Perimeter Solutions - Q2 2024

Transcript

Operator (participant)

Greetings, and welcome to the Perimeter Solutions second quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Seth Barker, Head of Investor Relations for Perimeter Solutions. Thank you, sir. You may begin.

Seth Barker (Head of Investor Relations)

Thank you, operator. Good morning, everyone, and thank you for joining Perimeter Solutions second quarter 2024 earnings call. Speaking on today's call are Haitham Khouri, Chief Executive Officer, and Kyle Sable, Chief Financial Officer. We want to remind anyone who may be listening to a replay of this call that all statements made are as of today, August 1st, 2024, and these statements have not been, nor will they be, updated subsequent to today's call. Also, today's call may contain forward-looking statements. These statements made today are based on management's current expectations, assumptions, and beliefs about our business and the environment in which we operate, and our actual results may materially differ from those expressed or implied on today's call. Please review our SEC filings for a more complete discussion of factors that could impact our results.

The company would also like to advise you that during the call, we will be referring to non-GAAP financial measures, including EBITDA. The reconciliation of that other information regarding these items can be found in our earnings, press release, and presentation, both of which will be available on our website and on the SEC's website. With that, I will turn the call over to Haitham Khouri, Chief Executive Officer.

Haitham Khouri (CEO)

Thank you, Seth. Good morning, everyone. Thank you for joining us. As always, I'll start on slide three with summary comments on our strategy. Our stated goal is to deliver private equity-like returns with the liquidity of a public market. We plan to attain this goal by owning, operating, and growing uniquely high-quality businesses. We define uniquely high-quality businesses through the following five very specific economic criteria. Number one, recurring and predictable revenue streams. Number two, long-term secular growth tailwinds. Number three, products that account for critical but small portions of larger value streams. Number four, significant free cash flow generation with high returns on tangible capital. And number five, the potential for opportunistic consolidation. We believe that these five economic criteria are present at our current businesses, and we use these criteria to evaluate potential new acquisitions.

As described on slide four, we seek to drive long-term equity value creation via consistent improvement in our three operational value drivers, which are, number one, profitable new business, number two, continual productivity improvements, and number three, pricing our products and services to the value they provide. In addition to our three operational value drivers, we seek to maximize equity value creation through a clear focus on the allocation of our capital, as well as the management of our capital structure. Turning to our financial results on slide five and starting with fire safety. I've repeatedly emphasized the belief that our fire safety business's sustainable earnings power has increased significantly due to the rigorous implementation of our operational value drivers. I've also repeatedly suggested that this earnings power should be evident when comparing reporting periods with roughly similar levels of wildfire activity in our core North American market.

While Q2 of 2024 experienced slightly lower U.S. acres burned ex-Alaska versus Q2 of 2023, fire safety's increased earnings power is evident in the year-over-year comparison. Second quarter fire safety revenue increased 85%, while adjusted EBITDA more than tripled year-over-year. Both our global retardants and global suppressants businesses contributed to this growth. The significant improvement in fire safety's financial results was driven by a combination of external and internal factors. On the external front, our retardant customers are increasingly utilizing aerial attack in their battle against wildfires. This was evident pre-season, with robust air tanker contracting by our customers, as well as during the season, with active utilization of these aerial assets and by extension, of our fire retardant.

As I have referenced repeatedly, we believe that our customers' increasingly proactive posture towards aerial attack, coupled with steady growth in the air tanker fleet, are two of the long-term secular volume drivers of our business, along with longer fire seasons, increasing acres burned, and growth in the wildland-urban interface. The external environment was also supportive in our suppressants business in Q2, with strong conversion activity from fluorinated to fluorine-free foams, where Perimeter is a clear market leader. On the internal front, fire safety second quarter financial results are directly tied to the rigorous implementation of our operational value drivers. To further illustrate this point to our investors, I'll provide examples that directly tie our Q2 financial results in each of our retardant and suppressants businesses to each of our individual value drivers. Starting with suppressants and profitable new business.

We've significantly increased R&D investment into the business and focused this R&D spend on fluorine-free technologies, which we expect to drive significant customer value and therefore significant profitable new business. This strategy is clearly working. For example, we recently certified a fluorine-free foam for aircraft rescue firefighting at FAA Part 139 compliant airports. A meaningful portion of airports have converted to fluorine-free aircraft rescue foam this year, and to date, 99% of these airports have selected Perimeter Solutions, including 10 of the 25 most traveled airports in the United States. We expect the majority of the 517 FAA Part 139 compliant airports to convert to fluorine-free over the next several years, and we also expect to capture an outsized portion of these opportunities.

