Q1 2024 Atmus Filtration Technologies Inc Earnings Call

After the Speakers' remarks, there'll be a question and answer session.

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Operator: 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, again, please press star 1. I would now like to turn the conference over to Todd Chirillo, Executive Director of Investor Relations. Please, go ahead.

I'd now like to turn the conference over to Todd Cello Executive Director of Investor Relations. Please go ahead.

Todd Chirillo: Thank you, operator. Good morning, everyone, and welcome to the Atmus Filtration Technologies first quarter 2024 earnings call. On the call today, we have Steph Disher, Chief Executive Officer, and Jack Kienzler, 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 our slides on our website for the disclosure of the risks that could affect our results and for 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 at atmus.com. Now, I'll turn the call over to Steph.

Thank you operator, good morning, everyone and welcome to the Atmos filtration technologies first quarter 2024 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 our 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.

For additional information please see our SEC filings and the Investor Relations pages available on our website at <unk> Dot Com now I will turn the call over to Steph.

Stephanie Juanita Disher: Thank you, Todd, and good morning, everyone. We delivered a strong performance in the first quarter. On the call today, I will provide an update on our performance in the quarter, our outlook for the year, and provide some comments on the execution of our growth strategy. Jack will then provide additional details regarding our financial performance. Before I discuss the quarterly performance, I would like to acknowledge the significant milestone of Atmus becoming a fully independent company on March 18th.

Steph: Thank you Todd and good morning, everyone. We delivered strong performance in the first quarter on the call today I will provide an update on our performance in the quarter outlook for the year and provide some comments on delivery of our growth strategy.

Steph: Jack will then provide additional details regarding our financial performance.

Speaker Change: Before I discuss our quarterly performance I would like to acknowledge the significant milestone of Atmos, becoming a fully independent company on March 18th.

Stephanie Juanita Disher: On February 14, Cummins announced an exchange offer whereby Cummins shareholders could exchange all or a portion of their Cummins common stock for shares of Atmus Filtration Technologies Inc. Investors showed significant interest in the offer, with the transaction approximately 12 times oversubscribed. The digestiture of Atmus shares by Cummins was completed on March 18th and resulted in the full separation of Atmus. With the successful completion of the exchange offer, all former Cummins-appointed directors have resigned from the Atmus Board of Directors, and two new independent directors, Diego Donoso and Stuart Taylor, have been appointed to the board.

Speaker Change: On February 14, Cummins announced an exchange offer whereby common shareholders could exchange all or a portion of <unk> common stock for shares of assets.

Speaker Change: And that does show a significant interest in the offer with the transaction approximately 12 times over subscribed.

Speaker Change: The divestiture of Atmos shares by comments was completed on March 18, and resulted in a full separation of Aetna.

Speaker Change: With the successful completion of the exchange offer all former comments appointed directors have resigned from the Atmos Board of directors and two new independent Directors Diego Donoso and Stuart Taylor has been appointed to the board.

Stephanie Juanita Disher: A majority of the Atmus Board of Directors is now independent, and I'm excited to be working with the board as we continue to accelerate growth and deliver long-term value for our shareholders. Now, let's turn to the first quarter financial results and our current outlook for 2024. We delivered strong financial performance in the first quarter. Sales were $427 million, compared to $419 million during the same period last year. An increase of approximately 2%.

Speaker Change: A majority of the Atmos Board of directors is now independent and I'm excited to be working with the board as we continue to accelerate growth and deliver long term value for our shareholders.

Stephanie Juanita Disher: Adjusted EBITDA in the first quarter was $80 million, or 18.8%, compared to $79 million, or 18.8%, in the prior period. Adjusted EBITDA for the quarter excludes $6 million of one-time standalone costs and $4 million for the same period last year. Adjusted earnings per share was $0.60 in the first quarter of 2024, and adjusted free cash flow was negative $13 million. Adjusted free cash flow excludes $6 million of one-time separation-related items.

Speaker Change: Now, let's turn to the first quarter financial results and our current outlook for 2024.

Speaker Change: We delivered strong financial performance in the first quarter.

Speaker Change: Sales were $427 million compared to $419 million during the same period last year.

Speaker Change: An increase of approximately 2%.

Adjusted EBITDA in the first quarter was $80 million or 18, 8% compared to $79 million or 18, 8% in the prior period.

Speaker Change: Adjusted EBITDA for the quarter excludes 6 million of onetime standalone costs and $4 million for the same period last year.

Adjusted earnings per share was <unk> 60 in.

In the first quarter of 2024, and adjusted free cash flow was negative $13 million.

Speaker Change: Adjusted free cash flow excludes $6 million of one time separation related items.

Stephanie Juanita Disher: Now, let me provide some insight into our global markets. As expected, we saw softer freight activity during the first quarter. However, our continued market share gains are offsetting some of the market weaknesses. Demand in the first-fit markets has started to show signs of slowing in the US.

Speaker Change: Now, let me provide some insight into our global market.

Speaker Change: As expected we saw softer freight activity during the first quarter. However, our continued market share gains are offsetting some of the market weakness.

Speaker Change: Demand in the first fit markets has started to show signs of slowing in the U S and India markets remained robust while in China. The market continues to fall short of expectations.

Stephanie Juanita Disher: In India, markets remain robust, while in China, the market continues to fall short of expectations. Looking ahead to our outlook for global markets, I will start with the aftermarket for both on-highway and off-highway. In North America, we saw the CAS rate index down 5% in the first quarter compared to the prior year. The rate of decline slowed through the quarter, with the month of March down 3.6% year-over-year.

Speaker Change: Looking ahead to our outlook for global markets I will start with aftermarket for both on highway and off highway.

Speaker Change: In North America, we saw the Cass freight index down 5% in the first quarter compared to the prior year.

Speaker Change: The rate of decline slowed through the quarter with the month of March down three 6% year over year.

Stephanie Juanita Disher: While we are expecting year-over-year freight activity to gradually improve through the balance of the year, we are still experiencing year-over-year declines and have not yet seen positive freight activity compared to the prior period. In global off-highway markets, we continue to see strength in North American construction for both residential and non-residential construction. Although partially aided by government infrastructure spending, economic conditions in Europe continue to be depressed with weakness in construction activity, and in the Asia-Pacific region, we are seeing low utilization rates across a number of our key end markets.

Speaker Change: While we are expecting year over year freight activity to gradually improve through the balance of the year. We are still experiencing year over year decline and have not yet seen positive freight activity compared to the prior period.

Speaker Change: In global off highway markets, we continue to see strength in North American construction, both residential and nonresidential construction.

Speaker Change: Partially aided by government infrastructure spending.

Speaker Change: Economic conditions in Europe continued to be depressed with weakness in construction activity and in the Asia Pacific region, We are seeing low utilization rights across a number of our key end markets.

Stephanie Juanita Disher: Overall, we expect aftermarket sales for on-highway and off-highway to be flat to up 2% during the year. Down slightly from our previous guidance of flat to up 3%. Let's turn to our first fit market. In the U.S., we are anticipating declines to primarily impact the second half of 2024.

Speaker Change: Overall, we expect after market for on highway and off highway to be flat to up 2% during the year.

Speaker Change: Down slightly from our previous guidance of flat to up 3%.

Speaker Change: Let's turn to our first fit markets.

Speaker Change: In the U S. We are anticipating declines to primarily impact the second half of 2024.

Stephanie Juanita Disher: We are modestly raising our outlook for U.S. heavy-duty truck sales to be down 7% to 12% for the full year, from our previous guidance of down 10% to 15%. In medium-duty truck sales, our outlook remains unchanged at flat to down 5%. In China, we expect weakness to persist, and demand for trucks in India is expected to remain robust, driven by strong on-highway performance.

We are modestly raising our outlook for U S heavy duty truck to be down 7% to 12% for the full year.

