Atmus Filtration Technologies (US:ATMU)2025-08-08 18:55Revenue 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 [85]. - During the first half of 2025, aftermarket demand remained soft, and first-fit demand experienced a reduction due to depressed market conditions, expected to continue through the second half of 2025 [96]. - Net sales for the three months ended June 30, 2025, were $453.5 million, an increase of $20.9 million or 4.8% compared to $432.6 million for the same period in 2024 [104]. - For the six months ended June 30, 2025, net sales were $870.0 million, an increase of $10.8 million or 1.3% compared to $859.2 million for the same period in 2024 [112]. Financial Performance - Net income for the three months ended June 30, 2025, was $59.9 million, an increase of $3.7 million or 6.6% compared to $56.2 million for the same period in 2024 [109]. - The company reported net income of $104.6 million for the six months ended June 30, 2025, compared to $101.7 million for the same period in 2024, with a net income margin of 12.0% [139]. - Adjusted EBITDA for the six months ended June 30, 2025, was $176.8 million, compared to $172.7 million for the same period in 2024, with an adjusted EBITDA margin of 20.3% [139]. Expenses and Costs - The company incurred approximately $11.8 million in one-time expenses during the six months ended June 30, 2025, with expectations of incurring an additional $10 million to $15 million in 2025 related to becoming a standalone public company [101]. - Logistics costs increased during the first half of 2025 primarily due to the impact of tariffs, contributing to significant volatility and uncertainty in global demand [86]. - Selling, general and administrative expenses decreased to $46.1 million for the three months ended June 30, 2025, down $3.0 million or 6.1% from $49.1 million in 2024, representing 10.2% of net sales [106]. - Research, development and engineering expenses were $10.7 million for the three months ended June 30, 2025, an increase of $0.3 million compared to $10.4 million for the same period in 2024, maintaining 2.4% of net sales [107]. - Interest expense decreased to $8.5 million for the three months ended June 30, 2025, down $2.0 million or 19.0% from $10.5 million in 2024 [108]. Capital Expenditures and Cash Flow - The company expects to incur capital expenditures of approximately $10 million to $15 million in 2025 in connection with the Separation, primarily for establishing functions previously co-mingled with Cummins [101]. - Capital expenditures for the six months ended June 30, 2025, were $24.4 million, representing approximately 2.8% of net sales, compared to $22.2 million or 2.6% of net sales for the same period in 2024 [127]. - Net cash provided by operating activities increased to $73.1 million for the six months ended June 30, 2025, up from $14.7 million in the same period of 2024, reflecting a $58.4 million increase driven by lower working capital requirements [125]. - Free cash flow for the six months ended June 30, 2025, was $48.7 million, a significant increase from a negative $7.5 million in the same period of 2024 [141]. Debt and Financing - The company borrowed $650 million from a credit agreement upon completion of its IPO, which included a $600 million term loan and a $400 million revolving credit facility [90]. - As of June 30, 2025, the company had outstanding borrowings of $585.0 million on a $1.0 billion Credit Agreement, with $400 million available under the revolving credit facility [120]. - Total debt decreased to $585.0 million at June 30, 2025, from $592.5 million at December 31, 2024, with a weighted-average term of 2.4 years [132]. - Net cash used in financing activities was $45.9 million for the six months ended June 30, 2025, primarily due to stock repurchases, dividends paid, and term loan payments, compared to $0.0 million in the same period of 2024 [128]. Tax and Dividends - The effective tax rate for the six months ended June 30, 2025, was 21.6%, a decrease of 0.3 percentage points compared to 21.9% for the same period in 2024 [119]. - Dividends paid in the first six months of 2025 totaled $8.3 million, with a dividend of $0.05 per share declared for both the first and second quarters [129]. Separation and Market Conditions - The full separation from Cummins was completed on March 18, 2024, resulting in the divestiture of Cummins' entire ownership and voting interest in Atmus [92]. - The company is facing significant customer concentration among major clients such as Cummins, PACCAR, and the Traton Group, which poses risks to its financial performance [81]. - The company anticipates ongoing challenges related to supply chain conditions, including variability in material costs and potential disruptions [98]. Foreign Currency and Interest Rate Risks - Atmus is exposed to foreign currency exchange rate risks due to its international business presence, managing this risk through financial derivative instruments for hedging purposes [143]. - Atmus enters into foreign currency forward contracts to minimize income volatility from remeasurement of net monetary assets and liabilities, aiming to offset gains or losses from remeasurement with those from the forward contract [144]. - A hypothetical 10% fluctuation in the currencies of outstanding foreign currency contracts would not materially impact the unaudited condensed consolidated financial statements for the periods ended June 30, 2025, and June 30, 2024 [145]. - The interest rate risk is primarily related to a $600 million term loan facility and a $400 million revolving credit facility, with interest rates varying based on loan type and benchmarks [147]. - A 0.125% change in SOFR would result in a $0.7 million annual impact on interest expense based on outstanding borrowings as of June 30, 2025 [147].