Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmos Filtration Technologies 4th Quarter and Full Year 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. I would now like to turn the conference over to Todd Cirillo, Executive Director, Investor Relations. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to the Atmos Filtration Technologies 4th Quarter and Full Year 2024 Earnings Call. On the call today, we have Steph Disher, Chief Executive Officer, and Jack Kinsler, Chief Financial Officer. Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results. Please refer to our slides on our website for the disclosure of the risks that could affect our results and for reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings and the investor relations pages available on our website at Atmos.com. Now, I'll turn the call over to Steph.

Thank you, Todd, and good morning, everyone. Our team achieved another quarter and full year of strong results by delivering industry-leading filtration solutions for our customers. I want to thank our global team for their tremendous efforts throughout the year that made these results possible. On the call today, I will provide a summary of our fourth quarter and full year financial results. and our outlook for 2025. I will also share some of the significant progress we have made implementing our four-pillar growth strategy. Jack will then provide a detailed review of our financial results. As I reflect on 2024, I would like to highlight some of the unforgettable accomplishments our team delivered during the year. In March, the Cummins Share Exchange was completed, and for the first time in our more than 65-year history, we became a fully independent company. This has allowed us to accelerate our growth strategy and deliver significant market outperformance. We initiated our capital allocation program, balancing share repurchases with a consistent dividend return. Since our announcement in July, we have repurchased a total of $20 million of stock, $10 million in both the third and fourth quarter. We have $130 million remaining under our board authorisation and expect a continuation of capital return to shareholders in 2025. We have made substantial progress on our operational separation from our former parent Cummins and intend to be complete in 2025. As we begin 2025, we have launched our We Protect campaign to increase awareness of our Atmos brand. The campaign is focused on three key elements, science that safeguards, championing a cleaner world, and securing a better future. Now, let's turn to the four pillars of our growth strategy and highlights from 2024. Our first pillar is to grow share in FirstFit. We have realigned our organisation and added resources to our account management team to focus on growth in FirstFit. We are seeing results. We announced a new business win with a major European OEM for our industry-leading fuel filtration and crankcase ventilation content in 2024. We further expanded our technology leadership in fuel filtration with the launch of our next-generation media in our NanoNet product portfolio, NanoNet N3. This media has wide-ranging applications, enabling compact filter designs while delivering superior service life in the harshest environments across a wide variety of fuels. The reorientation of our organization for growth, coupled with industry-leading filtration technology, provides us with a continued opportunity to expand with new and existing OEM customers around the world. Our second pillar is focused on accelerating profitable growth in the aftermarket. We estimate that we outperformed the market by approximately two percentage points in 2024. This consistent outperformance in challenging market conditions demonstrates our ability to grow share. We are expanding our product coverage with our industry-leading FleetGuard brand available to customers through new channels to market. We are also investing with our customers in high-growth geographies. For example, we recently held a three-day Latin American customer event focused on strategic discussions, market insights, and business development opportunities. Additionally, we are using advanced data analytic tools. This enhances our team's ability to provide our industry-leading FleetGuard products for our customers when and where they need them. Our third pillar is focused on transforming our supply chain. In the fourth quarter, we completed the transition of our Belgium warehouse and have now transitioned 95% of the distribution network from Cummins. While we have not yet realised normal operating levels in Belgium, our team continues to focus on bringing the facility to its full operational capacity and delivering technology-leading Fleekdar products to our customers. Turning to supply chain efficiency, our adjusted EBITDA performance continues to demonstrate the results of our supply chain transformation and the cost reduction efforts we are