Atmus Filtration Technologies Stock

Hello everyone, thank you for joining us and welcome to Atmus Filtration Technologies Second Quarter 2026 Earnings Call. [Operator Instructions].

I will now hand the conference over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead, Todd.

Thank you, Percy. Good morning, everyone, and welcome to the Atmos Filtration Technologies Second Quarter 2026 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 this 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. Today, I will review our second quarter results and share details of our progress executing our 4-pillar growth strategy. I will also provide updates to our outlook for 2026. Jack will then speak to our financial results and segment performance. I am pleased to share that we achieved record sales in the second quarter and delivered strong results among our key metrics, including adjusted EBITDA, free cash flow and EPS.

I want to thank our global team for their dedication to our customers and their efforts in delivering these impressive results. Now let me provide you an update on the integration of Koch Filter, our first Industrial Filtration acquisition, which we closed earlier this year. Our team has made tremendous progress, and we have exited more than 95% of the transition services agreement. We expect all remaining integration activities to be completed during the third quarter. With the integration nearly complete, we are turning our attention to growth initiatives in our Industrial Solutions segment.

We continue to see value creation opportunities from Koch filter's deep industry experience, combined with our filtration capabilities and global footprint, which will provide ongoing benefits for all stakeholders. Let's now turn to an update on our capital allocation strategy. Our strong cash generation provides us with balance sheet flexibility for both growing the business and returning capital to shareholders.

With this balanced approach, we expect share repurchases to be $20 million to $14 million in 2026, aligned with our previous guide. Looking forward, we intend to allocate surplus cash towards paying down gross debt. This will position us for investing in future growth opportunities. Now let's turn to our 4-pillar growth strategy. Our first pillar is to grow share in first-fit. We continue to win with the winners by growing our long-term partnerships with leading global and regional OEMs across a broad range of applications. We are leaders in filtration science with our latest generation NanoNet N3 Filtration Media and advanced testing capabilities strategically located around the world. This allows us to expand our first-fit customer reach across a broad range of applications and provide advanced filtration solutions for OEM.

Our second pillar is focused on accelerating profitable growth in the aftermarket. Our global aftermarket consists of thousands of customers across many applications. We have dedicated teams located where our customers need us. We have developed a robust pipeline of opportunities and are working every day to bring our industry-leading fleet guard and Koch Filter products to current and new customers. Our third pillar is focused on transforming our supply chain. We have launched Lean the Atmus Way, our lean-based production system.

The program includes implementation of standardized management systems and lean operating practices, which improves productivity and support sustainable margin expansion. I want to recognize our team in Mexico for becoming the first Atmus site to achieve certification in Lean the Atmus Way. In addition, our focus on relentless improvement has allowed us to continue raising our delivery and on-shelf availability metrics to all-time highs through the Atmus controlled distribution network. We have the right products for our customers when and where they need us. Our fourth pillar is to expand into industrial filtration markets.

Following the acquisition of Koch Filter, we continue to review a robust pipeline of opportunities with a focus on industrial air to build a platform of scale by leveraging Koch filter and creating value through targeted bolt-on acquisitions. While our primary focus is Industrial Air, we remain opportunistic in evaluating industrial water and liquid filtration assets with the goal of identifying an anchor investment that can serve as the foundation as we build out our broader industrial platform over time. We are focused on delivering long-term shareholder value. through the disciplined development and execution of industrial filtration opportunities.

Now let's discuss our second quarter financial results. Sales were a record $528 million compared to $454 million during the same period last year, an increase of 16.4% and driven by the acquisition of Koch filter and strong performance in Power Solutions. Adjusted EBITDA was $109 million or 20.7% and compared to $95 million or 21% last year. Adjusted earnings per share was $0.82 in the second quarter of 2026, and adjusted free cash flow was $67 million. Also during the second quarter, we returned $18 million of cash to shareholders through share buybacks and dividends.

Now let's turn to our outlook for the Power Solutions segment. In the aftermarket, we are starting to see signs of health in the overall freight market, including higher spot rates and increasing optimism for improved freight activity. However, we have yet to see a significant inflection and therefore, continue to expect the market to be relatively flat year-over-year. In our first bit market, the U.S. EPA has provided the industry with some regulatory clarity surrounding the implementation of 2027 emission standards. The agency has proposed allowing current engines to be sold into 2027 with a nonconformance penalty. While this is expected to ease some pre-buy pressure, Customers have indicated a stronger second half driven by improved market conditions and a cyclical recovery.

We are already seeing the benefits of this cyclical recovery in our 2Q results and have good visibility through the end of the year. We also expect continued market share gains in both aftermarket and first bit through our multichannel distribution strategy, improved on-shelf availability and winning with new and existing customers. For Power Solutions, overall, we expect volume growth in a range of approximately flat to 2%. And inclusive of global markets and share gains.

Additionally, pricing is expected to add approximately 1.5% and foreign exchange is expected to be a tailwind of approximately 2%. In total, we expect Power Solutions revenue to be in a range of $1.82 billion to $1.865 billion, which represents growth of approximately 4.5% at the midpoint. In our Industrial Solutions segment, we expect favorable market conditions and strong performance to continue with total revenue to be in a range of $155 million to $165 million. Taken together, we expect total company revenue to be in a range of $1.975 billion to $2.03 billion, an increase of approximately 13.5% at the midpoint, we are narrowing our full year adjusted EBITDA guidance and now expect to be in a range of 19.75% to 20.25%.

Lastly, adjusted EPS is expected to be in a range of $2.85 to $3. In summary, our team continues to successfully execute our 4-pillar growth strategy and provide the protection our customers need and value most. I want to thank all Atmusonian for their strong performance in the first half. I remain confident in the ability of our team to continue to deliver for all our stakeholders. Now I will turn the call over to Jack.

Thank you, Steph, and good morning, everyone. I also want to recognize our global team for delivering another quarter of strong financial performance, all while successfully navigating challenging market conditions. Sales in the second quarter were a record $528 million compared to $454 million during the same period last year, an increase of 16.4%.

Power Solutions delivered sales of $486 million compared to $454 million in the prior year. An increase of 7%. The increase was primarily due to higher pricing of 3% higher volumes of 2% and favorable foreign exchange of 2%. Industrial Solutions sales were $42 million, resulting from the acquisition of Koch filter. Gross margin for the second quarter was $154 million or 29.2% and compared to $131 million or 28.9% in the second quarter of 2025. The increase was primarily due to favorable pricing, incremental margin from the acquisition of Koch Filter favorable foreign exchange, higher volumes and the cessation of onetime separation costs.

This was partially offset by higher materials and manufacturing costs. Selling, administrative and research expenses for the second quarter were $62 million compared to $57 million in the prior year. The increase was primarily due to people-related expenses and information technology consulting. Joint venture income was $8 million in the second quarter, flat compared to prior year. Strong performance in China offset weaker markets in India, which has been impacted by the Middle East conflict. Other income expense was unfavorable by $1 million compared to favorable by $4 million in the second quarter of 2025.

The increase in expense was primarily due to foreign exchange losses and a nonoperating gain that did not repeat. Excluded from the adjusted results are onetime costs related to the integration of Koch Filter, which for the full year is expected to be in the range of $3 million to $6 million. We also exclude intangible asset amortization resulting from the Koch Filter acquisition, which is expected to be in the range of $11 million to $13 million for 2026. Total enterprise adjusted EBITDA in the second quarter was $109 million or 20.7% compared to $95 million or 21% in the prior period. Segment adjusted EBITDA for the Power Solutions was $101 million or 20.8% compared to $95 million or 21% last year.

Industrial Solutions segment adjusted EBITDA was $8 million or 18.9%. Adjusted earnings per share was $0.82 compared to $0.75 last year. Adjusted free cash flow was $67 million this quarter compared to $36 million in the prior year. Now let's turn to our capital deployment strategy. The combination of strong cash flow and continued robust adjusted EBITDA performance has resulted in an estimated net debt to adjusted EBITDA ratio of 1.9x for the trailing 12 months ended June 30. We also invested $13 million in capital expenditures for continued growth, and we returned $18 million to shareholders consisting of $13 million in share repurchases and $5 million of dividends.

As Steph highlighted, we will continue to strategically deploy capital through investment in growth and paying down debt to provide balance sheet flexibility. Our cash flow allows us to take this balanced approach for both growth opportunities and returning capital to shareholders. In closing, I want to thank and applaud all of our teams around the world for all of your hard work and dedication in delivering a strong first half of 2026. Now we will take your questions.

[Operator Instructions]. The first question comes from the line of Quinn Fredrickson with Baird.

Could you guys discuss maybe how aftermarket and first-fit revenues performed in the quarter and also give us an estimate for how much share gains contributed in Power Solutions and whether any change to the year for your assumption there?

Thanks, Quinn. Great question. And let me start with, I guess, as I was saying in my prepared remarks, remarks. Our team delivered a really strong quarter. In the Power Solutions segment, overall, record revenues of 16.4% on the same period last year. And in the Power Solutions segment, delivered revenue growth of 7.1%. And as Jack highlighted, that really was broken down between 3% price, 2% volume and 2% FX.

So if I take that volume growth year-on-year and break that down as requested to aftermarket and first performance. What we saw in aftermarket, I would say, is still flattish conditions. So if I give you a view of aftermarket around the world, a reminder that aftermarket is 85% of our revenues within the Power Solutions segment. And within that, about 50% of those revenues in the U.S. And so we are seeing stronger sentiment in the U.S. and in Mexico. But as I look around the rest of the world from an aftermarket perspective, I'd say, Europe and the Middle East and Asia Pacific outside China, we're still seeing subdued conditions.

And so that balance really gives us a flat aftermarket outlook and also slight aftermarket through the quarter. We continue to deliver strong gains with our customers, and I continue to see us within the range of 1% to 2% within -- for our share gains outlook. If I turn to first-fit market, we did start to see the cyclical recovery in first debt markets that we have been anticipating and was previously incorporated in our guidance.

We started to see that uptick in our business in the second quarter. And we do -- just as education to you, we do see that uptick in our business ahead of the vehicle OEMs. The APT data that we often refer to with vehicle build is about 4 to 6 weeks. We're about 4 to 6 weeks ahead of that in terms of the cycle -- of the supply chain cycle.

And so we started to see the cyclical upturn in first bit markets here at the end of the second quarter. I would say it was a balanced performance in first-fit between market improvement and share gains through our ongoing strategy of winning winners.

Thanks, Steph. Jack, could we get an updated view on price cost expectations for the year? And I think you said maybe 2% price. Is that the right way to think about for the full year? So it sounds like you would have taken some pricing actions in July. Could you just clarify on that?

Yes, absolutely. So from a pricing perspective, obviously, we continuously assess our pricing and make strategic adjustments where necessary, both in terms of gross pricing as well as rebates and rebates can drive some of the timing nuances. We saw good price realization through the first half, just over 2%. Our full guide is 1.5% for the full year, and that reflects the mix of carryover from prior year as well as some new pricing and obviously anticipate a moderating price realization environment as I think about the year-over-year comparisons in the third quarter and the fourth quarter.

As I think about that comparison as well, obviously, there's some rollback of certain tariff pricing that occurred last year that we've continued to implement or remove as policies change. As always, we'll take a balanced approach to pricing and share gains and are certainly doing that over the balance of the year. As I think about some of the cost dynamics in the second half, we continue to see some elevation in our cost base associated with some commodities and a lot of that is driven by the ongoing conflict in the Middle East. That's probably the biggest kind of headwind that's embedded in our second half.

And as you look at the first half, year-to-date margin compared to the second half is one of the contributors leading to the implied softening second half compared to first half. The other dynamic I would just call out as you think about that margin walk is not only are we experiencing some commodity price increases associated with the conflict in the Middle East. That's also contributing to weaker overall conditions in India, and therefore, leading to a lower joint venture income outlook than we originally anticipated at the full year. So I think the combination of those hopefully helps you bridge kind of the first half, second half dynamic can get a better sense of price cost dynamics as we move through the year.

The next question comes from the line of David Ridley-Lane with Bank of America.

Thank you very much. On for Andrew Obin. Just really quickly, on the Middle East since you mentioned that, did you catch up on any of the lost sales from first quarter? And what's embedded in the guide that you catch up or don't catch up in the second half?

Thanks, David. Good morning. So we didn't fully catch up the Middle East in the second quarter. The conflict is ongoing, as I think we talked about in our first quarter earnings we were uncertain as to how the conflict would play out. So we're still seeing underperformance in our expectations of our Middle East business, driven really by market conditions is how I would describe it. We are anticipating it recovering into the second half. And it is a smaller proportion of our business, as we have shared before, about 2% of overall revenues.

We are seeing, as I talked about, subdued conditions through Europe that may also be related to the complete and as Jack referred to, we have seen challenges in our India business through the joint venture line in our P&L that is also related to the Middle East conflict.

Got it. And then just on that point on pricing, First, can you confirm there's no tariff refunds in second quarter results? And then how much of your -- I know it's hard to parse this, but when you lower your prices just mechanically because of the tariffs coming off? How much of a drag is that in the second half ballpark? Because I realize there's still a lot of moving parts around tariffs.

Jeff, do you want to take that one?

Yes, absolutely. So let me first start with the tariff refund question, David, and then I can talk a little bit about what the implied pricing in the second half is -- as you know, it's a little bit hard to parse out, but I'll do my best. From a tariff refund perspective, as of the end of the second quarter of 2026, we've received an immaterial amount of tariff refund.

Of course, we've applied for all the refunds that we feel entitled to and we'll continue to evaluate the potential treatment of those refunds as and when we receive them, including whether or not a portion of those should be allocated to expenses that we've already incurred and then what is left over in terms of customer refunds. Overall, I would say we continue to expect the net impact on EBITDA from a tariff perspective to be substantially neutral. As you note, the tariff environment will continue to evolve with ongoing changes in policy.

And I would just say that our strategy to address that remains unchanged. Of course, we'll continue to avail ourselves of any exemptions as to protect our customers from the impact of tariffs, continue to evaluate our supply chain and optimize wherever possible. And then finally, obviously, looking to pass that on the impact of tariffs through pricing. Overall, continue to be guided by cost-neutral principle as it relates to tariffs. From a pricing perspective, I think I'll just kind of talk about it in totality because it's really hard to parse out, given all the moving pieces last year and particularly.

But if you look at the full year guide and then year-to-date price realization, you can kind of see price realization, as I said, moderating in the third and the fourth quarter compared to those same periods in the prior year, kind of between -- just over 0.5%, I would say.

The next question comes from the line of Bobby Brooks with Northland Capital Markets.

So industrial solution, run rate that orderly sale level versus the Cokes 2020 flows when you acquired it to a [indiscernible] any seasonality that would make this an over way of looking [indiscernible] or qualitatively, anything that drove improve sequentially?

Good morning, Bobby. I will try my best to make out your question. I must say on my end, it's breaking up a little. So I'll try to summarize. I think what your question is, is related to Industrial Solutions revenues, how is that performing? And is there any seasonality in the for that revenue.

So I'll try to answer that, and I'm not sure what's driving the breaking up at your end. So Industrial Solutions is performing right where we would expect it to. I think broadly speaking, we've talked about price for Industrial Solutions, 1% to 2% market share. And really, overall, the market impact for Industrial Solutions being closely linked to GDP or around that sort of 3% level. So overall, the guides we're still giving is 1% to 8% for industrial revenues. We think it's pretty steady over the quarters. So I don't -- I wouldn't call out any specific cyclicality in the quarters and we're confident and really pleased with the ongoing performance relative to our original business case assumptions.

I apologize for the breaking up. And maybe just a follow-up there. You spoke to how [indiscernible] just want to give you the floor and to speak to what might be some exciting growth in this [indiscernible]?

Okay. Jack, do you want to take that?

Yes, I'll take it. Thanks, Bobby, for the question. So I think I think -- again, I think I'll interpret your question as just a quick update on the Koch integration overall and then speaking to some of the growth initiatives that the team is thinking through. So first of all, I would just say we continue to be very excited about the acquisition of Koch Filter and very pleased to see such a strong cultural fit with our organization. As you noted and as we noted in our prepared remarks, we're through about 95% of the TSAs and will be planned to fully exit those TSAs here in the third quarter.

Overall, continue to be really excited about the growth prospects for that business and a lot of different initiatives that we are working through in a collaborative way with the Koch business of course, continuing to cultivate new market share opportunities through the build-out of distributor relationships, launching new products to fill gaps in that coverage as well as looking to expose the business to high-growth end markets, things such as data centers, health care, so on and so forth. And so -- the team's got a lot of energy around that. We continue to find ways that we can complement the artery strong attributes that they bring to the table and excited about the future.

The next question comes from the line of Tami Zakaria with JPMorgan India Private Limited.

Question on your EBITDA margin guide. I think you narrowed the range and the top end came down by 25 basis points. Is that because your first-fit expectation is now better, so that's a mix headwind? Or how should we think about that lowering of the top end of the range?

Good morning, Tami, I'll pass that one to Jack.

Yes. Thanks, Tami. So first of all, I would just say, we've seen really strong operational execution through the first half of the year. I think year-to-date margins at about 20.3% from an EBITDA perspective over the first 6 months. So really pleased with where that's at. I'll start first, Tami, maybe just bring to life performance in the second quarter. and then I'll speak to the balance of the year and a couple of the moving pieces. As we noted in the second quarter, we saw the benefits of pricing, volume FX and then partially offset by higher material costs and manufacturing costs.

In addition, we had a small amount of elevated incentive compensation costs in the quarter as we're outperforming the plan. And then finally, down in the other income expense line item, a couple of nonoperational items in Q2 of '25 that didn't repeat this year. Let me help you then kind of bridge to the full year guide. As our guidance implies, we have more favorability in the first half as you think about year-over-year comparisons in the form of pricing and FX than we will in the second half. So those are a little bit of a moderating lever to pull, if you will.

Secondly, we expect the ancillary effects of the Middle East conflict to persist for longer than we originally anticipated. Really driving inflationary pressures associated with raw materials like chemicals, plastics. And then as I noted, I would just say that the other impact from a second half perspective, is those -- the Middle East conflict impacting JV income, most notably in China. And so you'll see that we lowered our outcome a bit on sorry, in India, I apologize. In terms of mix, to your question, Tammy, I think, obviously, there is a little bit of a mix dynamic with strengthening first-fit relative to aftermarket. But I think it's a combination.

Understood. That's very helpful. And I wanted to get some clarity on the Industrial Solutions segment. If I look at the EBITDA margin for that segment, it's sequentially down on almost 200 basis points. Is that seasonality? If not, what drove this sequential decline? And how should we think about that segment's EBITDA margin for the back half versus what we saw in the second quarter.

Yes, I'll take that one as well, Tami. So Look, year-to-date margin performance is about 20%, if you average the first quarter, second quarter, and that continues to be our guide. And so that's how I would have you think about the third and in the fourth quarter. As you note, second quarter margins took a sequential step down at 18.9% and below that full year guide. Really, I would say that's driven by some one-off impacts that drove some inefficiencies that we expect to be onetime and not repeating in nature. To bring a little color to that, it's a little bit of operational efficiencies as volumes moved around and some inefficiencies associated with the transition off of the TSA, some redundant expenses. So we remain confident in our full year guide for that business and think it's just a temporary nuance.

The next question comes from the line of Kevin Uherek with Wells Fargo.

I just wanted to double-click on the North America truck aftermarket market. How have your expectations changed from the beginning of the year? And what are you seeing currently?