Speaker Change: From our previous guidance of down 10% to 15%.

Speaker Change: In medium duty truck outlook remains unchanged at flat to down 5%.

Speaker Change: In China, we expect weakness to persist and demand for trucks in India is expected to remain robust driven by strong on highway performance.

Stephanie Juanita Disher: While the outlook for our markets is mixed, we continue to execute on our growth plans and expand our market share in both aftermarket and first bid. Our revenue guidance is unchanged at down 1% to up 3%, with global sales in the range of $1.61 to $1.675 billion. We expect continued strong operational performance and to deliver adjusted EBITDA margins of 18.25% to 19.25%, unchanged from prior guidance. Additionally, adjusted EPS is unchanged from our prior outlook and anticipated to be in a range of $2.10 to $2.35. As we have separated from Cummins, we have incurred separation costs and cash impacts associated with establishing a standalone company. These costs and cash flows are one-time in nature.

Speaker Change: While the outlook for our markets as mixed we continue to execute on our growth plans and expand our market share in both aftermarket and first fit.

Speaker Change: Our revenue guidance is unchanged at down 1% to up 3% with.

Speaker Change: With global sales in the range of $1 six one to $1 65 675 billion.

Speaker Change: We expect continued strong operational performance and to deliver adjusted EBITDA margins of $18, two 5% to $19 two 5% unchanged from prior guidance. Additionally.

Speaker Change: Additionally, adjusted EPS is unchanged from our prior outlook and anticipated to be in a range of $2 10 to $2 35.

Speaker Change: As we have separated from comments, we have incurred separation costs and cash impacts associated with establishing a standalone company.

Speaker Change: Costs and cash flows are onetime in nature.

Stephanie Juanita Disher: We want to be transparent and highlight those items to enable a clear understanding of the ongoing performance and cash generation of our business. In relation to the cash flow outlook, I want to highlight a one-time cash outflow which is estimated to be $30 million in 2024. This impact arises as a result of a change in working capital.

Speaker Change: We want to be transparent and highlight those items to naval a clear understanding of the ongoing performance and cash generation of our business.

Speaker Change: In relation to cash flow outlook I want to highlight a onetime cash outflows, which is estimated to be $30 million in 2024.

Speaker Change: This impact arises as a result of a change in working capital.

Stephanie Juanita Disher: Cummins previously processed our payroll on our behalf, and we received 60-day terms. As we transition to managing our own payroll directly, this cash will flow immediately upon payment to employees. Now, I would like to take a moment to share the progress we have made on implementing our growth strategy. As a reminder, there are four pillars of our growth strategy. Our first pillar is to grow, share, infer, and fit.

Speaker Change: <unk> previously processed our payroll on our behalf and we received 60 day terms.

Speaker Change: As we transition to managing our arm payroll directly this cash will flow immediately upon payment to employees.

Speaker Change: Now I would like to take a moment to share the progress we have made on implementing our growth strategy.

Speaker Change: As a reminder, there are four pillars of our growth strategy.

Speaker Change: Our first pillar is to grow share in phosphate.

Stephanie Juanita Disher: We are a leader in fuel filtration and crankcase ventilation products, and we are focused on growing this leadership position with global OEM customers. We are winning with the winners and have continued to secure Cummins' new vehicle platforms. We are also accelerating growth with other leading global OEMs. We have recently won the fuel filtration business of a global OPM for the European and North American business, and we are actively pursuing new customers who are out of reach to us as part of Cummins.

Speaker Change: We are a leader in fuel filtration and crankcase ventilation products and we are focused on growing this leadership position with global OEM customers.

We are winning with the winners and have continued to secure Cummins new vehicle platforms. We are also accelerating growth with other leading global Oems.

Speaker Change: We have recently won the fuel filtration business of a global Tam for the European and North American business, and we are actively pursuing new customers, who were out of reach to us as part of Cummins.

Stephanie Juanita Disher: Our second and third pillars are interrelated and focus on accelerating profitable growth in the aftermarket and transforming our supply chain. We are relentlessly focused on our customers and providing the right product when and where it is needed. Our agility allows us to continue gaining share in the aftermarket with our world-class Fleet Guard products. A key component of our agility is the continued transformation of our global distribution capabilities to provide our customers with industry-leading product availability. Earlier this year, we inaugurated our Southern Distribution Center near Dallas, Texas, and we recently opened our newest distribution facility in Singapore.

Speaker Change: Our second and third pillar interrelated and focus on accelerating profitable growth in the aftermarket and transforming our supply chain.

Speaker Change: We are relentlessly focused on our customers and providing the right product when and where it is needed.

Speaker Change: Our agility allows us to continue gaining share in the aftermarket without world class fleet card products.

Speaker Change: As a key component of our agility is the continued transformation of our global distribution capabilities to provide our customers with industry leading product availability.

Speaker Change: This year, we inaugurated our southern distribution center near Dallas, Texas, and we've recently opened our newest distribution facility in Singapore.

Stephanie Juanita Disher: We now have coverage for over 80% of our volume being distributed through dedicated Atmus warehouse facilities. We are on track to establish additional centers in Europe throughout 2024. We are also focused on driving efficiency through our purchasing organization and investing in automation in our manufacturing operations. These focus areas will support continued reduction of our operating costs.

Speaker Change: We now have coverage for over 80% of our volume being distributed through dedicated Atmos warehouse facilities.

Speaker Change: We are on track to establish additional centers in Europe throughout 2024.

Speaker Change: We are also focused on driving efficiencies through our purchasing organization and investing in automation in our manufacturing operations.

Speaker Change: Focus areas will support continued reduction of our operating costs.

Stephanie Juanita Disher: We have demonstrated delivery of our transformation initiative through an expansion of our adjusted EBITDA margin by 300 basis points during 2023. Our guidance for 2024 reflects continued momentum as we execute on our strategy. Our fourth pillar is to expand into industrial filtration markets. We intend to pursue this growth inorganically, and we see a strong pipeline of opportunities which our team is continuously evaluating. We will take a disciplined, programmatic approach with a focus on creating long-term shareholder value.

We have demonstrated delivery of our transformation initiatives through expansion of our adjusted EBITDA margin 300 basis points during 2023.

Speaker Change: Our guidance for 2024 reflects continued momentum as we execute on our strategy.

Speaker Change: Our fourth pillar is to expand into industrial filtration markets. We.

Speaker Change: We intend to pursue this growth inorganically and we see a strong pipeline of opportunities, which our team is continuously evaluating we.

Speaker Change: We will take a disciplined programmatic approach with a focus on creating long term shareholder value.

Stephanie Juanita Disher: Our capital allocation priorities will continue to reflect our focus on growing our business, both organically and inorganically. We are also assessing our approach to returning cash to shareholders now that we are an independent company. I am proud of our Atmus team, who delivered another strong quarter of performance. As a fully independent company, we will accelerate our growth strategy as we move through 2024. Now, I will turn the call over to Jack, who will discuss our financial results in more detail. Thank you, Steph, and good morning, everyone.

Speaker Change: Our capital allocation priorities will continue to reflect our focus on growing our business both organically and Inorganically. We're also assessing our approach to returning cash to shareholders now that we are an independent company.

Speaker Change: I am proud of our Atmos team, who delivered another strong quarter of performance as a fully independent company, we will accelerate our growth strategy as we move through 2020 for now I will turn the call over to Jack who will discuss our financial results in more detail.

Jack Kienzler: Thank you, Steph, and good morning, everyone. We continued to deliver strong financial performance in the first quarter. Sales were $427 million compared to $419 million during the same period last year, an increase of approximately 2%. The increase in sales was primarily driven by an increase in pricing by approximately 2% and the favorable impacts of currency, partially offset by a modest decrease in volume as market share gains continued to counterbalance challenging conditions across many of our markets.

