Atmus Filtration Techs reports 10.9% sales growth in Q3 2025, raises full-year revenue guidance amid successful operational separation and strategic initiatives.

OPERATOR - (00:00:52)

Thank you for standing by. My name is Eric and I will be your conference operator today. At this time I would like to welcome everyone to the Atmus Filtration Techs third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I'd now like to turn the call over to Todd Ceruleo, Executive Director of Investor Relations. Please go ahead.

Todd Ceruleo - Executive Director of Investor Relations - (00:01:31)

Thank you, Eric. Good morning everyone and welcome to the Atmus Filtration Techs third quarter 2025 earnings call. On the call today we have Steph Fischer, Chief Executive Officer and Jack Kinsler, Chief Financial Officer. Certain information presented today will be forward looking and involve risks and uncertainties that could materially affect expected results. Please refer to the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non GAAP measures referred to on our call. For additional information, please see our SEC filings and the investor relations pages available on our website@atmes.com now I'll turn the call over to Steph.

Steph Fischer - Chief Executive Officer - (00:02:18)

Thank you Todd and good morning everyone. On the call Today I will provide an update on our third quarter results, our progress executing on our four pillar growth strategy and the outlook for the remainder of 2025. Jack will then provide further details on our financial results. During the third quarter we completed our full operational separation from our former parent Cummins. The separation has been a multi year journey and marks a significant milestone for our company. I want to recognise this outstanding accomplishment which is the result of the collective effort of all Atmosonians. We are now focused on unlocking the growth potential of Atmos. Completing the separation enables us to redeploy resources, time and energy to focus on growth. We have a clear vision and strategy and a highly capable organization who are energised to realise our full potential. Now let's turn to our capital allocation strategy. We continue to deploy capital to create long term shareholder value. We further accelerated our share repurchase program in the third quarter repurchasing $30 million of stock, bringing our year to date total to $61 million. Since the announcement of our share repurchase program last year, we have repurchased a total of $81 million of stock. We also increased our quarterly dividend by 10% last quarter. Reinforcing our commitment to consistent long term capital return to shareholders. We remain committed to investing for organic growth and executing our inorganic industrial filtration strategy. We will continue to keep you updated on our M&A activity. The framing of M&A investment choices continues to be guided by our strategy, long term value creation and and the balance of growth and shareholder returns. We expect share repurchases to remain an important component of our capital allocation strategy and anticipate our full year repurchases will be in a range of approximately 1 1/2 to 3% of our current market capitalization. I would like to now take a moment to share some insights on the strong culture we are building at Atmus. We have established what we call the Atmos Way. The Atmos Way incorporates our purpose, our values and our strategy. It also includes what we call mindset shifts which reflect specific areas where we want to intentionally shift the culture of our company. One example I would like to share today is our commitment to safety. We set a vision to be the safest company in October. We achieved two years without a serious injury in our business. This is a result of disciplined focus on risk reduction and the engagement of employees at all levels of our organization. This is just one example of the Atmos culture in action. It reflects what we stand for and it demonstrates what we can do when we set a bold vision and work together to bring change. Let's now turn to our four pillar growth strategy and the progress we have made during the third quarter. Our first pillar is to grow share in First Fit. As a fully independent company. We are expanding our First Fit customer reach to leading regional OEMs across a broad range of applications with dedicated sales and technical resources. We are winning with these customers by providing our industry leading filtration products that deliver superior protection for our customers equipment. Additionally, we continue to win with the winners by growing our long term partnerships with global OEMs. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are expanding our market presence in independent and retail channels with new distributors. This allows us to provide broader channel coverage of our industry leading fleetguard products and deliver to our customers when and where they need the product. We are also partnered with leading global OEMs who are expanding their own aftermarket businesses and growing market share. We work collaboratively with these industry leaders allowing us to expand our business while simultaneously fueling growth for our partners. Furthermore, we are growing our brand awareness with our We Protect campaign launched earlier this year. This campaign highlights who Atmos is and the dedicated employees committed to creating a better future to for our customers, communities and planet. Our third pillar is focused on transforming our supply chain. As a fully operationally independent company, we have completely transitioned to the global Atmos distribution network. This allows us to directly control our customer experience. Additionally, our network is designed to optimize and grow our aftermarket business. We continue to increase the on shelf availability of products to ensure we have the right products for our customers when and where they need them. Our fourth pillar is to expand into industrial filtration markets. Our strategy is unchanged and remains focused on growth into industrial filtration primarily through inorganic acquisitions. We are broadly looking at three verticals industrial air, industrial liquids excluding water and industrial water. We have seen increased activity in the M&A markets and we continue to review a robust pipeline of opportunities for inorganic expansion. We remain focused on executing a disciplined approach to develop opportunities which deliver long term shareholder value. Now let's discuss our third quarter financial results. Our team delivered another strong quarter. Sales were 448 million compared to 404 million during the same period last year. An increase of 10.9%. Significant outperformance drove higher sales despite continued challenging conditions in most of our global markets. We also benefited from increased pricing and favorable foreign exchange. Adjusted EBITDA was $92 million or 20.4%, compared to $79 million or 19.6% in the prior period. Adjusted earnings per share was $0.69 in the third quarter of 2025 and adjusted free cash flow was $72 million. Now let's turn to our market outlook for 2025, starting with market guidance for aftermarket. We expect freight activity to generally continue at current levels and be flattish year over year. Our team has done a great job executing our growth strategy, especially in the face of elongated challenges in global markets. We are increasing our expected outperformance and now project share gains to add 3% of revenue growth. Overall pricing is expected to provide approximately 3% revenue growth. Pricing is inclusive of both base pricing actions to offset certain input costs and tariff pricing. This reflects known tariffs as of November 1st and assumes the USMCA exemption for our products will continue. The US Dollar continues to weaken from the strength we saw early in the year. We anticipate the full year impact of a strong US Dollar to be an approximate half percent revenue headwind. Let's now turn to our first skip markets in the US the industry was recently provided with some guidance on Section 232 tariffs for medium and heavy duty trucks. We will continue to monitor ongoing developments and adapt accordingly. We are still awaiting clarity on the upcoming 2027 emissions requirements. This continues to drive uncertainty in the market. Our expectations for both the heavy and medium duty markets in the US is to be down 20% to 25%. We expect demand for trucks in India to grow, which could be further bolstered by government infrastructure spending in China. The markets we serve have continued to grow through the third quarter. Our exposure in China is weighted towards first fit on highway applications and we remain cautious in our outlook. Overall, we have raised our expectations for total company revenue to be in a range of 1.72 to 1.745 billion, an increase of 3% to 4.5% compared to the prior year. Our team continues to quickly adapt to challenging market conditions to deliver strong operational performance. We expect this performance to continue and we are raising our expectations for adjusted EBITDA margins to be in a range of 19.5% to 20%. Lastly, adjusted EPS is expected to be in a range of $2.50 to $2.65. Now I will turn the call over to Jack who will discuss our financial results in more detail.

