Atmus Filtration Technologies Inc

Previous wording

The following is our discussion and analysis of changes in our financial condition and results of operations for thethree months ended March 31, 2024 compared to thethree months ended March 31, 2023.

Current wording

The following is our discussion and analysis of changes in our financial condition and results of operations for thethree and six months ended June 30, 2024 compared to thethree and six months ended June 30, 2023.

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including, without limitation, those that are based on current expectations, estimates and projections about the industries in which we operate and management’s views, plans, objectives, projections, beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “anticipates,” “expects,” “forecasts,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “could,” “should,” “may” or words of similar meaning. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, discussions of future operations, impact of planned acquisitions and dispositions, our strategy for growth, product development activities, regulatory approvals, market position, expenditures and the effects of the Full Separation, Separation and IPO (each as defined in Note 1, Description of the Business, to our Condensed Consolidated Financial Statements included herein). These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as “future factors,” which are difficult to predict. If the underlying assumptions prove correct, or known or unknown risks or uncertainties materialize, our actual outcomes, results and financial condition may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Risks and uncertainties include, but are not limited to:

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including, without limitation, those that are based on current expectations, estimates and projections about the industries in which we operate and management’s views, plans, objectives, projections, beliefs and assumptions. Forward-looking statements may be identified by the use of words such as “anticipates,” “expects,” “forecasts,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “could,” “should,” “may” or words of similar meaning. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, discussions of future operations, impact of planned acquisitions and dispositions, our strategy for growth, product development activities, regulatory approvals, market position, expenditures and the effects of the Full Separation, Separation and IPO (each as defined in Note 1, Description of the Business, to our Condensed Consolidated Financial Statements included herein). These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which we refer to as “future factors,” which are difficult to predict. If the underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, our actual outcomes, results and financial condition may differ materially from what is expressed, implied or forecasted in such forward-looking statements. Risks and uncertainties include, but are not limited to:

Previous wording

•Substantial indebtedness from Atmus’ term loan, which may impact Atmus' ability to service all its indebtedness and react to changes in the industry; and

Current wording

•Substantial indebtedness from Atmus’ term loan, which may impact Atmus’ ability to service all its indebtedness and react to changes in the industry;

Previous wording

•Substantially all Atmus' assets being pledged as security for its term loan and revolving credit facility.

Current wording

•Substantially all of Atmus’ assets being pledged as security for its term loan and revolving credit facility;

Previous wording

Additional information about these future factors and the material factors or assumptions underlying such forward-looking statements may be found under the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023. It is not possible to predict or identify all such factors, and the risks described above should not be considered a complete statement of all potential risks and uncertainties. Readers are urged to consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements made herein are made only as of the date hereof and we undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Current wording

Readers are urged to consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements made herein are made only as of the date hereof and we undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

Previous wording

Our Registration Statement on Form S-1, as amended, filed on May 16, 2023, was declared effective on May 25, 2023, and our common shares began trading on the New York Stock Exchange under the symbol “ATMU” on May 26, 2023. On May 30, 2023, the IPO was completed through Cummins’ exchange of 16,243,070 shares of our common stock, including the underwriters’ full exercise of their option to purchase 2,118,661 shares to cover over-allotments. None of the proceeds of the IPO were for the benefit of Atmus. As of the closing of the IPO, Cummins owned approximately 80.5% of the outstanding shares of our common stock.

Current wording

Our Registration Statement on Form S-1, as amended, filed on May 16, 2023, was declared effective on May 25, 2023, and our common shares began trading on the New York Stock Exchange under the symbol “ATMU” on May 26, 2023. On May 30, 2023, the IPO was completed through Cummins’ exchange of 16,243,070 shares of our common stock, including the underwriters’ full exercise of their option to purchase

Previous wording

On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $1.0 billion credit agreement (“Credit Agreement”) with Cummins and a syndicate of banks, providing for a $600 million term loan facility (the “term loan”) and a $400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation. Borrowings under the Credit Agreement did not become available until the IPO occurred. Upon completion of the IPO, we borrowed $650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

Current wording

On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $1.0 billion credit agreement (“Credit Agreement”) with a syndicate of banks, providing for a $600 million term loan facility (the “term loan”) and a $400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation. Borrowings under the Credit Agreement did not become available until the IPO occurred. Upon completion of the IPO, we borrowed $650 million, consisting of proceeds of the term loan and amounts drawn under the revolving credit facility, and paid such amounts to Cummins in partial consideration for the Separation.

