Business Overview Atmus was incorporated in Delaware in April 2022 as a wholly-owned subsidiary of Cummins Inc., in preparation for the separation of Cummins' filtration business. Prior to the initial public offering (IPO) in May 2023, Cummins completed the transfer of the assets and liabilities of the filtration business to Atmus and its subsidiaries. In September 2022, in anticipation of the separation, Atmus entered into a $1 billion credit agreement with a syndicate of banks, providing for a $600 million term loan facility and a $400 million revolving credit facility. Upon completion of the IPO in May 2023, Atmus borrowed $650 million under the credit agreement and paid those proceeds to Cummins in partial consideration for the separation.
The IPO was completed through Cummins' exchange of 16.24 million shares of Atmus common stock, including the underwriters' full exercise of their option to purchase 2.12 million shares to cover over-allotments. As of the closing of the IPO, Cummins owned approximately 80.5% of the outstanding shares of Atmus common stock. On March 18, 2024, Cummins completed the divestiture of its remaining Atmus shares, resulting in the full separation of Atmus and Cummins' entire ownership and voting interest in Atmus.
Atmus operates as a global leader in filtration products for on-highway commercial vehicles and off-highway agriculture, construction, mining, and power generation vehicles and equipment. The company designs and manufactures advanced filtration products, primarily under the Fleetguard brand, that provide superior asset protection and enable lower emissions. Approximately 14% of Atmus' net sales in 2024 were generated through first-fit sales to original equipment manufacturers (OEMs), where its products are installed as components for new vehicles and equipment. The remaining 86% of net sales were generated in the aftermarket, where Atmus' products are installed as replacement or repair parts, leading to a strong recurring revenue base.
Financial Performance In the fiscal year 2024, Atmus reported net sales of $1.67 billion, an increase of 2.5% from the previous year. The company's gross margin expanded to 27.7% in 2024, up from 26.6% in 2023, driven by favorable pricing impacts, higher volumes, and improved variable costs, partially offset by higher manufacturing and logistics expenses. Atmus' operating income increased to $266.2 million in 2024, up from $248.4 million in 2023, with the operating margin expanding to 15.9% from 15.2% in the prior year.
Net income for the fiscal year 2024 was $185.6 million, or $2.22 per diluted share, compared to $171.3 million, or $2.05 per diluted share, in 2023. The company's effective tax rate decreased to 21.0% in 2024 from 24.3% in the previous year, mainly due to a change in the mix of earnings among tax jurisdictions and the utilization of foreign tax credits.
For the fourth quarter of 2024, Atmus reported revenue of $406.7 million, representing a year-over-year growth of 1.8%. Net income for the quarter was $40.1 million. The company's adjusted earnings per share for the full year 2024 was $2.50, compared to $2.31 in the prior year.
Liquidity Atmus generated $105.4 million in operating cash flow and $56.8 million in free cash flow in 2024, compared to $189.0 million and $143.2 million, respectively, in 2023. The decrease in free cash flow was primarily due to higher working capital requirements, partially offset by higher net income. Adjusted free cash flow for 2024 was $115 million, compared to $152 million in 2023.
As of December 31, 2024, Atmus had $184.3 million in cash and cash equivalents, and $592.5 million in total debt, resulting in a net debt to adjusted EBITDA ratio of 1.2x. The company's strong liquidity position and conservative capital structure provide flexibility to execute its growth strategies and return capital to shareholders.
Atmus maintains a $400 million revolving credit facility, which remained undrawn as of December 31, 2024. The company's debt-to-equity ratio stood at 2.61, while its current ratio and quick ratio were 2.19 and 1.42, respectively, as of the same date.
Segmental Performance Atmus operates in a single reportable segment, with the majority of its net sales derived from the on-highway commercial vehicle and off-highway markets. In 2024, the company's sales to the on-highway market, which includes trucks, buses, and recreational vehicles, accounted for approximately 60% of total net sales, while the off-highway market, comprising agriculture, construction, mining, and power generation equipment, represented the remaining 40%.
Geographically, Atmus generated approximately 52% of its net sales from outside the United States and Canada in 2024, highlighting the company's global reach and diversification. The company's largest international markets include China, India, and Europe, with the Asia-Pacific region accounting for 34% of total net sales, and Europe, the Middle East, and Africa (EMEA) contributing 18%.