Jack Kinsler - Chief Financial Officer - (00:12:46)

Thank you, Steph and good morning everyone. Our team delivered another quarter of strong financial performance despite continuing uncertain market conditions. Sales were 448 million compared to 404 million during the same period last year, an increase of 10.9%. The increase in sales was primarily driven by higher volumes of 6%, pricing of 4% and favorable foreign exchange of 1%. Gross margin for the third quarter was 129 million compared to 111 million in the third quarter of 2024. The increase was primarily due to the benefits of higher pricing and volumes, partially offset by higher logistics costs. Selling, administrative and research expenses for the third quarter were 56 million flat to the same period in the prior year. Joint venture income was 8 million in the third quarter in line with our 2024 performance. This resulted in adjusted EBITDA in the third quarter of 92 million or 20.4% compared to 79 million or 19.6% in the prior period. Adjusted EBITDA for the quarter excludes 4 million of one time standalone costs. Adjusted earnings per share was $0.69 in the third quarter of 2025 compared to $0.61 last year. Adjusted free cash flow was 72 million this quarter compared to 65 million in the prior year. Free cash flow has been adjusted by 3 million for capital expenditures related to our separation from Cummins. As Steph mentioned earlier in the call, we have completed our separation activities from Cummins in the third quarter we do not anticipate incurring any additional one time costs associated with separation activities in the fourth quarter. The effective tax rate for the third quarter of 2025 was 23.6% compared to 18.4% last year. The higher effective tax rate was driven by both the change in the mix of earnings amongst tax jurisdictions along with changes in recently enacted U.S. tax legislation. Now let's turn to our balance sheet and the operational flexibility it provides us to execute on our growth and capital allocation strategy. We ended the quarter with 218 million of cash on hand. Combined with the full availability of our 400 million revolving credit facility, we have 618 million of available liquidity. Our strong liquidity provides us with operational flexibility in the current dynamic market to effectively manage our business and execute on our growth opportunities. Our cash position and continued strong performance in 2025 has resulted in a net debt to adjusted ebitda ratio of 1.0 for the trailing twelve months ended September 30th. In closing, I want to thank the global Atmus team for their continued dedication and flexibility to deliver another strong performance in the quarter. Now we will take your questions.