Previous wording

Aftermarket and first-fit demand remained stable during the first quarter of 2024. In 2024, we expect first-fit demand to soften across many of our key markets whereas the aftermarket is expected to recover, particularly in the second half of 2024. We have continued to increase prices as a result of continued inflation and increases to our cost base, which has contributed to higher net sales in the three months ended March 31, 2024.

Current wording

Aftermarket demand remained depressed in the first half of 2024 reflecting soft market conditions. It is uncertain if a recovery can be expected in the second half of 2024. First-fit demand remained stable during the first half of 2024. In the second half of 2024, we expect first-fit demand to soften across many of our key markets.

Previous wording

We continued to encounter supply chain challenges which impact our ability to meet customer demand. While overall supply chain conditions have substantially improved from a year ago, they continue to affect inventory and backlog levels throughout our supply chain. Our management team continues to monitor and evaluate all of these factors and the related impacts on our business and operations and we are diligently working to minimize any supply chain impacts to our business and to our customers.

Current wording

While overall supply chain conditions continue to affect inventory and backlog levels, they have largely stabilized from a year ago with minimal disruptions now being experienced and backorders largely recovered in the first half of 2024. Our management team continues to monitor and evaluate all of these factors and the related impacts on our business and operations and we are diligently working to continue to minimize any supply chain impacts to our business and to our customers.

Previous wording

We continue to experience generally high inflation in the first quarter of 2024. Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have stabilized, but we continue to see impacts from labor. Collectively, we incurred higher freight and manufacturing costs resulting in an increase in Cost of sales in the first quarter of 2024. To mitigate these pressures, we continued to institute pricing actions into the first quarter of 2024.

Current wording

We continued to experience generally high inflation in the first half of 2024. Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have stabilized, but we continue to see impacts from labor.

Previous wording

During the first quarter of 2024, our Selling, general and administrative expenses increased as a result of increased people-related expenses and consulting.

Current wording

During the first six months of 2024, our Selling, general and administrative expenses increased as a result of increased people-related and consulting expenses.

Previous wording

Additionally, the depreciation of the U.S. dollar against foreign currencies has had and could continue to have a favorable impact on our condensed consolidated results of operations due to translation impacts. Although we did see a slightly favorable impact on our results of operations in the first quarter of 2024, there can be no assurances that this favorable impact will continue throughout 2024.

Current wording

Additionally, the appreciation of the U.S. dollar against foreign currencies had a slightly unfavorable impact on our condensed consolidated results of operations in the first half of 2024 due to translation impacts; there can be no assurances that this trend will continue throughout 2024.

Previous wording

We have incurred, and expect to continue to incur, additional costs associated with becoming a standalone public company. During the three months ended March 31, 2024, we incurred approximately$6.0 million of one-time expenses including $3.3 million within Cost of sales and $2.7 million within Selling, general and administrative expenses. We expect to incur one-time expenses of approximately $10 million to $20 million in 2024 in connection with becoming a standalone public company. In addition, we expect to incur capital expenditures in connection with the Separation of approximately $10 million to $20 million in 2024. These expenses and capital expenditures primarily relate to the establishment of functions previously co-mingled with Cummins, such as information technologies, distribution centers and human resources. These expenses and capital expenditures are expected to be substantially complete by the end of 2024 but some expenses and capital expenditures may potentially be incurred in 2025. The actual amount of the expenses and capital expenditures we will incur as a stand-alone public company may be higher, perhaps significantly, from our current estimates for a number of reasons, including, among others, the final terms we are able to negotiate with service providers, as well as additional costs we may incur that we have not currently anticipated. Additionally, the actual timing of when we incur these incremental expenses may be different, perhaps significantly, from our current estimates for a number of reasons, including, among others, unforeseen events that may cause delays or interruptions in our plans or our service providers’ ability to provide their services.

