Atmus Filtration Technologies (ATMU) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2025, sales increased to $447 million, up 9.8% from $407 million in Q4 2024, driven by pricing, higher volumes, and favorable foreign exchange [10][16] - For the full year 2025, sales reached $1.764 billion, a 5.7% increase from $1.67 billion in 2024, supported by higher volumes and pricing actions [11][18] - Adjusted EBITDA for Q4 was $85 million, maintaining a margin of 19.1%, compared to $78 million in Q4 2024 [10][18] - Full year adjusted EBITDA was $354 million, up from $330 million in 2024, resulting in a margin of 20% [11][20] - Adjusted earnings per share for Q4 was $0.66, compared to $0.58 in the prior year [10][18] - Adjusted free cash flow for the full year was $158 million, an increase from $115 million in 2024 [11][20] Business Line Data and Key Metrics Changes - The company will report on two business segments in 2026: Power Solutions and Industrial Solutions, following the acquisition of Koch Filter [4] - The Power Solutions segment is expected to generate total revenue between $1.79 billion and $1.85 billion, reflecting a 3% increase year-over-year [12][14] - The Industrial Solutions segment is projected to contribute revenue between $155 million and $165 million, including one week of sales from Koch Filter [12][14] Market Data and Key Metrics Changes - The heavy-duty market is expected to be flat to up 10% compared to 2025, while the Industrial Solutions segment anticipates growth of 1%-4% in 2026 [12][14] - Overall pricing is expected to contribute approximately 1% to revenue growth, with the U.S. dollar anticipated to weaken, providing a 1% revenue tailwind [13][14] 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][9] - The acquisition of Koch Filter is expected to enhance the company's industrial air filtration platform and provide opportunities for organic and inorganic growth [4][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate challenging global markets and achieve growth through disciplined execution [3][5] - The outlook for 2026 includes expectations of strong operational performance and continued investment for growth, with total company revenue projected to be between $1.945 billion and $2.015 billion [14][15] Other Important Information - The company returned $78 million to shareholders in 2025 through share buybacks and dividends, with $69 million remaining on its share repurchase authorization [5] - The company has entered into a $1 billion term loan and a $500 million revolving credit facility to support the acquisition of Koch Filter [21] Q&A Session Summary Question: Update on Koch Filter acquisition and data center market growth - Management indicated that 8% of revenue is tied to data centers, which are growing at a high-teens rate, with a focus on product development to support this market [25][28] Question: Impact of tariffs on pricing - Management clarified that the 1% pricing expectation is core pricing, not directly related to tariffs, and they aim to be price-cost neutral [29][30] Question: Opportunities for insourcing filtration media at Koch - Management highlighted the focus on integration and identified procurement synergies, with plans for innovation workshops to leverage combined expertise [33][36] Question: Sales guidance for industrial solutions - Management provided a conservative sales guidance for industrial solutions, emphasizing transparency and the potential for growth based on market conditions [40][42] Question: Customer response to emissions regulation changes - Management noted that while recent regulatory changes may impact the market, they expect NOx standards to hold for the 2027 engine launch, with no immediate changes to product development [44][46] Question: Adjusted EBITDA guidance and self-help levers - Management acknowledged that the adjusted EBITDA guidance is flat year-over-year, reflecting strong incrementals and ongoing cost reduction strategies [48][50]