Atmus Filtration Technologies (US:ATMU)2024-08-02 16:53Financial Performance - Net sales for the three months ended June 30, 2024, were $432.6 million, an increase of $19.0 million or 4.6% compared to $413.6 million in the same period of 2023 [100]. - For the six months ended June 30, 2024, net sales were $859.2 million, an increase of $27.0 million or 3.2% compared to $832.2 million in the same period of 2023 [112]. - Net income for the three months ended June 30, 2024, was $56.2 million, an increase of $10.0 million or 21.6% from $46.2 million in the prior year [100]. - Net income for the six months ended June 30, 2024, was $101.7 million, compared to $98.9 million for the same period in 2023 [144]. - Diluted earnings per share for the six months ended June 30, 2024, was $1.22, compared to $1.19 for the same period in 2023 [146]. - The company reported a net income margin of 11.8% for the six months ended June 30, 2024, compared to 11.9% for the same period in 2023 [144]. Expenses and Costs - The company incurred approximately $3.8 million in one-time expenses during Q2 2024 and $9.8 million for the first half of 2024, with expected one-time expenses of $10 million to $20 million for the full year [97]. - Selling, general and administrative expenses increased due to higher people-related and consulting expenses in the first half of 2024 [96]. - Selling, general, and administrative expenses for the six months ended June 30, 2024, were $92.4 million, an increase of $7.3 million or 8.6% compared to $85.1 million in the same period of 2023 [115]. - Interest expense increased significantly to $10.5 million for the three months ended June 30, 2024, up $6.3 million or 150.0% from $4.2 million in the prior year [107]. - Research, development, and engineering expenses decreased to $10.4 million for the three months ended June 30, 2024, down $1.9 million or 15.4% from $12.3 million in the same period of 2023 [105]. Capital Expenditures - The company expects to incur capital expenditures of approximately $10 million to $20 million in 2024 related to the Separation, primarily for establishing functions previously combined with Cummins [97]. - Capital expenditures for the six months ended June 30, 2024, were $22.2 million, approximately 2.6% of net sales, compared to $19.1 million or 2.3% of net sales in the same period of 2023 [129]. - Capital expenditures for the three months ended June 30, 2024, were $11.6 million, compared to $12.7 million in the same period of 2023, a reduction of 8.7% [149]. Cash Flow - Net cash provided by operating activities was $14.7 million for the six months ended June 30, 2024, a decrease of $74.3 million compared to $89.0 million for the same period in 2023 [127]. - For the three months ended June 30, 2024, cash provided by operating activities was $22.9 million, compared to $46.2 million for the same period in 2023, representing a decrease of 50.5% [149]. - Free cash flow for the three months ended June 30, 2024, was $11.3 million, down from $33.5 million in the prior year, indicating a decline of 66.3% [149]. - Adjusted free cash flow for the three months ended June 30, 2024, was $34.1 million, slightly down from $35.3 million in the same period last year, a decrease of 3.4% [149]. - Adjusted EBITDA for the six months ended June 30, 2024, was $172.7 million, up from $158.3 million in the same period of 2023 [144]. Debt and Financing - As of June 30, 2024, the company had $600 million in outstanding borrowings on a term loan and $400 million available under a revolving credit facility [123]. - The company has a $600 million term loan facility and a $400 million revolving credit facility, with interest rates influenced by the adjusted term SOFR [154]. - 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 June 30, 2024 [154]. - The weighted average term of outstanding long-term debt was 3.4 years as of June 30, 2024, with total debt remaining at $600 million [132]. Market and Demand - Approximately 19% of net sales in 2023 were generated through first-fit sales to OEMs, while 81% were from the aftermarket, indicating a strong recurring revenue base [87]. - Aftermarket demand remained depressed in the first half of 2024, with uncertainty regarding recovery in the second half, while first-fit demand was stable [93]. - Overall supply chain conditions have stabilized compared to a year ago, with minimal disruptions and backorders largely recovered in the first half of 2024 [94]. Corporate Structure and Changes - The company was incorporated as a standalone entity on April 1, 2022, and began trading on the NYSE under the symbol "ATMU" on May 26, 2023 [88]. - The full separation from Cummins was completed on March 18, 2024, resulting in the divestiture of Cummins' entire ownership and voting interest in Atmus [90]. Foreign Currency and Risks - The appreciation of the U.S. dollar against foreign currencies had a slightly unfavorable impact on the company's consolidated results in the first half of 2024 [96]. - The company is exposed to foreign currency exchange risks due to its international business presence, which is managed through financial derivative instruments [151]. - Foreign currency forward contracts are utilized to minimize income volatility from remeasurement of net monetary assets and liabilities [152]. - The potential gain or loss from foreign currency contracts, assuming a 10% fluctuation, would not materially impact the financial statements for the three and six months ended June 30, 2024 [152]. Accounting Policies - There have been no material changes to the company's critical accounting policies and estimates from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023 [150].