As an example of suppressants productivity, we've worked very diligently to improve our cost structure and believe that America's suppressants average raw material cost per unit has decreased roughly 20% over the past 18 months. Finally, our fluorine-free products are highly differentiated and aligned with our customers' objectives, and we price these products to reflect this unique value. Moving on to retardants, and again, starting with an example of profitable new business. We're investing heavily in our air bases, including upgrading existing bases, building new bases, and converting bulk bases to full service. These investments increase the amount of retardant we deploy in support of our customers' mission.

For example, we significantly upgraded our Albuquerque, New Mexico, air tanker base prior to the 2024 fire season, replacing the existing 10,000 gallon tanks with new 25,000 gallon tanks, upgrading the pumps, variable speed frequency drives and electrical infrastructure, building the capability to simultaneously load two air tankers versus previously only being able to load a single air tanker and introducing the capability to load VLATs versus previously only being able to load LATs. The results of this investment are reflected in our Q2 results. On June 18th, our Albuquerque air tanker base loaded over 100,000 gallons in support of our customers' efforts against the Salt Fire and South Fork Fire. This one day, 100,000 gallon throughput compares to Albuquerque's average annual throughput of approximately 144,000 gallons over the prior five years.

This 100,000-gallon daily throughput would not have been possible without our significant preseason investment into our base at Albuquerque. Albuquerque is one of several air bases we upgraded prior to the 2024 season, and we plan to upgrade several additional air bases prior to the 2025 fire season. Moving on to an example of retardants productivity. We recently introduced a new and proprietary retardant mixing system to our McClellan and Redding air bases. This technology increases daily retardant throughput while improving base labor efficiency and eliminating logistics and repackaging costs. We're rolling out this technology to additional air bases and expect to realize additional productivity benefits as we do so. Finally, on retardants, we have more people spending more time with more retardant customers than ever before.

We're building an ever deeper understanding of our customers' wants and needs, and working diligently to deliver the products, services, and solutions to best address these diverse customer objectives. As long as we consistently deliver ever greater value to our customers, we should share in this value creation. I hope these examples give our investors a sense for the amount of rigorous operational value driver activity throughout our company. I also hope that our recent financial results provide a sense for how these initiatives are driving our financial performance. Optimizing our financial performance by a rigorous value driver implementation is a journey rather than a destination. As long as we maintain the intensity with which we chase each point of opportunity at each of our individual business units, I'm confident that we'll continue to drive Perimeter's long-term earnings power sustainably higher. Turning to specialty products.

Like fire safety, specialty products year-over-year financial performance is markedly improved, with adjusted EBITDA roughly doubling in both the second quarter and first half of 2024. Also, much like fire safety, the improvement was driven by a combination of external and internal factors. On the external front, the market continues to emerge from last year's inventory destock period. On the internal front, the rigorous implementation of our operating model is paying off. As I just did with fire safety, I'll provide specific examples tying specialty products financial results to specific three P's initiatives, starting with profitable new business. Our R&D team, driven by feedback from a key customer, developed a novel P2S5 SKU for wind turbine applications. This difficult to replicate product expands P2S5's addressable market and drives profitable new business. On specialty product productivity, one of specialty products' key raw material input is elemental phosphorus.

We have invested significantly in logistics, plant capability, and process technologies to utilize elemental phosphorus from various sources. This has reduced, excuse me, our raw material costs and increased surety of supply, while maintaining the industry's highest quality standards. And finally, an example of pricing our products and services to the value they provide in our specialty products business. Customer feedback pointed to operational challenges associated with the industry's most common bin closure valve. Our specialty products engineering team created a new patented closure valve, which is now standardized across our bin fleet. Customer feedback on our new valve technology and fully refreshed fleet bin is extremely positive, and we've shared in the value creation through value-based pricing. Turning now to M&A.

We're confident that our operational value driver-focused operating strategy creates significant value when applied to the right businesses, as defined by the five target economic criteria articulated on slide three. This confidence is reinforced by our progress over the past 18 months at all three of our businesses at Perimeter: suppressants, retardants, and specialty products. We're actively searching for the right M&A targets, while also constantly evaluating the IRR trade-off between our various capital allocation alternatives. As I've stated previously, and consistent with our brief track record as a public company, we expect to deploy all of our excess cash flow, as well as the incremental leverage capacity we expect to generate through organic EBITDA growth, towards the highest expected IRR combination of M&A, share repurchases, and special dividends.

