, stock options, founder
advisory fees, contingent earn-out liability and realizability of
deferred tax assets. We are not presently aware of any events or
circumstances that would require us to update our estimates,
assumptions or revise the carrying value of our assets or
liabilities. Our estimates may change, however, as new events occur
and additional information is obtained. As a result, actual results
may differ significantly from our estimates, and any such
differences may be material to our financial statements. For
information on the impact of recently issued accounting
pronouncements, see Note 2, “Summary of Significant Accounting
Policies and Recent Accounting Pronouncements” in the notes to the
condensed consolidated financial statements included in this
Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
We are exposed to market risk from changes in foreign currency
exchange rates, short-term interest rates and price fluctuations of
certain material commodities in the ordinary course of our
business. We have
not engaged in hedging activities since inception and currently, do
not expect to engage in any hedging activities with respect to the
market risk to which we are exposed.
Foreign Currency Risk
Foreign currency exchange risks are attributable to sales to
foreign customers and purchases from foreign suppliers not
denominated in a location’s functional currency, foreign plant
operations, intercompany indebtedness, intercompany investments and
include exposures to the Euro, Canadian dollar, Norwegian krone and
Australian dollar. We have elected to use the U.S. dollar for our
Luxembourg entities. Transactions that are paid in a foreign
currency are remeasured into U.S. dollars and recorded in the
consolidated financial statements at prevailing currency exchange
rates. A reduction in the value of the U.S. dollar against
currencies of other countries could result in the use of additional
cash to settle operating, administrative and tax
liabilities.
Interest Rate Risk
For variable rate debt, interest rate changes generally do not
affect the fair market value of such debt, but do impact future
earnings and cash flows, assuming other factors are held constant.
We are subject to market risk exposure related to changes in
interest rates on borrowings under the Revolving Credit Facility.
Interest on borrowings under the Revolving Credit Facility is based
on adjusted LIBOR plus or base rate plus an applicable margin. At
September 30, 2022, we had no borrowings outstanding under the
Revolving Credit Facility.
Commodity Price Risk
Our realized margins depend on the differential of sales prices
over our total supply costs. Generally, we attempt to maintain an
inventory position that is substantially balanced between our
purchases and sales, including our future delivery obligations.
However, market, weather or other conditions beyond our control may
disrupt our expected supply of product, and we may be required to
obtain supply at increased prices that cannot be passed through to
our customers. For example, some of our material supply contracts
follow market prices, which may fluctuate through the year, while
our product sales prices may be fixed on a quarterly or annual
basis, and therefore, fluctuations in our material supply may not
be passed through to our customers and can produce an adverse
effect on our margins.
Effects of Inflation
We are subject to inflationary pressures with respect to raw
materials, labor and transportation. Accordingly, we continue to
take actions with our customers and suppliers to mitigate the
impact of these inflationary pressures in the future. Actions to
mitigate inflationary pressures with customers include contractual
price escalation clauses and negotiated customer recoveries.
Actions to mitigate inflationary pressures with suppliers include
aggregation of purchase requirements to achieve optimal volume
benefits, negotiation of cost-reductions and identification of more
cost competitive suppliers. While these actions are designed to
offset the impact of inflationary pressures, the Company cannot
provide assurance that it will be successful in fully offsetting
increased costs resulting from inflationary pressure.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, at
September 30, 2022, PSSA has evaluated, under the supervision
and with the participation of the Company’s management, including
PSSA’s principal executive officer and principal financial officer,
the effectiveness of the design and operation of its disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act). Our controls and procedures are designed
to ensure that information required to be disclosed by the Company
in reports it files or submits under the Exchange Act is recorded,
processed, summarized, and reported within the time periods
specified in the rules and forms of the SEC, and that the
information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is accumulated and
communicated to the Company’s management, including the principal
executive officer and principal financial officer, as appropriate,
to allow timely decisions regarding required
disclosure.
As described further in our 2021 Annual Report, PSSA’s principal
executive officer and principal financial officer had concluded
that as of December 31, 2021, the design and implementation of our
disclosure controls and procedures were not effective, due to the
existence of material weaknesses.
These material weaknesses around control environment and control
activities continued to exist at
September 30, 2022.
These material weaknesses include:
•SK
Intermediate’s continued material weaknesses related to a lack of
appropriately designed and implemented controls (i) to maintain
segregation of duties between the creation, posting and approval of
journal entries and (ii) to ensure the assumptions made in
connection with estimates used to value intangible assets acquired
in business combinations are sufficiently reviewed.
