Thank you for standing by. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmus Filtration Technologies First Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Todd Chirillo, Executive Director, Investor Relations. You may begin.

Thank you, Kayla. Good morning, everyone, and welcome to the Atmus Filtration Technologies first quarter 2025 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 the slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings and the Investor Relations pages available on our website at atmus.com. Now I'll turn the call over to Steph.

Thank you, Todd, and good morning, everyone. Our team achieved another quarter of solid results by delivering industry-leading filtration solutions for our customers. I want to thank our global team for their dedication and hard work to start 2025. On the call today, I will provide a summary of our first quarter financial results and our outlook for 2025. I will also share our progress on executing our 4-pillar growth strategy. Jack will then provide a detailed review of our financial results. We continue to execute our capital allocation program. balancing share repurchases with a consistent dividend return. During the first quarter, we repurchased another $10 million of stock bringing our total amount repurchased since the program announcement last July to $30 million. We had $120 million remaining under our Board authorization and expect to continue returning capital to shareholders throughout the remainder of the year. We have also made significant progress on our operational separation from our former parent Cummins and intend to complete remaining separation activities in 2025. Before providing an update on our growth strategy, I want to share our views on the current tariff environment. We have dedicated teams closely monitoring and taking actions in an environment, which is fluid. We largely produce in region-for-region, which has had the effect of reducing the impact of tariffs. This model allows us to efficiently serve our customers when and where they need us. In North America, we have manufacturing facilities in Tennessee and Wisconsin to support the United States, along with the manufacturing facility in Mexico. The majority of our products from Mexico for the U.S. market are certified compliant or expected to be certified compliant under the USMCA trade agreement. While we have taken a regional focus, there are some products we source globally. The most substantial…

Thank you, Steph, and good morning, everyone. Despite challenging markets, our team delivered another quarter of solid financial performance. Sales were $417 million compared to $427 million during the same period last year, a decrease of 2.4%. The decrease in sales was primarily driven by unfavorable foreign exchange of 3% and lower volumes of 1%, partially offset by pricing of 1%. Gross margin for the first quarter was $111 million compared to $112 million in the first quarter of 2024. In addition to foreign exchange and volumes, we were also unfavorably impacted by onetime separation and logistics costs, partially offset by pricing, lower manufacturing costs and favorable warranty costs. Selling, administrative and research expenses for the first quarter were $55 million, an increase of $2 million over the same period in the prior year. Joint venture income was $9 million in the first quarter, down $1 million to our 2024 performance. This resulted in adjusted EBITDA in the first quarter of $82 million or 19.6% compared to $80 million or 18.8% in the prior period. Adjusted EBITDA for the quarter excludes $9 million of onetime stand-alone costs. Completing the transition of our Belgium warehouse from Cummins was complex and required more resources than originally anticipated. As a result, we incurred higher costs to minimize the impact to our customers. As a result of these higher Q1 costs, we are revising our full year guidance for onetime costs to now be in a range of $10 million to $15 million. Adjusted earnings per share was $0.63 in the first quarter of 2025 compared to $0.60 last year. Adjusted free cash flow was $20 million this quarter, compared to an outflow of $13 million in the prior year. Lower incentive compensation payments and more efficient use of working capital drove improved performance…

[Operator Instructions] Our first question comes from the line of Jerry Revich with Goldman Sachs.

And nice quarter in the challenging environment. I wanted to ask if we think about the possible manufacturing transitions that are feasible for your business over time, Steph, can you just give us a broad feel for what that might look like if some of these tariffs are here to say, how much can you alter your supply base if we see visibility on long-term tariffs?