I'll end my remarks by reasserting the conviction that Perimeter is the gold standard as far as the efficacy and safety of our products, the quality of our service, and the passion, dedication, and integrity of our team. I'll also reassert that we will never take our market leadership positions for granted. Rather, we will always relentlessly push to raise the bar on ourselves. Many of the examples I provided today are evidence of this always strive for better mentality. We serve our customers better each and every day, and we earn the privilege of serving them in their life-saving missions. With that, I'll turn the call over to Kyle.

Kyle Sable (CFO)

Thanks, Haitham. We'll stay on slide five, where growth figures shown are versus the prior year comparable period. Second quarter sales in our fire safety business were $98.5 million, up 85%, and $123.7 million year-to-date, up 72%. Second quarter adjusted EBITDA in our fire safety business was $55.6 million, up 237%, and $55.4 million year-to-date, up 321%. As Haitham noted, both our global retardants and global suppressants businesses contributed to the improved year-over-year results. Second quarter sales in our specialty products business were $28.7 million, up 25%, and $62.6 million year-to-date, up 30%.

Second quarter adjusted EBITDA in our specialty products business was $9.3 million, up 108%, and $21.6 million year-to-date, up 98%. The market recovery we experienced in the first quarter continued in the second quarter and again drove improved year-over-year quarterly financial performance. We're increasingly comfortable that the market is steadily emerging from last year's destock period, and we're confident in the financial prospects for our specialty products business. Moving on to the consolidated business. Second quarter consolidated sales were $127.3 million, up 67%, and $186.3 million year-to-date, up 55%. Second quarter consolidated adjusted EBITDA was $64.9 million, up 209%, and $77 million year-to-date, up 220%.

Moving below the adjusted EBITDA. Interest expense in the second quarter was $10.6 million, in line with our regular quarterly run rate. Depreciation was approximately $2.6 million, while amortization expense was $13.8 million. Cash paid for income tax was $3.6 million in Q2. CapEx was also approximately $3.6 million in Q2. Our long-term expectations for interest expense, depreciation, and CapEx are unchanged and summarized on slide six. We hope to spend between $10 million and $15 million in CapEx this year. I'll note that all incremental capital spend above our historical high single-digit millions run rate is tied to incremental productivity or profitable new business projects with IRRs at or above our long-term return target.

Our long-term expectation for net working capital is also unchanged, although, as I've noted previously, we expect to receive a benefit from working capital in 2024, given our significant inventory position entering the year.

We expect to generate the majority of this benefit in Q3. Turning to our corporate structure, we've begun the process of seeking shareholder approval to redomicile our parent company from Luxembourg to Delaware. This move will better align our legal structure with our U.S. operations, which generate the majority of our revenue and EBITDA. We expect the transaction to reduce our regulatory and reporting complexity, streamline legal, accounting, and cash management, and generate an improved tax profile. We will seek shareholder authorization for the transaction upon completion of the final proxy statement and expect the transaction to close in Q4. We ended the quarter with approximately $675 million of senior notes, cash of approximately $43.2 million, and approximately 145.2 million basic shares outstanding. With that, I'll hand the call back to the operator for Q&A.

Operator (participant)

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Daniel Kutz, Morgan Stanley. Please proceed with your question.

Daniel Kutz (Equity Research Analyst)

Hey, thanks. Good morning.

Haitham Khouri (CEO)

Morning.

Daniel Kutz (Equity Research Analyst)

Morning. So I just wanted to kick it off with kind of a high-level question about the relative intensity of suppression spending in the Lower 48, given that, you know, in the first month of the third quarter, we've seen pretty significant acres burned in California and then also in the broader U.S. Lower 48. We can kind of, based on disclosure from you guys and from the NIFC and CAL FIRE, we can kind of triangulate to what seems to indicate that, you know, California is significantly more suppression spend intensive per fire or per acre burned versus the rest of the Lower 48. But, you know, there, there's a lot of guesswork involved in that. So I'd...

I just wanted to ask the question: Could you kind of talk us through, just kind of the relative spending per acre burn across the different regions in the U.S., or at least maybe California and the rest of the U.S., as we're trying to kind of convert these acres burn numbers, to, you know, financial estimates for the quarter? Thank you.