OPERATOR - (00:15:43)

At this time I would like to remind everyone in order to ask a question, please press Star followed by the number one on your telephone keypad. Your first question comes from the line of Rob Mason with Baird. Please go ahead.

Rob Mason - Equity Analyst at Baird - (00:15:58)

Hi, good morning Steph and Jack, Nice work on the third quarter for sure. I wanted to see if you could dig in just a little bit deeper. It was stronger than your typical seasonality might suggest. And you know, there was the thought maybe there was some pull forward coming out of the second quarter. Whether you think that was actually the case and then you took the share gain perspective or number up for the full year. I'm just curious how those are layering in. Is there any lumpiness around the share gains that may have come through in the third quarter?

Steph Fischer - Chief Executive Officer - (00:16:37)

Hi, good morning Rob and thanks for the comments. Firstly, a strong quarter, really pleased with the overall performance and if I just start to break down, really the top line is where it's all happening. So I'll talk about that. In terms of our revenue performance. Jack spoke to volumes of 6%, pricing of 4% and foreign exchange of 1. Pricing was around where we're expected, probably slightly better, but volume is where I'll spend my time. So break down that 6% performance for you. Broadly I would put it into what we would call share gains of 8% and market headwinds of around 2%. The market obviously we saw first fit sharply decline, particularly in North America. And we saw actually an impact of about down 27% sequentially in heavy duty and medium duty truck markets. And we continue to see flattish conditions in aftermarket. So we're all told that sort of adding up to a 2% headwind. So if I then take the share gains and try to give you some visibility into what's happening there. We have changed our revised our full year guidance upwards from 2% in share gain to 3% really driven by our conviction and the high, you know, outstanding performance of the team to, to deliver better than what we intended on our growth strategy. And that's arising from things like additional content in first fit applications, increases in share in the aftermarket, particularly in North America. So all told, that's about 3% sort of share gains. The big thing I want to point out in the third quarter, that is a dimension of timing as I would describe it, and a major driver of volume growth is related to the Stellantis model year 25 RAM product which was launched earlier this year. We have, we are on that product both on the engine and we support the aftermarket. And during the quarter we saw additional stocking for that new product launch on both the first fit through our sales to Cummins and in the aftermarket delivery with Stellantis. And so we do not expect that to repeat in future quarters. Obviously we'll continue to support that product, but the stocking up for the product launch was what we saw higher than expected in the third quarter.

Rob Mason - Equity Analyst at Baird - (00:19:18)

I see that's helpful. Steph. Maybe I'll just keep the line of questioning around the share gains. You also talked about winning some programs. It sounded like on regional OEMs on the first fit side. Could you provide a little color in terms of those are contributing yet and are those biased on highway or off highway?

Steph Fischer - Chief Executive Officer - (00:19:43)

Yeah, it's a great question and I always try to think about how can I give you some color around this while obviously maintaining the commercial sensitivity. We have been very deliberate in our growth focus to build our business development capability. We've been doing that for several years now is the way I would describe it. We've built the salesforce, the business development team, we've increased our bid rate and we had identified these, you know, regional players as really a target for us that we had not pursued previously. And it's broad based. I would say it's both across on highway and off highway. And I'd think about that equally right now. And we're starting to see the benefits of that we're winning the business, we're getting the confirmation of those wins and we're starting to see those benefits come through in our results. And I expect that to continue as part of our growth strategy within our core business.