Kevin, thanks for the question. Look, I would say our guide remains the same actually as we came out from a market perspective. on aftermarket in the U.S. Certainly, we are reading what I'm sure you're reading, which is improving sentiment. And that gives us a lot of optimism is what I would say, but we are not yet seeing that translate in at least the visibility we have at this stage, and we don't have a lot of forward visibility in aftermarket orders, but in the visibility we have at this stage, we're not seeing that translate yet into an uptick in outcomes and market conditions. So the way we see it is really flat year-on-year after market.

Obviously, we'll continue to deliver share gains as we've previously guided to, that not significantly changed from where we started out the year.

Understood. And then maybe going back to the Middle East conflict. Is there a way you can help us think about the margin impact on the quarter, the moving pieces there?

Yes. So I would think about -- again, I highlighted some of the commodity cost impacts. You can imagine it takes a little while for things like that to work through the system. And obviously, we're doing our best to mitigate the impact of those. So it's a bit more of a second half dynamic, I would say, than a Q2 dynamic, and it's one of the drivers, if you will, of the step down in the margin percentage outlook in the second half. If you look at our joint venture income year-over-year, it's flat compared to the same period last year.

And I think really what that is reflective of is a strong market in China, not only in the second quarter but in the first half and then some corresponding weakness in our India market, which is driving a bit of that lower joint venture income. Again, originally, we had kind of built in an assumption I think like many people did that we'd see some resolution of that conflict in the second quarter. And obviously, that's not been the case that we'll continue to do our best to mitigate those ongoing impacts not only at the cost line but also trying to get product to our customers.

There are no further questions at this time. I will now turn the call back to Todd Chirillo for closing remarks.

Thank you, Percy. That concludes our teleconference for today. Thank you for participating and for your continued interest. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, everybody. Thank you so much for joining us. Once again, I'm Jerry Revich, Wells Fargo Securities, and thrilled to have with me here from Atmus Filtration, Jack Kienzler, Chief Financial Officer. Jack, thanks so much for joining our conference.

Thanks, Jerry, for having me, and thank you, everyone, for your interest. It's great to be here.

Jack, to kick off the conversation, I just want to go back to the 4-pillar growth strategy that you folks outlined. So you spoke about Grow Share in First-Fit, Accelerate Aftermarket, Transform the Supply Chain, and Expand into Industrial Filtration. You've made progress on all 4 points. Let's start with first-fit share. What has been the key progress since the spin? And do you have room to drive market share higher?

Yes, it's a great place to start. So let me just remind everybody what is all encompassed inside of that Grow Share and first-fit. So there's really 3, I would say, broad areas that we're focused on. The first is what we describe as Win with the Winners. And really, what that means is I want to continue to capitalize on the strong partnerships that we have with the leaders in the commercial vehicle industry, folks like PACCAR, folks like Cummins, et cetera, that we have strong relationships with.

And as they continue to grow market share in their own right, obviously, that can pull through to our business. In addition to their own market share gains, we want to continue to expand our own penetration and share of wallet with each of those. And so that's been a nice catalyst for us. Last year, for example, as Cummins launched their new model-year engine inside of the Stellantis product, we did have a bit of a step-change in content. And that not only pulsed first-fit gains through sales to Cummins, but also grew our installed base and our Aftermarket through the Stellantis channel.

The second piece of the first-fit market expansion is really trying to grow after customers that we historically haven't done business with, really driven by just the inherent ownership structure that we have had historically and the fact that, particularly in the large-engine space, you don't generally see OEMs source from their competitors' captive suppliers. And so really looking to cultivate those relationships now that we have an independent ownership structure, introduced Atmus and our capabilities to a number of different players and look to grow our penetration with them.

It's been pleasing to see the ongoing conversations, and we feel like our technology leadership in these displacement ranges from a filtration standpoint can really open up opportunities for us. And then the third piece within the first-fit markets really is a number of other areas that didn't necessarily have a competitive dynamic with Cummins, but more just we didn't have the resources to really go after them.

And so there's a number of different first-fit opportunities that we've been going after across a number of different OEMs, again, introducing them to Atmus and our technology opportunities and capabilities and opening up those avenues. So I'm pleased with the progress thus far. But I think as I look at our broader share, I think there's still plenty of room to run. And it's really about, again, having people understand what we can bring and the quality of our product.

Is Caterpillar at all a possibility as a customer?

I would say Caterpillar is certainly in that first category or the second category of potential customers that we would target among others and want to continue to try to open up a number of different avenues. As you can imagine, there's not -- it's not like you all of a sudden take off every filtration opportunity. And so we want to really focus on are there smaller pieces of the portfolio that we can go after and open up the relationship.

What kind of first-fit end-market outgrowth do you think you folks can deliver if these share gains play out?

Yes. So if you think about from a product family standpoint, where our strength has really been historically, it's on on-engine filtration. Obviously, that's driven by the historical relationship with Cummins and the deep embedded application knowledge that we have on things like fuel filtration, lubricant filtration, so on and so forth. And so that's probably our technology leader in terms of our product family. Obviously, we do all different filtration as well as things like coolant and chemicals, but from a technology standpoint, we really try to lead with that on-engine filtration with these customers.

Got it. And then another first-fit-related question. So Cummins genset business has grown dramatically. Can you just talk about Atmus' content for both prime power and for backup? What's that look like from an opportunity standpoint for you folks?

Yes, absolutely. So if you think about what -- where our product is today, certainly, just like in the on-highway space, we have essentially 100% share of wallet with Cummins in the Power Systems space as well. Most of that product today is going into various backup power applications. And so while we're on all of those gensets -- just like we're on, again, a 15-liter engine in the on-highway space, the aftermarket generation, which really pulses our business, is relatively immaterial just given the fact that it's backup, right?

And so you do still change the filters every once in a while, but it doesn't have the same duty cycle as, say, a mining truck, for example. So obviously, we'll continue to support them as well as other potential customers in the space. And it's great to see their ambitions and their intentions to expand their prime power exposure through the launch of different capabilities, and we're excited to continue to support them. That's not a big piece today, at least for our business. And so I think it remains to be seen what that maintenance activity will be, how long those gensets are running and what inherent aftermarket content will be for us, but certainly an opportunity.

And what's your first-fit content? Is it similar to truck, $300 per unit? Or does it scale up considering these are pretty massive engines?

Yes. So it would be -- if you think about like the ratio, it would be the same. It's just a much larger engine and therefore, instead of 1, 2 fuel filters, et cetera, you've got a much larger amount. But from a portfolio like percentage perspective, it's the same.

So about $3,000 per unit, give or take?

Yes, roughly. It depends on the application...

And then if these units do truly run 24/7, how quickly do I generate $3,000 of aftermarket demand -- 1 year, 2 years? What's that look like, assuming a mining-type 24/7 operation?

Yes. So again, it's really about hours run in these spaces. And so in the on-highway space, you're talking about a change of filters every, what, 35,000 to 40,000 miles. And then as you move into the off-highway space, again, it will be kind of hours driven. So it just depends on how long the -- but the percentage or the ratio, if you will, of aftermarket content relative to the first-fit is quite substantial, as you can imagine, and over a very long period of time.

And I don't have the legacy notes, unfortunately, for obvious reasons given my transition. Can you just remind us what time frame do you folks generate aftermarket sales equivalent to the first-fit sales generally across the book? If I recall, I believe that's a 3-year, 4-year type number, but can you just refresh me, Jack?

Yes. So again, it depends on the duty cycle. But if you think about in the on-highway space, if you're talking about, on average, a fuel content of, what, $200 over the life of that vehicle, you could have $8,000 roughly in aftermarket content over the life of the vehicle. So it depends on how long it's driven, but you could get to that replacement of your first-fit content inside of 3 years depending on the application.

Super. And then the aftermarket part of the growth strategy, can you update us on your view of progress so far? And is there more opportunity to continue to drive that part of the business?

Absolutely. So if I think about the second pillar, Accelerating Profitable Growth in the Aftermarket, really, we've been looking at a few different things. One of the big pieces there is to increase our penetration into independent distributors. Historically, we've been quite strong in the OE dealer networks, and we want to continue to build on that strength certainly. But we also want to ensure that Fleetguard products are available anytime and anywhere a service event is occurring. And obviously, those service events don't always occur within the OE dealer network.

And so that's been one of our strategic priorities, and we want to continue to build that out. We've seen good traction, I would say, on that in areas where we had relatively low penetration. I think Latin America is a good example of that, where historically, we've really only gone to market through the Cummins distribution channels. And now we've been able to continue to cultivate additional independent distributors. Some of whom carried the Fleetguard product historically, but we just didn't focus on them in terms of commercial activity as much. And so as we've built and strengthened those relationships, we've been able to experience growth inside their portfolio among other filtration brands.

So that's been a nice growth story, and really pleased to see that progress. Underneath all of these different things, in the aftermarket, which, as you can imagine, is many different opportunities that are flowing through to our sales team to go after is the ability to deliver. And so kind of Synonymous with our third pillar, which we'll get to in a moment, is the Supply Chain Transformation has been a big focus on delivery capabilities and the ability to ensure that our product is available as and when our aftermarket channel partners need it and our end-users need it.

And so we've had a lot of actions and initiatives going on in the supply chain. Historically, our distribution centers were all co-located for the most part with Cummins. And so one of the big undertakings of our separation was the separation of those distribution centers into Atmus-owned and -operated locations. And that's allowed us to really address our inventory levels and lift our inventory levels to hit the delivery metrics that we want to. We're really pleased with where that journey has been.

It's been a lot of hard work from the supply chain team. So a big kudos to them for all the undertakings that they've had that comes with not only the physical movement of goods, but also an underlying IT initiative to separate systems. And so each one presents its own challenge, but we're pleased with where we're at now. And I would describe our delivery capabilities now as top-quartile. And really, what that does is, again, unlock many opportunities, not only with existing channel partners, but also with new channel partners.

And then to shift gears on the industrial filtration part of the strategy. Can you talk about the Koch acquisition? For those that have spent less time with the company, just remind people the size of the business, the multiple paid. And then just, if you don't mind, update us on how the integration is going.

Absolutely. So yes, so we were really pleased to close on the Koch acquisition here in January of this year, signed it last year. So overall, when you include the expected synergies, not only from a tax perspective, but also from the ongoing operational synergies, expecting the multiple to be about 10x to 11x. So an attractive entry point into these industrial sectors. The business -- it's a great business. I'll talk a little bit about what we found post-diligence, but for perspective, in 2025, on their fiscal year, they generated about $156 million of revenue.

They were on a September year-end. So now obviously, this transition to our same fiscal year-end, which is calendar based. Really looking forward to what the team can accomplish moving forward. If I think about what's been a pleasing factor, if you will, post-acquisition has really been the cultural similarities that exist between the 2 organizations. If you think about it, they've been owned by a number of larger companies, Johnson Controls and embedded within ADTI, which is the parent company that the private equity firm whom we bought it from had acquired.

And so they have a similar mindset to what we had, which is embedded within a larger organization and perhaps not quite able to spread your wings in terms of all your different growth initiatives. And now that they're with a filtration-focused company, I think they're really excited about what they can unleash with some focus and investment. So that cultural similarity has been fantastic to see, and I think has really unlocked not only a fairly seamless integration, but also a lot of collaboration as we think about not only the synergies that we expected to get, but also other potential synergies moving forward.

So the synergies, as a reminder, was about $4 million of annualized synergies by the end of year 3. And really, the bulk of those were supply chain initiatives, so leveraging our scale and capacity to get some better rates in different direct material areas, et cetera. The -- what we found though is that there's potentially some other areas of collaboration now as we move forward that could involve cross-selling through each other's distribution networks, not only their products through our existing Power Solutions, as we call it, or commercial vehicle distributors, but also in reverse, potentially selling through some Power Solutions product, Fleetguard product through some of the independent distributors that they already have relationships with.

In addition, obviously, we're looking at, particularly in the high-efficiency space in the HVAC areas, what can we bring in terms of media capability into their products where there's a need for elevated filtration science capabilities. So excited about where we can take that. There's been a lot of different growth forums, as we call it with them, where we bring the teams together, exchange ideas, and then really go out and trial a number of different things.

And given the explosive growth in data centers, we're finding that companies had 1% sales exposure to data center where all of a sudden becomes 7% exposure. Any opportunities for Atmus within data centers?

Yes, it's a great question. And I think -- if I think about where our exposure is today or historically, if you will, it's really in that backup power that we were just describing alongside gensets. And so that's exposure, but again, not a heavy-duty cycle from an aftermarket, so somewhat immaterial at the top line. Inside of the Koch business, they do provide HVAC filtration into data centers. That's about 8% of their business today.

And so one of the things that we're focused on is how do we continue to lift the exposure to that end market given the significant and robust growth rates that it's experiencing. That could come with not only the addition of new products, but really probably the cultivation of new distributor relationships to make sure that we're available through a number of different service avenues into data centers. That tends to be relatively focused, particularly here in North America across a few different geographies. Today, the Koch business is really just North America-centric. And so another opportunity that we're thinking about more globally is just how do we explore geographic expansion from an industrial HVAC perspective.

And so $10 million to $15 million revenue data center today, where could that go?

I think it depends on, obviously, the longevity of this robust tailwind that we're experiencing today and then how quickly we can kind of shift the portfolio, right? So I think about -- if you think about the revenue algorithm that we talk about in our core, it's really been about 4% to 5% over a long period of time, 2% market, 1% price, 1% to 2% share gains. There's not a lot we can do in the commercial vehicle market to address that 2% underlying market growth rate.

If I then look at the Industrial business, that revenue algorithm inherently lifts a bit where you've got the traditional commercial vehicle -- or sorry, commercial and industrial HVAC sectors growing at GDP levels. But if you can expose more of the portfolio to higher-growth markets like health care or data centers, you could really start to meaningfully shift that revenue algorithm up. So that's a big area of focus. And I think we'll see what the art of the possible is in terms of top-line growth.

And then in terms of M&A from here, since this is the first large deal as a public company, are you folks hitting pause to make sure you integrate? Or is the team out there actively looking for the next one?

Yes. So absolutely, integration was a big priority, but that hasn't slowed us down in terms of exploring other opportunities and continuing to cultivate the pipeline. I would say, as a reminder, the 3 broad areas that we've been looking at in terms of industrial expansion has been industrial air, which obviously the Koch business fits inside of, industrial water and industrial liquid. One of the great things about the Koch business, I think, is, frankly, the size of it.

It was kind of a perfect entry point, which allowed us to get an asset of scale that we can now build on and potentially add on to in terms of bolt-on acquisitions that, by themselves might have been somewhat orphaned in the portfolio. And so it opens up that ability to focus on add-ons in the air space, while still exploring anchor platform potential in the industrial water and the industrial liquid space. The team is out there continuing to cultivate a number of different opportunities, and I would say that we're excited about where we can take it in the future.

From a debt perspective and a leverage perspective, obviously, a little bit of a step-up following this acquisition, but finished the first quarter right at kind of that 2x net debt-to-EBITDA level. I think that's about right for this business in an ongoing acquisitive standpoint. And so we'll continue to naturally delever from that, which really opens up the door for more M&A moving forward.

And in terms of the end-market backdrop, really interesting to see strong aftermarket demand for you folks. In contrast to what we saw from PACCAR, 6% volume decline in their business. Replacement tire demand was down 6% in the quarter. Why isn't filtration facing those headwinds? It sounds like trucks were taken out of operation based on the PACCAR telematics data.

Yes. So it's been an interesting backdrop, I would say, in the aftermarket, really since we IPO'd back in 2023, pretty tepid market conditions. We haven't seen that overall growth per se, and it's kind of been either declining or now bouncing along the bottom. Certainly, we've seen as of late, an increase in some of the spot rates and whatnot. I think that's more driven by supply dynamics, driver shortages and a bit of consolidation in the carrier space. And it hasn't yet translated, I would say, to robust volume growth, just kind of steady along the bottom.

And so what we've seen is some people taking trucks out of service. That does have tendency of pushing off larger maintenance events. And so that will kind of limit some of the broader parts churn and activity of, say, an engine rebuild or overhaul. At the same time, you're still seeing trucks needing normal-course maintenance. And when they do -- as and when they do that, generally, filtration content is getting a changeover. So that's kind of what we're experiencing. And again, I wouldn't say growth, but not that decline necessarily in the underlying market. And obviously, we try to counterbalance these tepid market conditions with continued share gain activity.

And in terms of what's fascinating about the way the cadence played out this quarter, based on our checks with PACCAR dealers, April, first part of May, really weak because of the magnitude of diesel headwinds for truckers that aren't well set up for surcharges. And then with the step change higher in spot rates in the back-half of May, there was just an acceleration in orders for one of the dealers, orders doubled between first-half of May and back-half of May as that played out. Is that consistent with the intensity of demand pickup in the market? It's been really interesting to see spot rates and the load-to-van ratio just get way out of whack in a really short period of time.

Yes, it's been interesting. As we think about our sales activity, so obviously, our sales activity is generally pulsed by our channel partners, whether it's PACCAR or many other folks in the aftermarket. We do sometimes see some timing nuances in terms of stocking or destocking activity, not to the levels that we had experienced back in kind of '23 time frame. But certainly, I think we saw some of that inside of the fourth quarter with some pretty robust activity and probably indicative of some stocking up and then relatively slow out of the gates in the first quarter of this year in terms of some destocking as they sold through inventory levels.

As we sit here right now inside of Q2, I think really in line with our guidance levels, which is an expectation of flat to slightly up from an overall aftermarket perspective. And we continue to expect 1% to 2% market share gains. So we'll continue to keep an eye on it, obviously, continuing to take a pulse on the sentiment. Every time it feels like we start to get some green shoots or positive sentiment, a broader geopolitical/macroeconomic dynamic emerges. And so hoping to get some stability on that front. And I think overall, that will help lift overall miles driven, which really pulses our business.

And so the shipper-to-truck ratio just really accelerated exiting May, which I think historically bodes really well for aftermarket demand anytime we need to drive uptime. Has that played out the story of 2 halves in May? Is that the way it played out? So I understand overall, more or less in line, but did we see that acceleration that we're hearing about?

It's a little -- it's -- we can't see it like with that level of precision necessarily because, again, this difference in terms of when they're stocking up inventory levels and then when it's actually getting sold to the end user. So I would say that the second quarter has tracked again, in line with our...

Super. Can we talk about China? So they're transitioning to more EVs. What does that mean from an Atmus opportunity standpoint? What can you folks do to drive performance with that backdrop? And where do you see EV share in China going longer term?

Yes, absolutely. I think it's certainly the one area in the world where you're seeing pretty robust EV activity, which is contrary to every other region in the world, which is going the opposite way. Inside of China, obviously, we're continuing to focus on supporting our customers in whatever fashion that we can. If I think about the broader EV transition, first and foremost, it's important, I think, to note just the significant aftermarket nature of our business and the longevity of that tail. So even if you're seeing robust increases in penetration of EV vehicles in China, for example, you still have a lot of activity in the aftermarket based on units on road.

We are working to support our customers really who are all global in nature on their alternative fuel ambitions and support them in any way we can. We saw some catalysts of that a few years ago, and now really, that's kind of dried up. So -- but we'll be ready to support them and continue to collaborate with them however we can. If I think about the nature of different types of alternative fuels and impact to the business, I would describe kind of alternative fuel-powered internal combustion engines as having largely a similar look to what diesel does in terms of filtration content on a vehicle.