Thank you. Good to talk to you. Look, I think it may be useful just to start with a broader articulation of tariffs and impact. I think in the near term, really the mitigation actions that we are focused on is, first and foremost, ensuring we avail ourselves of the certifications or the exemptions available under the USMCA certification. So we have a significant manufacturing facility in Mexico that supports some of our aftermarket requirements in the U.S. And we are really working hard to avail ourselves of USMCA certifications and the exemptions available there. In the short term, we are also focused on looking at the routing of our delivery routes around the world and where it makes sense for the flow of our product to go and what adjustments we can make on resourcing of product and our distribution flows. And so they are the primary short-term focus in terms of manufacturing transitions. I would say we're not contemplating at this point any long-term manufacturing changes. We're well established in the U.S. We have a strong presence, can certainly talk more to the broader outlook of tariffs and their impact on us. I covered a lot of that in my script as well. We're constantly monitoring the situation, but not planning any long-term manufacturing shifts at this stage.

Super. I appreciate the color. And then a challenging environment for a range of industrial companies. To what extent is this environment potentially helping drive a more active M&A pipeline? Can you just give us an update given how fragmented some of the competitors are on the industrial filtration side. Should we be optimistic about this environment creating an opportunity for you folks to potentially close some deals.

Certainly. We are very focused in our leadership team and in the broader organization on staying focused on our growth strategy. And we're really focused on those things that we can control in what is a very noisy environment right now. So as you rightly point out, expansion into industrial filtration through an M&A strategy is still core to our direction and our growth strategy, and we're very focused on that. We've got our team continuing to work on it. We are continuing to evaluate a range of targets in our M&A pipeline. I do want to acknowledge, as I did in my opening comments, the market has made that degree of difficulty a little higher, I would say, just in terms of the availability of targets given the uncertain landscape, and we'll have to continue to evaluate that. But we remain focused on building a strong pipeline of M&A, assessing those targets alongside our strategic criteria and financial criteria, and have that as a core part of our growth strategy for the future.

And your next question comes from the line of Rob Mason with Baird.

Steph, I certainly appreciate all the detail that you provided around the movements on the top line. I guess -- could you summarize real quick if you think about all those puts and takes between currency, pricing, changes in your market view? Do you still essentially shake out near the midpoint of your revenue range? I know it didn't change, but just within the range, how do all those shake out?

I think that's the right way to read it. Good morning, Rob, by the way. I think that's exactly the right way to read it, that it shakes out about the midpoint. I think certainly, since our previous guidance, we have seen a softening in the market. I talked about in the aftermarket that previously, we were expecting a rebound in the second half of the year or an increased set of freight activity in the second half of the year, particularly given we've been in pretty depressed conditions from a freight activity perspective for some time. I do feel like I'm repeating a story from last year. I was expecting it to come back last year in the second half. And -- so now we have assumed that it's really flat year-over-year at the midpoint for aftermarket guidance. And then obviously, we continue to see downward pressure on the first-fit market, which is a much lower exposure for us. We're now north of the 80% in aftermarket in terms of our latest ratio of aftermarket to first-fit given to what given -- due to the part of the cycle that we are in, and we have not assumed any prebuy activity inside 2025 on the first-bit side. And so I think that's the market outlook. And then, of course, you see the pricing associated with tariffs coming into our guide now, which was not there when we guided previously, and that is offsetting some of this market softness.

Sure. And then just as a follow-up, you did not change your contribution you expect from market share. So I'm curious just with market volumes moving around your ability to add that extra couple of points of revenue. Has there been any developments, incremental developments on the market share side?

It's a great question and one we're certainly continuing to have with our team. We are very focused on continuing to grow share, whilst that -- I think the challenge to that, if I just describe it, that gets more challenging in the environment that we're in, is just the slowing of decision-making in different companies when you're trying to gain share. I've been given a lot of shares, was anticipated in the aftermarket, around our coverage, and we had it pretty well underpinned, is what gives us the confidence to still confirm that guidance in market share gains. That is something we're closely monitoring. More related to decision-making by our end customers to enable us to be able to continue to make that share -- those share gains.

And your next question comes from the line of Tami Zakaria with JPMorgan.

