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 and nine months ended September 30, 2024 compared to thethree and nine months ended September 30, 2023.

Current wording

The following is our discussion and analysis of changes in our financial condition and results of operations for thethree months ended March 31, 2025 compared to thethree months ended March 31, 2024.

Previous wording

•Atmus deriving significant earnings from investees that Atmus does not directly control;

Current wording

•Deriving significant earnings from investees that Atmus does not directly control;

Previous wording

•Atmus’ historical consolidated financial statements are not necessarily representative of the results Atmus would have achieved as a standalone company; and

Current wording

•Difficulty operating as a standalone company;

Previous wording

•Potential economic downturns that could cause the impairment of recorded goodwill;

Current wording

•Potential economic downturns that could cause the balances of recorded goodwill to decrease;

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;

Current wording

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

Previous wording

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

Current wording

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

Previous wording

We are one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. We design and manufacture advanced filtration products, principally under the Fleetguard brand, that provide superior asset protection and enable lower emissions. We estimate that approximately 19% of our net sales in 2023 were generated through first-fit sales to OEMs, where our products are installed as components for new vehicles and equipment. We estimate that approximately 81% of our net sales in 2023 were generated in the aftermarket, where our products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on our more than 65-year history, we continue to grow and differentiate ourselves through our global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market.

Current wording

We are one of the global leaders of filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining and power generation vehicles and equipment. We design and manufacture advanced filtration products, principally under the Fleetguard brand, that provide superior asset protection and enable lower emissions. We estimate that approximately 14% of our net sales in 2024 were generated through first-fit sales to OEMs, where our products are installed as components for new vehicles and equipment. We estimate that approximately 86% of our net sales in 2024 were generated in the aftermarket, where our products are installed as replacement or repair parts, leading to a strong recurring revenue base. Building on our more than 65-year history, we continue to grow and differentiate ourselves through our global footprint, comprehensive offering of premium products, technology leadership and multi-channel path to market.

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 an additional 2,118,661 shares to cover over-allotments. None of the proceeds of the IPO were for the benefit of

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 an additional 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.

Previous wording

Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions. Our revenues may also be impacted by OEM inventory levels, production schedules, commodity prices, work stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by currency exchange rate changes, political and economic uncertainty, public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards in the countries we serve. Some of the more important factors affecting our performance are briefly discussed below.

Current wording

Our financial performance depends, in large part, on varying conditions in the markets we serve. Demand in these markets tends to fluctuate in response to overall economic conditions. Our revenues may also be impacted by OEM inventory levels, production schedules, commodity prices, work stoppages and supply chain challenges. Economic downturns in markets we serve generally result in reduced sales of our products and can result in price reductions in certain products and/or markets. As a worldwide business, our operations are also affected by currency exchange rate changes, political and economic uncertainty (including tariffs and trade barriers), public health crises (epidemics or pandemics) and regulatory matters, including adoption and enforcement of environmental and emission standards in the countries we serve. Some of the more important factors affecting our performance are briefly discussed below.

Previous 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. 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.

Current wording

While overall supply chain conditions continue to affect inventory and backlog levels, they have largely stabilized with minimal disruptions now being experienced and backorders largely recovered. 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 have seen inflationary impacts largely subside in the third quarter. Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have stabilized, but we continue to see impacts from labor.

Current wording

Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have generally stabilized, though rising costs were observed in the latter portions of the period.

Previous wording

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

Current wording

During the first three months of 2025, our Selling, general and administrative expenses increased as a result of increased people-related and consulting expenses.

Previous 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 nine months of 2024 due to translation impacts; there can be no assurances that this trend will continue the remainder of 2024.

Current wording

Additionally, the appreciation of the U.S. dollar against foreign currencies had an unfavorable impact on our condensed consolidated results of operations in the first three months of 2025 due to translation impacts. We remain in a volatile currency environment and as such, there can be no assurances that this trend will continue for the remainder of 2025.

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 September 30, 2024, we incurred approximately$8.9 million of one-time expenses including $5.0 million within Cost of sales and $3.9 million within Selling, general and administrative expenses. During the nine months ended September 30, 2024, we incurred approximately$18.7 million of one-time expenses including $8.0 million within Cost of sales and $10.7 million within Selling, general and administrative expenses. We expect to incur one-time expenses of approximately $20 million to $25 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 $13 million to $18 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, manufacturing 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 will 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 March 31, 2025, we incurred approximately $9.3 million of one-time expenses including $6.8 million within Cost of sales and $2.5 million within Selling, general and administrative expenses. We expect to incur one-time expenses of approximately $10 million to $15 million in 2025 in connection with becoming a standalone public company. In addition, we expect to incur capital expenditures in connection with the Separation of approximately $5 million to $10 million in 2025. These expenses and capital expenditures primarily relate to the establishment of functions previously co-mingled with Cummins, such as information technologies, distribution centers, manufacturing and human resources. The one-time costs incurred during the three months ended March 31, 2025, were primarily associated with establishing our own standalone warehouse in Belgium as we worked to ensure we were supporting customer needs. These expenses and capital expenditures are expected to be complete by the end of 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$111.3 million for the three months ended September 30, 2024, an increase of$8.4 million compared to$102.9 million for the three months ended September 30, 2023. The increase in Gross margin was mainly due to approximately $5.2 million of favorable pricing impacts as described above, $4.1 million of favorable commodities costs and higher volumes of approximately $2.6 million, partially offset by $1.4 million in unfavorable currency impacts, higher one-time separation costs of $1.2 million and a $0.9 million increase in manufacturing and other costs. Gross margin as a percentage of Net sales was 27.6% for the three months ended September 30, 2024, an increase of 1.6 percentage points compared to 26.0%for the three months ended September 30, 2023. The increase in Gross margin as a percentage of Net sales was primarily due to the items noted above.