I think in terms of EV, it would be the most significant reduction relative to today. So we're keeping a close eye on it, and we'll see what happens. I think you're just going to continue -- if the current trend plays out, continue to see a pretty big disparity in terms of penetration of EV vehicles in China versus everywhere else in the world.

And can you spend a minute on that? So what are the specifications of the EV trucks in China? How big are the battery packs? And could the build-out in China drive other regions to take a look and see what they're doing?

Yes. So I mean, I think the various powertrain providers are probably better equipped to speak to the nuances in terms of size of battery packs and payload and charging infrastructure, et cetera. I think it will be interesting to see if the -- certainly, I think the Chinese battery-pack suppliers and have a lead in terms of capabilities from a technology standpoint. I think it remains to be seen and how successful they'll be enabled in terms of dropping that capability into other markets. And I think, obviously, the various OEs and powertrain providers will certainly look to retain their existing shares in those spaces. So I think it remains to be seen at this point.

Okay. And if we shift gears, talk about tariffs. The tariff rate decline from 25% to 15% for Ag and construction equipment. Any nuances within that, that might benefit Atmus? Obviously, trade policy is super complex. So what do you think?

Yes. So I wouldn't say anything that necessarily benefits us relative to others. It's kind of been, as you know, a moving target, if you will. So maybe it's best to kind of describe how -- what our approach to tariffs has been, which has remained consistent regardless of the underlying shifting policies and rates. So first and foremost, we look to avail ourselves of any exemptions available, the largest of which has been the USMCA exemption, which has allowed us to continue to mitigate our customers from tariff pricing increases by leveraging and certifying as much of our products that are coming out of Mexico under that exemption.

The second has been exploring different supply chain changes and things that we can do. We have not done a lot of reshoring of production just given the changing landscape, and you might make a long-term fix and then all of a sudden, the rates change amongst countries, which is not necessarily fast or easy to unwind. So that hasn't been a big thing. We have done a few different creative initiatives such as establishing a Free Trade Zone in our U.S. Distribution Center outside of Cincinnati that allows us to import, export product without incurring the tariffs. The last lever that we look to pull is via pricing.

And so obviously, there's a competitive dynamic with that, that we try to ensure that we're mitigating and insulating our customers from that impact wherever we can. But at the same time, we have to protect our own profitability levels. So we've moved, I would say, quite swiftly, and the team has done an excellent job to navigate in an ever-changing environment. We put pricing through as and when we're incurring those tariff costs and then adjusting that pricing as and when the tariff landscape changes. We'll continue to do so moving forward. And then I think, obviously, the second piece of tariffs is just what happens in terms of refunds and whatnot.

And so certainly, we are working through the various reconciliation processes that you inherently do in the customs landscape and then looking to file for refunds through the CAPE system. Obviously, the rulings of that continue to evolve and we will continue to evolve with that. I think it remains to be seen how and when tariff refunds effectively flow through the market. Obviously, there's a lot of different partners there. So you've got our channel partners who we sell to in the aftermarket, who ultimately sell that on to the end users. So that will be a little bit interesting to see how we navigate through that, whereas the OEs are a little more straightforward.

And then USMCA up for renewal, let's say, we lose the USMCA exemption, costs become 15%, 20% higher. Does that change in that scenario, your manufacturing footprint at all?

Yes. So I think, obviously, we'd have to look at longer-term changes, if you will, if we had confidence that, that's going to be the new environment that we're working under. I think you saw many people, including us, with the onset of NAFTA and the USMCA, set up their supply chains in one way. And if that's going to change, then perhaps over the long term, our supply chains would change. I think it's really important that we continue to have strong trade agreements with important partners like Mexico.

And I think what you see is the benefit of that accruing to end-users ultimately, right? Because we've been able to take advantage of that exemption and again, mitigate the impact to end-users, owner-operators of trucks, and we want to continue to do that to partner with our end-users. So that's what we're looking at. Obviously, we're closely looking at that, and we'll continue to navigate our supply chain environment as needed.

At the risk of leading the witness, so 15% to 25% type increase on a cost of goods sold basis, given the supply chain is already set up in Mexico, feels like the most likely outcome would be the price moves a little bit higher to pay for that, as opposed to resetting up the supply chain, would be my guess.

Yes. I think that's certainly what you should expect in the short term. And again, it's not a quick endeavor to shift and re-establish your entire supply base. So we would continue to evaluate that over time. But in the near term, you would expect to see it flow through in that.

Last question. What's the most significant supply chain opportunity for you folks? That was one of the pillars that we didn't double-click on until this moment?

Yes, absolutely. So first of all, I would just, again, thank the broader supply chain organization for all the hard work that they did during our initial supply chain transformation. That was really focused on some of the lower-hanging fruit in the procurement space, trying to get more of our supply base under contract, establish multiple different sources of supply.

As we move into our next horizon of supply chain transformation, certainly want to continue our strong delivery capabilities as well as then look at efficiency opportunities. So really looking at our conversion costs and how we kind of streamline our operations. But excited about that. And certainly, we'll provide more details on that as time elapses.

Super. Please join me in thanking Jack for coming up for our conference. Jack, thank you.

Thank you, Jerry. Thanks, everybody.

Good morning. Let me just go up. So kicking off the third day of the BofA Industrials, Transportation, Airlines Key Leaders Conference. I'm Andrew Obin, BofA's U.S. multi-industrial analyst. With me here is Atmus Filtration CFO, Jack Kienzler. Jack, thank you for being here. Just a few stats on Atmus. Since its spin from Cummins in 2023, 42% annualized return, now $5 billion market cap and a relatively new member of the S&P 600 Index. Thanks so much for being here.

Thank you, Andrew. Good morning, and thank you for having us, and thank you, everybody, for your interest.

So maybe we can start with aftermarket. So aftermarket drives 84% of Atmus' revenue. In the past, you've cited the Cass Shipment Index. That improved to down 6% year-over-year in 1Q versus down 8% in 4Q '25. So improving, but still negative. So how have on-highway volumes trended in January, February, March and April?

Yes, it's a great question. And what index you look at is something that we've continued to try to triangulate on, I would say. The Cass rate index certainly is directional, but also misses some of the private fleet activity, which obviously has grown a fair bit in recent times. So if I think about how the first quarter went to start, I would call the market trends from a volume perspective is flattish. And that is reflective of our full year guide as well from a market standpoint in the aftermarket.

Certainly are hopeful for a positive inflection, but haven't really seen the indicators of that just yet. We look at a large number of things, certainly the cash rate index, but also GDP trends, spot rates, et cetera, some of which can show signs of some recovery, but not necessarily volume recovery, which is really what pulses our business. So keeping a keen eye on that, but haven't yet seen the positive signs of inflection. And so that implies our full year 2026 guide for flat.

Of course. And any sequential lift in April, May, the way you look at it?

No, not just yet. So kind of the same trend as what we saw in the first quarter.

So maybe we can talk about aftermarket trends across on-highway, mining, construction and ag, maybe just sort of dig in each vertical a little bit more?

Yes, absolutely. So if I go around the world, perhaps maybe I'll start first with on-highway, focusing in on the aftermarket. The broad headline theme is that it's fairly similar to what I just described, relatively tepid markets. There are some puts and takes around the world, but most, I would say, even out for a relatively flattish market dynamic here in 2026. We have had some -- from an off-highway perspective, pockets of growth. Certainly, the Indian market continues to be a relatively high-growth market relative to many other regions of the world. And we've had a few spots of positive sentiment from an aftermarket standpoint, Latin America, for example, with some of the off-highway markets. But broadly speaking, when you wash it all out, flattish from a market perspective.

And ag is still dead?

Ag is -- yes, Ag, I would say, is still pretty down really whichever region you go to.

Got you. You've had a 10% CAGR for LatAm over the past 4 years. What have you been doing differently in the region?

Yes. So I think Latin America is a great example of our aftermarket strategy in action. And so if you think about our growth pillars, the second is to accelerate profitable growth in the aftermarket. If you think about the Latin American region, historically, we largely went to market through the Cummins distribution channel, specific to Brazil, but also many of the other regions in Latin America.

And so what we've been trying to do is, of course, still cater to that market, it's still a very important customer for us. But in the aftermarket, what we want to do is be on the shelf whenever a service event is occurring or wherever the parts for that service event are being procured. And so what we've tried to focus on is the rest of the market, independent distributors, for example, and increasing our focus there that can come via investment in sales resources to get out in front of those customers. It can also come from lifting our delivery capabilities and making sure that as and when they do show an interest in placing an order, we're there to meet it and satisfy their needs.

And so to give you an example, I was down there last year and went and met with a few independent distributors. They had a Fleetguard relationship. That's our product brand, obviously, in the commercial vehicle market, but they hadn't really focused on it mainly because we hadn't really focused on cultivating that relationship. We didn't have any real commercial schemes going on with them discounts, rebates, things of that nature and weren't calling on them extensively.

And so just focusing on that relationship has allowed us to lift our presence in their portfolio. Typically, in these independent distributors, you see them stock multiple different brands. And so our goal is to increase our penetration or share of wallet with these different independent distributors. And we've seen that be highly successful, particularly in Latin America.

That's great. Thank you. Any one country that stands out?

Brazil is where our biggest presence is. That's our biggest market, certainly. But via Brazil, we're also able to get to some of the other large off-highway markets, things like Chile from a mining perspective, et cetera.

That makes perfect sense. And we're not going to be -- there was like 34 hours left. I think we're going to talk for 34 hours. But your on-shelf availability is now at all-time highs. What's the next lever to capture market share?

Yes. So that was definitely the first and one of our primary areas of focus, not only in our -- to bolster our growth in first-fit and aftermarket, but also as we were addressing our supply chain transformation 1.0 as we referred to it. Pleased with the progress there. It's not easy to lift your delivery statistics all while separating distribution centers at the same time and managing inventory to appropriate levels. And so I think the team did a fantastic job navigating through that dynamic. And now we feel really good about where our delivery levels are, certainly in the first-fit, but also in the aftermarket.

And so now from there, how do we couple that capability with expanding our relationships. I just mentioned the examples in Latin America, where we're looking to cultivate new independent distributor relationships. And I think that same playbook can be applied elsewhere. Our presence is in the aftermarket, we have a very significant presence with the OE dealer network. That's a big strength of our business and one that we want to continue to focus on. But how do we supplement that to ensure that we're meeting the needs across the useful life of a vehicle and again, increase the Fleetguard presence in the aftermarket. So that's really where we're focused. And I think that the sales team, coupled with the supply chain team equipping the sales team is the unlock making that happen.

Excellent. So maybe sort of talking about first-fit. There is an upcoming change in EPA regulations that will make the '27 truck models more expensive. If that's going to happen, there's going to be a prebuy of the cheaper models here in '26. But how meaningful are new U.S. Class 8 truck sales for Atmus, right? Because I think the revenue mix is 14% first-fit, of which 50% are on-highway and 54% in the U.S. And if you just sort of multiply these percentages, you sort of get to mid-single digits. Like should we get excited about this? A, what's happening? B, should we get excited?

Yes. So let me maybe talk about the market dynamics first and then how it pulls through to our business. So as you noted, yes, the expectation is for 2027 emissions regulation to kick in. Everything that we understand through conversations with our important customers in that space is that the expectation is that, that will come in. I know there's been some discussion of specific engine programs that may get pushed out from Cummins specifically. But overall, that is our expectation.

It is a bit odd to be at this point in 2026 and not have definitive insight into that, but that is our expectation is that the NOx regulations will come into play. That will lead to an increase in the truck price, albeit perhaps not as substantial as once thought, particularly around some of the warranty payer mix.

So we are expecting -- and our guidance implies a strong second half recovery in our first-fit markets. And I would say that we have both positive sentiment reinforcing that from our OE customers, Cummins, PACCAR, et cetera. And we also see the order activity coming through to back that up. So we feel very good about that market trend.

How much of that will be pre-buy versus buy? And then what is the ancillary impact in 2027? I think that can be a little bit hard to measure. I do think that perhaps certainly relative to expectations 12, 18 months ago, the prebuy will be less significant, which actually should be a good thing from a 2027 perspective and sort of smooth that out, if you will.

So what does it mean for us? Your percentages are generally right. So the business is about, give or take, on every given year, 15% first-fit, 85% aftermarket and overall, 60% on-highway, 40% off-highway. I would say our first-fit is a bit more skewed towards the on-highway. So it would be a little bit more than that. So revenue-wise, certainly being an aftermarket-centric business when the aftermarket is pulsing up on a market trend that's quite a bit more favorable. But after -- the first fit, certainly, we'll see a pickup in revenue. We'll also see some benefits from a volume perspective in our manufacturing plants.

While the product may seem on the outside the same, it's actually a fair bit different where in the first-fit, you've got housings, et cetera, the interface with the engine being manufactured. And so that tends to drive more standard hours in our manufacturing plants and can help improve our cost of sales per unit, if you will, as we move through the year. So we're excited about that trend. Certainly have been in a bit of a trough, I would say, in Q1 and starting to pull out of that. We'll have a top line benefit, but we'll also have a bit of a margin benefit as we think about just hours in the plant and getting the volume going.

And you have visibility because you know what production slots are with OEMs, right?

Yes. And then obviously, there's a lead time sort of between them procuring the filter for that first-fit product ahead of an engine manufacturing and then through to the trucks.

And how do you guys -- do you have an internal model for figuring out Class 8 demand? Do you rely on ACT? How does it work? Do you just talk -- do you rely on OEMs models?

I would say the best source for us is the OE discussions, their order activity via EDI through to us as well as just the ongoing discussions that we have with them. Certainly, we look at ACT data which is sort of a combination of all of that sentiment, but the direct conversations with these key customers is really...

What would you say the industry best guess for just directionally for Class 8 production next year?

'27?

Yes. Up, down, flat?

'27 versus '26, I think certainly, you should see some favorability. It's a little hard to tell exactly how much that would be. Q1 should be an easy comp, but then you've got the perhaps slowness out of the gate. So I think it somewhat depends on clarity on this emissions regulation, and we'll be watching that with a close eye.

And the economy, of course.

Yes, of course.

Maybe sort of other first-fit markets, maybe we can start with off-highway.

Yes. So I think somewhat similar dynamics to what you see in the aftermarket, which is relatively tepid outside of North American on-highway here. And so if you think about -- maybe I'll start just with a bit of the markets that we're exposed to. So from a first-fit perspective and an aftermarket in that off-highway slice of 40%, the majority of that would be construction and mining, driven by aftermarket activity in duty cycle, followed by markets like ag, power gen, et cetera.

I would say that, again, similarly to the aftermarket, we see some pockets of growth and some back-weighted optimism for the end of '26. But all of that is somewhat dependent on what happens with the geopolitical dynamics and the relative macroeconomic impact that falls out of that. So outside of North America on-highway, I would say we don't have a robust first-fit outlook for 2026 embedded in our guide.

Right. And can you talk about maybe a little bit what do you see in power gen because it's sort of interesting dynamic, and it's just completely changing now.

Yes, absolutely. So we are a supplier into the power generation market. Obviously, Cummins is a very large player in that market, and we supply them filters for all of those different gen sets, et cetera. A lot of those, including what's going into the data centers are backup power in nature. And so inherently don't drive a lot of aftermarket activity, which is why the impact to our top line is relatively muted. Of course, we're excited to continue to partner with them and others in the space, but it just doesn't drive as much unless it moved into like a prime power type application, which we haven't seen just yet.

Right, right. Okay. And just if Cummins converts them into recip engine, it still has a filter, right?

Yes, yes. So some of...

Because you're seeing a lot of, I go to shows and you see these 17-liter engines converted in like 0.5 megawatt power. And actually, I think they are going to go become prime power units.

Yes, it's definitely a trend that we're watching. And I think it remains to be seen how much of a piece of the market that takes. Is it supplemental until we get more stability, more megawatt capacity, et cetera. And then ultimately, what is the fuel source that bolsters those? Is it diesel? Is it natural gas? Is it some other form of power. But yes, again, we look forward to partnering with all of our customers in the space.

But just too early to tell.

Yes, a little bit too early to tell.

Okay. Atmus has been clear from the spin, first-fit sales are lower margin. If you had lower aftermarket and higher first-fit, that's bad for margin, but that's not what you're guiding for '26. It's flat aftermarket sales and high first-fit. It's the exact same filter produced in the exact same factory and high volumes drive fixed cost absorption. Is the incremental margin on first-fit better than the average margin on aftermarket sales. Incremental on first-fit versus average...

Yes. So a lot to unpack there. I would say you're correct in that, generally speaking, aftermarket is higher margin than the first-fit. Really, what I would say is the benefit from a margin perspective as we move into the second half of the year is the activity in the plants and that fixed cost absorption that you're describing there. I wouldn't say necessarily that incremental margins are better on first-fit than aftermarket. I think if you look at -- if you zoom out and look at the overall guide, I think it's reflective of continuing to try to address the cost base, improve efficiencies and lever price through to the bottom line to lift the overall margin profile of the business.

If you look over the past few years since we've been out post IPO, we've seen very significant margin expansion, all in a challenging market dynamic across our markets. And so I think that's reflective of the focus that we've brought to the table across all the different levers that we can exploit on margin.

What we're trying to do now is think about how do we lift really that top line revenue algorithm. We want to, of course, continue to deliver strong incrementals. But does that kind of shift to a slower margin expansion and a higher top line growth. We need the markets to recover to help us pulse that revenue engine, but that's some of the debate that we're having.

Excellent. Maybe a little bit about first quarter. Just 2 quick questions on first quarter. Could you explain the $3 million EBITDA hit from the change in Indian labor laws in the quarter? Is it onetime? Does it mean higher costs going forward?

Yes. So certainly, a bit of a nuance there. So I would have you think about it as a change in essentially the social security retirement benefits that the Indian government implemented. And then all companies, not just unique to us, had to true up to reflect what that would have been, had it been in place over the past few years. So there's an element of it that is effectively onetime catch-up.

And then reflected ongoing, there will be a higher accrual that the employer books, in this case, our joint venture to reflect that compensation scheme. So we, along with everybody else, booked that accrual. It hasn't been put in place just yet. So we're watching that. But that is what that is. And as you can imagine, the large majority of that $3 million then is that catch-up and then reflected in our ongoing outlook will be the run rate expense if you will.

Got you. So yes, higher costs going forward, but a relatively small number.

Correct. Yes.

And second, your commentary about pricing Atmus normally adjust prices in January and July. You're sticking to that timing, but haven't decided on the magnitude. Would you rather err on the side of raising price too much or too little?

Yes. So I guess just to -- so everybody is aware. So generally speaking, we have pushed price in the aftermarket, which is where the majority of our price occurs at the beginning and then at the middle of the year. And we'll continue to evaluate our input cost environment and continue to take action accordingly to protect our financials and continue to offset that input cost.

I think the other balance that you're highlighting is just the balance between price and share. And I would say that we certainly err towards share as the #1 priority to continue to grow our installed base, partner with our customers and grow overall. And so I would not push price at the expense of share, but there's always a careful consideration between the 2, and we want to work with our customers to reflect the ongoing cost.

But the idea is just to capture price cost at least.

Yes. So certainly, our goal is to be price/cost neutral to positive, not price/cost negative. I do think the tariffs were a bit of a unique cost input that led to a more agile pricing environment via 30-day-ish price throughs. I think the ongoing input cost environment that we're facing here as a result of rising oil prices, et cetera, the pricing actions from that would likely look a bit more like a normal situation versus the tariff situation.

So maybe just shifting to manufacturing. Atmus reduced recordable injuries by 35% last year for a recordable incident rate of [ 0.6 ] per 100 employees. That's over 20% lower than Donaldson. So how are you instilling a safety-first culture on the factory floor?