Steph and good morning, everyone. We continued to deliver strong financial performance in the first quarter.

Jack: Sales were $427 million compared to $419 million during the same period last year, an increase of approximately 2%.

Jack: The increase in sales was primarily driven by pricing of approximately 2% and the favorable impact of currency, partially offset by a modest decrease in volume as market share gains continued to counterbalance challenging conditions across many of our markets.

Jack Kienzler: Growth margin for the first quarter was $112 million, an increase of $2 million compared to the first quarter of 2023. In addition to pricing, we also benefited from lower commodity costs, which more than offset the impact of higher freight and manufacturing costs, along with lower volume.

Jack: Gross margin for the first quarter was $112 million, an increase of $2 million.

Jack: Compared to the first quarter of 2023.

Jack: In addition to pricing, we also benefited from lower commodities, which more than offset the impact of higher freight and manufacturing costs, along with lower volumes.

Jack Kienzler: Selling, administrative, and research expenses for the first quarter were $53 million, an increase of $5 million over the same period in the prior year. The increase was primarily driven by higher people-related and consulting costs as we continue to build our team and separate our functions from CUMMIT. Joint venture income was $10 million in the first quarter, an increase of $2 million from 2023, primarily due to strong performance at our joint venture in India.

Jack: Selling administrative and research expenses for the first quarter were $53 million, an increase of $5 million over the same period in the prior year.

Jack: The increase was primarily driven by higher people related and consulting costs as we continue to stand up our team and separate our functions from comments.

Jack: Joint venture income was $10 million in the first quarter, an increase of $2 million from 2023, primarily due to strong performance at our joint venture in India.

Jack Kienzler: This resulted in adjusted EBITDA in the first quarter of 80 million, or 18.8%, compared to 79 million, or 18.8%, in the prior period. Adjusted EBITDA for the quarter excludes $6 million of one-time standalone costs and excludes 4 million for the same period last year. We believe these costs will be in a range of $10 to $20 million in 2024, an increase from our prior guidance of $5 to $15 million. These one-time costs primarily relate to the establishment of functions previously commingled with Cummins, such as information technologies, distribution centers, and human resources.

Jack: This resulted in adjusted EBITDA in the first quarter of $80 million or 18, 8% compared to $79 million or 18, 8% in the prior period.

Jack: Adjusted EBITDA for the quarter excludes $6 million of one time standalone costs and.

Jack: And excludes $4 million for the same period last year.

Jack: We believe these costs will be in a range of $10 million to $20 million in 2024, an increase from our prior guidance of $5 million to $15 million. These.

Jack: These onetime costs, primarily related to the establishment of functions previously co mingled with comments, such as information technology distribution centers and human resources.

Jack Kienzler: Adjusted earnings per share was $0.60 in the first quarter of 2024 compared to $0.67 last year. The decrease was primarily due to higher interest expense incurred from debt issued at our IPO in May of 2023. Adjusted free cash flow was negative $13 million this quarter compared to $37 million in the prior year.

Jack: Adjusted earnings per share was <unk> 60, <unk> in the first quarter of 2024 compared to <unk> 67 last year.

Jack: The decrease was primarily due to higher interest expense incurred from debt issued at our IPO in may of 2020.

Adjusted free cash flow was negative $13 million this quarter compared to $37 million in the prior year.

Jack Kienzler: The higher cash usage was primarily related to increased working capital requirements and the payment of incentive compensation for strong performance achieved in 2023. Free cash flow has been adjusted $3 million for capital expenditures related to our separation from Cummins, compared to $1 million in the previous year. As Steph mentioned earlier in the call, we are also adjusting free cash flow for working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practice.

Higher cash usage was primarily related to increased working capital requirements and the payment of incentive compensation for strong performance achieved in 2023.

Jack: Free cash flow had been adjusted at $3 million for capital expenditures related to our separation for Cummins compared to $1 million in the previous year.

Jack: As Seth mentioned earlier in the call. We are also adjusting free cash flow for working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to Standalone practices.

Jack Kienzler: In the first quarter, this adjustment is $3 million and relates to Cummins processing payroll on our behalf prior to the full separation, and we reimbursed them on 60-day terms consistent with historical practice. As we take over the payroll process, these cash obligations are funded as incurred. We expect these inefficiencies to impact us through the end of the third quarter of this year. The effective tax rate for the first quarter of 2024 was 22%, compared to 23.7% in 2023.

In the first quarter. This adjustment is $3 million and relates to come in as a processing payroll on our behalf prior to the full separation and we reimburse them on 60 day terms consistent with historical practices as.

Jack: As we take over the payroll process. These cash obligations are funded as incurred.

Jack: We expect these inefficiencies to impact us through the end of the third quarter of this year.

Jack: The effective tax rate for the first quarter of 2024 was 22% compared to 23, 7% in 2023.

Jack Kienzler: The decrease was driven by a change in the mix of earnings between U.S. and foreign operations. Now, let's turn to the continued strength of our balance. We ended the quarter with $149 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $549 million of available liquidity. Our cash position and continued strong performance during the first quarter of 2024 have resulted in a net debt-to-adjusted EBITDA ratio of 1.5 times for the trailing 12 months ended March 31st.

Jack: The decrease was driven by a change in the mix of earnings between U S and foreign operations.

Jack: Now, let's turn to the continued strength of our balance sheet.

Jack: We ended the quarter with $149 million of cash on hand, combined with the full availability of our $400 million revolving credit facility, we have $549 million of available liquidity.

Jack: Our cash position and continued strong performance during the first quarter of 2024 has resulted in a net debt to adjusted EBITDA ratio of one five times for the trailing 12 months ended March 31.

Jack Kienzler: Our balance sheet provides us with operational flexibility as we focus on value creation and delivering total shareholder value by deploying capital for continued organic growth and strategic inorganic initiatives. In closing, I want to thank our global team for their hard work and dedication as we begin our first year as a fully independent company. I am looking forward to continuing our momentum and delivering on our strategy throughout the year. Now, we will take your questions.

Jack: Our balance sheet provides us with operational flexibility as we focus on value creation.

Jack: And delivering total shareholder value by deploying capital for continued organic growth and strategic inorganic initiatives.

Speaker Change: In closing I want to thank our global team for their hard work and dedication as we began our first year as a fully independent company.

Speaker Change: I am looking forward to continuing our momentum in delivering on our strategy throughout the year now we will take your questions.

Operator: The floor is now open to your questions, so if you'd like to ask a question at this time, please press forward with the number 1 on your telephone keypad. We are going to pause for a moment just to compile the Q&A list.

Speaker Change: The floor is now open for your questions. So I'll ask a question at this time. Please press the number one of yourself with Keybanc.

Speaker Change: But of course for a moment to compile the Q&A roster.

Operator: The first question comes from the line of Robert Mason, with Bill. Please, go ahead. And the second question comes from the line of Tami Zakaria, JP Morgan. Please, go ahead.

Speaker Change: The first question comes from the line of Rob Mason with Baird.

Robert W. Mason: Please go ahead.

Robert W. Mason: And the second question comes from the line of Tami Zakaria with Jpmorgan. Please go ahead.

Tami Zakaria: Hi, good morning. Thank you so much.

Robert W. Mason: Hi, good morning, Thank you Soma.

Robert W. Mason: So.

Tami Zakaria: The share gain you mentioned in the quarter.

Tami Zakaria: Can you provide some color is that on the OE side, our aftermarket side is it through coming from new customers or increase in share of wallet gains any any color on the share gain comments you made.

Tami Zakaria: So, the share gain you mentioned in the quarter, can you provide some color? Is that on the OE side or aftermarket side? Is it coming from new customers or an increase in share of wallet gains? Any color on the share gain comment you made? Hi Tami, good morning.