driving through the organisation. Since 2022, we have expanded adjusted EBITDA margin by 410 basis points. This is a significant accomplishment by the Atmos team. achieving these results during a period of an extended freight recession and establishing our own operational independence. Our fourth pillar is to expand into industrial filtration markets. Our strategy remains focused on growth into industrial filtration, primarily through inorganic acquisitions. As a reminder, we are broadly looking at three verticals, industrial air, industrial liquids excluding water, and industrial water. We will continue to take a disciplined approach as we review a robust pipeline of opportunities for inorganic expansion in these three verticals, ensuring any opportunity will be the right strategic fit for Atmos and deliver value to all our stakeholders. Now let's discuss our results, starting with the fourth quarter. Our team delivered another strong financial performance in the fourth quarter. Sales were $407 million compared to $400 million during the same period last year, an increase of 1.8%. While our strong outperformance drove sales, we are still experiencing soft and market conditions in both our aftermarket and first fit markets. In response to these conditions, we determined it was prudent to reduce costs through restructuring actions in both the US and China. We incurred one-time costs of $4 million associated with employee severance, which are excluded from our adjusted results, and my following comments. We believe these actions will allow us to navigate current market conditions while preserving the ability to scale as markets rebound. Continuing with our results, adjusted EBITDA was 78 million or 19.1% compared to 71 million or 17.9% in the prior period. Adjusted EBITDA excludes 7 million of one-time standalone costs. Adjusted earnings per share was 58 cents in the fourth quarter of 2024, and adjusted pre-cash flow was 28 million. Adjusted free cash flow excludes 14 million of one-time separation-related items in the quarter. Now let's review our results for the full year. Sales were $1.67 billion, an increase of 2.5% from 2023. We saw a strong outperformance throughout the year in the face of soft market conditions. Adjusted EBITDA was $330 million, up from the prior year of $302 million. Adjusted EBITDA margin rose 110 basis points from the prior year to 19.7%. Adjusted EBITDA excludes $25 million of one-time standalone costs. Expanding margins by 110 basis points is an impressive accomplishment by the ATMOS team, especially considering the challenging market conditions faced during the year. Adjusted earnings per share was $2.50, and adjusted free cash flow was $115 million. Now let's turn to our outlook, starting with the aftermarket. We are expecting a recovery in freight activity as we progress through the year, but the timing of the inflection is still unclear. This recovery will be dependent on global economic conditions which remain fluid. Overall, we anticipate global markets for the aftermarket to be flat to up 3% compared to last year. Our continued execution of our growth strategy will drive market outperformance and is expected to contribute 2% to aftermarket revenue growth. Pricing is also expected to provide an additional 1% of year-over-year increase. We do expect continued strength in the US dollar, which will result in approximately 2% revenue headwinds. Let's now turn to our first fit markets. In the US, we expect the heavy-duty market to be flat to down 10%, While we expect emissions regulations for 2027 to remain unchanged, the potential impact of a pre-buy in the second half of the year remains unclear. For US medium duty, we expect production to be down 5% to 15%, driven by a reduction in backlogs. Demand for trucks in India is expected to be flat to down, as we have yet to see the ramp up in government infrastructure spending. And in China, where we have low visibility to the market, we anticipate weak market conditions to continue. Overall, we expect total company revenue for 2025 to be flat to up 4%, compared to the prior year with global sales in an expected range of $1.67 to $1.735 billion. We expect our strong operational performance to continue and deliver adjusted EBITDA margin in a range of 19% to 20%. Adjusted EPS is expected to be in a range of $2.35 to $2.60. 