Haitham Khouri (CEO)

Yeah. Yeah. Yeah. Thanks, Dan. I would advise against getting too caught up in exactly where the acres burn from a geographic perspective. I'll just use California as an example. Considerable portions of California fall under the jurisdiction of Cal Fire, typically state lands. Significant portions of California fall under the jurisdiction of various federal agencies, be it Bureau of Land Management, U.S. Forest Service, Bureau of Indian Affairs, typically, federally protected land. So there's a lot more mix, even intrastate, than one might expect.

Now, that said, California always has been, and remains, on the cutting edge from a sophistication and technological perspective as far as firefighting in general and certainly aerial firefighting. Cal Fire is just a, just a remarkably, remarkably sophisticated, impressive, successful organization. But again, I wouldn't overextrapolate whether an acre burns in Northern California or Southern Oregon or Southern California or northern Arizona. The differences are relatively minor.

Daniel Kutz (Equity Research Analyst)

Great. Understood. That's, that's super helpful. And then, Haitham, I know you've, you've kinda addressed this in, in the past on earnings calls. And, you know, I feel like it does come across clear to some folks, but maybe not to others. And as we have more investors, you know, getting interested in the story, I just wanted to ask the question, which I think I've asked in the past, and just give you a chance to kind of remind everyone. So when you're thinking about M&A and you clearly highlight the five target economic criteria, but then outside of that, the question comes up: Are you looking for synergy, for vertical integration, for companies in similar industries to your existing businesses?

I was just wondering if you could, you know, kind of refresh everyone on what the answer to that is. And then if you could maybe parse it out for, like, a major transaction versus kind of a smaller, like, bolt-on acquisition, because I think maybe the answers might be a little bit different between those two types of deals. Thank you.

Haitham Khouri (CEO)

Yeah. Yeah, yeah. Okay. I think very, very, very good question. Hopefully helpful question to much of the audience. We are, I would say, narrow and deep on our M&A focus in that we have a very strong sense of where we have a right to win. The type of business which we can simply do more with, create more shareholder value with long term than, in all humility, virtually anybody else... and we're gonna go after that type of business quite aggressively, and that's a very small subset of the businesses that are gonna transact over the coming years. And all, all the rest of the stuff, as interesting as the companies may or may not be, if we don't have a clear and obvious right to win, we're, we're simply not gonna participate.

So the question is: All right, where, you know, where do you guys have a clear right to win? It's businesses where we are highly confident we can implement our operational value driver strategy. If it's a business where we can create our business unit structure, give operating segments and operating segment leaders lots of autonomy, drive lots of accountability, get them to truly think and act like owners, and then rigorously drive and measure progress on profitable new business, productivity improvements, and pricing to value, that makes a whole lot of sense for us. Again, you can look at our three businesses within Perimeter, retardants, suppressants, and specialty products, really three very different businesses. Yet the results as far as EBITDA and cash flow growth are broadly similar. I think we've done quite well with all three.

So we want a business that fits that profile. The question then becomes: All right, what, what fits that profile? And that's why the five target economic criteria are so clearly articulated. If we can find a business that checks those five boxes, we are very confident we can create meaningful shareholder value with it by implementation of our operational value driver strategy. That's almost all we care about. What industry it's in matters much less. What geography it's in matters much less.

We frankly don't care very much at all about synergies with our existing business because we're not gonna integrate anything we buy into our existing business. We're gonna keep it as a standalone company. We're gonna install a very high quality or retain a very high quality management team. We're gonna give them autonomy, accountability, incentivize them to think and act like owners, and create value through our three Operational Value Drivers.

Daniel Kutz (Equity Research Analyst)

Awesome. Super clear and helpful. And if I could sneak one quick one in, maybe for Kyle. So you kind of endorsed the long-term $10 million-$15 million CapEx number for this year, but also flagged what I would assume would be some capitalized investments in air bases that you already completed at the Albuquerque base for 2024, and you said there's probably gonna be a few more going into the 2025 season.

I thought that you kind of said that, you know, that $10 million-$15 million, I thought of that as kind of the underlying maintenance number, but I wanted to confirm that because it does seem like you—like there was some, you know, capital investments that could maybe push that number higher. And I just wanted to square that with the comment that you know, you were still endorsing the $10 million-$15 million CapEx number for this year. Thank you.

