Summary of Atmus Filtration Technologies Conference Call Company Overview - **Company**: Atmus Filtration Technologies (NYSE: ATMU) - **Event**: 2025 Conference Call - **Date**: December 04, 2025 Key Points Operational Separation from Cummins - The full operational separation from Cummins was completed in Q3 2025, requiring more effort and resources than initially expected [3][4] - The organization is now focused on reallocating resources for growth, enhancing customer experience, and improving internal operations [5] Growth Strategy and Market Opportunities - Atmus has two strategic pillars for growth: winning new business in core markets and expanding into new customer segments [6][7] - The company is in the early stages of establishing connections with new customers and is more advanced in the aftermarket segment [8] - New distribution channels have been established, including over 100 new outlets in Latin America and a partnership with Traction in Canada [9][10] Recent Acquisition - Atmus announced the acquisition of Koch Filter for $450 million, representing a 13.9 times trailing multiple pre-synergy [13][14] - The acquisition aims to expand into industrial markets, particularly in industrial air, water, and liquid filtration [18] - Expected synergies from the acquisition include $4 million in supply chain and cost synergies [19] Financial Metrics and Capital Allocation - The acquisition is expected to enhance EBITDA margins, EPS, and return on invested capital [15][16] - The transaction will be financed through existing cash and a potential upsizing of the credit facility, targeting a net debt to EBITDA ratio of around two times [23][24] - Atmus plans to continue returning cash to shareholders through dividends and share repurchases [28][29] Market Outlook - The company expects a 20%-25% decline in the US heavy-duty and medium-duty markets in 2025, with demand remaining tepid due to regulatory uncertainties [30] - The aftermarket is also expected to remain flat, with ongoing challenges in freight activity impacting filtration demand [31][32] Pricing Strategy - Atmus has guided a 3% price increase for 2025, with 1.2% attributed to tariffs and 1.7% to base pricing [33][34] Operational Efficiency and Margin Expansion - The company has achieved over 400 basis points of margin expansion in recent years, driven by supply chain transformation and cost management initiatives [37][38] - Future initiatives will focus on targeted cost reductions and efficiency gains [39] Regulatory Environment and Global Market Trends - Emissions regulations are viewed as opportunities for growth, with the company looking to leverage advanced filtration technologies [40] - Demand trends in India and China show mixed signals, with India experiencing a slowdown in infrastructure spending and China seeing growth in zero-emissions vehicles [42][43] Aftermarket Sales and Vehicle Lifespan - The company emphasizes the significance of aftermarket sales, with vehicle lifespans of 15-20 years providing a recurring revenue stream [48] Conclusion Atmus Filtration Technologies is strategically positioned for growth following its separation from Cummins, with a focus on expanding its market presence through acquisitions and enhancing operational efficiencies. However, the company faces challenges in the current market environment, particularly regarding regulatory uncertainties and demand fluctuations.

Group 1 - Atmus Filtration Technologies (ATMU) is currently outperforming the Auto-Tires-Trucks sector, with a year-to-date return of 35.1% compared to the sector average of 10.4% [4] - The Zacks Consensus Estimate for ATMU's full-year earnings has increased by 2.6% over the past 90 days, indicating improving analyst sentiment [4] - Atmus Filtration Technologies holds a Zacks Rank of 2 (Buy), suggesting a positive earnings outlook [3] Group 2 - The Auto-Tires-Trucks sector includes 99 individual stocks and has a Zacks Sector Rank of 12, reflecting the strength of the sector [2] - Atmus Filtration Technologies is part of the Automotive - Original Equipment industry, which consists of 51 stocks and is currently ranked 83 in the Zacks Industry Rank [6] - The Automotive - Original Equipment industry has gained an average of 1.1% year-to-date, indicating that ATMU is performing better than its industry peers [6]

Core Viewpoint - Atmus Filtration Technologies (ATMU) has received a Zacks Rank 2 (Buy) upgrade due to an upward trend in earnings estimates, indicating a positive outlook for the company's stock price [1][3]. Earnings Estimates and Stock Price Impact - The Zacks rating system is based on changes in earnings estimates, which are strongly correlated with near-term stock price movements [4][6]. - Institutional investors often rely on earnings estimates to determine the fair value of stocks, leading to buying or selling actions that influence stock prices [4]. Company Performance and Outlook - The upgrade reflects an improvement in Atmus Filtration's underlying business, suggesting that investors may respond positively by driving the stock price higher [5]. - For the fiscal year ending December 2025, Atmus Filtration is expected to earn $2.64 per share, with a 2.6% increase in the Zacks Consensus Estimate over the past three months [8]. Zacks Rating System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with a strong historical performance, particularly for Zacks Rank 1 stocks, which have generated an average annual return of +25% since 1988 [7]. - Atmus Filtration's upgrade to Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, indicating a strong potential for market-beating returns in the near term [10].