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. We delivered another quarter of impressive financial performance. Sales were $407 million compared to $400 million during the same period last year, an increase of 1.8%. The increase in sales was primarily driven by higher volumes of 2% and pricing of 1%, partially offset by foreign exchange of 1%. We continue to outperform in many of our global markets. As Steph mentioned earlier in the call, we incurred $4 million of one-time restructuring costs during the fourth quarter related to employee severance costs. These costs are excluded from our adjusted results and from my following comments. Gross margin for the fourth quarter was $107 million compared to $106 million in the fourth quarter of 2023. In addition to volumes and pricing, we also benefited from lower manufacturing costs, partially offset by higher logistics and material costs. Selling administrative and research expenses for the fourth quarter were $59 million, an increase of $1 million over the same period in the prior year. Joint venture income was $8 million in the fourth quarter, down $1 million to our 2023 performance. Other income was $5 million, an increase from $1 million in the fourth quarter of 2023. The increase was primarily due to higher interest on cash balances and foreign exchange gains as a result of balance sheet hedging programs. This resulted in adjusted EBITDA in the fourth quarter of $78 million, or 19.1%, compared to $71 million, or 17.9%, in the prior period. Adjusted EBITDA for the quarter excludes $7 million of one-time standalone costs. Adjusted earnings per share was $0.58 in the fourth quarter of 2024, compared to $0.49 last year. Adjusted free cash flow was $28 million this quarter, compared to $30 million in the prior year. Free cash flow has been adjusted by $3 million for capital expenditures related to our separation from Cummins. And free cash flow has also been adjusted $12 million for working capital inefficiencies associated with the move from intercompany settlement terms with Cummins. Now, let's discuss our full year 2024 financial results. Sales were $1.67 billion compared to $1.63 billion in 2023, an increase of 2.5%. We benefited from pricing actions and higher volumes, which were partially offset by foreign exchange headwinds. Gross margin was $462 million, an increase of $29 million from 2023. In addition to favorable pricing and volume, we saw lower variable compensation and material costs, which were partially offset by higher manufacturing and logistics costs, along with an unfavorable foreign exchange impact. Selling administrative and research expenses for the full year were $228 million, an increase of $11 million compared to the prior year. The increase was primarily driven by increased people-related costs, partially offset by lower costs related to our separation from Cummins. Joint venture income was $34 million in 2024, flat to the prior year. Other income was $7 million in 2024, compared to $3 million in 2023. The increase was primarily due to higher interest on cash balances and foreign exchange gains resulting from balance sheet hedging programs. Adjusted EBITDA was $330 million, or 19.7%, compared to $302 million, or 18.6%, in 2023. One-time costs related to separation were $25 million. We have substantially completed our separation activities from Cummins and expect to be finished this year. We believe these costs will be in a range of $5 to $10 million in 2025. The effective tax rate for 2024 was 21% compared to 24.3% in 2023. The decrease was driven by a change in the mix of earnings among tax jurisdictions and one-time use of foreign tax credits. For the full year 2024, adjusted EPS was $2.50 compared to $2.31 in 2023. For the full year 2024, adjusted free cash flow was $115 million, compared to $152 million in 2023. Adjusted free cash flow was unfavorably impacted by higher inventory balances, primarily to support our warehouse transition in Belgium, along with the timing of certain tax and accounts payable-related items. Free cash flow has been adjusted for the full year by $15 million for capital expenditures related to our separation from Cummins. Free cash flow has also been adjusted by $39 million for working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices. In 2025, we expect to incur $5 to $10 million of one-time capital expenditures related to the completion of our separation from Cummins. We do not expect any impact related to intercompany settlement terms in 2025, as this process is now complete. Now let's turn to our balance sheet and the operational flexibility it provides us to execute our growth and capital allocation strategy. We ended the quarter with $184 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we have $584 million of available liquidity. Our cash position and continued strong performance during the fourth quarter of 2024 has resulted in a net debt to adjusted EBITDA ratio of 1.2 times for the 12 months ended December 31st. In closing, I want to thank our global team for delivering another year of solid performance to all of our stakeholders. Now we will take your question.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via speakerphone in your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. We also do request for today's session that you please limit to one question and one follow-up and recue to ask additional questions. Thank you. And our first question comes from the line of Joseph Odea with Wells Fargo. Your line is open.

