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Perimeter Solutions: PHOS-CHEK & US Wildfire Retardants

Perimeter Solutions, the leading US fire retardant supplier, listed via SPAC in 2021. The board includes Nick Howley and various Former TransDigm executives. PHOS-CHEK, the company's leading product, was originally manufactured by Monsanto in the 1960s and was the first retardant approved by the US Forest Service. The USDA is the largest customer contributing ~40% of revenue. 

PHOS-CHEK is now the only approved USDA supplier as its only competitor was recently removed due to a faulty product. Today, Perimeter has a monopoly supplying USDA and Cal Fire.

It’s not difficult to see what attracted TDG executives to this asset. The regulatory lock-in, mission-criticality, and on-time-delivery requirements are similar to FAA-approved parts. 

However, one difference may be the structural growth dynamics. The commercial aerospace market has achieved fairly stable ~5% RPM and ~4% new aircraft growth per year for decades. 

Wildfires are less predictable. 

This is the first interview in a series to understand the wildfire retardant business, PHOS-CHEK product quality, PRMs moat, and potential long-term pricing power. 

the logistics of trying to move, if you're Fortress, it's very, very costly. You can't lose money on every gallon that you deliver. So you have to price it where you at least break even. Well, if you're breaking even at Fortress, Perimeter is making plenty of money. So that's the play. No collusion, no part of it. It's just everybody knows what it costs because it's a published contract for the purchase of PHOS-CHEK. People could say Perimeter Solutions are just charging too much money. You shouldn't take that kind of margin. They need the product. It's the only approved product. It's the only game in town. - Former Director at Perimeter Solutions

MTU Aero, FTAI, & Pratt & Whitney: V2500 & CFM56 Overhaul

This interview with a Former leader of MTU Aero's Maintenance MRO business explores the differences in overhauling a CFM56 and V2500, why MTU's operating margins are stable at ~10%, and the potential challenge for FTAI to scale its module swap program.

The OEM tries to secure 60% of the annual shop visits. They will chase new engines and repeat customers after 10 years to maintain this percentage. However, they don't have the capacity to handle 60%; they might have 40% or 50%, including joint ventures. Therefore, they have to offload the remaining shop visits. The engine remains under OEM control, and the contractual party for the airline is the OEM, but the MRO provider could be MTU, Delta TechOps, or others. For these offloads, a 2% to 3% margin is expected. With a material service agreement, this might increase by 3% or 4%, reaching around 6%, but not the 10% or 12% of an independent job visit. - Former CEO at MTU Aero Engines

Computer Modelling Group: Reservoir Simulation Software & Competition

Computer Modelling Group is a $750m market cap provider of reservoir simulation software to the O&G industry. Over the last few years, Mark Miller and John Billowits from Constellation Software have joined the CMG board. This interview with the Former CEO of CMG is the first in a series that provides an overview of the business, the competitive landscape and products.

Ken was very value-driven. He didn't want to raise prices because he felt that the more simulation you use, the lower the price should be. We had a very customer-friendly approach on the contracting and product side. We aimed to give more value, and if the customer got more value, we all won. This approach played out throughout my tenure. CMG kept growing, customers kept buying more, and the goal was to keep them happy. By doing that, we kept increasing top-line revenue, making investors and staff happy. Eventually, we got big enough that commodity prices started to impact our top line. - Former CEO, Computer Modelling Group

Although the software seems to be mission critical, organic revenue growth has been volatile over the last decade due to the cyclicality of the end market:

Our business mix changed over time. Initially, over 50% of our revenue came from STARS, but this shifted to about a third from STARS and other sources. Another important point is the impact on the Canadian market, particularly the oil sands. Around 2014-2015, there was a $10 to $15 million hit in top-line revenue due to producers leaving the Canadian oil sands. This exodus included companies like Statoil and others, consolidating with Suncor and others. - Former CEO, Computer Modelling Group

Loar Group: Safe Flight Instrument

This interview with a Former Director at Safe Flight Instrument, a Loar Group subsidiary, explores the quality of the underlying products, intellectual property, and aftermarket pricing power. 

The background on Safe Flight is relevant here. Leonard Greene, the founder of Safe Flight, had the company itself holding around 120 patents. In the late sixties or seventies, when airliners were crashing in thunderstorms due to wind shear, he developed an algorithm for wind shear detection that could drive a flight director, which could be tied to an autopilot for avoidance. This was a significant safety feature. - Former Director at Safe Flight, a Loar Group subsidiary

Kinsale Capital: IT Infrastructure & Technology Culture

A former Software Developer at Kinsale during the early years of the company compares Kinsale's technology stack to other insurance companies.

