Atmus Filtration Technologies (ATMU) - 2023 Q3 - Quarterly Report

Financial Performance - Net sales for Q3 2023 were $396.2 million, a decrease of 1.2$401.2 million in Q3 2022[96] - Gross margin increased to $102.9 million in Q3 2023, up 3.2$99.7 million in Q3 2022[96] - Operating income decreased to $58.8 million in Q3 2023, down 9.4$64.9 million in Q3 2022[96] - Net income for Q3 2023 was $37.6 million, a decline of 25.4$50.4 million in Q3 2022[96] - Basic and diluted earnings per share were both $0.45 in Q3 2023, down 26.2$0.61 in Q3 2022[96] - For the nine months ended September 30, 2023, net sales were $1,228.4 million, an increase of$51.5 million compared to $1,176.9 million for the same period in 2022[111] - Gross margin for the nine months ended September 30, 2023, was$327.1 million, an increase of $50.6 million from$276.5 million in 2022, with a gross margin percentage of 26.6%, up 3.1%[112] - Net income margin for the nine months ended September 30, 2023, was 11.1%, slightly down from 11.4% in the same period of 2022[140] - EBITDA margin for the nine months ended September 30, 2023, was 17.1%, compared to 15.9% for the same period in 2022, showing an improvement of 1.2 percentage points[140] Expenses - Selling, general and administrative expenses increased to $41.3 million in Q3 2023, up 27.9$32.3 million in Q3 2022[96] - Research, development, and engineering expenses rose to $11.1 million in Q3 2023, an increase of 13.3$9.8 million in Q3 2022[96] - Selling, general and administrative expenses rose to $41.3 million in Q3 2023, an increase of$9.0 million from $32.3 million in Q3 2022, with expenses as a percentage of net sales increasing to 10.4$11.1 million in Q3 2023, up $1.3 million from$9.8 million in Q3 2022, representing 2.8% of net sales[103] - Selling, general and administrative expenses for the nine months ended September 30, 2023, were $126.4 million, an increase of$29.1 million from $97.3 million in 2022, with a percentage of net sales at 10.3$33.2 million, an increase of $3.5 million from$29.7 million in 2022, representing 2.7% of net sales[114] Cash Flow and Debt - Net cash provided by operating activities increased to $147.3 million for the nine months ended September 30, 2023, up from$87.9 million in the same period of 2022, representing a growth of 67.5%[125] - Net cash provided by financing activities for the nine months ended September 30, 2023, was $21.1 million, a significant improvement from a net cash used of$65.5 million in the same period of 2022[129] - Free cash flow for the nine months ended September 30, 2023, was $117.7 million, up from$65.5 million in the same period of 2022, indicating a growth of 79.8%[144] - Total debt at September 30, 2023, was $600.0 million, with a weighted-average term of 4.2 years, compared to zero debt at December 31, 2022[131] - Capital expenditures for the nine months ended September 30, 2023, were$29.6 million, which is approximately 2.4% of net sales, compared to $22.4 million or 1.9$7.4 million in one-time expenses during Q3 2023 related to becoming a standalone public company[94] - The company expects to incur one-time expenses of approximately $30 million to$50 million between December 31, 2022, and December 31, 2024[94] Interest and Tax - Interest expense for Q3 2023 was $11.0 million, a significant increase from$0.3 million in Q3 2022, primarily due to borrowings under the Credit Agreement[105] - The effective tax rate for Q3 2023 was 23.1%, an increase of 1.1% from 22.0% in Q3 2022, driven by a change in the mix of earnings among tax jurisdictions[107] Foreign Currency and Risk Management - The company is exposed to foreign currency exchange rate risks due to its international business presence, which is managed through financial derivative instruments[146] - The company uses foreign currency forward contracts to minimize income volatility from remeasurement of net monetary assets and liabilities[147] - A hypothetical 10% fluctuation in the currencies of outstanding foreign currency contracts would not materially impact the unaudited condensed consolidated financial statements for the three and nine month periods ended September 30, 2023[148] - A 0.125% change in SOFR would result in an annual impact of $0.8 million on interest expense based on outstanding borrowings as of September 30, 2023[149] Outlook - The company anticipates that operating cash flow and other sources of liquidity will be sufficient to meet both short- and long-term financial commitments[123]