Yes, it's a great question, and I appreciate you...

And the reason because it also obviously ties in into lean and everything, I think.

Yes, it's a great question. I appreciate you raising it. It's -- we look at safety as our #1 priority. It's not an initiative. It's really embedded in our values and our culture. And it's been the biggest area, I would say, of focus for us and will continue to be. We want to ensure that our workplace is as safe as possible and that we would all feel comfortable with our own family members, our children coming to work in at an Atmus location.

How have we done it? I would say it's really about addressing the culture from the top down and using a wide array of tools and investing in tools to bring it to reality. So we, as the leadership team, put a big focus on this. Anytime we go to one of our sites, we do a safety summit, as we call it, where we engage with the workforce, get direct feedback on things that are on their mind, visit areas of past safety instances to make sure that we're learning from those and implementing change, installing machine guarding, so on and so forth.

And then making sure that, again, it's instilled in everyone's work plan, not just those in a manufacturing environment, but everyone across the Atmus organization. So safety is never something that you can say is done. And so it will continue to be a big focus for us. And again, it's -- safety of our people is our #1 priority.

No, when I got my Lean certificate at University of Tennessee, it's like they're hammering you that you start with safety because you can't have flow like through the line without safety. And I think that's where we like to focus on. It's just a great indicator where the manufacturing culture is going. So thank you.

Absolutely.

So last year, revenue per employee was $490,000 at Atmus versus $246,000 for Donaldson. So can you help us explain like how do you drive 2x the productivity versus a close peer?

Yes. It's -- honestly, that's not a metric that we look at in a meaningful way. But I do think it's worth just revisiting our overall growth strategy, which has been a big focus for us, obviously, as we've been an independent company post split-off from Cummins. So it all starts with the first-fit, trying to grow our installed base. This is a multipronged strategy. So we want to focus, first and foremost, on our existing customers, winning with the winners as we call it. So how do we continue to delight and expand our share of wallet and our presence with our important customers, the likes of PACCAR, Cummins, Volvo, et cetera.

And as they win in the market, we want to help enable them to win. So that's the first piece. Secondly is now how do we go after additional first-fit customers that perhaps we weren't able to focus on historically. That could have been driven by competitive dynamics with our former parent Cummins or it could be driven by just, frankly, an under focus on some of these smaller OE opportunities that we have the product line to address via our engine displacement range that we can service, but just hadn't focused on in terms of engineering focus, sales resource, et cetera, historically. First-fit, in our view, is really important to kind of pulse the flywheel, grow the installed base and grow the addressable market in the aftermarket.

The second is as I mentioned earlier, accelerating profitable growth in the aftermarket. This is not only lifting delivery capabilities, expanding independent distributors, increasing the use of different tools, digital tools, et cetera, that the sales force can use to help identify opportunities when they go into one of our dealers, highlight cross-sell opportunities, highlight new products that can, again, help our customers succeed.

The third is the supply chain transformation. So delivery is a component of that. Automation is a component of that. And just, I would say, really sound procurement practices to get more suppliers under contract, utilize those contractual mechanisms to continue to expand margins, et cetera.

And then the fourth, of course, is the expansion into industrial markets. This has been a big accomplishment of the business with the closure of the Koch Filter acquisition here in January. We're really pleased with how that's going so far and the potential that, that has to, again, just accelerate our growth engine moving forward. So I think that's just a combination of the factors. We don't really look at it on a headcount basis, but more of a cohesive strategy that we want to continue to do.

So maybe another way of asking the question. So how much opportunity is there to just standardize best practices across your factories? Like what's the gross margin difference between, say, the best and the worst plants?

Yes. It's a little bit of a tough comparison because the makeup in the different plants has a different dynamic, right? So what's produced in our manufacturing location in China, both in terms of first-fit versus aftermarket, the products they're in, et cetera, isn't quite the same as if you went to Neillsville, Wisconsin; Cookeville, Tennessee; San Luis Potos , Mexico.

So overall, I would say that our big focus as we now move to the next stage of supply chain transformation is to certainly continue some of the same. So some of those procurement dynamics we want to continue to address, but also looking at efficiency gains from a conversion cost perspective, how do we get more efficient in terms of labor optimization, how do we address overhead costs and try to make step changes in terms of fixed cost reductions. All of that's a big focus for the organization moving forward.

You may have seen we just announced the hire of our new supply chain leader, Kevin Carpenter. And so really excited about what he can bring to the organization and supplement the great team that we already have in place. We've been on, as I mentioned, a remarkable margin expansion journey, frankly, and supply chain transformation has been a big part of that. And so now really focusing on what the next chapter of that will look like.

And maybe just finishing up, 2 years ago, you put your first fully automated line in your factory in France. How has the project return been? And have you expanded this to other factories?

Yes. So first of all, it's -- so we call it a green cartridge line. And what that means is effectively partnering with our European OEMs, given it's in France to meet their needs in terms of increasing the recyclability of the reusable part, the disposable part of a filtration spec, right? And so how do we reduce the amount that needs to be changed, if you will, in terms of the element within the filter housing and make sure that, that is recyclable, if you will. So that kind of depends on which market you're looking at in terms of customer demand.

We have looked to expand that capability into some other markets, including Brazil, which tends to follow certainly in terms of OE market share, the European market. Obviously, looking at the labor cost dynamic, the notion of a fully automated line has different return metrics depending on where you are in the world.

But we're really pleased with how that went. It was the first of its kind for us. And so really synonymous with our ambitions to be an ongoing learning organization. How do we learn from that deployment? Certainly, there were some things that didn't go as planned. But again, we were able to address those relatively quickly and get it on track. So we're pleased with where it is. We'll continue to evaluate the deployment of similar types of technologies going forward.

So maybe to talk about Koch Filter. Let's sort of talk about your first industrial filtration acquisition. For background, $450 million purchase price, 14x adjusted EBITDA margins that are modestly above corporate average. So your '26 revenue guidance for this business is 1% to 8% year-over-year, midpoint 4%. But data centers are 8% of revenue and power gen is 8% of revenue, and those are pretty fast-growing market. Can you just walk us through.

Yes, absolutely. So first of all, we're really excited about the acquisition. Again, I think it really met all of our strategic objectives and our financial objectives. And so -- and maybe most importantly, the culture of the 2 organizations is quite harmonious. And really, that just opens the door up for a seamless integration. We're more than halfway through that as well as hopefully, in the future, ongoing synergy realization and the identification of opportunities beyond what we quantified at the outset of the deal.

In terms of the revenue end market makeup, so they serve a broad array of end markets. So commercial HVAC, industrial HVAC, data centers, power generation, health care, as you note. So the majority of the business, about 60% would be that industrial, commercial HVAC. That tends to grow at kind of GDP type levels.

And then as you noted, some faster growth markets, data center, certainly, health care and power generation are roughly 7%, 8% each. And so what we're really trying to do is continue to grow in those core markets. A lot of times, as you're expanding in those markets and establishing new distributor relationships, you need to have that level of product to have an in, if you will. And then that allows you to leverage those relationships to sell through those higher efficiency filtration products that service those fast-growing markets. And so over time, how do we shift the revenue profile and grow the exposure into those end markets that will obviously allow us to lift the overall revenue algorithm of the Industrial Solutions segment and ultimately Atmus.

Got you. But just from a top-down perspective, 4% seems fairly achievable.

Yes, we feel good about the guide. I think at the midpoint, right, 4%, which is an overall revenue outlook. And so yes, excited about, again, what that business is...

So you gave $4 million in synergy target by year-end '28, but these guys buy media from someone else today. Atmus, of course, one of the largest filtration media manufacturers in the world. How meaningful is the cost savings from in-sourcing filtration media?

Yes. So it's one of the many areas that we're looking at from a synergy realization standpoint. Our filtration capabilities, I would say, are most applicable to some of their higher efficiency filtration needs, less so on the pleated panel filters at the lower end. And so overall, as you noted, $4 million of synergy targets. We remain committed to that from a run rate perspective and are, of course, looking to identify other opportunities to complement that. I think from a media perspective, the teams are meeting on a regular basis and beginning to identify those opportunities where we can bring our media know-how and our products specifically in, and that will contribute to that $4 million savings.

So maybe last question. You will be off all the transition service agreements by the end of the third quarter. Starting in the fourth quarter, could we see a step-up in Koch Filter's margins like 100 bps?

So the financial profile that we've highlighted for you all, including our first quarter results, include TSA charges, which are frankly, representative of what we think those stand-alone charges are. And so I don't think about the reduction of the TSA as necessarily upside moving forward. It's more indicative of the financial profile that we'll have as we go forward. So margin expansion, of course, will be a goal and a priority for us, but that will come through the synergy realization and other things like that.

Excellent. This is great, Jack. Thanks so much.

Thanks, Andrew. Appreciate it. And thank you, everybody, for your interest. Have a wonderful day.

Ladies and gentlemen, thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome you to the Atmus Filtration Technologies First Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Todd Chirillo, Executive Director of Investor Relations. Todd, please go ahead.

Thank you, Christa. Good morning, everyone, and welcome to the Atmus Filtration Technologies First Quarter 2026 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 this call. For additional information, please see our SEC filings and the Investor Relations page is available on our website at atmas.com.

Now I'll turn the call over to Steph.

Thank you, Todd, and good morning, everyone. Today, I will provide an update on our first quarter results and share details of our progress executing our 4-pillar growth strategy. I will also provide updates to our outlook for 2026. Jack will then speak to our financial results and segment performance. I want to begin by recognizing [indiscernible] for their ability to navigate continued challenging market conditions, all while delivering strong financial results to start the year. Our global team remains focused on solving our customers' filtration challenges and delivering on our 4-pillar growth strategy.

During the first quarter, we completed the acquisition of Koch Filter which represents our first step toward advancing our strategy to expand into industrial filtration. This establishes our industrial air filtration platform and expands our portfolio into commercial, industrial HVAC and high-growth end markets, including data centers and health care. We have made significant progress integrating Koch Filter into the Atmus organization.

We have exited over 50% of the transition services agreement and expect all remaining integration activities to be completed early in the third quarter. The combination of Koch Filter's deep industry experience with our filtration expertise and footprint along with a strong cultural alignment will provide benefits for all stakeholders. With the acquisition, we will report on 2 business segments in 2026. Power Solutions, which serves global on-highway and off-highway equipment markets and industrial solutions where the Koch Filter acquisition will be reported.

Now let me provide an update on our capital allocation strategy. During the first quarter, we returned $12 million of cash to shareholders, consisting of $7 million of share buybacks and $5 million of dividends. We have $62 million remaining on our share repurchase authorization and expect share repurchases to be $20 million to $40 million in 2026. Behind our strong performance is our people, and I want to take a moment to provide some insight into how the culture at Atmus is driving momentum in the overall business. As I have shared previously, we have developed and embedded the Atmus way as a way of working, which incorporates our purpose, our values, our behaviors and our strategy. As part of the Atmus way, we are committed to being mining oriented. Embracing a learning mindset will enable our growth strategy and support the scaling of our operations.

During the first quarter of 2026, we continue to invest in building future generations of leadership for Atmus. At an executive level, we launched our second Cosmo of our executive development program. This program is focused on building executive leadership capability over 2 years. Additionally, we launched our Leadership Foundation program focused on developing frontline leaders with foundational leadership skills grounded in our Atmus value. We have 200 managers and supervisors currently in the program and anticipate all frontline leaders to complete this by the end of 2027.

I am inspired as our leaders around the world participate in these programs and develop both personal and professional skills to lead our organization.

Now let's turn to our 4-pillar growth strategy. Our first pillar is to grow share in first fit. We continue to win with the winners by growing our long-term partnerships with leading global and regional OEMs across a broad range of applications. Recently, we announced the opening of a new state-of-the-art laboratory facility at our compare France location, reinforcing our commitment to advancing filtration technology and reducing testing lead times for our customers. This modernized testing facility strengthens our global laboratory network, which allows us to work collaboratively with our customers.

Our second pillar is focused on accelerating profitable growth in the aftermarket. We have partnered with leading global and regional OEMs who continue to grow their aftermarket business and expand market share. These OEMs trust our industry-leading products to solve their filtration challenges and protect what is important. Additionally, we are expanding our product coverage in independent channels with new distributors. This allows us to provide our industry-leading sweetguard and Koch Filter branded products to our customers in their desired service channels.

Our third pillar is focused on transforming our supply chain. We have established a strong distribution network, which has enabled us to enhance the customer experience. We have raised our delivery and on-shelf availability metrics to all-time highs ensuring our customers have the right product when and where they need them.

Our fourth pillar is to expand into industrial filtration markets. The execution of our first acquisition with Koch Filter enables us to unlock operational, commercial and growth synergies through the alignment of Koch Filter's leading industrial and filtration brands and our advanced technology capabilities in filtration video. As we continue to review a robust pipeline of opportunity, we will focus on the industrial area to build a platform of scale by leveraging Koch Filter and creating value through targeted bolt-on acquisitions.

While our primary focus is industrial air, we will remain opportunistic in evaluating industrial water and liquid filtration assets with the goal of identifying an anchor investment that can serve as the foundation as we build out our broader industrial platform over time. As demonstrated by the Koch Filter acquisition, we remain focused on executing a disciplined approach to develop opportunities, which deliver long-term shareholder value.

Now let's discuss our first quarter financial results. Sales were $478 million compared to $417 million during the same period last year, an increase of 14.6%, largely driven by the acquisition of Koch filter. Adjusted EBITDA was $95 million or 19.8% compared to $82 million or 19.6% last year. Adjusted earnings per share was $0.69 in the first quarter of 2026, and adjusted free cash flow was $33 million.

Now I will discuss our market outlook for 2026. The conflict in the Middle East introduces uncertainties to the [indiscernible] for the year. This includes uncertainties regarding impact on input costs, our ability to sell products in the Middle East and broader macroeconomic impact. At this stage, we have not incorporated as it impacts into our guidance associated with the Middle East conflict. But it is an ongoing risk factor that we will continue to monitor.

Now let's turn to our outlook for the Power Solutions segment. In the aftermarket, overall freight activity remains muted, and we expect the market to continue at current levels and be relatively flat year-over-year. In our first-fit market, customers have indicated strengthening activity as the year progresses, related to cyclical market recovery and pre-buy activity ahead of 2027 U.S. regulatory changes.

Our outlook for heavy and medium-duty markets in the U.S. is now expected to be in a range of up 5% to up 15% compared to 2025. In our Industrial Solutions segment, we continue to expect favorable market conditions and we anticipate the market to contribute 1% to 4% of growth. We expect share gains to deliver an additional 1% to 2% of share growth and overall pricing is expected to provide approximately 1% of revenue growth. As we noted last quarter, some tariff pricing implemented in 2025 will not carry into 2026 due to changes in status of global trade agreements, implementation of offset and the actions we have taken to mitigate tariff impacts.

Based on tariffs in effect as of April 30, we expect the impact of tariff pricing to be flat relative to 2025 on a full year basis. We will continue to be nimble and adjust pricing as necessary should the tariff environment change. and we expect to remain price cost neutral. The U.S. dollar is expected to weaken year-over-year and provide an approximate 1% revenue tailwind.

In summary, our expectations for Power Solutions total revenue will be in a range of $1.79 billion to $1.85 billion. an increase of approximately 3% at the midpoint from the prior year. In Industrial Solutions, we expect revenue to be in the range of $155 million to $165 million, which includes revenue from the Koch filter closing date of January 7. Taken together, we expect total company revenue to be in a range of $1.945 billion to $2.015 billion, an increase of 10% to 14% compared to 2025. We are maintaining our full year adjusted EBITDA guidance of 19.5% to 20.5%. As noted, the conflict in the Middle East is expected to put pressure on commodity prices throughout our supply chain, most notably in petroleum-based components, such as plastics. Should this occur, we would expect to recover these inflationary costs. However, there may be a timing lag for recovery.

Lastly, adjusted EPS is expected to be in a range of $2.75 to $3. Before I turn the call over to Jack, I want to thank our team members around the world for delivering a strong quarter and for your continued focus on our customers.

Now I will turn the call over to Jack.

Thank you, Steph, and good morning, everyone. Our team delivered strong financial performance in the first quarter of 2026, even though we continue to experience uncertain global market conditions. Sales in the first quarter were $478 million, compared to $417 million during the same period last year, an increase of 14.6%. Power Solutions delivered sales of $439 million compared to $417 million in the prior year. an increase of 5.4%. The increase was primarily due to favorable foreign exchange of 4% and higher pricing up 2%. Volume was down slightly year-over-year.

Industrial Solutions sales were $38 million, resulting from the acquisition of Koch Filter. Gross margin for the first quarter was $137 million compared to $111 million in the first quarter of 2025. The increase was primarily due to incremental margin from the acquisition of Koch Filter, increases in pricing, the cessation of onetime separation costs and the favorable impact of currency. partially offset by higher logistics and duties costs, higher manufacturing costs, along with lower volumes.

Selling, administrative and research expenses for the first quarter were $59 million compared to $55 million in the prior year. The increase was primarily due to people-related expenses and information technology [indiscernible]. Joint venture income was $8 million in the first quarter compared to $9 million in the prior year quarter. The decrease was primarily due to a $3 million expense in our India joint venture related to a benefit obligation remeasurement driven by recent labor law changes. Other income was an expense of $7 million compared to income of $1 million in the first quarter of 2025. The increased expense was primarily due to the Koch Filter acquisition consisting of $6 million in transaction costs.

Excluded from adjusted results are onetime costs related to the integration of Koch Filter, which for the full year 2026 is expected to be in the range of $3 million to $8 million, along with approximately $6 million of transaction costs. Additionally, we will exclude intangible asset amortization resulting from the Koch Filter acquisition, which is expected to be in a range of $10 million to $15 million. Adjusted EBITDA in the first quarter was $95 million or 19.8% compared to $82 million or 19.6% in the prior period. Adjusted EBITDA for Power Solutions was $86 million or 19.6% compared to $82 million or 19.6% last year.

Industrial Solutions adjusted EBITDA was $8 million or 21.9%. Adjusted earnings per share was $0.69 compared to $0.63 last year. Adjusted free cash flow was $33 million this quarter compared to $20 million in the prior year.

Now let's turn to our balance sheet and the operational flexibility it provides to execute on our growth and capital allocation strategy. We ended the quarter with $210 million of cash on hand. Combined with the full availability of our $500 million revolving credit facility, we have $710 million in available liquidity. Our strong liquidity provides us with operational flexibility to effectively manage our business and to execute growth opportunities. Our cash position and continued strong performance, along with inorganic growth from the acquisition of Koch Filter has resulted in an estimated net debt to adjusted EBITDA ratio of 2x for the last 12 months ended March 31.

I want to echo Steph and thank [indiscernible] around the world for all of their hard work and dedication to deliver a strong start to 2026. Our disciplined execution of our 4-pillar growth strategy, underpinned with a strong balance sheet will allow us to continue to drive growth and create long-term value for all of our stakeholders.

Now we will take your questions.

[Operator Instructions] And your first question comes from Quinn Fredrickson with Baird.

I just wanted to start off with a question about pricing. It seemed to come in a bit stronger than you were expecting in 1Q. But it sounds like you haven't changed your expectation for the full year at 1%. First, just can you confirm that's accurate? And if so, can you impact why that would be the case given it sounds like input costs are moving up.