Hi, good morning. Thanks for taking my questions. Can we just start on EBITDA margin? The 19.7% in 2024 was clearly very good. It was above the high end of the initial guidance range. Just to sort of put in perspective, any kind of non-repeats that you saw in 24 to re-baseline that number and help us think about 2025? And then just from a quarterly cadence perspective, Q2 of last year was obviously very strong.

Should every other quarter in 25 be up year over year? you know just just any color there on the quarters good morning joe thanks for your question i'll ask jack to walk through uh the question on margin and then the sequential uh quarters as you asked great thanks joe good morning um yeah so as i think about you know i'll start first maybe with the full year view um and so as you think about you know what's driving you know kind of the step down uh year over year to the midpoint of our guidance range uh there's really i would say two factors. First of all, we are expecting a much more significant headwinds from FX this year relative to last year. Obviously, that affects our top line, as implied with our 2% guide there on the top line, but also we'll bleed through to the bottom line, particularly where we have a mismatch, if you will, between our revenue and cost base. So that's one headwind which will exist this year if rates stay where they are relative to the environment we operated in in 2024. The other piece I would just point out is, you know, we do operate on a lag from a pricing perspective. And so we are anticipating, you know, various input costs to be a headwind, particularly at the beginning of the year. You know, steel is one of our big commodities. And, you know, depending on what happens with tariffs, we do anticipate an increase in overall steel prices. And we also envision an inflationary environment as it relates to people costs and labor costs. And so we do anticipate those to be a headwind. We will, of course, look to take potential pricing for that, but won't have the flexibility to do that really until the mid-year. So all in, as I think about the sequential build, we've talked in the past about the first half generally being about 5% stronger than the second half. I would expect this year to look a little different than that based on the overall market cycle dynamics. As we've talked, we are anticipating an aftermarket recovery, albeit most likely second half or at least later in the year weighted. And furthermore, on the first fit side, any recovery that we may see would also come in in the back half of the year. And so, as I think about comparisons to prior year quarter, I think both the first quarter and the second quarter will be challenging comps and then easier comps as the market recovers in the second half of the year. From a margin perspective, I think the first quarter likely looks fairly similar to last year's, both top line and margin levels, with then sequential improvement as volume picks up and price realization kicks in throughout the year.

That's great color. And then, Steph, just wanted to touch on the outlook for outgrowth and a little maybe additional color on the aftermarket side and the first fit side. As you sit here today and those expectations for outgrowth, the visibility that you have into that, how much of that is carryover from things that happened in 2024? How much of that is sort of new wins in 2025?

Okay. Yeah. Thanks for that, Joe. Look, I'd say we feel very positive about the outgrows we've given in the guide of around 2%. I feel like that's strongly underpinned by committed business and wins that we have made with new partners. And so certainly in the aftermarket. That's been a very strong outcome for us throughout 2024 and will flow here into 2025. So I'd say I feel comfortable with it being underpinned. There are certainly some things towards the second half that we need to see that they land, but I feel good about the market share gains being underpinned by pretty solid wind that will carry over into 2025.

And that's both aftermarket and first fit in terms of share gain yeah that's right great thank you thank you john our next question comes from the line of rob mason with bear your line is open uh yes good morning steph and jack uh maybe i'll revisit the prior question uh ask it a little bit different way uh just around the cadence and seasonality um you may have different numbers but my math is you know based on historical seasonality if i run kind of run that out at historical seasonal i kind of land at the midpoint of your your revenue guidance but i guess jack you're saying um you know we should wait we should shift though that waiting more towards the second half and i'm just curious um you know if you have any more granularity on how maybe the first half how much it should be underweighted versus history?

Yeah. So, Rob, I think you're absolutely right. I think we tend to say around 5% overweight in the first half. And then working days drives a lot of this with our heavy exposure to aftermarket. I think what you're seeing in terms of outlook that's embedded in our thinking about, you know, first half we are expecting a rebound in the second half of first fit um and then we're not seeing the turnaround in aftermarket yet in this first quarter is the way i would describe it so we certainly see that more weighted towards the second half um as well is is how i would describe it and then certainly in the near term on a revenue perspective we have got these fx headwinds um that we that are in in the first half that we will not be able to you know price for fully until until the mid-year is is how i would describe it i think jack referenced to you and i'll let jack jack had any remarks he has here but that's the first quarter in particular that the first quarter 2024 is a good guide as to as to where we see that's where we see the level what would you add jack yeah i think that you know particularly true on the on the margin um side really driven again by volume fx and then you know input costs um you know that we're experiencing in the market so i think you said it well um and then just you know again a question as you think about um maybe the latter part of your your your four strategies your four strategy to you know diversify the

