Atmus Filtration Technologies Inc. Q1 FY2025 earnings call

• Executed capital allocation program, repurchased $10 million of stock in the first quarter, with $120 million remaining under Board authorization.
• Made significant progress on operational separation from former parent Cummins, intending to complete remaining activities in 2025.
• Monitored tariff environment, taking actions like regional production to reduce tariff impact, adjusting pricing to be margin dollar neutral for tariffs, with an estimated 1.5% impact from tariffs in 2025.
• Outlined 4-pillar growth strategy:
  • Grow share in first fit: Realigned organization, added resources to account management teams, launched next generation NanoNet N3 media.
  • Accelerate profitable growth in aftermarket: Expand market coverage, launch We Protect campaign, use advanced data analytic tools.
  • Transform supply chain: Transitioned 95% of distribution network from Cummins, opened new facilities in Belgium and South Korea, normalized Belgium location.
  • Expand into industrial filtration markets: Focus on inorganic acquisitions in industrial air, industrial liquids (excluding water), and industrial water, continuing to review opportunities despite soft M&A activity.
• First quarter financial results: Sales down 2.4%, adjusted EBITDA $82 million, adjusted earnings per share $0.63, adjusted free cash flow $20 million.

Sales were $417 million in the first quarter of 2025, a decrease of 2.4% compared to $427 million in the same period last year. Unfavorable foreign exchange was the primary driver of lower sales. Adjusted EBITDA was $82 million (19.6%) compared to $80 million (18.8%) in the prior period. Adjusted earnings per share was $0.63, and adjusted free cash flow was $20 million. The majority of revenue, over 80%, is derived from the aftermarket.

• Aftermarket: Midpoint of guidance is flat year-over-year with a range of -1.5% to +1.5%, growth strategy to outperform market, pricing expected to provide ~3.2% revenue increase (base pricing ~1.7% and tariff pricing ~1.5%), strong U.S. dollar expected to be ~1.5% revenue headwind.
• First-fit markets: U.S. heavy-duty market expected down 5%-15%, U.S. medium duty production down 10%-20%, India truck demand flat to down, China market weak; total company revenue expected in range of flat to up 4% compared to prior year, global sales $1.67 billion to $1.735 billion; adjusted EBITDA margin 19%-20%; adjusted EPS $2.35-$2.60.
• Revised full year guidance for onetime costs to $10 million-$15 million due to complex transition of Belgium warehouse from Cummins, and onetime capital expenditures related to separation from Cummins expected to be $5 million-$10 million in 2025.

• Tariff environment uncertainty: Significant tariff on China (145%), U.S. broad-based 10% tariffs on other countries, unknown outcome of Section 232 investigation on medium- and heavy-duty trucks and related parts; complex transition of Belgium warehouse from Cummins led to higher Q1 costs.
• Market volatility: Soft M&A activity in industrial filtration markets due to economic uncertainty, uncertain impact of U.S. API regulations on first-fit market.

Q: Jerry Revich asked about possible manufacturing transitions and M&A pipeline.

A: Stephanie Disher said they are monitoring the tariff situation but not planning long-term manufacturing shifts; M&A is core to growth strategy, team continues to evaluate targets in M&A pipeline despite uncertain landscape.

Q: Rob Mason asked about revenue range and market share.

A: Stephanie Disher said it shakes out near the midpoint of revenue range; they are focused on growing share but decision-making by end customers affects share gains.

Q: Tami Zakaria asked about pricing acceleration and tariff scenario analysis.

A: Jack Kienzler said pricing is a ramp with base pricing actions and midyear kick in; Stephanie Disher said they have done scenario analysis on tariffs, have a task force handling tariff issues, and will respond to tariff outcomes by availing exemptions and passing costs to market if needed.

Q: David Ridley-Lane asked about pricing pass-through and competitor benefit.

A: Stephanie Disher said they took immediate pricing action on tariffs for aftermarket (majority business) unlike supply chain crisis, and there's no major silver lining on competitive set impact at aggregate level.

Q: Bobby Brooks asked about emission standards impact, shipping route reconfigurations.

A: Stephanie Disher said too early to speculate on emission standards impact; Jack Kienzler said shipping lane reconfigurations are part of mitigation actions, some actions already enacted, and they will continue to identify mitigation areas.