Core Insights - Atmus Filtration Technologies Inc. (NYSE:ATMU) is recognized as one of the 14 best up-and-coming dividend stocks to buy [1] - Northland raised its price target for Atmus from $50 to $59 while maintaining an Outperform rating, citing strong quarterly results and solid shareholder returns despite challenging market conditions [2] - Atmus announced an agreement to acquire Koch Filter for $450 million, planning to finance the deal through cash and credit facility borrowings, with the acquisition expected to close in Q1 2026 [3] - The company reiterated its revenue guidance for 2025, projecting sales between $1.72 billion and $1.745 billion [3] - Atmus specializes in designing, manufacturing, and selling filtration products for heavy-duty vehicles and industrial equipment [4]

Upgrades - Argus upgraded Herbalife (HLF) to Buy from Hold, citing a Q3 earnings beat and raising FY25 EPS view by $0.03 to $2.15 and FY26 view by $0.04 to $2.64 [2] - JPMorgan upgraded Atmus Filtration (ATMU) to Overweight from Neutral with a price target increase to $60 from $53, following the proposed acquisition of Koch Filter [2] - Morgan Stanley upgraded Amentum (AMTM) to Equal Weight from Underweight, raising the price target to $35 from $20, indicating a more balanced risk/reward at current share levels [3] - Northland upgraded NetApp (NTAP) to Outperform from Market Perform, increasing the price target to $137 from $120, after reporting revenue growth of 4% year-over-year in fiscal Q2 and guidance for 5% growth in the second half of FY26 [3] - Deutsche Bank upgraded Autodesk (ADSK) to Buy from Hold, raising the price target to $375 from $345, following "very healthy" Q3 results described as one of the "cleanest" quarterly prints in recent years [4] Downgrades - Macquarie downgraded Nio (NIO) to Neutral from Outperform, lowering the price target to $5.30 from $6.70, after issuing "weak" Q4 volume guidance of 122,500 units at the midpoint [5] - Craig-Hallum downgraded PagerDuty (PD) to Hold from Buy, reducing the price target to $15 from $20, noting a fundamental change in end markets negatively affecting PagerDuty [5] - UBS downgraded Biohaven (BHVN) to Neutral from Buy, with a price target decrease to $11 from $26, citing multiple R&D and regulatory setbacks impacting confidence in its pipeline [5] - Bernstein downgraded Ambev (ABEV) to Market Perform from Outperform, setting a price target of $2.88, attributing the downgrade to valuation concerns as shares rose 16% year-to-date [5] - RBC Capital downgraded Morgan Stanley Direct Lending (MSDL) to Sector Perform from Outperform, lowering the price target to $18 from $19, suggesting lower net interest income return on equity expectations for 2026 [5]

Core Viewpoint - Truelink Capital has entered into a definitive agreement to sell Koch Filter Corporation to Atmus Filtration Technologies for $450 million in cash, with the transaction expected to close in the first quarter of 2026, subject to customary closing conditions [1]. Company Overview - Koch Filter, founded in 1966, designs and manufactures a wide range of air filtration products, including pleated filters, high efficiency filters, and HEPA filters, serving various commercial markets [2]. - The company operates manufacturing facilities in Louisville, KY, East Greenville, PA, Houston, TX, and Mira Loma, CA, making it one of the few independent scaled platforms in the air filtration industry [2]. - Koch Filter is recognized for its innovation and commitment to enhancing indoor air quality in critical environments [5]. Transaction Details - The sale of Koch Filter is seen as a strategic move that will allow the company to continue its growth under Atmus, which is committed to innovation and operational excellence [2]. - Todd Golditch, Co-Founder and Managing Partner of Truelink, emphasized that the transaction aligns with ADTi's long-term vision to focus on engineered air distribution solutions [3]. - Mark Mattingly, CEO of Koch Filter, expressed confidence that the company is well-positioned for growth following recent investments and the transition to Atmus [3]. Strategic Implications - The transaction is viewed as a significant milestone for both Koch Filter and Air Distribution Technologies, enabling ADTi to concentrate on creating value through efficiencies and growth across its business units [3]. - Atmus Filtration Technologies is described as a global leader in filtration and media solutions, serving diverse markets including truck, bus, agriculture, construction, mining, marine, and power generation [6][7].