Current wording

Gross margin was$110.5 million for the three months ended March 31, 2025, a decrease of$1.3 million compared to$111.8 million for the three months ended March 31, 2024. The decrease in Gross margin was mainly due to $4.8 million in unfavorable currency impacts, a $3.5 million increase in one-time separation costs, $2.2 million of unfavorable logistic costs and lower volumes of approximately $1.2 million, partially offset by $4.8 million of favorable pricing impacts as described above, a $3.9 million decrease in manufacturing and other costs and a $1.7 million decrease in warranty costs. Gross margin as a percentage of Net sales was 26.5% for the three months ended March 31, 2025, an increase of 0.3 percentage points compared to 26.2%for the three months ended March 31, 2024. The increase in Gross margin as a percentage of Net sales was primarily driven by the items noted above decreasing at a higher rate in relation to the change in Net sales.

Previous wording

Selling, general and administrative expenses were$46.4 million for the three months ended September 30, 2024, an increase of$5.1 million compared to$41.3 million for the three months ended September 30, 2023. The increase was primarily driven by increased people-related and consulting expenses and higher one-time separation costs of $0.4 million, partially offset by lower variable compensation costs. Selling, general and administrative expenses as a percentage of Net sales were 11.5% for the three months ended September 30, 2024, an increase of 1.1 percentage points compared to 10.4% for the three months ended September 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.

Current wording

Selling, general and administrative expenses were$45.9 million for the three months ended March 31, 2025, an increase of$2.6 million compared to$43.3 million for the three months ended March 31, 2024. The increase was primarily driven by increased people-related and consulting expenses of $2.6 million. Selling, general and administrative expenses as a percentage of Net sales were 11.0% for the three months ended March 31, 2025, an increase of 0.8 percentage points compared to 10.2% for the three months ended March 31, 2024. The increase in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above.

Previous wording

Research, development and engineering expenses were$9.7 million for the three months ended September 30, 2024, a decrease of$1.4 million compared to$11.1 million for the three months ended September 30, 2023. The decrease was primarily due to the timing of design projects and lower variable compensation costs. Research, development and engineering expenses as a percentage of Net sales were 2.4% for the three months ended September 30, 2024, a decrease of 0.4 percentage points compared to 2.8% for the three months ended September 30, 2023. The decrease 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$9.1 million for the three months ended March 31, 2025, a decrease of$1.0 million compared to$10.1 million for the three months ended March 31, 2024. The decrease was primarily due to lower people-related expenses. Research, development and engineering expenses as a percentage of Net sales were 2.2% for the three months ended March 31, 2025, a decrease of 0.2 percentage points compared to 2.4% for the three months ended March 31, 2024. The decrease in Research, development and engineering expenses as a percentage of Net sales was mainly due to the item noted above.

Previous wording

Equity, royalty and interest income from investees was$26.7 million for thenine months ended September 30, 2024, an increase of$1.9 million compared to$24.8 million for thenine months ended September 30, 2023. The increase was primarily due to higher earnings of$1.9 million from our joint ventures in India and China.

Current wording

Equity, royalty and interest income from investees were$9.2 million for the three months ended March 31, 2025, a decrease of$1.2 million compared to$10.4 million for the three months ended March 31, 2024. The decrease was due to lower earnings of$1.2 million from our joint ventures, primarily driven by market conditions in India.

Previous wording

Our effective tax rate for the three months ended September 30, 2024 was 18.4%, a decrease of 4.7 percentage points compared to 23.1% for the three months ended September 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.

Current wording

Our effective tax rate for the three months ended March 31, 2025 was 21.3%, a decrease of 0.7 percentage points compared to 22.0% for the three months ended March 31, 2024. The decrease in the effective tax rate was driven by a change in the mix of earnings among tax jurisdictions. 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

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 September 30, 2024, we have outstanding borrowings of $596 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 September 30, 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 March 31, 2025, we have outstanding borrowings of $588.8 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 March 31, 2025.

Previous wording

We believe that cash from operations and the facilities under our Credit Agreement will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations and payments for share repurchases and quarterly dividends in both the short and long term. Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity. However, if a serious economic or credit market crisis ensues or other adverse developments arise, it could have a material adverse effect on our liquidity, financial condition, results of operations and cash flows.