Stephanie Juanita Disher: Thanks for the question. I would say that the share gains are primarily coming in the aftermarket. Our share gains there in the aftermarket more than offset any headwinds we saw in market conditions. So that's primarily where we've seen the share gains. Okay. That's helpful.

Speaker Change: Hi, Tammy good morning, Thanks for the question.

Speaker Change: I would say that the share gains are primarily coming in the after market.

Speaker Change: Our share gains there in the after market more than offsets.

Speaker Change: Any headwinds we saw in market conditions, and so that's primarily where we have seen no sign of share gains.

Stephanie Juanita Disher: And then my second question is, can you comment on whether you see any opportunity for your current product, especially on the coolant side, to be used in the data center and the market in light of the liquid cooling technology that these data centers require? Yeah, so I guess, Tami, to answer your question broadly, we certainly see opportunity for growth. I think this week on their call, Cummins talked about the significant growth in the power generation markets, strongly linked to data centers.

Tammy: Got it that's helpful. And then my second question is can you comment on whether you see any opportunity for your current product.

Tammy: Firstly on the cooling side.

Tammy: To be used in the data center end market in light of the liquid cooling technology that these these data centers require.

Speaker Change: Yes, so I guess and <unk>.

Speaker Change: To answer your question broadly, we certainly see opportunity for growth I think this week on their call.

Speaker Change: <unk> comments talked about the significant growth in the power Gen markets.

Stephanie Juanita Disher: Certainly, we have product opportunities, both filtration and coolant opportunities across that market, and we see it as a strong growth market. I think I would just say that many of those applications are standby applications, so they don't drive as many recurring revenue opportunities, but certainly, we see strong tailwinds in that market that we will avail ourselves of in both our filtration product range and coolant. Got it. Thank you so much.

Speaker Change: Strongly linked to data centers.

Speaker Change: Certainly we have product opportunities by filtration and coolant.

Speaker Change: Coolant opportunities across that market and we say it is a strong growth market I think I would just say that many of the applications are standby applications.

So I don't drive as much recurring.

<unk> recurring revenue opportunity, but certainly we see strong tayo wins in that market that we can't we will avail ourselves off in both our filtration product line and Jen and colon.

Speaker Change: Got it thank you so much.

Speaker Change: Yeah.

Robert W. Mason: Our next question comes from the line of Rob Mason. Please go ahead.

Speaker Change: Our next question comes from the line of Rob Mason with Baird. Please go ahead.

Robert W. Mason: Yes, can you hear me?

Yes can you hear me.

Stephanie Juanita Disher: Yeah. Hi Rob. Good morning. Hi.

Robert W. Mason: Yeah, Hi, Ralph good morning.

Robert W. Mason: Hi, sorry about that. Just, I'm curious how the first quarter may have compared to your internal plan. I know you don't provide formal first or quarterly guidance, but I was just curious how it compared to your internal plan and if there's any thoughts you can maybe give us on how you think about seasonality as we start into the second quarter.

Speaker Change: Oh, sorry about that.

Robert W. Mason: Just I was curious how the first quarter may have compared to your internal plan. I know you don't provide formal quarterly guidance, but I was just curious how it compared to internal plan is.

Robert W. Mason: And if there's any thoughts you can maybe give us on how you think about.

Robert W. Mason: Seasonality as we start into the second quarter.

Stephanie Juanita Disher: Absolutely. Thanks, Rob.

Speaker Change: Absolutely Thanks, Paul.

Speaker Change: Firstly I would say, it's slightly ahead of expectations on our first quarter, mostly driven by our market share gains in the aftermarket that I spoke about is our price expectations were broadly in line market expectations overall broadly in line, but certainly I think slightly ahead because of the share growth in after mark.

Stephanie Juanita Disher: So firstly, I would say slightly ahead of expectations for our first quarter, mostly driven by our market share gains in the aftermarket that I spoke about. I'd say our price expectations were broadly in line, market expectations overall broadly in line, but certainly, I think slightly ahead because of the share growth in the aftermarket would be how I'd encapsulate the first quarter. As we look ahead, you know, I've given a bit of an outline of the markets and how I see 2024 playing out.

Speaker Change: It would be how I'd encapsulate that the first quarter.

Speaker Change: As we look ahead I've, given a bit of an outlier to the markets and how I say 2024 playing out.

Stephanie Juanita Disher: I'll just start with the first bit markets for a moment. Really, the only change since our last guidance is the increase in our guidance on the heavy duty truck in the US markets aligned with where our customers are seeing it really, but you know, moved up from down 10% to 15% up to down 7% to 12% with a midpoint of 9.5%. So that's really the only change in the first bit markets. I would say we see that impact of declining markets in the first bit really starting to impact in the second half. It's a little earlier than that in Europe, but we've got less exposure to first bit markets in Europe. And so that's the first bit side.

Speaker Change: I'll just start with phosphate markets for a moment.

Really the IMA changed since our last guidance is the <unk>.

Speaker Change: Increase in our guidance on the heavy duty truck in the U S markets aligned with where our customers are saying it really that.

Speaker Change: Moved up.

Speaker Change: From down, 10%, 10% to 15% up to down 7% to 12% with a midpoint of nine and a half. So that's really the only change in that in our first fit markets I would say, we see that impact of declining markets in phosphate really starting to impact in the second half.

Speaker Change: It's a little earlier than that in Europe.

Speaker Change: We're less we've got less exposure answer state markets in Europe.

Speaker Change: And so that's the first fit side, if I turn to after market.

Stephanie Juanita Disher: If I turn to the aftermarket, I talked about, you know, this is predominantly, I guess the US is a heavy market for us in this regard. I talked about the cash freight index through the first quarter being down 5% year over year. We certainly saw that moderate throughout the quarter, and the March month was down more like 3%. So we are certainly seeing freight activity starting to, you know, improve year over year. And the comparables in the second half of the year, as you know, on the aftermarket because of the significant de-stocking through 2023 are much lower for us.

Speaker Change: I talked about this as predominantly I guess the U S is a heavy market for us in this regard I talked about the Cass freight index through the first quarter down 5% year over year and.

Speaker Change: We certainly saw that moderate throughout the quarter.

Speaker Change: And in March March month was down more like 3% so.

Speaker Change: So we are certainly seeing freight activity starting to in our improved year over year and the comparable in the second half of the year as you know on after market because of the significant de stocking through 2023 are much lower for us.

Speaker Change: So we say after market through the full year at around zero to 2%.

Stephanie Juanita Disher: So we see aftermarket through the full year at around 0% to 2%. And so a flat-ish market, I guess is the best way to describe it, with the trend starting to lift here through the second quarter and then gradually moderate through the rest of the year. That's how I would describe it.

Speaker Change: So a flattish market I guess is the best way to describe it with.

Speaker Change: The trend starting to lift here through the second quarter, and then and then model right through the rest of the year gradually is how I would describe it.

Stephanie Juanita Disher: That's helpful. Just as a follow-up, I noticed there was a revision to the separation cost outlook for the year. How are you thinking about as we go through this year completing all those activities or what might extend beyond 2024 and, just maybe, the reason the costs went up this year?

And Thats helpful.

Speaker Change: Just as a follow up.

Speaker Change: I noticed there was a revision to the separation cost outlook for the year, how are you thinking about.

Speaker Change: As we go through this year completing all of those activities or what might extend beyond 2020 forward just maybe the.

Speaker Change: The reason the costs went up this year.

Stephanie Juanita Disher: Yeah, thanks, Rob. I'll just give some context about the overall separation, where we are on that journey and what we see ahead of us, and then I'll let Jack talk about the sort of sequential story and about costs, separation costs. So, it's been a significant undertaking as we step out of Cummins. Obviously, the IPO in 2023, May of 2023; we completed the full separation from an ownership perspective just here in this quarter.

Yes, thanks, Rob.