OPERATOR - (00:20:48)

Your next question comes from the line of Joe o' Day with Wells Fargo. Please go ahead.

Joe o' Day - (00:20:55)

Hi, good morning. Thanks for taking my questions. Just a clarification on the details you gave around the volume growth. Just any sizing of the impact that Stellantis had within the quarter that you don't expect to repeat. And then just bigger pictures. You think about aftermarket and sort of end market pacing kind of flattish and aftermarket for how much longer do you think something like that can persist? Just as we think about wear on parts and some of the replacement that presumably is being pushed out here.

Steph Fischer - Chief Executive Officer - (00:21:34)

Thanks for the questions. Let me just start with your question on Stellantis. Look difficult to quantify this specifically and I think how I would have you think about it is there's certainly the 3% I talk about in share gains in the quarter are really attributable to clear wins that we can identify that we can see them coming through slight outperformance as I described and therefore gives us confidence to really put that share gain into the increase, that share gain from 2% to 3% in our full year guide as it relates to the timing of the new product development, there's a win for us in that product development. There's content increase and then there's timing. Right. So we in the public domain, I think we've seen that it's in the third quarter, year over year, it was a 44% increase in that RAM volumes in the quarter. And so it was a significant increase for this product. And we think our full year guide, we believe our full year guide really reflects how we see the year is going to go with the 3% market share reflected. On the aftermarket side, if I just. Yeah, on the aftermarket side, if I just take that question, you know, I think we've been talking about three years of freight recession now and we even have been asking ourselves, are the freight indicators still the right indicators for our business given that length of time? Right. And so I think that's a difficult set of questions. The outlook at the moment from the industry and those that we're talking to really suggest that we can't see that turning inside the first half of 2026 yet there's no real signs that suggest that it has turned, if you like. So we expect it to persist through quarter four and at this stage to stay at those levels through the first half of 26 is how we're thinking about it right now.

Joe o' Day - (00:23:52)

And then I just wanted to touch on the full operational control and having kind of reached that transition now and how you're thinking about the nearest term opportunities that that presents for you.

Steph Fischer - Chief Executive Officer - (00:24:09)

Yeah, we spoke about this in our opening remarks and I'm most excited about this allowing us to focus our full organizational resources, energy and effort towards growth. When you undertake a separation of the size and scale that we have, I think there's over 300 projects, we've been doing it for three years now, seven distribution centers, over 280. I think it is it projects that just takes a lot of organizational bandwidth. And so to have that completed for us to be standing on our own platform, really controlling our own destiny in terms of being able to use the processes and systems to enable our growth strategy is very exciting. And so really it is focused around our growth strategy and accelerating our progress on that. And which is what, you know, and I've talked about the four pillar growth strategy, which is what I'm, I'm most excited about. Jack might just talk to, you know, the separation specifically where we're at on that and, and bring some more color to, to that piece.

Jack Kinsler - Chief Financial Officer - (00:25:19)

Thanks Steph and thanks Joe for the question. You know, first off, I would just say really proud of the entire Atmos team for, you know, their unwavering commitment to bring the separation to a close. As Steph highlighted multiple projects, a multi year journey from, from beginning to end and the team really delivered, you know, which I think further underpins the reliability we've been able to establish across many fronts as a business. You know, as we, as we noted, the TSAs have concluded effective end of the third quarter and therefore we no longer intend to add back, you know, separation costs in Q4 and beyond. The one thing I would highlight is that, you know, we are still incurring some elevated costs, you know, driven by, you know, hypercare if you will, primarily in the information technology space. Until we reach full stabilization. We expect those to be, you know, incurred here in the fourth quarter. And that, you know, in part is leading to, you know, some of our margin outlook as we think about the implied Q4 guide here, you know, again highlighting some of those inefficiencies to help you understand, you know, why that may be showing up as a little bit of a pullback in the fourth quarter. Still, you know, feel really strongly about the full year, you know, outlook here. Both across the top line and the bottom line in really challenging market conditions and again, can't thank the team enough for what they've been able to deliver.