Core Viewpoint - Atmus Filtration Technologies Inc. has announced its acquisition of Koch Filter Corporation for $450 million in cash, aiming to establish a strong industrial air filtration platform and access a growing customer base across various end-markets [1][2]. Financial Summary - The acquisition is expected to be accretive to Atmus' Adjusted EPS and Adjusted EBITDA margin in 2026, with a projected high-single-digit ROIC by 2028 [2]. - The purchase price represents a 13.9x multiple based on Koch Filter's Adjusted EBITDA for the fiscal year ending September 30, 2025. After adjusting for expected tax benefits, the net transaction value is approximately $395 million, equating to a 10.9x multiple [2]. Strategic Implications - The acquisition will enhance Atmus' growth by expanding its presence in the industrial air filtration market, particularly in sectors such as industrial and commercial HVAC, data centers, and power generation [3]. - Koch Filter's extensive portfolio includes various filtration systems designed to improve indoor air quality and system performance, which aligns with Atmus' focus on reliability and customer service [3]. Transaction Details - The transaction will be funded through a combination of cash on hand and borrowings under Atmus' credit facility, with an expected closing in the first quarter of 2026, pending customary closing conditions [4]. Company Background - Atmus Filtration Technologies Inc. is a global leader in filtration and media solutions, with over 65 years of experience in designing and manufacturing filtration solutions across multiple industries [6]. - The company is headquartered in Nashville, Tennessee, and employs approximately 4,500 people globally [7].

Core Points - Atmus Filtration Technologies Inc. has declared a quarterly cash dividend of $0.055 per common share [1] - The dividend is payable on December 10, 2025, to shareholders of record as of November 25, 2025 [1] - Atmus is recognized as a global leader in the filtration industry [1]

Revenue and Sales Performance - Approximately 14% of net sales in 2024 were generated through first-fit sales to OEMs, while 86% were from the aftermarket, indicating a strong recurring revenue base [87]. - During the first nine months of 2025, aftermarket demand remained soft, and first-fit demand experienced a reduction due to depressed market conditions, expected to continue through 2025 [98]. - Net sales for the three months ended September 30, 2025, were $447.7 million, an increase of $44.0 million or 10.9% compared to $403.7 million for the same period in 2024 [105]. - For the nine months ended September 30, 2025, net sales were $1,317.7 million, an increase of $54.8 million or 4.3% compared to $1,262.9 million in 2024 [112]. Financial Performance - Gross margin increased to $129.4 million for the three months ended September 30, 2025, up $18.1 million or 16.3% from $111.3 million in 2024, with a gross margin percentage of 28.9% [106]. - Operating income rose to $81.9 million for the three months ended September 30, 2025, an increase of $18.7 million or 29.6% compared to $63.2 million in 2024 [104]. - Net income for the three months ended September 30, 2025, was $54.8 million, reflecting an increase of $11.0 million or 25.1% from $43.8 million in 2024 [104]. - Basic earnings per share increased to $0.67 for the three months ended September 30, 2025, up $0.14 or 26.4% from $0.53 in 2024 [104]. - Gross margin for the nine months ended September 30, 2025, was $370.9 million, an increase of $15.9 million or 4.5% from $355.0 million in 2024, maintaining a gross margin percentage of 28.1% [113]. - Interest expense decreased to $25.4 million for the nine months ended September 30, 2025, down $6.0 million or 19.1% from $31.4 million in 2024 [117]. - The effective tax rate for the nine months ended September 30, 2025, was 22.3%, an increase of 1.4 percentage points compared to 20.9% in 2024 [119]. - EBITDA for the nine months ended September 30, 2025, was $252.8 million, compared to $233.1 million for the same period in 2024, reflecting a year-over-year increase of 8.0% [139]. - Adjusted EBITDA for the nine months ended September 30, 2025, was $268.3 million, up from $251.8 million in the same period of 2024, indicating a growth of 6.3% [139]. - Free cash flow for the nine months ended September 30, 2025, was $117.6 million, significantly higher than $46.8 million for the same period in 2024 [142]. - Adjusted earnings per share for the nine months ended September 30, 2025, increased to $2.04, compared to $1.92 for the same period in 2024 [140]. - Net income margin improved to 12.1% for the nine months ended September 30, 2025, compared to 11.5% for the same period in 2024 [139]. Expenses and Costs - The company incurred approximately $3.7 million in one-time expenses during the three months ended September 30, 2025, and approximately $15.5 million for the nine months ended September 30, 2025, primarily related to becoming a standalone public company [103]. - Logistics costs increased during the first nine months of 2025, primarily due to the transition to a standalone distribution network and the impact of tariffs [99]. - The company continues to evaluate opportunities to offset costs and mitigate the impact of evolving tariffs and policy changes on profitability [88]. - Capital expenditures for the nine months ended September 30, 2025, were $37.6 million, approximately 2.9% of net sales, compared to $38.6 million or 3.1% of net sales for the same period in 2024 [127]. - Dividends paid increased to $12.7 million in the first nine months of 2025, compared to $4.2 million in the same period of 2024 [129]. Debt and Financing - The company entered into a $1.0 billion credit agreement, which included a $600 million term loan facility and a $400 million revolving credit facility, with borrowings available post-IPO [92]. - As of September 30, 2025, the company had $577.5 million in outstanding borrowings on its $1.0 billion Credit Agreement, with $400 million available under the revolving credit facility [120]. - Total debt decreased to $577.5 million at September 30, 2025, from $592.5 million at December 31, 2024 [133]. - A 0.125% change in SOFR would result in an annual impact of $0.7 million on interest expense based on outstanding borrowings as of September 30, 2025 [147]. Currency and Market Risks - The depreciation of the U.S. dollar against certain foreign currencies had an unfavorable impact on the condensed consolidated results of operations in the first nine months of 2025 [102]. - Atmus is exposed to foreign currency exchange rate risks due to its international business presence, with a potential gain or loss in the fair value of outstanding foreign currency contracts estimated at approximately $9.0 million for a hypothetical 10% fluctuation [146]. Corporate Structure and Transition - The IPO was completed on May 30, 2023, with Cummins owning approximately 80.5% of the outstanding shares at that time [91]. - The company has incurred capital expenditures of approximately $9.5 million in 2025 related to the Separation, primarily for establishing functions previously co-mingled with Cummins [103]. - The transition services agreement with Cummins ended in September 2025, and no additional one-time expenses or capital expenditures are expected in 2025 or future periods [103].