Kyle Sable (CFO)

Yeah, absolutely. So when we think back to the historical run rate of high single-digit millions, that has both our maintenance and a little bit of growth CapEx in it historically. When we look at the opportunity set in front of us, we're just very excited about the potential to be able to put some more capital behind the sorts of projects that you heard Haitham talk about, such as that Albuquerque air base. The opportunity set there seems pretty rich to us right now. We think that it's an excellent use of capital that both supports our customer's mission and drives a high IRR for the company. And so we're going to lean into that opportunity over both this year and hopefully next, if we see a similar set.

Daniel Kutz (Equity Research Analyst)

Great. Thank you very much. I'll turn it back, and congrats on the quarter.

Haitham Khouri (CEO)

Thanks, Dan.

Operator (participant)

Thank you. As a reminder, if you'd like to join the question queue, please press star one on your telephone keypad. Our next question comes from the line of Joshua Spector with UBS. Please proceed with your question.

Lucas Spielman (Analyst)

Good morning. This is Lucas Spielman on for Josh. So I just wanted to go back to the performance of fire safety in the quarter. So, I mean, the acres burned data was down to 45% versus the 10-year average and down to the high single-digit percentage year-on-year. But, I mean, you guys did really well on the sales side. So you mentioned potentially some of the drivers there. I was just wondering if we could kind of parse this out a bit more.

So it sounded like you were alluding to maybe higher intensity of usage on the aerial side. Were there any other sort of factors in the quarter to think about in terms of volumes not related to, like, the end acres burned data? I mean, is there anything, for instance, that we should think about, like, in terms of pull forward from the main season in 3Q, like, stocking in advance or anything like that? That'd be great. Thanks.

Haitham Khouri (CEO)

Yeah. Thanks, Lucas. So there is nothing in Q2 that's sort of anomalous or non-recurring pull forward or for stocking or anything like that. I mean, our entire business is essentially just-in-time emergency response. Now, you can also, and you clearly have inferred from our prepared remarks that we were that we did quite well from a volume perspective in Q2. I think there's three drivers behind our volume performance. Number one, you referenced, which is just a very proactive and aggressive posture by our customers throughout the world, by the way, in the U.S., very evident in Canada, in Europe... towards aggressive aerial attack.

Like I mentioned in the prepared remarks, you could see this preseason with really, really robust and widespread and deep airtanker contracting, and then these same customers put these aerial resources to active use in the second quarter. I'd say that was the first driver of volume outperformance relative to acres. The second is the investments we, Perimeter, have very aggressively made over the past, call it nine months, in our capacity and capabilities. I gave the Albuquerque airtanker base upgrade example, which is a very relevant one. I could have just as easily talked about our brand new airtanker base at Colorado Springs. I could have talked about our completely rebuilt airtanker base at Redding. I could have talked about our converted base in Casper. I could have talked about McClellan. I mean, the list goes on and on.

So on the one hand, our customers have added lots of capacity and capability by air tanker contracting and then aggressive use of those assets. On the other hand, we've very much aided them in their mission by investing in our own capacity and capabilities. And then the third driver of volumes, I would say, the distribution of fires from a timing perspective, primarily in Q2, were just more conducive to retardant usage.

The biggest point there is we had a very mild start to the second quarter and a more severe end to the second quarter. You know, there's three air tanker bases open nationally in early September. You're approaching 100 air tanker—sorry, in early April, you're approaching 100 air tanker bases open nationally in late June. There's just a lot more capacity to fight these fires aerially. That did play some role in Q2 as well.

Lucas Spielman (Analyst)

Great, thanks. I mean, I guess, like the obvious kind of follow on from that then is then just thinking about the third quarter. So, I mean, July has sort of been off to a strong start. I mean, it's, it's sort of 2x the 10-year average, sort of been tracking towards, I guess, 3Q 2021 levels, which was an above average year. So, I mean, with the changes you've made to the business, how should we think about that pulling through to volumes with that sort of above average activity level?

Kyle Sable (CFO)

Yeah. So first of all, just rough numbers. I think 1 million to 1.6 million, give or take, acres have burned in the U.S., ex Alaska in July. The 10-year average is 1 million or 1.1 million. So it's certainly been above the 10-year average. I wouldn't say it's 2x. Acres clearly matter for our business. A stronger year-over-year acre comparison and more severe fire season is simply going to increase the need for retardant. I would say it's nonlinear on the way up in that you start to hit the constraints of aerial resources. It's unusual to run out of air tankers in a relatively mild month.

You're much, much more likely to run out of air tankers and have incident commanders call for air tankers and there be none available in severe months. So I'd be careful about linear extrapolation, but certainly directionally, more severe fire seasons increases the need for us to support our customers in their mission with retardant.