Product Portfolio and Customer Base Atmus' key product categories include fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters, and coolants and other chemicals. The company's largest customer is Cummins, accounting for approximately 17.6% of net sales in 2024. Other major OEM customers include PACCAR and the Traton Group, which represented 16.5% and 12.2% of net sales, respectively, in 2024.
The company's research, development, and engineering expenses were $40.6 million in 2024, reflecting its focus on developing innovative filtration technologies to meet evolving customer needs and emissions requirements. Atmus operates 11 distribution centers, 10 manufacturing facilities, and 5 technical facilities across 6 continents, allowing it to serve customers worldwide effectively.
Growth Strategies and Outlook Atmus' growth strategy is centered around four key pillars: 1) growing share in first-fit markets, 2) accelerating profitable growth in the aftermarket, 3) transforming the supply chain, and 4) expanding into industrial filtration markets.
In the first-fit market, Atmus is leveraging its technology leadership and strong relationships with OEMs to win new business and increase its content per vehicle. The company's recent launch of the advanced NanoNet N3 filtration media technology, which offers superior contaminant-holding capability and compact design, has positioned Atmus to capitalize on the evolving needs of its OEM customers.
In the aftermarket, Atmus is expanding its Fleetguard product portfolio, using data analytics to target growth opportunities, and investing in its multi-channel distribution network to enhance customer reach and loyalty. The company's consistent outperformance of the aftermarket in recent years demonstrates its ability to grow share in this critical segment.
Atmus' supply chain transformation efforts, which have already delivered significant margin expansion, will continue to focus on improving services, optimizing the network, and driving cost efficiencies. The company's goal is to empower its growth strategies by enhancing the value proposition for its customers.
Lastly, Atmus is actively pursuing inorganic expansion opportunities in the industrial filtration market, with a focus on the industrial air, industrial liquids (excluding water), and industrial water verticals. The company's disciplined approach to acquisitions aims to identify strategic fits that will deliver long-term value for its stakeholders.
For the fiscal year 2025, Atmus expects total company revenue to be flat to up 4% compared to 2024, with global sales in the range of $1.67 billion to $1.735 billion. The company anticipates adjusted EBITDA margin to be in the range of 19% to 20%, and adjusted earnings per share to be between $2.35 and $2.60.
In the aftermarket segment, Atmus expects global markets to be flat to up 3% compared to 2024. The company's execution of its growth strategy is anticipated to contribute 2% to aftermarket revenue growth, with an additional 1% from pricing. However, the continued strength of the U.S. Dollar is expected to result in approximately 2% revenue headwind.
For the first-fit market, Atmus projects U.S. heavy-duty truck production to be flat to down 10%, while U.S. medium-duty production is expected to decline by 5% to 15%. In India, demand for trucks is anticipated to be flat to down, and in China, weak market conditions are expected to persist.
Industry Trends The filtration market offers a unique multi-channel path to market, with diversification across first-fit, OEM service, and aftermarket segments. The recurring revenue model and mission-critical role of filters drive consistent demand across regions and end markets. The industry is expected to grow due to increasing demand for air pollution control products driven by rising greenhouse gas emissions and health-related risks.
Risks and Challenges Atmus' business faces several risks and challenges, including significant customer concentration, with its top three customers accounting for over 46% of net sales in 2024. The loss of a major customer or a substantial reduction in sales to these key accounts could have a material adverse impact on the company's financial performance.
The filtration industry is also highly competitive, and Atmus must continually invest in research and development to maintain its technology leadership and meet the evolving needs of its customers. Failure to successfully develop and introduce new products or expand into new markets could limit the company's growth potential.
Additionally, Atmus is exposed to global macroeconomic and geopolitical risks, including fluctuations in foreign currency exchange rates, trade policy changes, and supply chain disruptions, which could affect its operations and financial results.
Conclusion Atmus Filtration Technologies has a strong foundation in the filtration industry, built on a rich history of innovation, global expansion, and strategic partnerships with leading OEMs. The company's focus on growing its first-fit and aftermarket businesses, transforming its supply chain, and expanding into the industrial filtration market positions it for continued success in the coming years. While Atmus faces several risks, its proven track record, robust liquidity, and diversified global footprint provide a solid basis for long-term value creation for its shareholders. The company's ability to exceed its initial guidance on adjusted EBITDA margin in 2024 and its positive outlook for 2025 demonstrate its resilience and potential for future growth in the dynamic filtration market.