Current wording

We have incurred, and expect to continue to incur, additional costs associated with becoming a standalone public company. During the three months ended June 30, 2024, we incurred approximately$3.8 million of one-time expenses including $(0.3) million within Cost of sales and $4.1 million within Selling, general and administrative expenses. During the six months ended June 30, 2024, we incurred approximately$9.8 million of one-time expenses including $3.0 million within Cost of sales and $6.8 million within Selling, general and administrative expenses. We expect to incur one-time expenses of approximately $10 million to $20 million in 2024 in connection with becoming a standalone public company. In addition, we expect to incur capital expenditures in connection with the Separation of approximately $10 million to $20 million in 2024. These expenses and capital expenditures primarily relate to the establishment of functions previously co-mingled with Cummins, such as information technologies, distribution centers and human resources. These expenses and capital expenditures are expected to be substantially complete by the end of 2024 but some expenses and capital expenditures may potentially be incurred in 2025. The actual amount of the expenses and capital expenditures we will incur as a stand-alone public company may be higher, perhaps significantly, from our current estimates for a number of reasons, including, among others, the final terms we are able to negotiate with service providers, as well as additional costs we may incur that we have not currently anticipated. Additionally, the actual timing of when we incur these incremental expenses may be different, perhaps significantly, from our current estimates for a number of reasons, including, among others, unforeseen events that may cause delays or interruptions in our plans or our service providers’ ability to provide their services.

Previous wording

Gross margin was$111.8 million for the three months ended March 31, 2024, an increase of$2.0 million compared to$109.8 million for the three months ended March 31, 2023. The increase in Gross margin was mainly due to approximately $8.8 million of favorable pricing as described above, $2.4 million of favorable commodities costs and $0.1 million of favorable currency impacts, partially offset by $4.6 million increase in manufacturing and other costs, $2.3 million in one-time separation costs, $1.6 million in unfavorable freight costs and $0.8 million in lower volumes. Gross margin as a percentage of Net sales was 26.2% for the three months ended March 31, 2024 and for the three months ended March 31, 2023.

Current wording

Gross margin was$131.9 million for the three months ended June 30, 2024, an increase of$17.5 million compared to$114.4 million for the three months ended June 30, 2023. The increase in Gross margin was mainly due to approximately $7.9 million of favorable pricing as described above, higher volumes of approximately $4.1 million, lower one-time separation costs of $2.8 million, $1.8 million of favorable commodities and freight costs and a $1.2 million decrease in manufacturing and other costs, partially offset by $0.3 million in unfavorable currency impacts. Gross margin as a percentage of Net sales was 30.5% for the three months ended June 30, 2024 and 27.7%for the three months ended June 30, 2023.

Previous wording

Selling, general and administrative expenses were$43.3 million for the three months ended March 31, 2024, an increase of$4.2 million compared to$39.1 million for the three months ended March 31, 2023. The increase was primarily driven by increased people-related expenses and consulting, partially offset by lower one-time separation costs of $0.4 million. Selling, general and administrative expenses as a percentage of Net sales were 10.2% for the three months ended March 31, 2024, an increase of 0.9 percentage points compared to 9.3% for the three months ended March 31, 2023. The increase in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above increasing at a higher rate in relation to the increase in Net sales.

Current wording

Selling, general and administrative expenses were$49.1 million for the three months ended June 30, 2024, an increase of$3.1 million compared to$46.0 million for the three months ended June 30, 2023. The increase was primarily driven by increased people-related and consulting expenses, partially offset by lower one-time separation costs of $2.0 million. Selling, general and administrative expenses as a percentage of Net sales were 11.3% for the three months ended June 30, 2024, an increase of 0.2 percentage points compared to 11.1% for the three months ended June 30, 2023. The increase in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above increasing at a higher rate in relation to the increase in Net sales.

Previous wording

Research, development and engineering expenses were$10.1 million for the three months ended March 31, 2024, an increase of$0.3 million compared to$9.8 million for the three months ended March 31, 2023. The increase was primarily due to increased people-related expenses. Research, development and engineering expenses as a percentage of Net sales were 2.4% for the three months ended March 31, 2024, an increase of 0.1 percentage points compared to 2.3% for the three months ended March 31, 2023. The increase in Research, development and engineering expenses as a percentage of Net sales was mainly due to the item noted above.

Current wording

Research, development and engineering expenses were$10.4 million for the three months ended June 30, 2024, a decrease of$1.9 million compared to$12.3 million for the three months ended June 30, 2023. The decrease was primarily due to standalone costs being favorable to previously allocated expenses under Cummins. Research, development and engineering expenses as a percentage of Net sales were 2.4% for the three months ended June 30, 2024, a decrease of 0.6 percentage points compared to 3.0% for the three months ended June 30, 2023. The decrease in Research, development and engineering expenses as a percentage of Net sales was mainly due to the item noted above.