Speaker Change: I will just give some context about the overall separation, where we are on that journey and what we say ahead of US and then I'll, let Jack talk to the sort of sequential story and the spend on costs.

Speaker Change: Price and cost.

Jack: So if I just it's been a significant entire taking as we as we step out of comments obviously the IPO in 2023 may of 2023, we completed the full separation.

Stephanie Juanita Disher: And we have a number of transition service agreements in place with Cummins to continue to provide a level of services. The original approach to those services was that they would run for no longer than 24 months from IPO. We are about 55% of the way through those transition services agreements, or winding them off, if you like. A significant amount of that happened in this first quarter of 2024. And we expect to be largely done by the end of 2024, effectively. I'll let Jack just talk about what drove the revision for the 2024 costs and the timing of this. Yeah, thanks.

Jack: From an ownership perspective, just here in the quarter and we have a number of transition service agreements in place with comments to continue to provide a level of services.

Jack: The original approach to those services was that I would run longer than 24 months from IPO.

Jack: We are about 55% of the way through those transition services agreements are winding them off if you like on a significant amount of that happened in this first quarter of 2024.

Jack: And we expect to be majorly done.

Jack: Through the by the end of 2024 effectively.

Jack: I'll, let Jack just talk to what drives the revision for the 2020 full cost and the timing of this.

Jack Kienzler: Yeah, thanks, Seth. In terms of the revision, it's really pulsed by the timing of certain projects, Rob, in this case, largely associated with IT systems and ensuring we are balancing, you know, the switch to those systems with risk mitigation, and obviously there's a cost element there, but we want to make sure we get the transition right in order to optimize the business moving forward. In terms of the sequential move, as you noted, 6 million in the 1st quarter, which I would just say indicates that the majority of the anticipated 2024 expenses were incurred in that 1st quarter, and we should see a moderation or a tapering as we move sequentially through the year.

Jack: Yes, thanks, Jeff in terms of the the revision it's really caused by the timing of certain projects Rob in this case largely associated with it systems and ensuring we are balancing.

Jack: Switching to go live on those systems with.

Jack: Risk mitigation and obviously there is a cost element there, but we want to make sure we get the transition right.

Jack: In order to optimize the business moving forward.

Speaker Change: In terms of the sequential move as you noted was $6 million in the first quarter.

Speaker Change: I would just indicate that the majority of the anticipated 2020 for expenses.

Speaker Change: Were incurred in our first quarter, and we should see a moderation or a tapering.

Speaker Change: We move sequentially through the year and again from a from a comparison standpoint.

Jack Kienzler: And again, from a comparison standpoint, our one-time costs that we incurred last year were about $29 million. And that compares to the range here of 10 to 20, which kind of coincides, I would say, largely with the progress of 55% that Steph highlighted. We do anticipate being substantially through this by the end of 2024, with really one more distribution center to go inside of 2025. Very good. Thank you.

Speaker Change: Our.

Speaker Change: The one time costs that we incurred last year were about $29 million.

Speaker Change: And that compares to the range of 10 to 20, which kind of coincides I would say largely with the progress of 55% that stuff highlighted we do anticipate to be substantially through that by the end of 2024.

Speaker Change: With really.

Speaker Change: One more distribution center to go inside of 2025.

Speaker Change: Very good thank you.

Speaker Change: Thanks, Rob.

Jerry David Revich: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please, go ahead.

Speaker Change: Our next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.

Jerry David Revich: Yes, hi. Good morning, everyone. Morning, Jerry. Hi. I'm wondering if I could just trouble you for an update on the M&A landscape. You know, you guys are coming up on a year as a public company, and I'm wondering what the range of M&A opportunities for you guys over the next, call it, 12 to 18 months in terms of how much capital you expect to put to work and what that may look like based on your pipeline as you sit here today.

Jerry David Revich: Yes, hi, good morning, everyone.

Jerry David Revich: Good morning, guys I'm wondering.

Jerry David Revich: Hi, I'm wondering if that just.

Jerry David Revich: Trouble you for an update on that.

Jerry David Revich: M&A landscape.

Jerry David Revich: Thanks for coming up on a year as a public company and I'm wondering what's the range of M&A opportunities for you folks over the next call. It 12 to 18 months in terms of how much capital do you expect to put to work and what that May look like based on your pipeline as you sit here today.

Stephanie Juanita Disher: Thanks, Jerry. As you know, an important part of our strategy is expanding into industrial filtration markets. We have an established team that is working that significantly. We've conducted all of our analysis of those markets where we see the opportunity, obviously attractive markets for us, and the opportunity for us to have a compelling and winning proposition. We're assessing a strong pipeline of targets. Our team is continuously assessing that as we speak. We've worked through an assessment on a number of those and have decided not to proceed with a number so far.

Thanks, Jerry as you know an important part of our strategy is expanding into industrial filtration markets.

Speaker Change: Have an established teams that are working that significantly, which we've conducted all of our analysis of those markets, where we see the opportunity obviously attractive markets for us and the opportunity for us to have a compelling and winning proposition. We have SaaS, we are assessing a strong pipeline.

Speaker Change: <unk> targets our team are continuously assessing.

Speaker Change: That as we speak we've worked through assessment on a number of those and.

Speaker Change: And have decided not to proceed with the numbers I saw and.

And really as always with M&A are difficult to predict exactly when that opportunity will present itself. The way I see this playing out is consistent with what I've discussed previously is really a programmatic approach to acquisitions around that sort of 100 $150 million acquisition price I guess.

Stephanie Juanita Disher: And really, you know, as always with M&A, it's difficult to predict exactly when that opportunity will present itself. The way I see this playing out is consistent with what I've discussed previously. It is really a programmatic approach to acquisitions around that sort of $100 million, $150 million acquisition price, I guess, in terms of the capital outlay for each transaction. Really important that we get the right first step underway and that, going forward, you could see us doing one to two of those a year as we build out our footprint in industrial filtration.

Speaker Change: And in Kansas.

Speaker Change: Our capital outlay for each transaction.

Speaker Change: Really important that we get the right first step underway.

Speaker Change: And that in at a cadence going forward. You know you could say is doing one to two is always a yeah.

Speaker Change: As we build out our footprint in industrial filtration side. So that's the landscape as I say nothing to report specifically, yet we're working through a strong pipeline of targets.

Stephanie Juanita Disher: So that's the landscape as I see it. Nothing to report specifically yet. We're working through a strong pipeline of targets, very focused on balancing, you know, pivoting our company into attractive growth markets whilst balancing strong returns to shareholders.

Speaker Change: Very focused on balancing pivoting our company into attractive growth markets, whilst balancing strong returns to shareholders.

Stephanie Juanita Disher: Okay, super. And then, you know, as we think about what 2027 U.S. regulations could mean for your business, you have good visibility on engine platforms at this point. Can you talk about the range of content increases that you expect to see in the new specifications? And then, you know, part of the warranty program that's essentially going to be included, it will be a five-year warranty on the entire engine platform. So, to what extent could you see higher market share as a result of that essentially extended warranty on every truck? Yeah, thanks, Gary.

Speaker Change: Okay Super and then.

Speaker Change: As we think about what 2027 U S regulations could mean for your business.

Speaker Change: You have good visibility.

Speaker Change: Engine platforms at this point can you talk about the range of content increases that you expect to see.

Speaker Change: On the new specifications and then part of the warranty program Thats essentially going to be included.

Speaker Change: Five year type warranty on the entire engine platform. So to what extent could you see higher market share as a result of that.

Speaker Change: Essentially extended warranty on every truck.

Stephanie Juanita Disher: Yeah, thanks, Jerry. I think we are a leader in fuel filtration and crankcase ventilation. We're certainly actively pursuing all opportunities ahead of us to move on to new platforms. And as we look to the change in 2027 emissions, that's been a big focus for our sales team, our OE sales team. We've secured those platforms with Cummins. And as you would expect, without going into all the specific details of this, rising emissions regulations give rise to more significant content for filtration products because of the complexity that's required in those filtration needs.