business um you know maybe on the uh just internally uh the new media technology new nanonet that's um introducing you know can you speak to any opportunities there to to leverage that to move into new markets um and uh you know maybe you know how quickly that could be on the horizon if that if that's an opportunity yeah thanks rob we really see this launch of new media nanonet in our nanonet portfolio range gives us optionality across both our power solutions segment and also into new markets into industrial filtration so the way we're thinking about our

technology strategy and the leadership there and the opportunities available to us and what this unlocks is really things like smaller filters being able to make more compact options which allow you know for a better value offering for our customers our existing customers in our existing core markets and new partners in those markets so it certainly unlock and enable that opportunity will give us greater flexibility on filtering a range of different types of fuels as we continue to see the energy transition and different fuels that we will need to filter. So it will give us a lot of flexibility in our core business. And then we've always seen the expansion and development of our media technology for finer particles to really underpin our optionality as we step out into industrial filtration. I wouldn't link that to an immediate opportunity industrial filtration. This is about us building our technology platform to be able to enable our broader strategy. and it will leverage both across our existing markets in our power solution segment and across the industrial filtration market.

Very good. I'll hand it back. Thank you.

Thanks, Rob. Next question comes from the line of Andrew O'Bean with Bank of America. Your line is open.

Yes. Hi, this is David Ridley-Mlayne on for Andrew. Just on sort of the restructuring cost that you took, Are these more structural in nature, or could some of these costs come back as volumes come back? And then what's a payback period for you on a program similar to this?

Yeah, thanks for your question. I would describe it. We took structural actions associated with the downturn in the market, and so those actions were deliberately targeted in the U.S. and in China. I think we expect continued weakened activity in China for an extended period of time. We cannot see a recovery to that inside 2025. So I certainly expect those restructure actions to hold in China. In the US, I think those actions we would look to assess the market as the market rebounds. And we also want to make sure we're making deliberate and intentional investments in areas where we want to grow. And so we will make some intentional investments back in associated with growth, largely in the U.S. But, you know, the China actions were very much structural in a market that is challenged for the foreseeable future.

Got it. And just in terms of payback, should we think of this as all of us being equal, providing about $4 million benefit to you in 2025, or is it a little bit longer-term payback?

I think it'll be – so, David, it'll be a little bit longer than that, really driven by Steph's comments there around reinvestment in our four pillars for growth, right? And so I wanted to take those actions given the current market environment. And then as and when we see the markets begin to recover, you know, we really want to take that opportunity to fund various initiatives to continue to bolster our top line growth initiatives.

Got it. And just a quick one to clarify the guidance a little bit on the aftermarket. So aftermarket up one to four percent after your aftermarket revenue for full year 2025. up one to four? And what would that imply on the first fit side? Thank you.

Yeah, so aftermarket would be up for the full year, zero to 3%. And on the first fit side, on a global basis, both of these numbers are global blends, but on the first fit side, we expect it to be down zero to 10%, the market.

Got it. Thank you very much.

Thank you. Next question. Next question comes from the line of Tammy Zakaria, with J.B. Morgan. Your line is open.

Hi, good morning. Thank you so much. First question is on pricing. I think I heard you say about 1% for the year, and also pricing is lagged. So are we expecting pricing 1% throughout the year, or is it the expectation that pricing would actually accelerate in the back half, especially if steel prices go up because of all this Yeah, Tami.

Good morning. It's a great question. What's implicit in our guide is 1% on price. That does not incorporate at this point a second half price increase is the way I would describe it. We will continue to monitor conditions. This will involve a number of different conditions as you highlight input costs on steel and others it will also include monitoring of FX and how that how that plays out and and obviously the the tariff situation is ongoing and uncertain and so it will involve monitoring of that as well but right now the guide incorporates the pricing which we've already taken at 1% and does not include an additional pricing action in the second half at this point.

Understood. That's very helpful. And my second question is, it's almost a year since your separation. How are you evaluating your efforts in winning the first fit, new first fit deals. The reason I ask, do you expect any OEM wins in the near term that could help you outperform the weak OEM build forecast for this year?