So my first question is on pricing. I think you're expecting you said 3.2% for the year, and the first quarter was about 1 point. And so should we expect pricing to accelerate to about 4% in 2Q and hold that rate for the rest of the year to get to that 3.2% or does pricing ramp throughout the year, and then eventually at a high rate in 4Q that gets us to 3.2% for the full year?

Yes. Jack, do you want to take that one?

Yes, sure. So the way I would think about it is a little bit more of a ramp versus being even each quarter, just as we have both the base pricing actions as well as the midyear kick in here on -- in July. So it'd be more like a -- just a touch over 3%, I would guess, in the second quarter and then build up into between the 4% and 5% range in Q3 and Q4.

Got it. That's super helpful. And then second question on tariffs. I appreciate the detailed comments, and I acknowledge, it's very fluid right now. But just for our understanding, let's say, Section 232 goes into effect and USMCA exemption no longer exists, but then China tariffs are rolled down or rolled back to some -- in decent level or a reasonable level, so between those 2, would Section 232 impact be offset by a rollback of China? Or how should we think about if one goes down and the other comes into effect, have you done any scenario analysis on that?

We have done lots of scenario analysis, Tami. And so let me try and answer your question as the best I can without getting to hypotheticals -- on hypotheticals about what might be. What I'd like to do as I answer the tariff question. I do really want to start with thanking and appreciating our team. Really, it is -- I've had the privilege of seeing Atmus teamwork at its absolute best in response to the evolving tariff landscape. We've had a task force set up led by Charles Masters, the President of our Power Solutions business and supported in leadership by Paul Massey, our Vice President of Supply Chain and this really has been a total company effort, our trade team, our legal team, our procurement team, our sales team and just to see that working together not only within the U.S., but globally has really -- is really what has enabled us to get our arms around this impact quickly and implement mitigation actions. That is the key actually to what will put us in good shape as we move forward, no matter the landscape on tariffs. So I just wanted to start with that. If I then talk about what is the impact of tariffs today? What are the mitigation actions we're taking, and then how do I see the unknown playing out in the future? And how will we respond to those. So if I just start with the impact today, really, I would break that down into 3 key areas. The first and most significant at the moment by far is China. Whilst we only import less than 2% of our U.S. sales from China, as we've previously shared, we're very much a region-for-region strategy, but we do import some of our products from China.…

And your next question comes from the line of Andrew Obin with Bank of America Merrill Lynch.

This is David Ridley-Lane on for Andrew Obin. So I think the supply chain crisis a few years back, you were slower to pass through pricing. I'm wondering, not to put too finer point on it, but do your contracts with the OEMs on the first-fit side? Is there something different this time that allowed you to pass through the pricing on tariffs so quickly?

It's a great question. And I do think we did lag a bit in the supply chain crisis. And we heavily relied on -- really the twice a year in the U.S. pricing actions during that time, right? So is the January and the July as an example, with a notice period, which meant you had a long lag in the aftermarket. We have already taken the pricing actions it related to tariffs. We have already informed our customer base that we intend to take pricing action immediately on tariffs rather than apply the January and July timing for the aftermarket, which is the majority of our business. And so that's the first thing I would say on the lag. The lag impact will still exist somewhat. So we'll be watching the second quarter here closely as we look to implement the mitigation measures because it takes some time to scale those up, not just the pricing, but the other dimensions of mitigation measures as well. And on the first-fit side, much lower proportion of our business, but obviously, that's on a contract-by-contract basis, and it varies based on where that impact is. And so we'll look to work through that with customers and to be able to pass that price through to our customers.

Got it. And is the tariff situation can be different for some of your competitor set. Is there any silver lining here in that perhaps some of your European-based firms export from Europe or some of your other competitors have low-cost manufacturing elsewhere in other regions and are importing, is there any benefit on a competitive set that might help you on the market share gains?