Yeah. Thanks, Jerry.

Speaker Change: Wei are laid out in fuel filtration and crankcase ventilation, we certainly actively pursuing all opportunities ahead of us to move on to new platforms and as we look to the change in 2027 emissions that's been a big focus for our sales team our sales team.

Speaker Change: <unk> securitized platforms with comments and as you would expect without going into all the specific details of these rising emissions regulations gives rise to more significant content fulfill traction products because of the complexity that's required in.

Stephanie Juanita Disher: So we certainly see that with the 2027 platforms that we're on, and we've had really strong wins in the fuel filtration and crankcase ventilation space. In terms of your question about warranty and ownership, we see very high aftermarket retention in that first owner. So certainly, the way I would have you think about this is, as we see extended periods of warranty, I would expect our aftermarket cash flow to extend would be the trend I would see associated with that.

Speaker Change: Filtration needs.

Speaker Change: So we certainly see that with the 2027.

Speaker Change: Platforms that we're on and we've had really strong wins in our fuel filtration and crankcase ventilation space.

Speaker Change: In terms of your question about warranty and ownership, we really we see.

Very high after market retention in that first Diana So certainly the way I would have you think about this is as we say extended periods of warranty.

Speaker Change: I would expect our aftermarket capture to extend would be the trend I would say associated with that.

Speaker Change: Thank you.

Operator: Our next question comes from the line of Joseph Odea with Wells Fargo.

Speaker Change: Our next question comes from the line of Joseph <unk> with Wells Fargo. Please go ahead.

Joseph: Hi, good morning, everyone.

Joseph Odea: Good morning, guys. Morning, Carol. Hi.

Joseph: Hi, Joe Hi, Joe.

Joseph Odea: I just wanted to touch on aftermarket share gains and sort of talk about your approach to that a little bit. I would think in terms of like-for-like replacement, the incumbent has the natural advantage. And so when you're gaining share in the aftermarket, what efforts have been going on there, whether that's introducing new products to more broadly sort of compete, what you're doing on the pricing side, and any quantification of how much share you think you're picking up.

Joseph: Hi, I wanted to just wanted to touch on the after market share gains.

Joseph: And sort of talk about your approach to that a little bit I would think.

Joseph: In terms of like for like replacement.

Joseph: <unk> has a natural advantage and so when youre gaining share.

Joseph: And the aftermarket what efforts have been going on there, whether that's introducing new products to more broadly sort of compete.

Joseph: What youre doing on the pricing side and any quantification of how much share you think you are picking up.

Stephanie Juanita Disher: Yeah, so I would say there's a number of things driving aftermarket share. And as you think about our strategy of accelerating profitable growth in the aftermarket, that pillar, it has a number of focus areas underneath that we've been very disciplined in working on. And we're starting to see those many initiatives, I would say, come to fruition. And so the first is just making sure we've got a highly capable distribution network that is very focused on aftermarket customers and having product availability where we need it. I think I've mentioned this several times before.

Speaker Change: Yes, sorry.

Speaker Change: So I would say, there's a number of things driving after market share and.

Speaker Change: As you think about our strategy of accelerating profitable growth in the after market that pillar. It has a number of focus areas underneath that we've been very disciplined in working on and we are starting to see.

Speaker Change: As many initiatives I would say come to fruition.

Speaker Change: So the first is just making sure we've got a highly capable distribution network that is very focused on aftermarket customers and having product availability, where we need it I think I've mentioned this several times before previously our distribution centers were intermingled with common supply chain management.

Stephanie Juanita Disher: Previously, our distribution centers were intermingled with Cummins' supply chain management, because Cummins is predominantly a first market. And so that meant we weren't focusing on our customers in the right way in terms of their availability needs for the product. And we've just been able to capture gains because, actually, our customers preferred to have our product. It was just we weren't putting it where they needed it to be, so that's been a big part of driving out our share gain. It's been predominantly in the US, I would say, but we've seen that across other markets across the world. So that's the first thing I would say is seeing that come to life.

Speaker Change: <unk> is predominantly a first fit.

Speaker Change: Our market and sorry that that meant we werent focusing on our customers in the right way in terms of their available late <unk> needs and in product and we've just been able to capture gains because actually our customers preferred to have our products. It was just we weren't putting it where they needed. It today. So that's been a big part.

Speaker Change: Part of driving out our share gain it's been predominantly in the U S. I would say that but also we've seen that across other markets across the world.

Speaker Change: So that's the first thing I would say is saying that come to life. This strategy of winning with the winners and partnered with ours that are successful in growing their share I would say that that's playing out in our market share gains in after market as well.

Stephanie Juanita Disher: This strategy of winning with the winners and partner with those that are successful in growing their share, I would say that's playing out in our market share gains in the aftermarket as well. So, you know, we see that we're partnered with those that are really capturing share as well, and we're seeing the flow-on benefits of that. In addition, I would say there are a number of other initiatives that we've been pushing on the aftermarket front.

Speaker Change: So we say that we're partnered with with eyes that are that are really capturing share as well and we're saying, we're saying the flow on benefits of that.

Speaker Change: In addition, I would say, there's a number of other initiatives that we've been pushing on the after market front, we have revamped our branding and marketing around our fleet God brand starting to say that in the filtration science capability that we have that our competitors are not able to match and we're starting to see the benefits of that flow.

Stephanie Juanita Disher: We have revamped our branding and marketing around our FleetGuard brand, starting to see that in this filtration science capability that we have that, you know, competitors are not able to match. And we're starting to see the benefits of that flowing through as awareness increases across our aftermarket. So I wouldn't point to one thing in particular in the aftermarket. This is about doing a lot of things well, but if I was to lean to where most of it is coming from, it's really tailoring that distribution and availability network to drive outcomes for our customers.

Speaker Change: <unk> through as as awareness increases across our after market. So I wouldn't point to one thing ever in aftermarket. This is about doing a lot of things well, but if I was the it was always the lane to where is most of it coming from Israeli Tyler in that distribution and availability network to drive outcomes.

Speaker Change: For our customers.

Stephanie Juanita Disher: I appreciate all the details. And then also just wanted to ask about the aftermarket outlook for the year. It seems like the quarter trended in line, maybe even better than anticipated, but if you can comment on that and sort of what aftermarket revenues did for you in the quarter, and then in terms of what you're seeing for the rest of the year, that would lead you to think that Yeah.

Speaker Change: I appreciate all the details.

Speaker Change: And then also just wanted to ask on the aftermarket outlook for the year.

Speaker Change: It seems like the quarter trended in line, maybe even better than anticipated, but if but if you can comment on that and sort of what the aftermarket revenues did for you in the quarter.

Speaker Change: And then in terms of what Youre seeing rest of year that would lead you to think that maybe it's a point lower than what you previously had in terms of the outlook.

Speaker Change: Okay.

Stephanie Juanita Disher: Yeah, so without going into detail, I think the quarter in the aftermarket was stronger than we expected, largely due to these share gains that I talked about. As we look ahead to the market outlook, we really are, I guess, relying pretty heavily on the external market source of the cash freight index. We've seen that it's a pretty reliable source for us as a predictor of the US market and correlated pretty closely with our aftermarket revenues.

Speaker Change: Yes, sorry.

Speaker Change: I guess with that library, I think the quarter in after market was stronger than we expected.

Speaker Change: Largely due to the share gains that I talked about.

Speaker Change: As we look ahead to the market outlook.

Speaker Change: We really are.

Speaker Change: I guess relying pretty heavily on the external market sources. The Cass freight index, we've seen that as a pretty reliable source for us as a as a predictor of the U S market.

Speaker Change: And correlated pretty closely with our aftermarket revenues, so as we say fright activity increase.