Thanks, Quinn for the question. So Overall, I would say our pricing expectations for the full year remain 1%. As we highlighted -- as we initiated our guide on our last call, part of what you're seeing there is the evolution of tariff dynamics and so as we talk about that pricing figure of 1%, it is holistic, including both base pricing actions that we took in January, for example, as well as tariff pricing. And so as we move through the year, that tariff pricing will reflect the evolution of the tariff dynamics. And as you compare year-on-year, you have different puts and takes as tariffs went up and down relative to specific countries.

And so as we had highlighted, we do expect the first quarter from a year-over-year comparison to be our strongest pricing quarter. And then as tariffs change and as Steph alluded in her comments, we expect the full year impact from tariffs to be essentially flat year-over-year. In terms of the input costs and whether or not we will be taking price actions for that, as we stand here right now, we're keeping a vigilant eye on those costs. As we noted, we will certainly look to recover those costs, either through different things we can do in our supply chain or through pricing. As you know, base pricing is generally done at the beginning and the middle of the year. We would not expect necessarily similar dynamics to what we employed for tariffs to counter those input cost headwinds. And so that's that inherent timing line that may exist should input costs become a dynamic this year.

That was helpful. And then second question would just be on share gains. Any estimate on what that contributed in the quarter? And then any update to the 150 basis points that you're guiding to for the year?

Great. Thanks, Quinn. Let me get started on that one. Let me just step back and look at the quarter and the performance overall. Overall, we're really pleased with the performance in the quarter. It was strong growth. We saw 14.6% growth in the quarter. And if I just talk specifically, I'll dive a bit more deeply into Power Solutions. We were very happy with Industrial Solutions, about 6% growth in the quarter. So a very good start to the acquisition of Koch Filter and shell out to that teams have performed very well. If I look at Power Solutions, 5.4% growth year-on-year, quarter-on-quarter. That was made up of, as Jack discussed, 4% in FX and 2% in price with volume overall slightly down, and there's a mix in there of market conditions and share and some other onetime impacts that we experienced in the quarter also.

So we saw the market was down year-on-year. Overall, we said that was about 1% down. First bit was 8% down in our numbers and aftermarket slightly down. And then if you start to unpack some of the specific onetime impacts we saw, the Middle East, we had impact on our ability to deliver to our customers in the Middle East in the month of March. That impacted us by about $4 million in sales, about 1%. We have -- that was because we couldn't deliver to our customers for a period of time because of restrictions in the supply chain. We have mitigated, so its impact and are now able to overcome that. Obviously, the Middle East conflict is an ongoing challenge, and we continue to monitor it and seek to mitigate those impacts. But in the quarter, it was a 1% impact that we are not expecting to continue.

We also saw the stocking dynamics across the world, some within Latin America and Southeast Asia that we expect our sort of timing. So overall, share was about in the middle of that 1.3% level. right on top of the guys and where we're seeing it gives us confidence to continue to maintain our guide through the year. In addition, we're seeing positive inflection in the first-fit market. We've already seen that coming through in our build rates and orders from customers. That gives us confidence in the second half guide underpinned by a recovery in first-fit market.

Your next question comes from the line of Joe O'Dea with Wells Fargo.

Can you unpack Middle East uncertainty a little bit more just from both kind of a revenue and cost consideration perspective and based on what you see on current market prices, how you think about the potential cost headwinds there? And then also, you talked about a little bit of like supply chain disruption in the quarter, but stepping back, what you see as a potential demand response to ongoing conflict and a revenue impact that you consider?

Yes, Thanks for the question. The Middle East is an ongoing uncertainty for all of us. I guess we've been just over 60 days in the conflict now. And I'm certainly in no position to predict how long that continues. The way I'm thinking about the impact of the Middle East on our business really is in 3 key areas. The first of those is cost pressures and input cost pressures. It would be increases in costs related to inflationary pressures or supply shortages. We see the biggest impact for us there in plastics or petroleum-based products. Right now, we are not seeing a lot that is already impacting or is baked into our forecast. We're really monitoring this as a risk at this point. but an expected -- we'll expect to see some pressure on cost as the year plays out. Jack's go to that will obviously go to mitigate those but there may be some lag here in the second half on pricing depending on how the conflicts continue.

The second dimension that may have an impact on our business is our sales in Middle East. For context, our sales in the Middle East were $38 million in 2025, so about 2% of our overall revenue. We did see a $4 million impact in the first quarter. We are not expecting that to continue through the remainder of the year. But obviously, we're watching to see how the complex continues to evolve.

And then the third piece, which you rightly pointed out, is the broader business confidence impact on global demand. And it's very difficult to predict that. Obviously, our aftermarket is heavily weighted towards economic activity, freight activity around the world and particularly in North America. At this stage, we do not see the conflict having an impact on that, but we continue to monitoring business confidence and the projection for that we're getting from our customers as to the outlook. But at this stage, we think the view of a flat outlook on aftermarket year-over-year still help.

That's helpful detail. And then my other question is on the Koch Filter. And with respect to your pillar of accelerating profitable growth in the aftermarket, and just any color on how different the distribution network is there and some of the work that's underway or opportunities that you've identified in the near term to go after some of that aftermarket opportunity?

Great question. As I alluded to, I'm really pleased with the start of the acquisition of the Koch Filter business. They had a strong quarter, 6% revenue growth in the quarter. And really, we're progressing very well with the integration. So the integration, we expect to sort of wrap up here in early in the third quarter. And so very pleased with how that's beginning. And the team are very focused on share gains in their market and orienting the focus of their growth towards higher growth end markets. There are some similarities between the distribution channel and obviously, the overall broad coverage of our products across a very broad distribution network, that strategy holds across both our Power Solutions business and our Industrial Solutions business and some of our industrial broad-based distributors that we've signed up in recent times do have coverage both our segments.

So we'll look to leverage the synergies across those distribution channels. Right now, I would say we see plenty of opportunity with the filtration with the Koch Filter business, continuing to target its growth strategy and orienting towards higher-end growth markets. and doing the integration well.

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

I wanted to revisit the volume comments you made. So for Power Solutions, volume was slightly down against the down number last year. Do you expect volumes to turn positive later in the year in any quarter, maybe driven by aftermarket or for [indiscernible] due to prebuy. So how are you thinking about volume in part solutions through the rest of the year?

Thanks for the question. So yes, we do expect volume to continue to grow quarter-over-quarter through this year. Obviously, second quarter is a stronger quarter for us. And then we see the first bit dynamics in the third and fourth quarter study to come in. So -- we talked about the heavy-duty and medium-duty market adjustment to be 5% to 15% up year-over-year. We expect that to be all second half loaded. We're starting to see that progress through the second quarter. We've also -- already seen increases in build rates. And so we'll start to see that trend up to through the second quarter and through the second half.

And then from a share perspective, we see the 1% to 2% share as being about the right balance for us throughout this year. We still see a path to see how we'll deliver that. and with the aftermarket. Aftermarket was challenged here in the first quarter. We continue to see it operating at pretty flat year-over-year is the assumption underpinning our guide, but overall, that leads you to sort of a volume growth environment through 2Q and second half.

Understood. That's very helpful color. And a question on Koch Filter. I think I just heard you say 6% revenue growth. Is that all organic? And if it grew 6%, you're seeing the market would grow 1% to 4%. So was share gain over 300 basis points in the quarter? And do you expect sort of 6% type growth year-over-year for the rest of the quarters in the year?

Yes. So we've given you a pretty wide range on industrial, and I appreciate that. It is a smaller number. So as we find our way here, you'll give us some great. So our full year guide is a growth of 1% to 8% with a midpoint of 4%. If I look at the first quarter performance, it's right where I would expect it to be at about 1% price, 2% share and about 3% market growth is what we're seeing. We expect that market growth to be around that level. So I still position it for now around the midpoint of that 4%, but that's the range we're suggesting is 1% to 8% for industrial.

Your next question comes from the line of Bobby Brooks with Northland Capital Markets.

Now that you've had a couple under the hood for a little longer than 3 months, I'd be curious to hear what are the most compelling growth opportunities you see that are directly arriving from your ownership and then taking the opportunities on the cost of manufacturing side?

Great. Thanks, Bobby. So let me just give some -- an outline of how I'm seeing the opportunity of Koch Filter and then I'll ask Jack to talk through the integration activity and the supply chain costs. So look, firstly, as I said, we're really happy with the first quarter performance and -- when you do due diligence of an acquisition, obviously, we were very thorough in our due diligence, but you then get to work out exactly what is under -- as you described it. And here's what I would say is the opportunity. This was really a decent market step for us. and about expanding into new markets. And we really want to support fully the Koch Filter business to do what they do well. They have a very clear plan to continue to expand this year in this 2% rate customers. They have a strong favorable market condition, and we expect continued growth at a higher rate than our Power Solutions business into the future.

In terms of where strategically I want to direct the opportunities of the team, it really is around products, customer and channels to higher growth end markets. and that includes data centers and health care, but it's also a very strong and robust set of opportunities we have across the broader industrial and commercial HVAC. So that's how I would describe the growth strategy, very pleased with how we started. And I'll ask Jack to comment on how we see the opportunities from a cost and synergy perspective.

Thanks, Steph and thanks, Bobby for the question. So first of all, I would just echo Steph's comments, we continue to be very excited about the acquisition of Koch Filter. I'm really pleased to see a strong cultural fit between the 2 organizations, which really makes the collaboration all that more possible. First quarter performance also demonstrates the margin accretion that the business can deliver to our overall portfolio and overall potential for the business. I'll start first on integration. We've made significant progress on the integration activities. Fortunately, we gained a lot of experience through our separation [indiscernible], and that has really served us well, I would say, as we know integrate this business and they go through their own separation from the prior parent. We've completed about half of the TSAs and are on track to complete the integration by early in the third quarter.

As I shift then to synergies, it's been really great to see the teams come together, share learnings between the 2 organizations about not only the cost synergies that we outlined when we highlighted the $4 million of potential, things like supply chain and procurement savings, et cetera. but also other potential growth areas that Steph has alluded to, where we can use our media expertise or some of our product know-how or by Versa use their product know-how and products to complement failed upside into each other's end market. So excited about the future. As you know, early days just yet. We're -- [indiscernible] closed in January. So excited about the potential, and we'll certainly update you all that those opportunities come into portion.

Absolutely. Really appreciate the color. And then maybe for Jack. Just curious to talk about you guys any outlook on tariff recoveries or just how to be thinking of that playing out this year, if so?

Yes. Thanks, Bobby for the question. I would say, first, just to reiterate, our overall approach to tariffs remain unchanged. We will continue to pursue all of our available avenues to mitigate tariff exposure. importantly, minimize the impact on our customers and our overall objective remains unchanged to be price cost neutral. There has been, of course, some evolution from a tariff perspective. So let me just give some color to that. As you all know, effective in early April, the Section 232 steel and aluminum tariffs went into effect. I would just say that there's an immaterial number of our products that qualified under that category really because the -- most of our products are already qualified under the Section 232 tariffs around heavy-duty, medium-duty products. So not really an incremental change there for us.

And because they qualify under the prior heavy-duty, medium-duty Section 232, the U.S. MCA exemption that we've been availing ourselves up, it's still valid and something we can take advantage. Overall, from a refund standpoint, as you all know, a refund mechanism has been established using the Cape system out of mid to late April of this year. Like other companies, we expect refund requests will be fulfilled once the mechanism is fully operational. These refunds, to our understanding, will be provided in phases, and we're following the normal steps with respect to filing our claims based upon their classification and the status of the entries.

I would just say that the timing of those refunds and the corresponding treatment in the market in terms of how those ultimately flow through is still highly uncertain. But we'll certainly keep you updated as we gain more clarity there.

Your next question comes from the line of Andrew Obin with Bank of America.

Andrew, I'm sorry, we are having a hard time hearing you.

Sorry about that. This is David Ridley-Lane on for Andrew Obin. Question on the potential impact for you from higher diesel prices as you're thinking about your commodity freight if you snap the line today and assume that diesel prices remained constant, what kind of drag or year-over-year headwind would you be facing?

Yes. So overall, I would say, David, again, from an input cost perspective, we're monitoring it -- that's one of many, I would say, dynamics that flow through not only directly to, I guess, us, but in terms of freight costs, et cetera, but also to end users in our space, right, who are navigating higher input costs and a challenging freight dynamic overall. Right now, in terms of the impact of those costs, again, as Steph said, we're more in the monitor phase. and would expect to react to those in terms of pricing or other supply chain maneuvering to offset.

So our guide, as stated, really is in more of a watch-and-see mode on those just now, and we'll continue to update that as we move through the year.

Got it. And the other question I had just real quickly was on the aftermarket performance this quarter. I know you quantified the Middle East headwind. So that was a point overall. You also mentioned some destocking in LatAm and Southeast Asia. I just want to better understand, was this a surprisingly light quarter for aftermarket and any thoughts you have on reasons why or what you've seen maybe in April? Was there a little bit of recovery.

Yes. Thanks, David. Look, I think the first quarter is always a little challenging for us. There are some dynamics between fourth quarter and first quarter, and we see this in North America a little bit. If you look at our published results of our customers, you see this reflected as well. But where there is some stocking up at the end of fourth quarter, and then you see some timing impacts of that into the first quarter. So I think there is some impact there in the first quarter. We do see improved volume performance throughout the year. Second quarter is -- in aftermarket, second quarter is the strongest quarter for us. And then obviously, we see the tailwinds on the first fit side in the second half. So I believe that gives you some additional insight.

And we have no further questions in our queue at this time. I'd now like to turn the conference back over to Todd Chirillo for closing comments.

Thank you, Christa. That concludes our final conference for today. Thank you for participating and for your continued interest. Have a great day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmus Filtration Technologies Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions]

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

Thank you, Regina. Good morning, everyone, and welcome to the Atmus Filtration Technologies Fourth Quarter and Full Year 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 this call. For additional information, please see our SEC filings and the Investor Relations page is available on our website at atmus.com.

Now I'll turn the call over to Steph.

Thank you, Todd, and good morning, everyone. Today, I will provide an update on our fourth quarter and full year results. I will also share details of the significant progress we achieved in executing our 4-pillar growth strategy during the year, and I will review our outlook for 2026. Jack will then speak to our financial results.

I want to begin by thanking Atmusonians around the world for delivering strong 2025 results. These results were delivered through disciplined execution despite challenging global market while advancing meaningfully against our 4 strategic growth pillars. I am proud and honored to lead an impressive team who are committed to solving our customers' filtration challenges.

During the fourth quarter, we announced the acquisition Koch Filter, which subsequently closed in early January. This established our industrial air filtration platform, which is aligned with our strategy and unlocks an opportunity to accelerate our growth. The acquisition also established our new Industrial Solutions segment, led by Rakesh Gangwani, Senior Vice President, Strategy and President of Industrial Solutions. We are excited to bring the Koch Filter product brand into Atmus, and welcome the talented team to our company.

Upon closing of the transaction, I met with employees and was inspired by their customer focus and desire for growth. The combination of Koch's deep industry experience with Atmus' filtration expertise and footprint will provide benefits for all stakeholders. With the acquisition, Atmus will report on two business segments in 2026: Power Solutions, which serves global on-highway and off-highway equipment markets; and Industrial Solutions where Koch Filter will be reported.

Now let me provide an update on our capital allocation strategy. During 2025, we returned $78 million of cash to shareholders, consisting of $61 million of share buybacks and $17 million of dividends. We have $69 million remaining on our share repurchase authorization and expect share repurchases of $20 million to $40 million in 2026.

Behind our strong performance is our people, and I want to take a moment to provide some insight into how the culture at Atmus is driving momentum in the overall business. Last quarter, I spoke about the Atmus Way, which incorporates our purpose, our values and our strategy. It also includes what we call mindset shifts which reflects specific areas where we want to intentionally shift the culture of our company.

One of our mindset shifts is customer-focused. We want every employee at Atmus to be focused on our customer and to understand how their role makes a difference for our customers. Our culture at Atmus is our strength. It is the combination of our culture and the clarity of our growth strategy, which makes me confident that we are well positioned to unlock our growth potential.

Now let's turn to our 4-pillar growth strategy and highlights from 2025. Our first pillar is to grow share in first-fit. In 2025, we launched the next generation of our NanoNet media NanoNet N3. This media enables compact filter designs while delivering superior service life in the harshest environments across a wide variety of fuels.

In December, this product was awarded the World Filtration Institute Prestigious Product of the Year. A recognition of the products will shape the future of the filtration industry. This technology leadership is a cornerstone in growing our first-fit business, along with dedicated sales and technical resources focused on solving the filtration challenges of our customers. We continue to win with the winners by growing our long-term partnerships with global OEMs, along with leading regional OEMs across a broad range of applications.

Our second pillar is focused on accelerating profitable growth in the aftermarket. We are expanding our market presence in independent and retail channels with new distributors. This allows us to provide broader channel coverage of our industry-leading Fleetguard and Koch Filter branded products and deliver them to our customers when and where they need them.

We are also partnered with leading global OEMs who are expanding their own aftermarket businesses and growing market share. We work collaboratively with these industry leaders, allowing us to expand our business while simultaneously fueling growth for our partners.

Our third pillar is focused on transforming our supply chain. During 2025, we completed our transition to the global Atmus distribution network. This allows us to directly control our customer experience. Additionally, our network is designed to optimize and grow our aftermarket business. We continue to increase the on-shelf availability of products to ensure we have the right products for our customers when and where they need them.

Our fourth pillar is to expand into industrial filtration markets. The completion of the Koch Filter acquisition establishes our platform in industrial air filtration, providing us with the opportunity to grow this business both organically and through potential bolt-on inorganic transactions. We will continue to look at opportunities across the verticals of industrial air, industrial liquids excluding water and industrial water. However, in the near term, we expect to focus our team on integrating the Koch Filter business.

Now let's discuss our financial results, starting with the fourth quarter. Sales were $447 million compared to $407 million during the same period last year, an increase of 9.8%. We continue to deliver strong outperformance in the fourth quarter, which drove higher sales even as stock market conditions persisted in most of our global markets. We also benefited from increased pricing and favorable foreign exchange. Adjusted EBITDA was $85 million or 19.1% compared to $78 million or 19.1% in the prior period. Adjusted earnings per share was $0.66 in the fourth quarter of 2025 and adjusted free cash flow was $31 million.

Now let's review our results for the full year. I am pleased with the strong momentum we saw throughout 2025. Sales were 1.764 billion, an increase of 5.7% from 2024. Growth was driven by significant outperformance throughout most of the year in the face of challenging global market conditions and from favorable pricing. Adjusted EBITDA was $354 million, up from the prior year of $330 million, resulting in adjusted EBITDA margin of 20%. Adjusted earnings per share was $2.73, and adjusted free cash flow was $158 million.

Now I will discuss our market outlook for 2026. Starting with the Power Solutions segment. In the aftermarket, we have not seen a sustained improvement in overall freight activity and expect the market to continue at current levels and be relatively flat year-over-year.

Let's now turn to our first-fit market. In the heavy-duty market, our customers have indicated a weaker first half of the year with recovery in the back half of the year. We expect both heavy and medium-duty markets in the U.S. to be in a range of flat to up 10% compared to 2025. In our Industrial Solutions segment, we expect favorable market conditions. We expect the market to contribute 1% to 4% of 2026 growth.

Our team delivered significant share growth in 2025, which is now in our base business. As we continue to move the bar higher, we expect to build on this track record of strong market outperformance to deliver an additional 1% to 2% of share growth. Overall pricing is expected to provide approximately 1% of revenue growth.