•We
did not appropriately design and implement management review
controls at a sufficient level of precision around complex
accounting areas and disclosure including business combinations and
income taxes. These deficiencies were attributed to an insufficient
number of qualified resources and inadequate oversight and
accountability over the performance of controls.
•We
failed to properly design and implement controls over the business
combination specifically related to the presentation of the
statement of cash flows, equity issuance costs, transaction costs
and the determination of purchase consideration.
•We
failed to properly design and implement controls related to the
forecasting of the repatriation of earnings with respect to APB
23.
We have
begun
the process of, and we are focused on, designing and implementing
effective internal control measures to improve our internal control
over financial reporting and remediate the material weaknesses. Our
internal control remediation efforts include the
following:
•We
hired an additional qualified accounting resource.
•We
engaged outside resources to assist with the design and
implementation of a system of risk-based internal controls that
aligns to and is measured against the framework issued to the
Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control-Integrated Framework (2013) (“COSO
2013”).
Changes in Internal Control Over Financial Reporting
As of
September 30, 2022,
the Company is continuing to implement the remediation measures
described in its 2021 Annual Report and is engaged in the process
of the design and implementation of PSSA’s internal controls over
financial reporting in a manner commensurate with the scale of
PSSA’s operations post-Business Combination.
PART II
Item 1. Legal Proceedings.
We are involved in various claims, actions, and legal proceedings
arising in the ordinary course of business, including a number of
matters related to the aqueous film forming foam litigation
consolidated in the District of South Carolina multi-district
litigation and other similar matters pending in other jurisdictions
in the United States. Our exposure to losses, if any, is not
considered probable or reasonably estimable at this
time.
Item 1A. Risk Factors
There have been no material changes to the Company’s risk factors
disclosed in Part I, Item 1A.
“Risk Factors”
of the Company’s 2021 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
Below is a summary of Ordinary Share repurchases for the quarter
ended September 30, 2022.
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|
|
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|
|
|
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|
|
|
|
|
|
Total Number of Shares Purchased |
|
Average Price Paid per Share |
|
Total Number of Shares Purchased as Part of Publicly Announced
Plans
or Programs |
|
Maximum Number of Shares that May Yet Be Purchased Under the Plan
or Program
(1)
|
|
July 1, 2022 - July 31, 2022 |
— |
|
|
$ |
— |
|
|
— |
|
|
40,061,744 |
|
|
August 1, 2022 - August 31, 2022 |
— |
|
|
$ |
— |
|
|
— |
|
|
40,061,744 |
|
|
September 1, 2022 - September 30, 2022 |
320,703 |
|
|
$ |
7.97 |
|
|
320,703 |
|
|
39,741,041 |
|
|
Total |
320,703 |
|
|
$ |
7.97 |
|
|
320,703 |
|
|
|
(1)On
December 7, 2021, the Board authorized the Share Repurchase Plan.
The Share Repurchase Plan allows the Company, which includes any
subsidiary of the Company, to repurchase up to $100.0 million of
its issued and outstanding Ordinary Shares at any time during the
next 24 months or, if different, such other timeframe as approved
by the shareholders of the Company. On July 21, 2022, subject to
certain limits, the shareholders’ of the Company approved a
proposal authorizing the Board to repurchase up to 25% of the
Company’s Ordinary Shares outstanding as of the date of the
shareholders’ approval, being 40,659,257 Ordinary Shares, at any
time during the next five years.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
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|
|
Exhibit
Number
|
Description
|
|
|
31.1*
|
|
|
31.2*
|
|
|
32.1**
|
|
|
101.INS* |
Inline XBRL Instance Document – the instance document does not
appear in the Interactive Data File because its XBRL tags are
embedded within the Inline XBRL document |
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101.SCH* |
XBRL Taxonomy Extension Schema Document |
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101.CAL* |
XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
XBRL Taxonomy Extension Presentation Linkbase Document |
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104* |
Cover Page Interactive Data File (formatted in Inline XBRL and
contained in Exhibit 101). |
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
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Perimeter Solutions, SA |
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Date: November 4, 2022
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By: |
/s/ Edward Goldberg |
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Edward Goldberg |
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Chief Executive Officer and Director |
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(Principal Executive Officer) |
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Date: November 4, 2022
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By: |
/s/ Charles Kropp |
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Charles Kropp |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting
Officer) |