Previous wording

Interest expense was$10.5 million for the three months ended March 31, 2024, an increase of$10.5 million compared tozero for the three months ended March 31, 2023. The increase was primarily due to interest on our borrowings under the Credit Agreement beginning with our IPO in May 2023.

Current wording

Interest expense was$10.5 million for the three months ended June 30, 2024, an increase of$6.3 million compared to$4.2 million for the three months ended June 30, 2023. The increase in Interest expense was primarily due to interest on our borrowings under the Credit Agreement beginning with our IPO in May 2023.

Previous wording

In connection with the Separation, the Company entered into a tax matters agreement with Cummins that among other things, formalized our agreement related to the responsibility for historical tax positions for the period prior to the IPO for jurisdictions where our business was included in the consolidated or combined tax returns of Cummins.

Current wording

In connection with the Separation, we entered into a tax matters agreement with Cummins that among other things, formalized our agreement related to the responsibility for historical tax positions for the period prior to the IPO for jurisdictions where our business was included in the consolidated or combined tax returns of Cummins.

Previous wording

Our effective tax rate for the three months ended March 31, 2024 was 22.0%, a decrease of 1.7 percentage points compared to 23.7% for the three months ended March 31, 2023. The decrease in the effective tax rate was driven by a change in the mix of earnings among tax jurisdictions and discrete tax items. Our effective tax rate differs from the U.S. statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes.

Current wording

Our effective tax rate for the three months ended June 30, 2024 was 21.8%, a decrease of 2.7 percentage points compared to 24.5% for the three months ended June 30, 2023. The decrease in the effective tax rate was driven by a change in the mix of earnings among tax jurisdictions and discrete tax items. Our effective tax rate differs from the U.S. statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes.

Previous wording

Net sales were$426.6 million for the three months ended March 31, 2024, an increase of$8.0 million compared to$418.6 million for the three months ended March 31, 2023. The increase in Net sales was mainly due to $8.8 million of favorable pricing impacts and the favorable impacts of currency of $1.4 million, partially offset by lower volumes of approximately $2.2 million.

Current wording

Net sales were$859.2 million for thesix months ended June 30, 2024, an increase of$27.0 million compared to$832.2 million for thesix months ended June 30, 2023. The increase in Net sales was mainly due to $16.7 million of favorable pricing impacts, higher volumes of $9.6 million and the favorable impacts of currency of $0.8 million.

Previous wording

Equity, royalty and interest income from investees were$10.4 million for the three months ended March 31, 2024, an increase of$2.0 million compared to$8.4 million for the three months ended March 31, 2023. The increase was due to higher earnings of$2.0 million from our joint ventures, primarily in India.

Current wording

Equity, royalty and interest income from investees was$18.6 million for thesix months ended June 30, 2024, an increase of$1.9 million compared to$16.7 million for thesix months ended June 30, 2023. The increase was primarily due to higher earnings of$1.9 million from our joint ventures in India and China.

Previous wording

Our facilities under the Credit Agreement provide for $1.0 billion in total availability, which includes a $600 million term loan and a $400 million revolving credit facility. As of March 31, 2024, we have borrowed $600.0 million on the term loan and zero on the revolving credit facility. As a result, we had capacity under our revolving credit facility of $400.0 million as of March 31, 2024.

Current wording

Our facilities under the Credit Agreement provide for $1.0 billion in total availability, which includes a $600 million term loan and a $400 million revolving credit facility. As of June 30, 2024, we have outstanding borrowings of $600 million on the term loan and zero on the revolving credit facility. As a result, we had capacity under our revolving credit facility of $400 million as of June 30, 2024.

Previous wording

Net cash used in operating activities was$8.2 million for thethree months ended March 31, 2024, a decrease of$51.0 million compared to Net cash provided by operating activities of$42.8 million for thethree months ended March 31, 2023. The decrease was driven primarily by higher working capital requirements of$46.1 million and a decrease in Net income of$7.2 million. During thethree months ended March 31, 2024, higher working capital requirements resulted in a cash outflow of$59.1 million compared to a cash outflow of$13.0 million for thethree months ended March 31, 2023, mainly due to lower other accrued expenses, driven by variable compensation of $23.7 million and one-time working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices of $3.3 million, higher trade receivables and lower trade payables.