The biggest benefit of their technology is that everything works with each other. They have a single source of record or truth, which becomes a big issue in insurance when you're working with multiple external solutions. You're duplicating information across systems and reconciling them. With Kinsale, you don't have that problem because the data flows end-to-end and it's a single source of record. They operate on that ground truth and take it all the way to the warehouse. They are not spending a lot of time on integration challenges, which is a tremendous amount of time lost by insurance carriers and brokers just bringing different systems to talk to each other. - Former Kinsale Engineering Executive

Philip Morris: Reduced Risk Products & Consumer Behavior

A former RJ Reynolds and Japan Tobacco executive expresses doubts about the long term potential of snus and the ZYN brand.

The critical aspect of snus is that it's all chemical. There is nothing natural in a snus proposition. The aspect that creates a bit more sympathy around heat-not-burn is that we are still talking about tobacco sticks, and a tobacco stick is still made from tobacco, which is natural. Even legislators and governments have a smoother attitude towards something that is natural versus something that is purely chemical. Snus products are just chemicals. This is the reason why, for quite a long time, they were banned in Europe. They were only allowed in Scandinavia because, at the EU level, they did not accept this product and considered it too risky. Now the attitude has shifted towards these products, but I doubt they can become a mainstream product. - Former VP of Marketing at Japan Tobacco

Louisiana-Pacific: OSB vs Siding Manufacturing

We published an interview last week with a building materials distributor focused on Louisiana-Pacific. In this interview, a former VP of Manufacturing at LPX explores the manufacturing process, industry capacity and a comparison between OSB and Siding manufacturing.

When OSB is at [unclear] dollars per thousand, siding can't compete. But when OSB is at $180 per thousand, it's different. And here's the beauty, I've never seen siding pricing come down. When Brad ran siding, I was his VP of Operations. I know Brad Southern very well. His vision was that when OSB was in a down cycle, siding would have the capacity to keep us in the black, no matter how far down OSB went. We would have enough specialties to avoid the losses we used to face, like putting a $20 bill on every unit of OSB we shipped out. The whole vision for LP was to reach a specialty point where market downturns wouldn't affect us because we were diversified enough with our specialties. - Former VP of Manufacturing at LPX

Becle: Proximo Spirits Org & US / Mexico Reporting

Becle's subsidiary Proximo Spirits is responsible for its North American operations. A 10 year former VP of National Accounts discusses the organizational changes and the relationship between HQ in Mexico and the US organization. Juan Domingo Beckmann, the CEO of the company, is still intimately involved in the US business

He had, like, a weekly schedule for a while. He was there pretty much two weeks a month when they were new in the US. He could be in different parts of the US, but as far as going to the office, I'm not sure. He was very much involved. He would attend distributor meetings, product launches, and marketing meetings. I don't know if he still does, but when I was there, I remember hearing about him traveling to the US quite a bit. - Former VP of National Accounts at Proximo Spirits

Macfarlane Group: UK Packaging Distribution & M&A Strategy

Macfarlane Group is a UK-listed distributor of packaging. This interview with a former Regional Manager for the company discusses how the site level incentives could conflict with a group-level benefit and the UK packaging landscape.

there are pros and cons to it. You highlighted a strong con. If you're an RBM of a site, you are bonused, measured, and targeted on the success or failure of your operating profit. Sometimes you should be more altruistic and help the neighboring site, but do you really want to? Probably not, because it could impact your site. The typical issues were about sharing resources, whether salespeople, administrative staff, or logistics. There was no incentive to do it. - Former Regional Manager at Macfarlane Group

Auto Partner SA & Polish Auto Parts Distribution

This interview with a Former Branch Manager at Auto Partner explores the company's positioning and competitive landscape of the Polish auto parts business. This interview was conducted in Polish and translated to English.

As far as Auto Partner is concerned, it seems to me that the key thing was the development of logistics, that is, the very availability of the goods. This was something that all wholesalers worked on, but Auto Partner put it first. Own brands, of course, expanding the offer and improving the quality in relation to the price, because they are their own brands. That's the way it is understood, that price-wise they are much cheaper than premium products, whereas sometimes customers were afraid of these products because of the quality, that due to the lower price there would also be lower quality, and that was not necessarily always the case. Sometimes these were branded products just packaged in branded packaging. I think what was most crucial was the availability of the goods, the expansion of the range and the logistics and delivery time to the customer. - Former Branch Manager at Auto Partner