So as you know, I think with the different parts of our business, so the first fit wins tend to be a longer range activity in terms of incubating those new customers, working through trialing and testing products and usually because of our strength in fuel filtration for example connected with emissions cycle changes and so I'd say a lot of the cycle changes have been determined for the next emission cycle for 2027. We have certainly announced a win that we had inside 2024 in first fit which will flow over and bring benefit into the aftermarket as we also secure the aftermarket associated with that business. And we have certainly seen share growth on First Fit and in fuel and crankcase ventilation, which we monitor throughout 2024. So we have seen that share growth. And we are also continuing to monitor it through our wins. Win rate is how we measure it with our team, through our win rate with quotations. consistently tailoring and adjusting the resource we need actually to support our growth aspirations in both first fit and aftermarket. We spoke about the reinvestment in growth related to the restructure cost just now. A lot of that reinvestment for growth we're making is in and around in a targeted way this account management focus. Understood, very helpful, thank you. You're welcome. Thanks, Tammy.

And our next question from Bobby Brooks with Northland Capital Markets. Your line is open.

Hey, good morning, guys. Thank you for taking my question. First, I just want to start, could you maybe help us understand what actions you could take to limit exposure to tariffs that would impact your manufacturing footprints in both China and Mexico? And maybe just remind us what markets those products that are made there ultimately are then sold into?

Yeah, thanks, Bobby. Good morning. So, our team have been working extensively on tariffs over the last several months and have modelled various different scenarios. As you are aware, it's a fairly uncertain environment that we are operating in. We have sort of assessed all of the scenarios. the only action that has really been currently implemented that has impacted us in an immaterial way, I would describe it, is the China tariffs that were implemented here recently. We have actually taken action to price for those China tariffs. It is impacting only a small part of our business. And the reason for that is mostly around the world, our manufacturing strategy is region for region. And in China, particularly, it's China for China. Where we do have some exposure is our largest manufacturing facility is in Mexico. And that Mexico manufacturing facility supports the US market. And obviously, we've modeled a range of scenarios on if there was a tariff implemented on Mexico, if there were retaliatory tariffs in place, what would be the various actions that we would take in the short and the long term. There are a series of actions that that would require. Our team are very well equipped to respond to this subject to how it plays out. It is difficult to fully predict exactly how that's going to play out and you start talking about hypotheticals upon hypotheticals. So probably not that useful to do that. But I feel very confident through a number of actions, whether that be pricing, whether that be us to shift our sourcing around, because we have a lot of flexibility in our sourcing strategy and the resilience of our supply chain. You know, we've got a good handle on the range of scenarios and we'll be able to act. And in the most recent situation with the China tariff, that's what we've done. We've acted with pricing already.

Yeah, that's terrific, Colin. I do kind of want to double click on that a little because it seems like you guys do have plans in place and i think it would be helpful for investors to maybe just hear about you know maybe some of those potential plans so could you just specifically with mexico given that body's largest manufacturing facility and that's supplying the u.s market so could you maybe just walk us through maybe one example of maybe some levers that you get that you guys have modeled out that you could pull to help insulate your business a bit?

Yeah, Bobby, look, I would say it does really depend on how the scenarios play out. And, you know, I think the immediate level would be pricing. Obviously, this is the most immediate action we would need to take. And that's the way we have approached the China tariffs. And we're set up and ready to be able to do that. And then, you know, I think the range of other scenarios that we would implement would really depend on how the various decision making of the different administrations around the world plays out. And so that's the additional colour I would give you at this point. We are very well set up for dynamic decision making on this is the best way for me to describe And, you know, I feel confident that we understand the impact we do need to. be able to adapt as the different decisions are made.

I can appreciate that answer, and thanks for the caller. And I think investors should give you guys the confidence you and Jack have really executed actually since the separation. So Kevin, the next question here for me is, how has the initial reception been from your first industrial filter, kind of first step into the industrial market that you guys did organically that you mentioned on the last call? You know, how have sales gone versus expectations, and could you maybe remind us what type of industrial environment that that product is being used in?