Current wording

We believe that cash from operations and the facilities under our Credit Agreement will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations and payments for share repurchases and quarterly dividends in both the short and long term. Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity. However, if a serious economic or credit market crisis ensues or other adverse development arises, it could have a material adverse effect on our liquidity, financial condition, results of operations and cash flows.

Previous wording

Net cash provided by operating activities was$85.4 million for thenine months ended September 30, 2024, a decrease of$61.9 million compared to Net cash provided by operating activities of$147.3 million for thenine months ended September 30, 2023. The decrease was driven primarily by higher working capital requirements of$83.9 million, partially offset by higher net income and higher other liabilities primarily related to leases of $7.4 million. During thenine months ended September 30, 2024, higher working capital requirements resulted in a cash outflow of$81.9 million compared to a cash inflow of$2.0 million for thenine months ended September 30, 2023, mainly due to lower other accrued expenses, driven by one-time working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices of $26.9 million and variable compensation, higher inventories, lower trade payables and higher trade receivables.

Current wording

Net cash provided by operating activities was$28.7 million for thethree months ended March 31, 2025, an increase of$36.9 million compared to Net cash used in operating activities of$8.2 million for thethree months ended March 31, 2024. The increase was driven primarily by lower working capital requirements of$37.0 million, partially offset by lower income from equity method investees of $2.7 million. During thethree months ended March 31, 2025, lower working capital requirements resulted in a cash outflow of$22.1 million compared to a cash outflow of$59.1 million for thethree months ended March 31, 2024, mainly due to higher trade payables, lower inventory and lower prepaids.

Previous wording

Dividends received from our unconsolidated equity investees were$22.6 million and$17.3 million for thenine months ended September 30, 2024 and September 30, 2023, respectively. Dividends are typically paid in the second through the fourth quarters and are included in Net cash provided by operating activities.

Current wording

Dividends received from our unconsolidated equity investees were$5.7 million and$9.6 million for thethree months ended March 31, 2025 and March 31, 2024, respectively.

Previous wording

Net cash used in investing activities for thenine months ended September 30, 2024 and September 30, 2023 was primarily used for capital expenditures. Our capital expenditures were$38.6 million (of which approximately$12.4 million related to One-time separation costs) and$29.6 million (of which approximately$4.8 million related to One-time separation costs) for thenine months ended September 30, 2024 and September 30, 2023, respectively, corresponding to approximately 3.1% of Net sales for thenine months ended September 30, 2024 and approximately 2.4% of Net sales for thenine months ended September 30, 2023.

Current wording

Net cash used in investing activities for thethree months ended March 31, 2025 and March 31, 2024 was primarily used for capital expenditures. Our capital expenditures were$12.4 million (of which approximately$3.5 million related to one-time separation costs) and$10.6 million (of which approximately$2.8 million related to one-time separation costs) for thethree months ended March 31, 2025 and March 31, 2024, respectively, corresponding to approximately 3.0% and 2.5% of Net sales for thethree months ended March 31, 2025 and March 31, 2024, respectively.

Previous wording

Net cash used in financing activities for thenine months ended September 30, 2024 was$18.0 million and Net cash provided by financing activities for thenine months ended September 30, 2023 was$21.1 million. Net cash used in financing activities for thenine months ended September 30, 2024 consisted primarily of repurchases of common stock, dividends paid and payments made on our term loan. Net cash provided by financing activities for thenine months ended September 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 and $50 million repayment on our revolving credit facility.

Current wording

Net cash used in financing activities for thethree months ended March 31, 2025 was$17.9 million compared to$0.0 millionfor thethree months ended March 31, 2024. Net cash used in financing activities for thethree months ended March 31, 2025 consisted primarily of repurchases of common stock, dividends paid and payments made on our term loan.

Previous wording

We paid dividends of $4.2 million in the first nine months of 2024 and none in the first nine months of 2023. The third quarter 2024 dividend of $0.05 per share, declared on July 17, 2024 for shareholders of record as of August 1, 2024, was paid on August 14, 2024. On October 17, 2024, the Board of Directors declared a quarterly cash dividend of $0.05 per share of Common stock. This dividend is payable on November 13, 2024 to shareholders of record as of October 31, 2024. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making.

Current wording

We paid dividends of$4.1 million in the first three months of 2025 and none in the first three months of 2024. The first quarter 2025 dividend of $0.05 per share, declared on February 19, 2025 for shareholders of record as of March 4, 2025, was paid on March 19, 2025. The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making.

Previous wording

Our total debt was$596 million at September 30, 2024 and $600 million at December 31, 2023. At September 30, 2024, the weighted-average term of our outstanding long-term debt was 2.9 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$588.8 million at March 31, 2025 and $600 million at December 31, 2024. At March 31, 2025, the weighted-average term of our outstanding long-term debt was 2.6 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, manufacturing 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 September 30, 2024 and 2023 were $1.6 million and $1.7 million, respectively, and for the nine months ended September 30, 2024 and 2023 were $3.8 million and $4.8 million, respectively.

Current wording

(a)Primarily comprised of one-time expenses related to Information Technology, warehousing, manufacturing 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, 2025 and 2024 were $2.0 million and $1.3 million, respectively.