We are lapping strong aftermarket pricing during 2025 in our Power Solutions business which resulted from base and tariff pricing. Some tariff pricing implemented in 2025 will not carry into 2026 due to changes in status of global trade agreements, implementation of offset and the actions we have taken to mitigate the impact of tariffs on our customers. Based on tariffs in effect as of February 1, we do not expect additional tariff pricing in 2026. However, we will continue to be nimble and adjust pricing as necessary should the tariff environment change and we expect to remain price cost neutral on tariffs.

The U.S. dollar is expected to weaken year-over-year and provide an approximate 1% revenue tailwind. Overall, our expectations for Power Solution's total revenue will be in a range of $1.79 billion to $1.85 billion, an increase of approximately 3% at the midpoint from prior year. In Industrial Solutions, we expect revenue to be in the range of $155 million to $165 million, which includes revenues from the Koch Filter closing date of January 7.

Taken together, we expect total company revenue to be in a range of $1.945 billion to $2.015 billion, an increase of 10% to 14% compared to 2026. We expect strong operational performance, along with investment for growth. Our expectation for total company adjusted EBITDA margin is to be in a range of 19.5% to 20.5%. Lastly, adjusted EPS is expected to be in a range of $2.75 to $3.

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. Our team delivered strong financial performance in 2025 despite continuing uncertain market conditions. Let's start with the fourth quarter. Sales in the fourth quarter were $447 million compared to $407 million during the same period last year, an increase of 9.8%. The increase in sales was primarily driven by pricing of 5% higher volumes of 4% and favorable foreign exchange of 1%. Gross margin for the fourth quarter was $127 million, compared to $107 million in the fourth quarter of 2024. The increase was primarily due to the benefits of higher pricing and volumes, partially offset by higher logistics and duties costs and other manufacturing costs. Selling, administrative and research expenses for the fourth quarter were $57 million, a decrease of $2 million compared to the prior year. Joint venture income was $9 million in the fourth quarter, $1 million higher than our 2024 performance.

Other income was an expense of $10 million compared to income of $5 million in the fourth quarter of 2024. The decrease was primarily due to unfavorable foreign exchange translation and a onetime charge of $8 million related to asset impairment costs on idled equipment. The onetime impairment charge is excluded from our adjusted results. We do not expect the idling of the assets to have a material adverse effect on our financial position, results of operations, cash flows, liquidity or capital resources.

Adjusted EBITDA in the fourth quarter was $85 million or 19.1% compared to $78 million or 19.1% in the prior period. Adjusted earnings per share was $0.66 in the fourth quarter of 2025 compared to $0.58 last year. Adjusted free cash flow was $31 million this quarter compared to $28 million in the prior year.

Now let's discuss our full year 2025 financial results. Sales were $1.764 billion compared to $1.67 billion in 2024, an increase of 5.7%. We benefited from higher volumes and pricing actions, which were partially offset by foreign exchange headwinds. Gross margin was $498 million, an increase of $36 million from 2024. In addition to favorable pricing and volume, we saw lower manufacturing costs, which were partially offset by higher logistics and duties along with an unfavorable foreign exchange impact. Selling, administrative and research expenses for the full year were $225 million, a decrease of $3 million compared to the prior year. The decrease was primarily driven by lower onetime separation costs partially offset by increased people-related and consulting expenses. Joint venture income was $34 million in 2025, flat to the prior year.

Other income was an expense of $8 million in 2025 compared to income of $7 million in 2024. The decrease was primarily due to previously discussed asset impairment charge in the fourth quarter and unfavorable foreign exchange translation.

Adjusted EBITDA was $354 million or 20% compared to $330 million or 19.7% in 2024. Onetime costs related to separation were $16 million. The effective tax rate for 2025 was 22.1% compared to 21% in 2024. The increase was driven by unfavorable changes in the mix of earnings. For the full year 2025, adjusted EPS was $2.73 compared to $2.50 in 2024. For the full year 2025, adjusted free cash flow was $158 million compared to $115 million in 2024. The improvement in adjusted free cash flow was driven by an improvement in working capital. This was partially offset by higher nontrade receivables, primarily driven by the timing of VAT recoveries from the Mexican government. Free cash flow has been adjusted for the full year by $10 million for capital expenditures related to our separation.

Now let's turn to our balance sheet and the operational flexibility it provides to execute on our growth and capital allocation strategy. In conjunction with our acquisition of Koch Filter in early January, we entered into an amended and restated 5-year credit agreement consisting of a $1 billion term loan and a $500 million revolving credit facility. The term loan was fully drawn at closing, and we have full availability under the revolving credit facility. Combined with an estimated $201 million of cash on hand following the acquisition, we had an estimated $701 million of liquidity. After financing the Koch Filter transaction, our leverage ratio is approximately 2.1x. We expect continued strong EBITDA and cash flow generation to support ongoing deleveraging during 2026.

I want to thank Atmusonians around the world for their extraordinary ability to navigate challenging markets and deliver a full year of strong performance. Our strong liquidity and balance sheet will fuel our 4-pillar growth strategy throughout the year ahead as we continue to focus on creating value for all of our stakeholders.

Now we will take your questions.

[Operator Instructions] Our first question will come from the line of Tami Zakaria with JPMorgan.

Very nice results. I wanted to ask about your acquisition Koch Filters. I think I remember one of the slides said 8% of revenues tied to data centers. Can you give us an update on what kind of growth you're seeing there? And what kind of filters specifically are being serviced in that market? Is it genset filters, turbine filters, filters for the racks? Any color would be helpful.

Tami, Nice to speak to you. Thanks for the question. So a couple of things. I think I'll touch on. This is the first time we've talked about Koch Filter and the integration with our results and the establishment of the Industrial Solutions segment and the first time we're providing guidance for that segment. So I might take a moment to just talk through the pieces of that for you.

As a reminder, we are including revenues for Koch Filter from the date of the closing of the seventh of February. So what this means essentially is there's $3 million one week of sales for that first week that won't be a full year this year. So if you take out that sort of $3 million stub period, the way we see the opportunity or the guide of the industrial business, it is a fairly wide range at this stage, but it's about a 1% to 8% range. And the way I'm thinking about that is a 1% price, about 1% to 2% share and the market will pulse largely around GDP at the midpoint at this point around that sort of 2.5%, 3%.

And so most of our business there is commercial HVAC and industrial HVAC. So that is the majority of the business. I expect that to pulse around GDP at this stage. And then you rightly pointed out that there's 8% of the business that is supporting the data center market and growing at a high teens rate is how I would think about that part of the business. Obviously, we are looking to understand that business, the opportunity to invest in greater product development capability to support growth, our growth in that market and we're working with the team on that.

They support that segment already. They have very strong customer relationships with the top 10 players in those markets. And really, we see an opportunity to continue to invest in the product development range to grow with existing relationships, strong relationships with customers.

Understood. That's very helpful. And I think you're expecting 1% pricing for the year. Just wanted to understand, if some of the existing tariffs get rolled back, does that mean pricing, at some point, could turn negative this year as you give back some of it or this 1% is just core pricing and isn't really related to tariffs?

Yes. I think the way to -- you're thinking about it right. The 1% really is core pricing. We saw a much higher pricing rate in 2025, and that was largely associated with tariffs. And as a reminder, our aim with tariffs is to be price cost-neutral, and so we are seeing some changes in the tariff landscape, recent announcements regarding an agreement with India, obviously, resulted in reduced tariffs in some places, so -- and we will adjust. Obviously, if we're not incurring the tariff costs, we won't pass that in price to our customers.

In addition, we have continued to pursue cost reduction strategies to mitigate tariffs and as we do that, we will not pass on that cost if we are not incurring it. And then additionally, it's yet to play out on how the offset mechanism will work for tariffs in terms of our customers being able to claim offsets when it's manufactured in the U.S.

So the way to think about the 1%, it is our base pricing. We're not assuming additional tariff pricing actions. So you won't see the same level of pricing you saw in 2025.

Our next question will come from the line of Andrew Obin with Bank of America.

This is David Ridley-Lane on for Andrew Obin. Congratulations on the close of the Koch Filter acquisition. You're very deliberate and it seems like a really good fit. And I know you said you will focus on integration in the near term. But could you walk through the opportunity that you have to in-source filtration media at Koch? Because I think it's really important to understand, you have a real true gross margin synergies when you acquire an industrial filtration company that buys third-party filtration media.

Right. Well, thank you, David. And we're very excited about the Koch acquisition. We've been patient, I've spoken to many of you on the quarterly calls telling you that we have a strong, robust pipeline. And so I'm really pleased to be able to close this deal and integrate the Koch business into Atmus.

Really, the way I would think about it, the first 6 months is very much focused on integrating the business. We've got a couple of functions and activities that we need to stand up there, and I expect that to be largely completed here in the first 6 months. Really, our priority in that time is supporting the Koch business to continue to do what they do well. They have served their customers well. They have continued to grow their business, and we want them to continue doing that throughout the first half and ongoing whilst we work with them to complete the integration in a seamless way. So that's how I would think about the first half of 2026.

As we look ahead, really, we have identified synergies as part of the closing of the deal. Most of those synergies are procurement synergies. We've already started working those and getting on with them. And then what we started kicking off with our teams is more integrated workshops around innovation. So when we combine our filtration expertise, as you rightly point out, such as our in-house media design and manufacturing capability with Koch's end customer market and their product ranges, not only what sort of synergy do they provide from a materials perspective because we certainly see some opportunity there but the greater opportunity is how we innovate together to create products to support the end markets and the customers into the future. It will take some time to just think through exactly what are the best of those opportunities. The team have already started those innovation workshops and I'm looking forward to what that unlocks as we progress throughout the year.

And then just as a quick follow-up, the -- you were kind enough to give your view on the first-fit markets being flat to up 10%, could we get perhaps a little more color on if you see any rebound or signs of life in the off-highway markets?

Yes. So I think the off-highway markets, largely, we see flat year-on-year. Overall, I would say, a lot of our first-fit business is pulped by -- is [ booked ] by on-highway, and we obviously have more heavily weighted there. So a lot more of the impact that we see in off-highway is in the aftermarket businesses. And we see it reasonably flat year-over-year.

Our next question will come from the line of Bobby Brooks with Northland Capital Markets.

I wanted to dive a little bit more on the guide and specifically on the sales for Industrial Solutions. It seems pretty conservative, Steph, you mentioned the favorable market conditions in that end market of 1% to 4% growth, I believe. And then if I take into account Koch's fiscal year '25, they did $155 million in sales. I know that you're missing $3 million of sales based on the timing of the close. But ultimately, that $155 million to $165 million guide for Industrial Solutions sales in '26 just seems a little bit conservative. So I was just hoping to get a little bit more clarity on that.

Absolutely. Well, Bob, and thanks for the questions. I'm very happy to have your question, and I hope Rakesh Gangwani and the Koch team and listening in because that will only help me, of course. But look, here's how I would describe it. When we're talking the smaller numbers, and we wanted to make sure we split this segment out so that we focused on the growth in that segment, and we gave full transparency to the market of how it was performing. So obviously, it's a pretty wide range of 1% to 8% when you take out the 3 million stub period. And so you're talking a $158 million to $168 million and at the top end of that range, that's pretty impressive. If the team can do that and at the middle midpoint of the range, I expect them to be able to do that.

And so how should you think about the midpoint? And what are the drivers of those opportunity that drive you to the top of that? I think about price at around 1%. We're certain that Koch have put in a price increase at the start of the year here. We're still learning exactly how their price impact flows through, but around 1% is about right. I would think about share at 1% to 2%. The team have got a clear outline of what they're going after in terms of share opportunities.

And so that really leaves you with the question is, what is the market? And largely, I'd have this pulsing around GDP at around the 2.5% mark. There is -- the range we've got there on market is 1% to 4% at this stage. But that really is if we see a stronger position or we're able to more quickly pivot into higher growth markets, that would be the further opportunity. But this is what we see as the guide for 2026.

Rakesh and his team don't see it as conservative. There's a lot to do here in the year ahead. But hopefully, that gives you the color to help understand how we're thinking about it.

Absolutely. Appreciate it. That's great color and can definitely appreciate the moving factors of getting everything integrated and a lot of -- some hurdles there. But going to the next question is the administration rolled back some pretty significant emission or kind of emissions legality pieces. I was just curious to hear like how do you think the customers are thinking of that roll back kind of how I think about it as it seems like there's probably already been a lot of engineering to spec in your filtration pieces. So it's kind of the very costly to then spec it out. But I just wanted to kind of hear your guys' broad thoughts on that piece.

Yes. So I think we're all aware of the rule being finalized to resume the 2009 EPA endangerment finding for greenhouse gases. And so the way I think about that, it eliminates the legal foundation for all federal vehicle greenhouse gas standards. So it has broad-based implications, not only to the heavy-duty truck markets that we support, but also more broadly for passenger vehicles and so forth.

What is important, explicitly, it does not repeal criteria pollutant standards such as NOx so when I think about this at the moment, I guess, I think about two main impacts for Atmus. The first is the near-term impact associated with 2027 standards for the 2027 engine launch. And we still expect, based on feedback from our customers, that there has not been an official announcement or it's been confirmed at this stage. We still expect the NOx standards to hold for the 2027 engine launch and at that 35-milligram level. What is included in our guide is an element of prebuy in 2026 on the basis that we see the cost of engines to -- or cost impact on trucks to be about $10,000 to $15,000 associated with the NOx standards coming in 2027.

So in the near term, we really do not expect a change to the product development that we're doing and will likely launch in 2027 but that will still be to be confirmed that there has been no announcement explicitly on that. That is based on feedback from our customers.

And then as I think about the longer term, really, this has implications for the trajectory of electrification and so forth. So obviously, that -- our business is -- it potentially has tailwinds associated with the changes in regulation here.

We'll take our next question from the line of Shubham Srivastava at RW Baird.

Just a quick one around your adjusted EBITDA guidance. It seems to be like flat year-over-year. Just wondering any puts and takes around that? Also, I was wondering if you had any self-help levers that you're planning on implementing throughout the year?

Jack, do you want to take that?

Yes. Absolutely. Thanks for the question. Yes, at the midpoint, it is flat year-over-year. I think a lot of different puts and takes, of course, as we think about how that will move throughout the year. But overall, I think it reflects still strong incrementals for the business, particularly as we think about different investments we want to make to continue to fuel that top line growth. And I think about how that will move sequentially through the year will largely just be -- will be pulsed by the volume that's flowing through our different manufacturing plants and how much leverage we can get out of that.

In terms of opportunities and whatnot, we are continuously evaluating how we can continue to take cost out across the business. I think more to come on that. We're really pleased with the supply chain transformation work that the team has delivered over the past 3 years. And I think as we set our sights on the future, excited to continue to look at that landscape and continue to identify efficiency opportunities.

And that will conclude our question-and-answer session. I'll hand the call back over to Todd Chirillo for closing comments.

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

This concludes today's call. Thank you all for joining. You may now disconnect.

Good afternoon, everyone. Welcome to the fireside chat with Atmus Filtration. I'm Clay Williams from Goldman Sachs. And with us today from Atmus are Jack Kienzler, Chief Financial Officer. Jack, thank you for joining us.

Thank you for having me. Appreciate it.

All right. As a starting point for our conversation in the third quarter, you completed the full operations separation from Cummins. How would you judge the separation versus your initial expectations with the work now complete, what would the strategic priorities be next?

Yes, absolutely. So first of all, thank you, everyone, for your interest, and thank you for having us, Clay. Look, I think the separation itself, any time you embark on something so significant, you don't quite know what to expect. And so in hindsight, I think it's probably a lot more effort, resource, et cetera, that was needed to pull it off. All that being said, though, I would say that we, as a team and an organization, are extremely proud of what we were able to accomplish via that separation. And if I think about the teams that delivered that, it really took a broad collective effort across functions to pull that off.

And really, if I could have said, hey, at the outset of this separation, will we be able to execute in a seamless fashion that limits disruption to the business? I think that was a big question. And I would say in looking back now, we've certainly been able to do that all while establishing new functions, new presences, new physical footprint from a distribution perspective. And so a big thank you to our global team for all their efforts to make that a reality.

What excites me moving forward is how we can now reallocate and repurpose the organization for growth moving forward. So if you think about the IT organization as one example of that, really the whole focus of that 65-person strong organization was to complete the separation. We had approximately 300 projects that we undertook across the IT spectrum in and of itself and then you can use a similar analogy across a lot of the other functions. And that's been their sole focus over the last 3, 4 years, right? And so now as we emerge from the completion of the separation at the end of the third quarter, we can repurpose the collective efforts of that team to really accomplish what we want to from a growth perspective.

And so how do we focus on enhancing our customer experience and things like our Fleetguard portal, equipping our sales personnel with digital tools to make their jobs easier to accomplish as well as our internal people and improve the ways with which they do their own work. So really excited about our collective momentum that we have behind us. And again, just really proud of the with what they've been able to pull off.

All right. It's a good transition point. You spoke more about opportunities for share growth as a fully independent company. Can you update us on how those efforts have been progressing?

Absolutely. So we've been asked a fair bit over the course of today, what inning, if you want to use a baseball analogy, we are in, in terms of share growth and the first 2 strategic pillars of growth that we've outlined. And so as a reminder, we have 2 areas of focus. The first is to win new business in our core -- our first-fit markets. And so that includes winning with the winners, as we call it, continuing to cultivate relationships with customers that we've been serving for a long period of time and enhancing and allowing them to accomplish their strategic priorities alongside Atmus with our Fleetguard product.

The second is approaching new customers who we didn't do business with historically for a number of reasons. All of that in the first-fit, I would say, we're in the early innings of really pleased with the momentum we've been able to achieve in terms of establishing connections with those new customers. And from here, it's all about continuing to educate them on our products, our technical capabilities, our delivery capabilities and work with them to understand their needs and how we can best equip them for growth.

In the aftermarket, I would say we're a little bit more advanced in our progression down that journey. I'm really pleased with what the team has been able to accomplish there. And really, what we've been focused on is a multipronged effort to unlock those growth opportunities. First, it's establishing new distribution outlets and channel outlets to allow us to get our product into our end users' hands whenever and wherever they need it. And so a few examples of that would be in Latin America, establishing over 100 new channel outlets with independent distributors, and that's allowed us to get our product into more customers' hands who inherently have a very high opinion of Fleetguard product and are -- would like to incorporate it into their vehicles.

Another example would be recently announced partnership with Traction in Canada, a very large heavy-duty parts distributor. And that allows us to, again, just reach a part of the market that historically we didn't target or go after largely because of resource allocation. And so really pleased with the efforts of the team. I think as I look at where we're at in our journey, still plenty of white space. And what we're laser-focused on now is how do we continue to invest in the business, whether that's in the form of resources, digital tools, what have you to enable our sales personnel and our engineering personnel to continue to engage with existing and new customers and go on their growth journey together.

All right. A couple of follow-ups there, particularly on the first-fit. When you have taken share, can you talk about the nature of the wins? Is it a new engine platform, new suite of products? Anything to give us kind of a flavor of what you're able to go after?

Absolutely. So in the first, I would say that it tends to be technology-first conversation. So again, the first piece that we engage with our customers on is educating them on our media technology, our technical prowess, what we can bring to the table in terms of filtration product to meet their needs. It's also obviously a 2-way conversation to understand what they are looking for and how we can best tailor our existing products to meet their needs.