OPERATOR - (00:26:47)

Your next question comes from the line of Kami Zakaria with JP Morgan. Please go ahead.

Kami Zakaria - Equity Analyst at JP Morgan - (00:26:54)

Hi, good morning. Excellent quarter. My first question is with section 232, the tariff related regulations now out for trucks, did you take any intra quarter pricing and if so, how should we think about the rollover effect of that over the next few quarters? And then in that case are you also still planning to do a typical beginning of the year price increase that you usually do? Yeah. Thanks Tammy and good morning. So we do have some clarity from section 232, but I would say there's still a lot of unknowns that we're waiting for and we still expect that will take some time to be able to fully understand the implications and to be able to calculate it, frankly. And so that's just the first thing I would highlight Right now we are anticipating that our USMCA exemption still applies in the context of section 232. And then there are a number of other mechanisms playing out that we will continue to work through to understand as clarity comes and work in partnership with our customers. We've said from the outset that our intent on tariffs is to be price cost neutral and we'll do that through a variety of mechanisms. Obviously we'll look to avail ourselves of every possible reduction that we can make exemptions or resourcing product or foreign. We put a foreign trade zone into our distribution center in the US this quarter, for example. So we're certainly availing ourselves of all of those. And in our guide this year, full year pricing is set at 3%. So we think that guide fully includes the pricing for the year. Not issuing guidance for 2026 at this point, but we would expect that we would continue with the pricing actions in January and so forth that we've seen in the past as our practice. But it continues to be a an evolving landscape with tariffs and our team have really done a tremendous job in partnership with our customers to navigate that landscape. Understood. That's very helpful. And my second question is there's been a lot of encouraging comments and data points in the industry around the acceleration in capacity expansion for large engines to provide backup power to data centers. How are you positioning your to capitalize on that? Besides of course your exposure through your large customer Cummins, Are you actively working to win share with some of those other players that have announced capacity expansions for large engines? In the US and also Europe. So any comments on that? Yeah, absolutely. Certainly a very favorable trend in data centers that we do expect to continue for, you know, several years here. And that's how we're thinking about it. To start with, we have a very strong position and partnership with Cummins. Our filters are on those gen sets. And so we certainly have the opportunity to continue to grow as, as our partners grow. And we are targeting, you know, new business development, as I talked about in, in both aftermarket and First Fit applications with customers that we haven't operated with so much in the past. Right. And so we're investing to grow with those new customers. In terms of, I just would highlight in terms of the aftermarket, we don't see a significant aftermarket benefit related to those gensets. They are usually installed for backup power. And so it doesn't quite have the same profile as some of our other applications. But certainly we are seeking to partner with new customers and continue to support our existing customers that will benefit from that growth.

Andrew Obin - (00:31:23)

The next question comes from the line of Andrew Obin with Bank of America. Please go ahead.

David Ridley - (00:31:30)

Yes, this is David Ridley laying on for Andrew, Alaska. Bit of an interesting one for you here. First Brands declared bankruptcy in late September. They own the Fram and the Lubrifiner brands, filtration subsidiaries there. If this is a disorderly process, could Atmos be a beneficiary? And are you already sort of reaching out to maybe the retailers about taking over some, some space on the shelves?

Steph Fischer - Chief Executive Officer - (00:32:05)

Thanks for the question, David. Certainly we are. We are aware of that. And look, broadly speaking, I would say we were absolutely looking to expand our aftermarket coverage. That's how I'd have you think about that. We're doing it through a number of channels and we're being really successful. We are winning and gaining shares. So the first path that we see an opportunity to do that is with our existing partners. And we are growing with our existing partners as they grow their share and OEM part OEMs, for example. And then we are intentionally increasing our coverage through new aftermarket channels, both through independent and through retail channels. And so that will give us greater access and coverage across aftermarket. We see the opportunity really, in expanding our coverage to be able to avail ourselves of getting our products, product to more customers. And that would be the way that we, you know, we would potentially be the beneficiary of gaining a greater share from, you know, some of the examples and the changes in the marketplace that you just described.