Stephanie Juanita Disher: So as we see freight activity increase, we tend to see our aftermarket revenues follow that. And so the cash freight index has revised down its outlook for the year. A slightly softer Q2 and a slightly softer Q4 is kind of the way that played out from memory. I think Q2 will be interesting to watch here as we monitor our guidance and outlook for the future, and we see Q2 hopefully move freight activity more into positive territory year over year. And so that will be an important sign for us as we look to the health of the aftermarket throughout the rest of 2024.

Speaker Change: We tend to see aftermarket revenues for all of that and sorry that that they have the cast Friday index have revised down their outlook for the year.

Speaker Change: Yes, slightly softer Q2.

Speaker Change: And a slightly softer Q4 is kind of the way that played out from memory.

Speaker Change: I think Q2 will be interesting to watch here and as we monitor our guidance and outlook for the future.

Speaker Change: And we say U K to isolate news private activity more into positive territory year over year, and so that will be an important sign for us as we look to the health of the after market throughout the rest of 2024.

Speaker Change: Thank you.

Robert Thornton Brooks: Our next question comes from the line of Bobby Brooks with Northland Securities. Please, go ahead.

Barton Groups: Our next question comes from the line of Barton groups with Northland Securities. Please go ahead.

Robert Thornton Brooks: Hey, good morning, guys. Thanks for taking my question. So just kind of starting with this, switching it up and wanting to talk about the first set, could you discuss how share gains within the first set market have progressed now that we are, you know, almost one year post the initial split off from Cummings? I know, Steph, you mentioned when in your prepared remarks, maybe talk about that roadmap of winning that contract, or maybe more just broadly, have you felt you've made inroads with those larger OEM Who previously wouldn't use to leak out in the first production because they looked at it as helping a competitor? Were some maybe still not willing to engage in pre-share exchange since that ownership?

Barton Groups: Hey, good morning, guys. Thanks for taking my question.

Barton Groups: So I'm just trying to starting with the switching it up and wanting to talk about the first could.

Barton Groups: Could you discuss how share gains within the <unk> market have progressed now that we are on.

Barton Groups: Most one year policy initial split off from Cummings and our staff.

Barton Groups: You mentioned a win in the in your prepared remarks, maybe talk about that roadmap of winning that contract or maybe more just broadly have you felt you've made inroads with those larger Oems who previously when it used to be garnering the first production because they looked at it is helping our competitor where some may be still mark guerin.

Stephanie Juanita Disher: And I'm sorry to interrupt, but you go ahead.

Speaker Change: To engage create Cree share exchange ownership and Im sorry to interrupt but you can go ahead.

Robert Thornton Brooks: No, thank you, Bobby, for the question. I appreciate it. You know, firstly, I would call out, as you noted in my prepared remarks, obviously, it's always tricky to work out how I give you a sense of this in advance whilst managing commercially sensitive information.

Speaker Change: No. Thank you Bobby for the question I appreciate it.

Speaker Change: Firstly I would call out as you noted in my prepared remarks, obviously, it's always tricky to work out how I give you a sense of this and advance whilst managing commercially sensitive information. So I'll do my best to straddle that I will emphasize where we're seeing wins here is where we have clear technology advantage right and so on.

Stephanie Juanita Disher: So I'll do my best to straddle that. I will emphasize where we're seeing wins here is where we have a clear technological advantage, right? And so on the fuel filtration side, on the crankcase ventilation side, we are seeing more and more wins with our customers on that first bit side beyond Cummins. And so I referenced one that we won recently that has driven, you know, gains for us in the North American market and in Europe.

Speaker Change: <unk> filtration side on the crankcase ventilation side, we are seeing more and more wins with our customers on that first fit side beyond comment and so I referenced one that we've won recently that has driven gains for us in the north American market and in Europe.

Stephanie Juanita Disher: So that's been a great win here, and then I would say we've made really good progress with the initial discussions with other target growth customers. And I'd say they're not only US-based but also in other parts of the world. We are making very good progress. We have invested consciously and deliberately in our sales team to increase the resources there, focused on canvassing and winning this business. And so hopefully, as we move ahead here, I'll be able to see the profits of that effort and also be able to share those with you, probably not in advance of them, unfortunately.

Speaker Change: So that's been a great win here and there.

Speaker Change: Then I would say we've made really good progress with the.

Speaker Change: Initial discussions with other target class customers.

Speaker Change: And now I would say they are not only U S sites, but also in other parts of the world.

Speaker Change: We are making very good progress, we have invested consciously and deliberately and our sales team.

Speaker Change: Two to increase the resources, there focused on canvassing and.

Speaker Change: And winning this business.

Speaker Change: And so hopefully and as we move ahead here.

Speaker Change: I'll be able to say that the profits of that effort and and also be able to share those with you probably not in advance of them. Unfortunately.

Robert Thornton Brooks: Yeah, no, I can definitely appreciate how that works. And thank you for the call there.

Speaker Change: Yes, no I can definitely appreciate how that works.

Speaker Change: Thank you for the color there and maybe just sticking with that obviously.

Stephanie Juanita Disher: And maybe just sticking with that, you know, obviously, in my discussions with investors, one of the things that I think people are most interested in and positive about with Atmus is just your high aftermarket exposures. But to flip that back to the first fit, am I right in thinking that you could make notable new first fit wins while keeping that, you know, 80% aftermarket weighting? Like winning a new first fit job doesn't necessarily mean your aftermarket exposure drops to, I don't know, say 70, 60%. You can still make notable wins while keeping that high aftermarket exposure.

Speaker Change: With our discussions with investors wanting to think about it.

Speaker Change: People are most interested in and positive on just your high aftermarket exposure.

Speaker Change: Flip that back to the first fit am I right in thinking that you could make notable new first fit wins, while keeping that 80% aftermarket weighting.

Speaker Change: New like winning new first fit job doesn't necessarily mean your aftermarket exposure drops on I'll say 70, 60% you can still win those.

Speaker Change: Notable wins, while keeping that high aftermarket exposure.

Stephanie Juanita Disher: Yeah, we certainly see that flywheel impact. I just make a couple of comments on that.

Speaker Change: Yeah, We said May say that flywheel impact I just make a couple of comments on that we're very focused in alpha to the activity that we're doing that where we have a technology advantage where that also drive further after market growth, we already have a significant installed base.

Stephanie Juanita Disher: We're very focused on the activities that we do in our first year where we have a technology advantage that also drives further aftermarket growth. We already have a significant installed vehicle base which continues to grow our aftermarket naturally anyway from the installed base that is out there. So I think that 80-20 is about the right mix for our business, and certainly, whilst we're looking to grow both sides of that, I think the mix holds.

Speaker Change: Vehicle base.

Speaker Change: <unk> continues to grow our after market naturally anyway from the installed base that is out there. So I think that 80 20 is about the right mix for our business.

Speaker Change: And certainly whilst we're looking to drive both sides of that I think the mix holds.

Robert Thornton Brooks: Terrific. That's awesome.

Terrific that's awesome demand.

Robert Thornton Brooks: And then Maybe just the last question for me is, so in my view, one of the most exciting parts of that story is, you know, being able to reinvest in the business after years of being, you know, a Cummings cash cow. And you've previously talked about some exciting reinvestment initiatives, such as the fully automated manufacturing line in your France facility. So could you just maybe discuss, and I'm curious to hear Jack's thoughts on this as well, but can you just discuss maybe early learnings from that specifically, and maybe more broadly, how the overall reinvestment programs have progressed versus expectations, and, you know, just generally any early learnings from that?

Maybe just last question for me is so in my view one of the most one of the most exciting parts of the stores being able to reinvest in the business after years of being commies cash cow.

You talked about some exciting reinvestment initiative.

Speaker Change: The fully automated manufacturing line in France facility. So could you just maybe discuss.