Current wording

Net cash provided by operating activities was$14.7 million for thesix months ended June 30, 2024, a decrease of$74.3 million compared to Net cash provided by operating activities of$89.0 million for thesix months ended June 30, 2023. The decrease was driven primarily by higher working capital requirements of$68.0 million. During thesix months ended June 30, 2024, higher working capital requirements resulted in a cash outflow of$91.7 million compared to a cash outflow of$23.7 million for thesix months ended June 30, 2023, mainly due to lower other accrued expenses, driven by variable compensation of $23.7 million and one-time working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices of $21.6 million, higher inventories and higher trade receivables.

Previous wording

Dividends received from our unconsolidated equity investees were$9.6 million andzero for thethree months ended March 31, 2024 and March 31, 2023, respectively. During the first quarter of 2024, we received a partial dividend from our joint venture in India which is included in Net cash used in operating activities.

Current wording

Dividends received from our unconsolidated equity investees were$9.6 million and$14.8 million for thesix months ended June 30, 2024 and June 30, 2023, respectively. During the first quarter of 2024, we received a partial dividend from our joint venture in India which is included in Net cash used in operating activities.

Previous wording

Net cash used in investing activities for thethree months ended March 31, 2024 and March 31, 2023 was primarily used for capital expenditures. Our capital expenditures were$10.6 million (of which approximately$2.8 million related to one-time separation costs) and$6.4 million for thethree months ended March 31, 2024 and March 31, 2023, respectively, corresponding to approximately 2.5% of Net sales for thethree months ended March 31, 2024 and approximately 1.5% of Net sales for thethree months ended March 31, 2023.

Current wording

Net cash used in investing activities for thesix months ended June 30, 2024 and June 30, 2023 was primarily used for capital expenditures. Our capital expenditures were$22.2 million (of which approximately$7.3 million related to one-time separation costs) and$19.1 million for thesix months ended June 30, 2024 and June 30, 2023, respectively, corresponding to approximately 2.6% of Net sales for thesix months ended June 30, 2024 and approximately 2.3% of Net sales for thesix months ended June 30, 2023.

Previous wording

Net cash provided by financing activities for thethree months ended March 31, 2024 waszero and Net cash used in financing activities for thethree months ended March 31, 2023 was$36.4 million. Net cash used in financing activities for thethree months ended March 31, 2023 consisted entirely of transfers to Cummins.

Current wording

Net cash provided by financing activities for thesix months ended June 30, 2024 waszero and Net cash provided by financing activities for thesix months ended June 30, 2023 was$69.7 million. Net cash provided by financing activities for thesix months ended June 30, 2023 consisted primarily of long-term debt proceeds from our borrowings of $650 million under our Credit Agreement, partially offset by net transfers of $580.3 million to Cummins as part of the Separation.

Previous wording

Our total debt was$600.0 million at both March 31, 2024 and December 31, 2023. At March 31, 2024, the weighted-average term of our outstanding long-term debt was 3.4 years. Refer to Note 9, Debt and Borrowing Arrangements, to the Condensed Consolidated Financial Statements for more information on our debt and debt covenants.

Current wording

Our total debt was$600 million at both June 30, 2024 and December 31, 2023. At June 30, 2024, the weighted-average term of our outstanding long-term debt was 3.4 years. Refer to Note 9, Debt and Borrowing Arrangements, to the Condensed Consolidated Financial Statements for more information on our debt and debt covenants.

Previous wording

(a)Primarily comprised of one-time expenses related to Information Technology, warehousing and Human Resources separation costs and the related tax impact of those expenses. The tax impact of one-time separation costs for the three months ended March 31, 2024 and 2023 were $1.3 million and $1.0 million, respectively.

Current wording

(a)Primarily comprised of one-time expenses related to Information Technology, warehousing and Human Resources separation costs and the related tax impact of those expenses. The tax impact of one-time separation costs for the three months ended June 30, 2024 and 2023 were $0.8 million and $2.2 million, respectively, and for the six months ended June 30, 2024 and 2023 were $2.1 million and $3.1 million, respectively.

Previous wording

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of our financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Our significant accounting policies are described in Note 3, Summary of Significant Accounting Policies, to our historical consolidated financial statementsin our Annual Report on Form 10-K for the year ended December 31, 2023. Our significant accounting estimates are described in the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

We prepare our condensed consolidated financial statements in conformity with U.S. GAAP. The preparation of our financial statements requires the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates and assumptions. Our significant accounting policies are described in Note 3, Summary of Significant Accounting Policies, to our historical consolidated financial statementsin our Annual Report on Form 10-K for the year ended December 31, 2023. Our significant accounting estimates are described in the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.