Lucas Spielman (Analyst)

Right. And, so then just also going back to the second quarter, so I mean, the EBITDA was really strong in Fire Safety as well. You had basically 85%, incremental margins there in the quarter, which is very high. So I was just wondering if you kind of talk to, I guess, what was the driver of that portion of it being so high on the drop through there, and how should we think about the sustainability of that going forward as we get higher volumes as well?

Haitham Khouri (CEO)

Yeah. So at the risk of being a little redundant and repetitive, the driver of those incrementals truly is all three of the operational drivers working in concert. We had tremendous profitable new business across Fire Safety, clearly much more dramatically so in suppressants. Suppressants gets lost in the shuffle a little in these retardant-heavy quarters. But we just had fabulous, fabulous performance on all counts, certainly including profitable new business, fire suppressants business in Q2. And that's, you know, that's a real reactive chemistry manufacturing business, right? We have a couple of really serious chemicals plants around the world producing our suppressants, and incremental margins on those are quite high. So the profitable new business certainly helped.

And then we worked really, really, really diligently across every corner of our business, retardants and suppressants, to just grind out cost. I gave the example in our, in our North America facility, we think our cost per unit on the suppressant side from a raw material perspective or bill of materials perspective, is down about 20%. A little more than 20% actually, over the past 12-18 months. And it's not, it's not one big thing, it's just 100 little initiatives by a team, given lots of autonomy and accountability and intent to buy, to think, and act like owners, really delivering productivity savings.

And then finally, as long as we're really adding value to our customer, addressing their wants and needs, being responsive, solving their pain points, we should share a portion of that value creation through value-based pricing. When you hit on all three, when you have very strong volume growth at high incrementals, when you're grinding cost out of your business on a per unit basis, and when you're able to provide value and share price, those come together at very high incremental margins, and that's what you're seeing in the second quarter.

Lucas Spielman (Analyst)

Great, thanks. And, I guess, just, just lastly, I mean, I just wanted to sort of give you an opportunity to help us maybe frame the third quarter a bit, if you can. So obviously it's off to a strong start. You've had those underlying improvements. It looks like it's set up to be similar to probably the third quarter of 2021, the way things are tracking. You know, back then, you did $98 million in EBITDA, but obviously the underlying sort of operating leverage has changed. So, I guess, how should we think about how much better that would be in a similar volume environment this year? Any, any thoughts to help frame things? Thanks.

Haitham Khouri (CEO)

Yeah, I'll say, I'll say two things, while, while trying not to comment on anything other than, than a reported quarter. First thing I'll say is, you know, we're 30 days into a 90-day quarter in July, or 31 days, I guess. And July is not the most important month amongst the three, and therefore, while acres burned are up in July, and it's been relatively severe, the book on Q3 is, is very, very far from written. So I would just- I'd just be a little careful with the comparisons and the extrapolation until we see probably four to six more weeks. The second thing I'll say is, we've just been, and I personally have been, you know, emphatically clear on each and every one of these calls.

We've done a tremendous amount of rigorous operational driver work in our businesses, and the result of that is in a like-for-like volume scenario, our earnings should be higher. Our unit economics has to be improved if you're driving profitable new business at high margins, grinding costs down via productivity, and creating value for your customers and sharing in it. So our unit economics should be, should be better. But we should all sort of hold our horses a little bit and see how Q3 shapes up when it's all said and done.

Lucas Spielman (Analyst)

Right. Maybe if I could just ask one more follow-up. Just you mentioned earlier that there's some seasons where, when the data is strong, that basically they run out of aerial capacity. Is there any of those that you kind of point to historically when that happened? And just any thoughts on how the aerial capacity has kind of evolved since then, overall?

Haitham Khouri (CEO)

It essentially always happens, Lucas. There is a stat that's published out there by the government. I forget the exact acronym, resource not available or call not met or something. And it's very common, even during short periods in otherwise mild seasons, short periods of high activity in mild seasons, to run out of aerial resources. So that's nothing new. We've seen some of it virtually every year. We see much more of it in severe seasons. We've certainly seen some of it so far in July.

Lucas Spielman (Analyst)

Great. Thanks very much.

Operator (participant)

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Khouri for any final comments.

Haitham Khouri (CEO)

Thank you. Thank you, everybody, for joining us. Thank you, operator, for the good work, and we'll talk again in 90 days or so.

Operator (participant)

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.