Jack Kinsler - Chief Financial Officer - (00:33:15)

Got it. And then maybe one Jack, you know, look, a lot of the tariffs were announced kind of suddenly you've had, I'm sure, six months of fun. As you look over the next six months, is it, you know, all these levers that you're pulling, supply chain optimization, etc. You know, could you be saving a couple million dollars or more from those efforts, you know, next six months relative to the last six? Yeah, I think, first of all, David, thanks for the question. I think as you note, it's certainly been a big resource strain on ourselves and likely many of our peers in broader industries to navigate what is an ever changing environment. And so I think everyone is looking for some clarity to ease the ability to plan for the future. You know, look, I would just kind of hearken back to, to what Steph said before, which is, you know, our principle is as we deal with this broader environment and that is to, you know, first and foremost to remain price cost neutral. We are trying to do that in a way which mitigates the impacts for our customers in every way that we can. You know, things like availing ourselves of exemptions, looking at our broader supply chain to, to identify ways to mitigate costs and therefore mitigate the need to take any pricing actions. And we fully expect to continue to do that for, you know, as long as, as long as it takes to reach a point of clarity here.

OPERATOR - (00:34:59)

Your next question comes from the line of Bobby Brooks with Northland Capital Markets. Please go ahead.

Bobby Brooks - Equity Analyst at Northland Capital Markets - (00:35:07)

Hey, good morning guys. Thank you for taking my question. So was just hoping to dive a little bit deeper. The 11% year over year revenue growth, Fantastic. That's the best rate that you've seen since going public by like 600bps. I know you listed the pricing and volume dynamics, but just kind of curious to hear from the perspective of how much do you think was driven by the better availability of your products via now your whole distribution footprint being wholly owned or maybe any other, you know, internally control pieces that you point out that help drive the growth aside from pricing.

Steph Fischer - Chief Executive Officer - (00:35:47)

Yeah, Good morning Bobbi. Thanks. Great question. And there certainly was some benefits of increased availability in the quarter. We continue to improve our availability across the global network and we still see some Runway to further improve that in at least, at least fourth quarter and beyond. And so I would say I don't know, if I had to, it'd be about a percent maybe of that is maybe the availability improvement. If I had to give you a number, the broader benefits of us improving our availability are even more significant in my view. This is about how we Build reliability. As a company, we've continued to try to do that with investors and shareholders and, and we do it with our customers. And so really what availability is about, it certainly is about share gain and getting the product where your customers need it. But it is about building that reliability with our customers, our current customers and our new customers. And that will create a flywheel effect of growth for our business.

Bobby Brooks - Equity Analyst at Northland Capital Markets - (00:37:00)

Super helpful color and then just turn into maybe expansion outside of your current end markets. Just curious if could get. An update.

Steph Fischer - Chief Executive Officer - (00:37:12)

Of any progress there. I know you've done some organic launches into kind of industrial filtration. Just curious to hear any color on that. Thank you. So our strategy remains unchanged. We are expanding into industrial filtration markets is our strategy. We're pursuing three primary market focus areas and we do see our primary path to that through acquisition. And our team have been doing a fantastic job. We have a great team working on this and they are reviewing regularly a robust pipeline of targets. And obviously as and when I have an outcome to share, I will certainly be sharing that. So I'm pleased with the muscle building for growth that we are doing as a team and I'm also pleased with the disciplined approach we're taking to creating long term shareholder value. On the organic side. We have certainly launched products that can be utilized in applications in industrial filtration markets. We are learning from, you know, those launches and we are learning from, you know, working through new channels. I would say that is a small, very small portion of our revenue and it will, you know, it has the potential to accelerate on the back of us making an acquisition is how I would have you think about it.

OPERATOR - (00:38:46)

There are no further questions at this time. I would now like to turn the call back over to Todd Cirillo for closing remarks. Please go ahead.

Todd Cirillo - (00:38:57)

That concludes our teleconference for the day. Thank you all for participating and for your continued interest. Have a great day.

OPERATOR - (00:39:06)

Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.

Sam - (00:39:29)

Thank you.