Atmus Filtration Technologies Inc. Q3 FY2024 earnings call

• Capital allocation priorities: Focus on growth in core business and industrial filtration, with share repurchases and dividends. Repurchased $10 million of shares in Q3 as part of a $150 million program and paid a $0.05 per share dividend. • Financial results: Sales up 2%, adjusted EBITDA up, adjusted EPS up, adjusted free cash flow $65 million. • Market insights: Aftermarket sees soft freight activity but outperformance; first-fit markets have softness in heavy-duty and some regions. • Growth strategy pillars: 1. Grow share in first-fit by realigning organization and adding account management resources. 2. Accelerate profitable growth in aftermarket via expanding partnerships and digital tools. 3. Transform supply chain: Opened UK warehouse, expect remaining European facility transition, achieving high delivery and availability metrics. 4. Expand into industrial filtration via inorganic acquisitions (3 verticals: industrial air, industrial liquids excluding water, industrial water) and organic product launches.

Sales for the third quarter were $404 million, an increase of approximately 2% compared to the same period last year. Adjusted EBITDA in the third quarter was $79 million (19.6%), up from $73 million (18.3%) in the prior period. Adjusted earnings per share was $0.61, and adjusted free cash flow was $65 million. In the aftermarket, global aftermarket revenue is expected to be up approximately 2% to 4% despite challenging market conditions, with outperformance expected to contribute 2% to growth and destocking and pricing providing additional growth. First-fit markets: U.S. heavy-duty expected down 7% to 12% for the full year, medium-duty flat to up 5%, India and China markets soft.

• Revenue guidance: Global sales expected in range of $1.65 billion to $1.675 billion, up 1% to 3% compared to prior year. • Adjusted EBITDA margin: Expected range of 19.25% to 19.75%. • Adjusted EPS outlook: Range of $2.35 to $2.50. • Onetime costs: Expected to be in range of $20 million to $25 million in 2024 and substantially complete by end of year. • Onetime capital expenditures: Expected in range of $13 million to $18 million in 2024 and substantially complete by end of year.

• Market softness: Continued soft freight activity, weak off-highway and other markets. • Tariffs: Introduction of tariffs creates challenges for global supply chain. • Supply chain transition: Delays in IT system cutovers and legal separations leading to higher than expected onetime costs.

Q: Could you talk about the puts and takes around expectations for the fourth quarter?

A: Steph mentions market impact with relatively flat revenue sequentially, lower working days and decline in heavy-duty truck impacting first-fit. Jack discusses volume drag and variable compensation impact.

Q: Follow-up on 2025 margin profile?

A: Steph says market at bottom of cycle for both first-fit and aftermarket, expects first-fit to be lower in first half 2025, aftermarket inflection hard to call, but confident in margin sustainability.

Q: Onetime costs breakdown?

A: Jack says $9 million in Q3, $5 million in cost of sales and $4 million in SG&A, driven by IT system cutover delays and Mexican production facility separation.

Q: Discussion on international business?

A: Steph says India is strongest performing international market, China challenged, Europe seeing down cycle.

Q: Margins and automation?

A: Steph talks about automation like green cartridge line in France as part of supply chain transformation, continuing to unlock value.

Q: Volumes in Q4 and pricing for 2025?

A: Steph says expect share gains but market conditions pressure volumes, pricing expected to be part of growth algorithm with 1%-2% price increase.

Q: Manufacturing footprint and tariffs?

A: Steph says manufacturing facilities regional for regional, monitor tariffs, Mexico important for U.S. filtration demand.

Q: Organic expansion into industrial filtration?

A: Steph says launched products, innovation flywheel, but short-term revenues not material.

Q: M&A pipeline?

A: Steph says disciplined strategy with 3 verticals, rigorous filtering process, pipeline robust but deals not closed yet due to strategic and financial considerations.