After that, we continue to engage with them. I would describe the sales cycle in on-highway, certainly, but also in off-highway is usually driven by an upcoming emissions regulation change. And so we are approaching here in North America, for example, the 2027 emissions regulations. The decision for new first-fit content on those engine programs was largely decided 2, 3 years ago. And so what we're looking at now is what is that next catalyst for us to engage with new and existing customers on the next emissions regulation and how do we, again, meet their needs.

In the meantime, we are looking to cultivate those relationships by winning with them in the aftermarket as well. And so we talk a lot about aftermarket wins from a pure-play sort of independent distributor standpoint, but there's also growing our presence in the OE service networks. That tends to have a shorter sales cycle, if you will. And so -- and also allows us to have a bit of an area to prove ourselves to new customers, in particular, who haven't done business with us in the past.

All right. Moving on to another growth pillar. Last week, you announced your first M&A transaction, industrial filtration, Koch Filter. Can you give us an overview of the transaction? What was the valuation?

Absolutely. So as you mentioned, we announced the acquisition of Koch Filtration. Really excited about what that can bring to the business. And really, that allows us to advance our fourth growth pillar, which is expansion into industrial markets. The purchase price on that was $450 million, which represents a 13.9x trailing multiple, pre-synergy. We also announced a headline price net of tax of $395 million, which when you include the synergies that we're expecting from a run rate perspective of $4 million represents a 10.9x trailing 12-month multiple. So really, we're excited about the business. I think it really takes a lot of the strategic imperatives that we're looking for.

Those include exposure to higher growth end markets than the ones that we inherently serve in our core, a high aftermarket content business, very similar to our existing core, which is an attribute that we know how to cooperate with them and partner with them to further enhance moving forward. Multichannel path to market, which is really exciting and allows you to reach many different end users no matter where they procure their product. And so we think it's a great strategic fit overall. It's also a high consumable product with many of their products having changeovers within 3, 6, 9, 12 months, which allows for, again, a very high content or high aftermarket content, which is very similar to our core markets.

In addition to the strategic things that it hits, I would say that it also ticked many of our financial metrics that we were after. And so again, the ability to lift the overall growth of the company into new higher growth end markets than we currently serve. EBITDA margin accretion from a percentage standpoint in year 1, EPS accretion in year 1 and high single-digit return on invested capital by year 3.

So really excited about what we can bring. And probably most of all, I would say, excited about the team that we're bringing into the broader Atmus family. I think there's a very significant culture fit there. They've been part of a much larger organization historically and maybe haven't had the same resource allocation that they would have done if they were a stand-alone organization. I think that's very similar to what we experienced in our life before becoming Atmus. And so I think what we can bring is some investment for growth and really partnership on how we can collectively grow our businesses together. So excited about the team and what we can do together.

Yes. So what are some of the key end markets that Koch Filtration serves?

Yes. So it's in the industrial air space. We've been talking about 3 broad industrial pillars that we're after. So industrial air, industrial water and industrial liquid, excluding water. And so this fits in that first one of industrial air. About 60% of the business is in the HVAC space, both in the industrial and commercial HVAC space. And then the rest of it is across, I would say, a variety of different end markets, including data centers, power generation, so things like gas turbines, health care and even some e-commerce business. So I like the -- not only the diversity that the Air Platform brings to our top line as Atmus, but also the diversity that they have from an end market exposure in their business...

And what type of synergies do you expect to get with this transaction?

Yes. We've highlighted that we expect to realize $4 million of run rate synergies. I would describe those as largely supply chain and cost synergies. We often talk about ourselves being rather small compared to our former parent. But I think we can -- as we think about bringing businesses like Koch Filtration into the Atmus family, we are able to leverage our broad scale for things like purchasing synergies and potentially freight synergies. So really excited about what we can bring there. I don't think there'll be a lot in the form of revenue synergies, but I do think this does potentially open the door for future bolt-on acquisitions that can be part of the broader industrial air platform.

And along those lines, longer term, are there potential to either leverage internal IP for them or vice versa?

Yes. So obviously, one of the key differentiators in our core business and core markets is our media capability. We've recently won an award for our NanoNet 3 Media. And so really, I think, obviously, that's a key differentiator for us, particularly at the -- in the applications in our core, which require significant separation science and the removal of harmful particles. And so we'll continue to evaluate what technologies that we possess that we can leverage into the Koch Filtration business as well as to evaluate what technologies that they have that we could potentially leverage back into our business.

I do think in the air filtration space, packaging of the product becomes quite important. And so you have to be able to produce an air filter that can fit many different applications. And so that will be something that we'll look to harness their expertise on moving forward. And I think it remains to be seen what other sort of technology or engineering synergies we can bring to the table.

All right. And just on the finance side of it, how do you expect to finance the transaction? What type of leverage at closing? And as you move forward, expectations around more programmatic M&A, capital returns?

Yes. So obviously, we have -- one of the hallmarks of our business is a very strong cash-generative business and a very healthy balance sheet. And so we do have the liquidity to fund the transaction with our existing cash on hand and revolver, which is currently undrawn. We are also evaluating upsizing our current credit facility. And so I haven't landed on that just yet, but we'll be looking at all of those different forms in terms of financing the transaction. I think if you do the math on the purchase price, I think that will put us around 2x net debt to EBITDA.

We would look to couple that with a plan to bring that leverage down over the next couple of quarters back into kind of that 1.5x range, which I think is about right for this business. And certainly I think that even with this acquisition, we have plenty of dry powder to continue to fuel a programmatic acquisition strategy. So really excited about the other air filtration assets that we could potentially pursue on the heels of this as well as continuing to look in the industrial water space and the industrial liquid space.

Yes. And I hate to ask about the pipeline after you just announced the first one, but you brought it up. So as we think about the pipeline, you've just announced one, how has that changed over the last 12 to 6 months? And how do you think about it?

Yes. So first and foremost, we had to establish M&A capability as a stand-alone company. And so really pleased with the team that we've been able to build very strong capabilities, both for people like Rakesh Gangwani, who leads that team for us, our broader strategy umbrella, but has spent many, many years in these -- in our core markets and in the M&A arena, but also the team underneath Rakesh comprised of people from our core markets, people from adjacent markets. And so that team is in place, and I feel really, really good about the work that they've been able to do, not only on this particular acquisition, but also building the pipeline. And so that's been comprised of a lot of phone calls, a lot of trade shows and whatnot as they build the pipeline and identify potential opportunities for us.

Certainly, one of the things that we hypothesized about and have found to be true in these industrial markets is a fairly fragmented market. So we certainly have some really strong players at the higher end of the market and then a lot of fragmentation at the lower end of the market. And so what we're really hoping to do is can we continue to use something like a Koch Filtration as an anchor, if you will, platform acquisition and then look to do some bolt-on M&A while we also look at other assets. So really excited about the future here. Obviously, we'll be very diligent as we look to, first and foremost, close on this transaction and then integrate it thereafter and then continue down our industrial expansion journey.

And then one last one on capital allocation. In Q3, you increased share repurchases and dividends. How do you see capital returns in the light of the recent announcement?

Yes. So I think, again, with the cash generation that we bring through our core business, our Power Solutions business, coupled with our strong balance sheet, one of the things that affords us to do is to be flexible and balanced in how we allocate capital. And so we've always talked about growth being our #1 priority. And certainly, I think an investment like this is very much in line with that growth imperative, coupled with organic investments, whether in the form of operating expense or capital expense back into our core. All that being said, from a CapEx perspective, we still think 2% to 3% is about right for our core business, including the industrial space.

And so from there, after growth investments, certainly, again, I would think about being prudent and continuing to focus on having a strong balance sheet. Hence, my comments about moving back towards kind of that 1.5x net debt to EBITDA and all the while looking to continue to return cash to shareholders. We have announced and continue to raise our dividend as we've been a public company and deployed cash returns via share repurchases. We will look to continue to do so. And one of the good things about share repurchases is it allows us a little bit of flexibility as and where we have a transaction like this to pivot back and forth.

All right. So moving on to in demand, U.S. heavy-duty and medium-duty outlook. You expect both markets to be down 20%, 25% in '25. How -- are you seeing signs that demand is stabilizing or just some of the opacity around the different regulatory impacts impacting the market still make it unclear.

Yes. So I would say, certainly, our expectations were for a pullback in our first-fit markets here, in particular, in North America, but also demand remains fairly tepid around the world in our first-fit markets. And we've certainly seen that play out in the third quarter, and our expectation is that it continues to play out in the fourth quarter. As we talk to OE customers, I think there's still a lot of uncertainty as it relates to the upcoming 2027 emissions regulations. We have had some clarity and our expectation remains that the NOx regulations will hold.

But I think it remains to be seen exactly what the final regulation comes into play. And obviously, what that impacts is end users' desire and timing of the purchase of new vehicles, right? When any time there's uncertainty, which affects the price of the new vehicle, then that leads to some tepid volume, if you will. And so I think it remains to be seen. I would say that as we look towards 2026, certainly expect to get clarity -- final clarity on 2027 emissions regulations, and that could affect some potential prebuy into 2026 and then uncertain demand when the regulation kicks in, in 2027.

And similarly, moving to the aftermarket, your current expectations for freight activity to be flattish year-over-year in '26. We've been talking about freight recession for quite some time now as we move into '26 or -- you would expect flattish for 2025, excuse me. As we move into 2026, how are you expecting more of the same or improvement?

Yes. So look, we've been calling and hoping, I would say, for a positive inflection in the overall aftermarket activity feels like for many quarters now. Our original expectation coming into 2025 was for that positive inflection point to happen as we moved into the second half. And I would just say that we haven't quite seen that yet. We continue to experience a very depressed freight market. If you think about what drives filtration activity, it's really miles driven in our on-highway markets in hours in use, if you will, in our off-highway markets. And so really, both the on-highway and off-highway remain fairly depressed. I think some of that's obviously driven by some of the uncertain trade policy that's out there and people waiting for a bit of clarity there before freight activity picks up.

And so we'll continue to look at all the different metrics. It's always a little bit difficult, unlike in the first-fit markets, particularly here in North America, where you have a pretty good market data and consensus around new truck builds, the aftermarket can be a bit more murky in terms of what are the exact signs that you can point to. So we tend to look at many different indices, whether it's ATA or the cash freight index, obviously, important to triangulate that with feedback from customers. And I would say the sentiment whether quantitative in the form of the indexes or just the sentiment from the aftermarket channels remains fairly depressed.

Moving to pricing. You've guided to 3 percentage points of price in 2025. How is this balance between base -- between tariffs and base price increases?

Yes. So maybe I'll just start with how does pricing work in our business and then can cover the specifics for 2025. So we are an aftermarket-centric business. So about 85% of our revenues are generated in the aftermarket compared to 15% in the first-fit market. In the aftermarket, we tend to price on an annual basis and push that price through to the market. We have been taking more increases in that pricing certainly on the back of COVID and to combat some of the inflationary cost dynamics that we are operating in and to combat FX dynamics and whatnot.

And then certainly, in response to the ever-changing tariff environment that we're operating in have been looking to combat that, first and foremost, with how do we avail ourselves of any exemptions that are out there, things like USMCA, things like establishment of free trade zones, all of that is stuff that we're looking to avail ourselves of to insulate our customers from the impact of tariffs. Secondly, looking at different supply chain reconfigurations or activities that we can take on, again, to mitigate the cost impact of tariffs.

But lastly, looking at pricing as a way to ensure that we remain price cost neutral. That is our principle, if you will, in our stated strategy in response to tariffs. And thus far, we've been able to achieve that. So how does that 3% for 2025 break down? We are expecting about 1.2% of that to be tariff-related pricing, which is sort of the net effect, I would say, of many different movements as tariffs have gone up and down with respect to certain jurisdictions around the world. And then the balance of that, about 1.7% would be base pricing.

All right. Can you update us, given the slower first-fit markets, how plant efficiency rates, what levers you can pull to protect margins in an environment like this? On the other hand, are you comfortable from a capacity standpoint for when the market eventually turns?

Yes. It's a great question and one that we're continuously evaluating. I do think from a capacity standpoint, if I think about like 4-wall capacity, certainly, we feel good about where we're at in terms of our ability to accommodate and facilitate demand even in an upswing. That being said, we are continuously looking at our lines within our footprint, how do we optimize them and how do we think about generating more efficiencies in our environment. That can really come in the form of many different things. Certainly, automation is an area that we'll continue to look at. We've done a little bit of that certainly through things like cobots in our manufacturing environment or even our green cartridge line in our facility in Quimper, France.

We'll also look at how do we drive more efficiency through better planning through from customer orders through our distribution centers, then back through our manufacturing environment. And so I think the supply chain team, coupled with our commercial team have done a really nice job in identifying that opportunity. And I still think there's plenty of runway that we can go after from an efficiency standpoint. But I feel good about where we're at from a capacity standpoint, certainly anxious for some positive inflection from an overall market standpoint, and we're excited about growing with our customers as markets turn up.

Yes. Along those lines, you've laid out aspirations to expand margins over time. Can you update us on what initiatives you're working on and unpack the opportunity for us?

Yes, absolutely. So first and foremost, I would just say we're really pleased and proud of the margin expansion that we've been able to deliver, over 400 basis points of margin expansion over the last few years. And really, what's driving that, I would say it's a number of different things. So certainly, we've been embarking on in one of our 4 pillars is supply chain transformation. Maybe you could refer to that as the first generation of it, to 1.0. And that's been really focused on certainly looking at procurement initiatives and trying to be more disciplined in that space and drive some cost benefits on the material cost side. I've mentioned some of the automation initiatives and efficiency gains that we've been going after as well in that space.

And then I think the other piece is, as we've been able to outperform markets, we've been able to add some volume. And of course, we've been able to recover a bit of the costs that we leaked out during the inflation time in the form of price. So I think it's been a really good journey, and we feel good about where the margin profile of the business is now. And now as we set our sights towards the next horizon, what does supply chain transformation 2.0 look like? That could be targeted cost reductions to enable our sales team to meet our customers' needs in a more cost advantageous way. It could also be in the form of efficiency gains moving forward. So the team is working hard on identifying those opportunities, and I'm really excited about what the future holds.

Yes. And then circle back on some of the regulations we talked about outside the U.S., what are the near-term opportunities for Atmus and regulations beyond the U.S. in Brazil, Europe, India?

Yes. Yes. So as we've talked about, certainly in the first-fit markets, we generally view emissions regulation changes and the move to more stringent emissions regulations as an opportunity for our business. We bring advanced filtration content to the market. And any time there's a hard problem to solve, if you will, tends to be where we shine with our customers. And so as different emissions regulations roll out, the timing of those can always be a bit uncertain, but we will look to use that as an opportunity to cultivate new customer relationships, but also increase our share of wallet with existing customers.

And then moving to your view on demand outside the U.S., China, India. I'm just curious any color on current trends.

Yes, absolutely. So maybe I'll start with India. Again, our presence in India is largely through -- from a commercial standpoint is only through our joint venture there, which has a really strong market position and is a very well-run operation. And so as I look at different growth rates, whether you're looking at GDP or other industrial growth rates, certainly, India is a market that stands out as a really important place to be in one of the highest growing regions in the world. We have seen a little bit of a slowdown in terms of just infrastructure spend there, which led to not quite hitting the growth rates that we initially thought for 2025, but continue to remain bullish on that market overall.

China has been an interesting market. certainly saw significant peaks in demand really on the heels of COVID. And so I think you've seen over the last year or 2, maybe a reset in terms of what is the right normal level of production. And so right now, demand remains kind of at that flattish, I would say, year-over-year. What I would point out is we've seen very significant growth in zero emissions vehicle demand in the Chinese market. And so that's been where a lot of the overall growth has been as you look at just overall new truck production in China.

And then I would say, to work round out the rest of the world, we continue to remain bullish on Latin America overall. There's been some challenging trends as of late. But overall, we're excited about how we're positioned in that market and where we can go. And Europe, I would say, kind of remains flattish. So overall, we're excited about our market position. Unfortunately, the market growth rates really on a global basis, on-highway, off-highway are flat and in the first-fit are down. But eventually, those markets will turn just like they have in all the past cycles. And so for us, it's really important to be positioned to support our customers as and when they turn.

Yes. And as a quick follow-up on your comment on zero emissions vehicles. How do you think about the content opportunity on such of those versus ICE engines?

Yes. So I would say it really depends on a couple of things. First and foremost, it depends on the region that you're talking about. I do think that the technology that will be adopted will vary fairly significantly by region, whether or not that's driven by what energy availability there is by region, but also government intervention, infrastructure spend, what have you. If I think about the filtration opportunity, broadly speaking, if it's a combustion engine just maybe powered by an alternative fuel source, whether that's hydrogen, whether that's renewable natural gas, I think about the content from a filtration perspective is largely the same as what it is today.

If we're talking about something like a fuel cell, which could be a bit more of a complicated powertrain, if you will, than what we have today, I think it remains to be seen. That's probably the furthest out in terms of adoption. And then if I think about battery electric, that's probably from a content expansion standpoint, it's probably the least amount of filtration content, certainly as you compare to a combustion engine. All that being said, we continue to work with our existing customers to really understand their needs, understand how they're thinking about the market. I think it's no secret that we've seen a pretty significant decrease in demand and overall activity in this space as people evaluate the price of vehicles, infrastructure readiness and whatnot.

And so we remain here and ready and willing to support our customers no matter where the market goes. And I think it's really important that everyone remember that one of the hallmarks of our business is a significant aftermarket sale. The useful lives of the vehicles that our customers are putting into the market are quite significant, 15, 20 years. And for us, that represents a really long and recurring revenue stream. So excited about that.

All right. Well, I think we're out of time. Jack, thanks for joining us.

Thank you, Clay, and thank you, everyone, for your interest. Have a good day. All right.

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmus Filtration Technologies Third Quarter 2025 Earnings Call.

[Operator Instructions]

I'd now like to turn the call over to Todd Chirillo, Executive Director of Investor Relations. Please go ahead.

Thank you, Eric. Good morning, everyone, and welcome to the Atmus Filtration Technologies Third 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 page is available on our website at atmus.com.

Now I'll turn the call over to Steph.

Thank you, Todd, and good morning, everyone. On the call today, I will provide an update on our third quarter results, our progress executing on our 4-pillar growth strategy and the outlook for the remainder of 2025. Jack will then provide further details on our financial results.

During the third quarter, we completed our full operational separation from our former parent comments. The separation has been a multiyear journey and marks a significant milestone for our company. I want to recognize this outstanding accomplishment, which is the result of the collective effort of all atmusonian. We are now focused on unlocking the growth potential of ATMI.

Completing the separation enables us to redeploy resources, time and energy to focus on growth. We have a clear vision and strategy and a highly capable organization who are energized to realize our full potential.

Now let's turn to our capital allocation strategy. We continue to deploy capital to create long-term shareholder value. We further accelerated our share repurchase program in the third quarter, repurchasing $30 million of stock bringing our year-to-date total to $61 million. Since the announcement of our share repurchase program last year, we have repurchased a total of $81 million of stock. We also increased our quarterly dividend by 10% last quarter, reinforcing our commitment to consistent long-term capital return to shareholders. We remain committed to investing for organic growth and executing our inorganic industrial filtration strategy.

We will continue to keep you updated on our M&A activity. The framing of M&A investment choices continues to be guided by our strategy, long-term value creation and the balance of growth and shareholder returns. We expect share repurchases to remain an important component of our capital allocation strategy and anticipate our full year repurchases will be in a range of approximately 1.5% to 3% of our current market capitalization.

