Atmus Filtration Technologies (US:ATMU)2025-11-07 19:04Revenue 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].