Financial Data and Key Metrics Changes - Sales for Q3 2025 were $448 million, an increase of 10.9% compared to $404 million in Q3 2024, driven by higher volumes, pricing, and favorable foreign exchange [9][13] - Adjusted EBITDA was $92 million, or 20.4%, compared to $79 million, or 19.6% in the prior period [15] - Adjusted earnings per share increased to $0.69 from $0.61 year-over-year [15] - Adjusted free cash flow was $72 million, up from $65 million in the prior year [15] - The effective tax rate for Q3 2025 was 23.6%, compared to 18.4% last year, influenced by changes in earnings mix and U.S. tax legislation [15] Business Line Data and Key Metrics Changes - The company experienced a 6% increase in volumes, a 4% increase in pricing, and a 1% contribution from favorable foreign exchange [13][20] - The aftermarket segment is expected to remain flattish year-over-year, with ongoing challenges in freight activity [10][31] Market Data and Key Metrics Changes - The heavy-duty and medium-duty truck markets in the U.S. are expected to decline by 20%-25% [11] - Demand for trucks in India is anticipated to grow, supported by government infrastructure spending [11] - The company raised its total revenue expectations for the year to a range of $1.72-$1.745 billion, reflecting a 3%-4.5% increase compared to the prior year [11] Company Strategy and Development Direction - The company is focused on a four-pillar growth strategy: growing share in First Fit, accelerating profitable growth in the aftermarket, transforming the supply chain, and expanding into industrial filtration markets [6][8] - The operational separation from the former parent company has been completed, allowing the company to focus on growth and redeploy resources [3][4] - The company plans to continue its share repurchase program and has increased its quarterly dividend by 10% [4][5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to adapt to challenging market conditions and deliver strong operational performance [11][12] - The outlook for the aftermarket remains cautious, with expectations of continued flat conditions through the first half of 2026 [31] - The company is optimistic about its growth strategy and the potential for share gains, particularly in the aftermarket and First Fit applications [21][22] Other Important Information - The company has completed its separation activities from Cummins and does not anticipate incurring additional one-time costs related to this in Q4 [15][36] - The company has a strong liquidity position with $218 million in cash and a $400 million revolving credit facility, providing operational flexibility [16] Q&A Session Summary Question: Insights on stronger-than-expected performance and share gains - Management noted that the strong quarter was driven by 8% share gains, despite market headwinds of 2% [20][21] Question: Details on volume growth impact from Stellantis - Management indicated that the 44% increase in Ram volumes was significant but not expected to repeat in future quarters [27][28] Question: Clarification on aftermarket pacing and its sustainability - Management expects the flat aftermarket conditions to persist through the first half of 2026, with no signs of improvement yet [31] Question: Opportunities from the operational separation - Management expressed excitement about focusing resources on growth following the completion of the separation [33][36] Question: Impact of Section 232 tariffs on pricing - Management confirmed ongoing evaluation of tariff implications and plans for price-cost neutrality [39] Question: Positioning for growth in data center engine capacity - Management is targeting new business development in both aftermarket and First Fit applications, while acknowledging limited aftermarket benefits from gensets [41][42] Question: Potential benefits from First Brands' bankruptcy - Management is actively seeking to expand aftermarket coverage and gain market share through existing and new partnerships [44][45]