I would like to now take a moment to share some insights on the strong culture we are building at Atmus. We have established what we call the Atmus Way. The Atmus way incorporates our purpose, our values and our strategy. It also includes what we call mindset shift, which reflects specific areas where we want to intentionally shift the culture of our company. One example I would like to share today is our commitment to safety. We set a vision to be the safest company. In October, we achieved 2 years without a serious injury in our business. This is a result of disciplined focus on risk reduction and the engagement of employees at all levels of our organization. This is just 1 example of the Atmus culture in action. It reflects what we stand for, and it demonstrates what we can do when we set a bold vision and work together to bring change.

Let's now turn to our 4-pillar growth strategy, and the progress we have made during the third quarter. Our first pillar is to grow share in first-fit. As a fully independent company, we are expanding our first-fit customer reach to leading regional OEMs across a broad range of applications with dedicated sales and technical resources. We are winning with these customers by providing our industry-leading filtration products that deliver superior protection for our customers' equipment. Additionally, we continue to win with the winners by growing our long-term partnerships with global OEMs.

Our second pillar is focused on accelerating profitable growth in the aftermarket. We are expanding our market presence in independent and retail channels with new distributors. This allows us to provide broader channel coverage of our industry-leading Fleetguard products and deliver to our customers when and where they need the product. We are also partnered with leading global OEMs who are expanding their own aftermarket businesses and growing market share. We work collaboratively with these industry leaders, allowing us to expand our business while simultaneously fueling growth for our partners. Furthermore, we are growing our brand awareness with our We Protect campaign launched earlier this year. This campaign highlights the Atmus is and the dedicated employees committed to creating a better future for our customers, communities and planet.

Our third pillar is focused on transforming our supply chain. As a fully operationally independent company, we have completely transitioned to the global Atmus distribution network. This allows us to directly control our customer experience. Additionally, our network is designed to optimize and grow our aftermarket business. We continue to increase the on-shelf availability of products to ensure we have the right products for our customers when and where they need them.

Our fourth pillar is to expand into industrial filtration markets. Our strategy is unchanged and remains focused on growth into industrial filtration primarily through inorganic acquisitions. We are broadly looking at 3 verticals: industrial air, industrial liquids, excluding water and industrial water. We have seen increased activity in the M&A market, and we continue to review a robust pipeline of opportunities for inorganic expansion. We remain focused on executing a disciplined approach to develop opportunities, which deliver long-term shareholder value.

Now let's discuss our third quarter financial results. Our team delivered another strong quarter. Sales were $448 million compared to $404 million during the same period last year, an increase of 10.9%. Significant outperformance drove higher sales despite continued challenging conditions in most of our global markets. We also benefited from increased pricing and favorable foreign exchange. Adjusted EBITDA was $92 million or 20.4% compared to $79 million or 19.6% in the prior period. Adjusted earnings per share was $0.69 in the third quarter of 2025 and adjusted free cash flow was $72 million.

Now let's turn to our market outlook for 2025. Starting with market guidance for aftermarket. We expect freight activity to generally continue at current levels and be flattish year-over-year. Our team has done a great job executing our growth strategy, especially in the face of elongated challenges in global markets. We are increasing our expected outperformance and now project share gains to add 3% of revenue growth. Overall pricing is expected to provide approximately 3% revenue growth. Pricing is inclusive of both base pricing actions to offset certain input costs and tariff pricing. This reflects known tariffs as of November 1 and assumes the USMCA exemption for our products will continue.

The U.S. dollar continues to weaken from the strength we saw early in the year. We anticipate the full year impact of a strong U.S. dollar to be an approximate 0.5% revenue headwind.

Let's now turn to our first-fit market. In the U.S., the industry was recently provided with some guidance on Section 232 tariffs for medium and heavy-duty trucks. We will continue to monitor ongoing developments and adapt accordingly. We are still awaiting clarity on the upcoming 2027 emissions requirements. This continues to drive uncertainty in the market. Our expectations for both the heavy and medium-duty markets in the U.S. is to be down 20% to 25%. We expect demand for trucks in India to grow, which could be further bolstered by government infrastructure spending.

In China, the markets we serve have continued to grow through the third quarter. Our exposure in China is weighted towards first-fit on highway applications, and we remain cautious in our outlook. Overall, we have rerated our expectations for total company revenue to be in a range of $1.72 billion to $1.745 billion, an increase of 3% to 4.5% compared to the prior year. Our team continues to quickly adapt to challenging market conditions to deliver strong operational performance. We expect this performance to continue, and we are raising our expectations for adjusted EBITDA margins to be in a range of 19.5% to 20%.

Lastly, adjusted EPS is expected to be in a range of $2.50 to $2.65.

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. Our team delivered another quarter of strong financial performance despite continuing uncertain market conditions. Sales were $448 million compared to $404 million during the same period last year, an increase of 10.9%. The increase in sales was primarily driven by higher volumes of 6%, pricing of 4% and favorable foreign exchange of 1%. Gross margin for the third quarter was $129 million compared to $111 million in the third quarter of 2024. The increase was primarily due to the benefits of higher pricing and volumes, partially offset by higher logistics costs.

Selling, administrative and research expenses for the third quarter were $56 million, flat to the same period in the prior year. Joint venture income was $8 million in the third quarter, in line with our 2024 performance. This resulted in adjusted EBITDA in the third quarter of $92 million or 20.4% compared to $79 million or 19.6% in the prior period. Adjusted EBITDA for the quarter excludes $4 million of onetime stand-alone costs. Adjusted earnings per share was $0.69 in the third quarter of 2025 compared to $0.61 last year. Adjusted free cash flow was $72 million this quarter compared to $65 million in the prior year. Free cash flow has been adjusted by $3 million for capital expenditures related to our separation from Cummins. As Steph mentioned earlier in the call, we have completed our separation activities from Cummins in the third quarter.

We do not anticipate incurring any additional onetime costs associated with separation activities in the fourth quarter. The effective tax rate for the third quarter of 2025 was 23.6% compared to 18.4% of last year. The higher effective tax rate was driven by both the change in the mix of earnings amongst tax jurisdictions along with changes in recently enacted U.S. tax legislation.

Now let's turn to our balance sheet and the operational flexibility it provides us to execute on our growth and capital allocation strategy. We ended the quarter with $218 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $618 million of available liquidity. Our strong liquidity provides us with operational flexibility in the current dynamic market to effectively manage our business and to execute on our growth opportunities. Our cash position and continued strong performance in 2025 has resulted in a net debt to adjusted EBITDA ratio of 1.0 for the trailing 12 months ended September 30.

In closing, I want to thank the global Atmus team for their continued dedication and flexibility to deliver another strong performance in the quarter.

Now we will take your questions.

[Operator Instructions]

Your first question comes from the line of Rob Mason with Baird.

Jack, nice work on the third quarter for sure. I wanted to see if you could dig in just a little bit deeper. It was stronger than your typical seasonality might suggest. And there was the thought -- maybe there was some pull forward coming out of the second quarter, whether you think that was actually the case. And then you took the share gain perspective or number up for the full year. I'm just curious how those are layering in. Is there any lumpiness around the share gains that may have come through in the third quarter?

Thanks for the comments. Firstly, a strong quarter, really pleased with the overall performance. And -- if I just start to break down, really, the top line is where it's all happening. So I'll talk about that in terms of our revenue performance. Jack spoke to volumes of 6%, pricing of 4% and foreign exchange of 1%. Pricing was around where we expected, probably slightly better that volume is where I'll spend my time. So break down that 6% performance for you. Broadly, I would put it into what we would call share gains of 8% and market headwinds of around 2%. The market, obviously, we saw first-fit sharply declined particularly in North America. And we saw actually an impact of about down 27% sequentially in heavy-duty and medium-duty truck markets. And we continue to see flattish conditions in aftermarket. So all told, that's sort of adding up to a 2% headwind.

So if they then take the share gains and try to give you some visibility into what's happening there. We have changed -- revised our full year guidance upwards from 2% in share gain to 3% really driven by our conviction and the high outstanding performance of the team to deliver better than what we intended on our growth strategy. And that's arising from things like additional content in first-fit applications increases in share in the aftermarket, particularly in North America. So all told, that's about a 3% sort of share gains. The big thing I want to point out in the third quarter, that is a dimension of timing, as I would describe it as a major driver of volume growth is related to the Stellantis Model Year '25 Ram product which was launched earlier this year.

We have -- we are on that product, both on the engine and we support the aftermarket. And during the quarter, we saw additional stocking for that new product launch on both the first-fit through our sales to Cummins and in the aftermarket delivered with Stellantis. And so we do not expect that to repeat in future quarters. Obviously, we'll continue to support that product, but the stocking out for the product launch was what we saw higher than expected in the third quarter.

I see. That's helpful, Steph. Maybe I'll just keep the line of question around the share gains. You also talked about winning some programs, it's unlike on regional OEMs on the first-fit side. Could you provide a little color in terms of if those are contributing yet? And are those buys still on-highway or off-highway?

Yes, it's a great question. And I always try to think about how can I give you some color around this, while obviously maintaining the commercial sensitivity. We have been very deliberate in our growth focus to build our business development capability. We've been doing that for several years now is the way I would describe it. We've built the sales force, the business development team. We've increased our bid rates and we had identified these regional players as really a target for us that we had not pursued previously. And it's broad-based. I would say it's both across on-highway and off-highway. And I'd think about that equally right now. And we're starting to see the benefits of that. We're winning the business. We're getting the confirmation of those wins, and we're starting to see those benefits come through in our results.

And I expect that to continue as part of our growth strategy within our core business.

Your next question comes from the line of Joe O'Dea with Wells Fargo.

Just a clarification on the details you gave around the volume growth. Just any sizing of the impact that Stellantis had within the quarter that you don't expect to repeat? And then just bigger picture as you think about aftermarket and sort of end market pacing kind of flattish and aftermarket. For how much longer do you think something like that can persist just as we think about where on parts and some of the replacement that presumably is being pushed out here?

Thanks for the questions. Let me just start with your question on Stellantis. Look, difficult to quantify this specifically. And I think how I would have you think about it is, there's certainly other 3% I talk about in share gains in the quarter are really attributable to clear wins that we can identify, that we can see them coming through slight outperformance, as I described and therefore, gives us confidence to really put that share gain into the -- increase that share going from 2% to 3% in our full year guide.

As it relates to the timing of the new product development, there's a win for us in that product development. There's content increase and then there's timing, right? So we -- in the public domain, I think we've seen that it's in the third quarter year-over-year, it was a 44% increase in that Ram volumes in the quarter. And so it was a significant increase for this product. And we think our full year guide -- we believe our full year guide really reflects how we see the year is going to go with the 3% market share reflected.

On the aftermarket side, if yes. On the aftermarket side, if I just take that question, Yes, I think we've been talking about 3 years of freight recession now. And we even have been asking ourselves is the freight indicators still the right indicators for our business, given that length of time, right? And so I think that's a difficult set of questions. The outlook at the moment from the industry and those that we're talking to really suggest that we can't see that turning inside the first half of 2026 yet. There's no real signs that suggest that it has turned, if you like, so we expect it to persist through quarter 4 and at this stage, to stay at those levels through the first half of 26 is how we're thinking about it right now.

And then I just wanted to touch on the full operational control and having sort of reached that transition now and how you're thinking about the nearest term opportunities that, that presents for you?

Yes. We spoke about this in our opening remarks. And I'm most excited about this allowing us to focus our full organizational resources, energy and asset towards growth. When you undertake a separation of the size and scale that we have, I think there's over 300 projects we've been doing it for 3 years now, 7 distribution centers over 280, I think it is IT projects. That just takes a lot of organizational bandwidth and so to have that completed for us to be standing on our own platforms, really controlling our own destiny in terms of being able to use the processes and systems to enable our growth strategy is very exciting.

And so I -- really, it is focused around our growth strategy and accelerating our progress on that, which is what -- and I talked about the 4-pillar growth strategy, which is what I'm most excited about. Jack might just talk to the separation specifically where we're at on that and bring some more color to that pace.

Thanks, Steph, and thanks, Joe, for the question. First off, I would just say really proud of the entire Atmus team for their unwavering commitment to bring the separation to a close. As Steph highlighted multiple projects, multiyear journey from beginning to end. And the team really delivered, which I think further underpins the reliability we've been able to establish across many fronts as a business. As we noted, the TSAs have concluded effective end of the third quarter. And therefore, we no longer intend to add back separation costs in Q4 and beyond. The 1 thing I would highlight is that we are still incurring some elevated costs driven by hyper care, if you will, primarily in the IT space until we reach full stabilization. We expect those to be incurred here in the fourth quarter.

And that, in part, is leading to some of our margin outlook as we think about the implied Q4 guide here. Again, highlighting some of the inefficiencies to help you understand why that may be showing up as a little bit of a pullback in the fourth quarter, still feel really strongly about the full year outlook here, both across the top line and the bottom line in really challenging market conditions. And again, I can't thank the team enough for what they've been able to deliver.

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

Excellent quarter. My first question is, with Section 232 the tariff-related regulations now out for trucks, did you take any intra-quarter pricing? And if so, how should we think about the rollover effect of that over the next few quarters? And then in that case, are you also still planning to do a typical beginning of the year price increase that you usually do?

Yes. Thanks, Tami, and good morning. So we do have some clarity from Section 232, but I would say there's still a lot of unknowns that we're waiting for, and we still expect that will take some time to be able to fully understand the implications and to be able to calculate it, frankly. And so that's just the first thing I would highlight. Right now, we are anticipating that our USMCA exemption still applies in the context of Section 232. And then there are a number of other mechanisms playing out that we will continue to work through to understand as clarity comes and work in partnership with our customers. We've said from the outset that our intent on tariffs is to be price cost neutral and we'll do that through a variety of mechanisms. Obviously, we look to avail ourselves every possible reduction that we can make, exemptions or resourcing product or foreign -- we put a foreign trade zone into our distribution center in the U.S. this quarter, for example.

So we're certainly availing ourselves of all of those. And in our guide this year, full year pricing is set at 3%. So we think that guide fully includes the pricing for the year, not issuing guidance for 2026 at this point, but we would expect that we would continue with the pricing actions in January and so forth that we've seen in the past as our practice. But it continues to be an evolving landscape with tariffs, and our team have really done a tremendous job in partnership with our customers to navigate that landscape.

Understood. That's very helpful. And my second question is there's been a lot of encouraging comments and data points in the industry around the acceleration in capacity expansion for large engines to provide backup power to data centers. How are you positioning yourself to capitalize on that besides, of course, your exposure through your large customer Cummins, are you actively working to win share with some of those other players that have announced capacity expansions for large engines in the U.S. and also Europe, so any comments on that?

Yes, absolutely. Certainly, a very favorable trend in data centers that we do expect to continue for several years here, and that's how we're thinking about it to start with. We have a very strong position and partnership with Cummins. Our filters are on those gen sets. And so we certainly have the opportunity to continue to grow as our partners grow. And we are targeting new business development, as I talked about in both aftermarket and first-fit applications with customers that we haven't operated with so much in the past, right? And so we're investing to grow with those new customers. In terms of -- I just would highlight in terms of the aftermarket, we don't see a significant aftermarket benefit related to those gen sets. They are usually installed to backup power. And so it doesn't quite have the same profile as some of our other applications. But certainly, we are seeking to partner with new customers and continue to support our existing customers that will benefit from that growth.

Your next question comes from the line of Andrew Obin with Bank of America.

This is David Ridley-Lane on for Andrew. I'll ask bit of an interesting 1 for you here. First, brands declared bankruptcy in late September, they own the Fram and the little bit finer brands filtration subsidiaries there, if this is a disorderly process, could Atmus be a beneficiary? And are you already sort of reaching out to maybe the retailers about taking over some space on the shelves.

Thanks for the question, David. Certainly, we are aware of that. And look, broadly speaking, I would say we're absolutely looking to expand our aftermarket coverage. That's how I'd have you think about that. We're doing it through a number of channels, and we're being really successful. We are winning and gaining share. So the first path that we see an opportunity to do that is with our existing partners. And we are growing with our existing partners as they grow their share in OEM part -- OEMs, for example. And then we are intentionally increasing our coverage through new aftermarket channels, both through independent and through retail channels. And so that will give us greater access and coverage across aftermarket.

We see the opportunity really in expanding our coverage to be able to avail ourselves of getting our product to more customers. And that would be the way that we would potentially be the beneficiary of gaining a greater share from some of the examples and the changes in the marketplace that you just described.

Got it. And then maybe one, Jack. Look, a lot of the tariffs were announced kind of suddenly, you've had, I'm sure, 6 months of fun. As you look over the next 6 months, is it all the levers that you're pulling, supply chain optimization, et cetera. Could you be saving a couple of million dollars or more from those efforts next 6 months relative to the last 6 months.

Yes. I think -- first of all, David, thanks for the question. I think, as you know, it's certainly been a big resource stream on ourselves and likely many of our peers in broader industries to navigate what is an ever-changing environment. And so I think everyone is looking for some clarity to ease the ability to plan for the future. Look, I would just kind of harken back to what Steph said before, which is our principle as we deal with this broader environment. And that is to, first and foremost, to remain price cost neutral. We are trying to do that in a way which mitigates the impact for our customers in every way that we can, things like availing ourselves of exemptions, looking at our broader supply chain to identify ways to mitigate pass and therefore mitigate the need to take any pricing actions. And we fully expect to continue to do that for as long as it takes to reach a point of clarity here.

Your next question comes from the line of Bobby Brooks with Northland Capital Markets.

So I was just hoping to do a little bit deeper. The 11% year-over-year revenue growth, fantastic. That's the best rate that you've seen since going public by like 600 bps I know you listed the pricing and volume dynamics, but just kind of curious to hear from the perspective of, how much do you think was driven by the better availability of your products via your whole distribution footprint being wholly owned or maybe any other internally controlled pieces that you'd point out that helped drive the growth aside from pricing?

Yes, Bobby, thanks. Great question. And there certainly was some benefits of increased availability in the quarter if we continue to improve our availability across the global network. And we still see some runway to further improve that in at least fourth quarter and beyond. And so I would say -- I don't know, if I had to -- it'd be about 1% maybe of that is made the availability improvement, if I had to give you a number. The broader benefits of us improving our availability more significant in my view. This is about how we build reliability as a company. We've continued to try to do that with investors and shareholders and we do it with our customers.

And so really, what availability is about, it certainly is about share gain and getting the product where your customers need it. So it is about building that reliability with our customers, our current customers and our new customers, and that will create a flywheel effect of growth for our business.

Super helpful color. And then just turn into maybe expansion outside of your current end markets. Just curious if you could get an update of any progress there? I know you've done some organic launches into kind of industrial filtration. Just curious to hear any color on that.

So our strategy remains unchanged. We are expanding into industrial filtration market is our strategy. We're pursuing 3 primary market focus areas. And we do see our primary path to that through acquisitions. And our team have been doing a fantastic job. We have a great team working on this, and they are reviewing regularly a robust pipeline of targets. And obviously, as and when I have an outcome to share, I will certainly be sharing that. So I'm pleased with the muscle building for growth that we are doing as a team. And I'm also pleased with the disciplined approach we are taking to creating long-term shareholder value.

On the organic side, we have certainly launched products that can be utilized in applications in industrial filtration markets. We are learning from those launches and we are learning from working through new channels. I would say that is a small -- very small portion of our revenue, and it will -- it has the potential to accelerate on the back of us making an acquisition is how I would have you think about it.

There are no further questions at this time. I would now like to turn the call back over to Todd Chirillo for closing remarks. Please go ahead.

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

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.