Speaker Change: Curious to hear Josh thoughts on this as well, but you just discuss maybe early learnings from that specifically and maybe more broadly how the overall reinvestment programs have progressed versus expectations.

Speaker Change: Generally any.

Speaker Change: Our early learnings from them.

Jack Kienzler: Jack, do you want to take this one? Yeah, sure. So, I think – thanks for the question, Bobbi.

Speaker Change: Jack do you want to take this yes sure. So I think thanks for the question Bob I think.

Jack Kienzler: I think absolutely one of the key initiatives for us as we move outside of the Cummins environment is to make targeted capital expenditures to increase both capacity and to accommodate growth initiatives as our sales teams engage with customers and we work to meet their expectations. And so, you highlighted one of those, which is at our Compare France facility a fully automated green cartridge line. It is the first fully automated line that we've put in, so, of course, there are some learnings there, but it's been really good to see that now come into – largely into full production, which has allowed us to continue to meet our customers' needs and then potentially leverage those learnings into other markets as we continue to win new business.

Jack: Absolutely one of the key initiatives for us.

Speaker Change: Uh huh.

Jack: Move outside of the Cummins environment is to make targeted.

Jack: Capital expenditures to increase both capacity and to accommodate growth initiatives as our sales teams engage with customers and we work to meet their expectations.

Jack: You highlighted one of those which is in our compare France facility fully automated green cartridge lawn.

Jack: Yes.

Jack: The first fully automated lineup.

Jack: Put in so of course, there are some learnings there, but it's been really good to see that now come into largely into full production.

Jack: It has allowed us to continue to meet our customers' needs.

And then potentially leverage those learnings into other markets.

Jack: As we continue to win new business I do think the range of 2% to 3% is still largely what we're thinking from a capital.

Jack Kienzler: I do think the range of 2 to 3 percent is still largely what we're thinking from a capital expenditure standpoint to accommodate that top-line growth. But as we identify new opportunities, we'll continue to assess where we need to invest from an organic standpoint on top of all of the initiatives that we've discussed in the inorganic space.

Jack: Expenditure standpoint to accommodate that topline growth, but as we identify new opportunities will continue to assess.

Jack: Where we need to invest from an organic standpoint on top of all of the initiatives that we've discussed in the inorganic space.

Robert Thornton Brooks: That's terrific. Thank you. Thank you very much, Jack and Steph. I'll jump back in the queue.

Speaker Change: That's terrific. Thank you. Thank you very much Jack and stuff.

Speaker Change: Back in the queue. Thanks.

Speaker Change: Thanks, Bobby.

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

Speaker Change: Our next question comes from the line of Andrew <unk> with Bank of America.

Andrew: Go ahead.

Andrew Burris Obin: Hey, this is David Ridley Lane on behalf of Andrew. You had very good growth in the independent distributor channel last year. I wanted to just, you know, see if you could share some of the most, you know, relevant stats with you.

Speaker Change: This is David Ridley Lane on for Andrew.

Speaker Change: You had very good growth in the independent distributor channels last year.

Speaker Change: I wanted to just.

Speaker Change: See if you could share some.

The most.

Speaker Change: Relevant stats for you or is this about signing up new distributors.

Speaker Change: This about initiatives to kind of grow share within the distributors how are you.

David Emerson Ridley: Is this about signing up new distributors? Is this about initiatives to kind of grow share within the distributors? How are you, you know, getting this kind of market? It has continued here in the first quarter.

Speaker Change: Getting this kind of market share gains.

Speaker Change: That has continued here in the first quarter.

Stephanie Juanita Disher: Yeah, thanks, David, for the question. I would say, really, it is a bit different in each different region is how I would best describe that.

Speaker Change: Yeah, Thanks, David for the question.

Speaker Change: I would say really.

Speaker Change: It is a bit different by different region is how I would best describe that.

Stephanie Juanita Disher: You know, we see that we've got the best footprint in the US to service, in particular, our on-highway customers with our established partners today. So, I would say that it's a very mature, established, well-operating distribution network, with very capable distributors. I talked about being partnered with the winners that are also growing their share and how that has a flow-on consequence in the US aftermarket. So, I really think that's about doing it better, largely, with those customers, although there is some expansion opportunity.

Speaker Change: We say that we've got the best footprint in the U S to service in particular on highway customers with our established.

Partners today, so I would say that the very mature established well operating distribution network very capable distributors I talked about being partnered with the windows that are also growing their share and how that adds up swallowing consequence in the U S. After market. So I really think that's about doing it better largely with those customers. Although there is some expansion on.

Speaker Change: <unk>, whereas in other markets like Latin America. For example, we really see our emphasis on expanding that network of distributors growing those conscious play and we've seen that there's a significant benefits of that coming through the after market as well So Thailand region by region is how I would describe it to you the way I would think.

Stephanie Juanita Disher: Whereas in other markets, like Latin America, for example, we really see an emphasis on expanding that network of distributors, growing those consciously. And we've seen significant benefits of that coming through the aftermarket as well. So, tailored region by region is how I would describe it to you. The way I would think about it is those where we've got mature, established, capable distributors; we're really looking to be partnered with the winners. And doing that really well is the focus. And then, in other regions that are growth-emerging regions, really looking to expand a capable distribution network quickly to support our profitable growth in the aftermarket.

Speaker Change: About it is always where we've gotten the student mature established capable distributors.

Speaker Change: We are really looking to be partnered with the winners.

Speaker Change: And doing that really well.

Speaker Change: Is the focus and then in other regions that are growing emerging regions really looking to expand our capable distribution network quickly.

Speaker Change: To support our profitable growth in the aftermarket.

Speaker Change: Thank you and now that your formula subgroup commoners and with an updated board.

David Emerson Ridley: Thank you. And, you know, now that you are formally separated from Cummins and with an updated board, do you have any update on the sort of the priorities for pre-cash flow or possible cash return to share? Thank you.

Speaker Change: You have any update on sort of the priorities for free cash flow or possible cash returned to shareholders. Thank you.

Stephanie Juanita Disher: Thank you. I did make some mention of this in my prepared remarks. The way I think about our capital allocation is, first and foremost, our focus is on funding our growth strategy, both organically through our core markets, where we still see significant growth opportunities, and inorganically as we expand into industrial filtration markets. After that, we are certainly assessing now what a return to shareholders would look like, both in the form of a dividend and in share buybacks. Obviously, that's a decision for our new independent board, so we're working through those discussions with them, and we'll be able to provide updates as and when appropriate on returns to shareholders.

Speaker Change: Thank you I did make some mention of this in my prepared remarks, the way I think about our capital allocation is first and formal.

Speaker Change: Focus is on funding our growth strategy.

Speaker Change: Both organically through our core markets, where we still see significant growth opportunity and inorganically as we expand into industrial filtration markets. After that we certainly are assessing now what we're trying to shareholders would look like but I think the phone another dividend ending and share buybacks, obviously thats a.

Speaker Change: So that's a decision for our new new independent board. So we're working through those discussions with them.

Speaker Change: And we will be able to provide updates as and when it's appropriate.

Speaker Change: Returns to shareholders.

Speaker Change: Alright, Thank you very much.

Speaker Change: Thanks, David.

Todd Chirillo: There are no further questions at this time, so I prefer to call back over to Todd Chirillo.

Speaker Change: There are no further questions at this time.

Speaker Change: I will turn the call back over to Scott.

Todd Chirillo: That concludes our teleconference for today. Thank you all for participating and for your continued interest. As always, the Investor Relations team will be available for questions after the call. Thank you.

Scott: That concludes our teleconference for today. Thank you all for participating and your continued interest and as always the Investor relations team will be available for questions. After the call. Thank you.

Operator: This is the Today's Conference call. You may now disconnect.

Speaker Change: Today's conference call you may now disconnect.