I think it's a good question. And we have looked at some of this from a scenario planning perspective, I don't think there's a major relatively difference either way, to be honest, there will be puts and takes at a product level. But overall, as you aggregate that up, it's not something where we're lying on in our guidance. And also, we're not assuming a relativity downside the other way either. So obviously, we'll have to manage this at an individual product level as it plays out, at an individual customer level to make sure we're supporting our customers, and we're winning with our customers every day. That's at the heart of where this needs to happen. But at an aggregate level, the best guidance I can provide you right now. I don't expect significant share gains associated with tariffs, and I don't expect significant share losses.

And your next question comes from the line of Bobby Brooks with Northland Capital.

So with all the noise regarding the EPA and potentially rolling back some emissions, and I know it's near impossible to quantify the headwind, it would cause if this 2027 rules get acts. But I was kind of more curious on how would a rollback of emission standards that have been acted over the last 4 to 5 years impact the business?

It's certainly something -- Bobby, it's certainly something we're looking at closely. In March, obviously, the EPA announced a number of regulations opened up for review. I think the announcement I read was about 31%, and that includes the standards on NOx that were due to come into effect in the 2027 model year production, so that's now under review. We're not sure exactly how that review is going to come out. I think we're also reviewing EV mandates and a number of other things as part of the regulatory review. We're monitoring that to understand the implications. Here is how I would characterize it. I think we're very well positioned as we look ahead. So -- we are a global leader in filtration solutions. We sit at the table with leading OEMs and have relationships with the leading OEMs around the world. And we have solutions that we're providing them today that meet today's regulations. We are also very capable to meet their needs for future regulatory requirements and have already in production and planning for that with our OE partners. So the way I -- we'll have to see how the regulatory environment plays out. We're already supporting our customers at today's level of regulatory requirements; we will be ready to support if the regulation goes in. And then we also will continue to support our customers if it stays where it is today.

Got it. That's helpful color. And I guess just a follow-up on that is, given how strong the relationship you guys have with these OEMs across the globe, what -- is it your sense would OEMs actually start to change their future designs to spec in less emissions tech? Or would truck owners or would maybe truck owners and operators pay to pull these systems out. I feel like that's kind of unlikely, but just curious to hear what you're hearing from your customers.

Yes. I think I wouldn't speculate on any of that at the moment. I think the review has only just been opened not sure exactly how that review is going to play out. I do think, obviously, we'll all need to monitor that and then understand how do our customers need to approach that evolving landscape to their business and therefore, how do we best support them. I think one of the things that's giving me a great deal of optimism, I would say, when you take a company public, you stand it up, you need to deal in a much more agile way as a team. You certainly do learn how to operate in an uncertain environment. And so I guess I would just finalize my question -- my response to your question here by saying. I really think it's the team you've got in place, their ability to navigate in a changing landscape, that equips you as things emerge. But too early to speculate on that from my perspective.

Fair enough. And I appreciate the color. And just one last one for me. On my call back last quarter, Jack, you gave some great color about how Atmus could reconfigure some shipping routes to help avoid tariffs. And Steph, you touched on it a couple of times in the Q&A, but I think it would be really beneficial to just double-click on some of those -- some of the examples of how you could reconfigure some shipping routes? And then secondly, I was just curious if these potential reconfigurations, it seems like some of them might have already started to happen? Or are they still just a plan and not necessarily going yet?

Yes, go ahead.

Thanks for the question, Bobby. Yes. So if you take the mitigation actions that Steph was highlighting, really, what we've done is try to analyze and quantify the tariff exposure. And then the first actions that we look to take are what can we do to mitigate that impact so as to mitigate any ultimate impact that goes to our customers. And so -- those types of shipping lane reconfigurations are certainly a part of that as well as looking at resourcing, so on and so forth, as you can imagine. As you know, we have enacted some actions already on that page. And then as we've also taken advantage of a number of different exceptions available to us. And so as we work through that list, and exhaust that list, that's when we turn to price to really look to stay margin neutral. So yes, we have put those in place in a number of different areas, and we will look to continue to identify other mitigation areas as and when they become clear to us.

And there are no further questions at this time. Todd Chirillo, I'll turn the call back over to you.

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

This concludes today's conference call. You may now disconnect.