Yeah, thanks for that, Bobby. You know, I've always said that our intention in industrial filtration expansion, our primary path is through inorganic expansion and through acquisition, and we're still actively pursuing that. At the same time, the team have identified the opportunity to launch a range of products to support industrial applications and have partnered with a handful, single digit of distributors to support the distribution of that product. It's in its infancy phase is how I would describe it, not a material amount of revenue at this stage. And I don't expect a material amount of revenue through 2025 from that channel. The primary path for industrial filtration expansion is still intended through acquisition.

Completely understood. And maybe just last one is on the inorganic expansion and the industrial. could you maybe just give us a sense as to you know what has what's kind of been the biggest delta between your what your guys are willing to pay and stuff that you've been looking at because it seems like that's probably the reason you guys haven't made any actions and any color on what you see happening now in the market that could maybe change that i appreciate that i look I would just say our process for M&A, we've been very disciplined and diligent around this.

We've got a team working on it. We've got a robust set of pipeline that we've identified, and then we're really working that pipeline for targets to progress. And we have progressed a number of targets to the due diligence base. As part of that, the reason for not proceeding with those targets has not been valuation actually um we're pretty comfortable with you know the targets that we're pursuing in the valuation range um what really what we're really trying to marry is the strategic fit and aspirations that we have it as atmos how are we going to be able to scale a smaller entry business either through our global footprint or otherwise we want to be able to see a path to being able to scale that. And that has been one of our restrictions as we've looked at different assets. And then, of course, we're very focused on this balance of ensuring we can create value for shareholders and the returns. And so the mix of strategic fit and scaling and ensuring we create those returns in value. But it hasn't been particularly evaluation issue.

Very well said. Appreciate all the color guys and thank you for the answers and I'll return it to you.

Thank you Bobby.

And our last question comes from the line of Jerry Revich with Goldman Sachs. Your line is open.

Yes hi good morning everyone.

Good morning Jerry.

Hi so you folks have hit your I think aspirational margin targets a couple of years ahead of plan.

Can we just talk about do you see incremental margin improvement opportunities from here or are we at the point that you know we were targeting that pre-IPO is this essentially the cruising altitude yeah thanks Gary for the question you're right as we set out on this journey in 2022 talking about it um and we embarked on the first a big part of our margin expansion opportunity was the supply chain transformation the third pillar of our strategy and we had a three-year program we're now in that third year of the program and we have delivered ahead of our expectations the margin expansion opportunities we will continue to deliver cost savings in the supply chain this year aligned with our plan but that will put us in this guidance range that we've talked about of the 19 to 20 percent so i do think we have hit what is a strong margin performance for our business and we intend to continue to sustain that is how i would articulate it where i see us transitioning now in our supply chain transformation is really underpinning um empowering our growth strategy on top line growth so very much focus on how do we value engineer our products How do we have a better value package for what our customers' needs are? And then how do we grow share faster than we have been, faster than the market on a sustainable basis? And that really is the shift in the supply chain as well as obviously the rest of our organisation. So the short answer to your question, I think that 19 to 20% of the guide is strong margin performance and where we see ourselves operating. very focused on unlocking growth potential through our supply chain transformation and across the organization going forward.

Okay. And separately, I'm wondering if you folks can talk about the first Fed end market assumptions and particularly what you're assuming in China. And if demand in China does surprise to the upside, I'm assuming you folks would be in a strong position to respond, but maybe you can just fact check me on that and talk about how quickly folks can scale if demand does surprise to the upside.

So our outlook for China at the moment is continued weaker conditions, and the midpoint of our guide is kind of flat. It was a poorer year last year, and we kind of see that continuing going into this year, it's a wide range for us. I think we're saying down five to possibly up five. And we've talked about not having great visibility through the China market. So we can scale up if we need to. Our current outlook is that it's weaker conditions through 2025.

Thank you.

Thanks, Gerry. That concludes the question-and-answer session. I would like to turn the call back over to Todd Chirillo for closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.