Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Atmos Filtration Technologies' second quarter 2025 earnings call. All lines have been placed on you 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, press star one again. Thank you. I would now like to turn the call over to Tad Shirello, Executive Director, Investor Relations. Please go ahead.

Thank you, Kate. Good morning, everyone, and welcome to the Atmos Filtration Technologies Second Quarter 2025 Earnings Call. On the call today, we have Steph Disher, Chief Executive Officer, and Jack Hensler, 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 reconciliation of any non-GAAP measures referred to on the 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. On the call today, Jack and I will update you on our second quarter results and progress executing our four-pillar growth strategy. We will also provide an update on our global market and our outlook for the remainder of 2025. I continue to be impressed with the ability of the ADMIS team to navigate uncertainty and continuously provide our customers with industry-leading filtration solutions. Our team delivered record sales and strong financial results in the second quarter. We mitigated the impact of tariffs in the quarter and will continue to take appropriate operational actions to be price cost neutral in relation to tariffs. We continue to make progress on our operational separation from our former parent Cummins. I am pleased to report we are on track for full completion of separations in the third quarter. Now let's turn to our capital allocation strategy. We continue to deploy capital to create long-term shareholder value. We accelerated our share repurchase program in the second quarter, repurchasing $20 million of stock, bringing our year-to-date total to $30 million. Since the announcement of our share repurchase program last July, we have repurchased a total of $50 million of stock. We remain committed to investing for organic growth and executing our inorganic industrial filtration strategy. However, the timing of these opportunities can vary and we will continue to deploy capital in a manner that creates value for our shareholders. 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 to 3% of our current market capitalisation. Now let's turn to the four pillars of our growth strategy and our progress in the second quarter. Our first pillar is to grow share in first fit. We continue to win with the winners by building on our long-term partnerships with industry leading OEMs. We are delivering increased content with global OEMs as we work collaboratively on a train of development opportunities. These partnerships allow us to grow our share and provide our customers with industry-leading filtration products to solve their filtration challenges. While we continue to increase our bid rates and new business opportunities, the speed of decision-making by our customers has been impacted by ongoing uncertainties in the trade and regulatory environment. We expect continued growth from new First Fit business. However, the timing of awards may be elongated as our customers adjust to current market conditions. Our second pillar is focused on accelerating profitable growth in the aftermarket. We are winning share in the aftermarket as our distribution partners continue to grow their businesses and we expand our product coverage through a multi-channel path to market. This growth is supported with our expanded use of advanced data analytic tools which increases our ability to provide industry-leading fleet guard products for our customers when and where they need them. Our third pillar is focused on transforming our the fly chain. We are now fully on the Atmos distribution network as we recently completed the transition of our final distribution location from Cummins in South Africa. Additionally, our Belgium distribution location is now operating at a normalised level and providing our customers with the product and service levels we expect. This location was our most complex distribution transitions and I am proud of our team for their focus on our customers. With 100% of our distribution network now under our direct control, we are focused on continuing to improve on-shelf availability and ensure we have the right product for our customers when and where they need our filtration solutions. Our fourth pillar is to expand into industrial filtration market. Our strategy is unchanged and 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 are reviewing a robust pipeline of opportunities for inorganic expansion, we will continue to take a disciplined approach and focus on transactions that will build long-term shareholder value. Now let's discuss our second quarter results. Sales were a record 454 million compared to 433 million during the same period last year, an increase of 4.8%. Our performance drove higher sales along with benefits of increased pricing, despite challenging conditions in most of our global markets. Unfavourable foreign exchange partially offset these increases. Adjusted EBITDA was 95 million or 21% compared to 93 million or 21.4% in the prior period. Adjusted earnings per share was 75 cents in the second quarter of 2025 and adjusted free cash flow was 36 million. Now let's turn to our market outlook for 2025. Our guidance reflects tariff impacts as of July 31. We expect tariffs to continue to fluctuate and we will adjust future guidance as the tariff and regulatory environment evolves starting with market guidance for aftermarket we expect freight activity to generally continue at current levels and the midpoint of our guidance to be slightly positive year over year and be within a range of down half percent to up 1.5 percent we continue to execute our growth strategy which will enable us to outperform the underlying market. Our outlook remains unchanged and we expect share gains to add 2% of revenue growth. Overall pricing is expected to provide approximately 2.2% revenue growth. Pricing is inclusive of both our base pricing actions to offset certain input costs including steels and tariff pricing. The US dollar continues to weaken from the strength we saw early in the year. We anticipate the full year impact of a strong US dollar to now be an approximate half percent revenue headwind. Let's now turn to our first bid market. In the US a lack of clarity surrounding regulatory emissions requirements, the continued evolution of tariff policies along with an uncertain economic backdrop is leading to weak markets. This is driving our expectations that both the heavy and medium duty markets in the US will be down 15% to 25%. We continue to expect demand for trucks in India to be flat to down as we've yet to see the ramp up in government infrastructure spending. In China, the market has reflected some growth in the second quarter. However, we view this as temporary and expect continued challenging conditions. Overall, we have raised our expectations for total company revenue in 2025 to be in a range of up one percent to up four percent compared to the prior year with global sales in an expected range of 1.685 billion to 1.735 billion. Our demonstrated ability to quickly adapt to changing market conditions and the expected continuation of strong operational performance results in us raising our expectations for adjusted EBITDA margins to be in a range of 19.25% to 20%. Lastly, adjusted EPS is expected to be in a range of $2.40 to $2.60. I would like to take a moment to thank our Atlas team for delivering record performance in the second quarter and their sustained commitment to building a great company. I am looking forward to the completion of the operational separation from Cummins later this quarter. This is a significant multi-year accomplishment, one which was made possible by the entire Atmos team. 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 uncertain market conditions. Sales were a record of $454 million compared to $433 million during the same period last year, an increase of 4.8%. The increase in sales was primarily driven by higher volumes of 4% and pricing of 2%, partially offset by unfavorable foreign exchange of 1%. Gross margin for the second quarter was $131 million compared to $132 million in the second quarter. The decrease was primarily due to increased logistics costs, partially offset by increased pricing and higher volume. Selling administrative and research expenses for the second quarter were $57 million and an improvement of $3 million over the same period in the prior year. Joint venture income was $8 million in the second quarter, in line with our 2024 performance. This resulted in adjusted EBITDA in the second quarter of $95 million, or 21%, compared to $93 million, or 21.4%, in the prior period. Adjusted EBITDA for the quarter excludes $3 million of one-time standalone costs. Adjusted earnings per share was $0.75 in the second quarter of 2025, compared to $0.71 last year. Adjusted free cash flow was $36 million this quarter, compared to $34 million in the prior year. Free cash flow has been adjusted by $3 million for capital expenditures related to our separation. As Steph mentioned earlier in the call, we expect to complete our separation activities from Cummins in the third quarter. We continue to expect one-time costs will be in a range of $10 to $15 million, and we now expect one-time capital expenditures to be in the range of $10 to $15 million in 2025. The effective tax rate for the second quarter of 2025 was 21.9 percent compared to 21.8 percent last year. 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 191 million of cash on hand. Combined with the full availability of our $400 million revolving credit facility, we now have $591 million of available liquidity. Our strong liquidity position provides us with operational flexibility in the current dynamic market to effectively manage our business and execute on growth opportunities. Our cash position and continued strong performance in 2025 has resulted in a net debt to adjust the EBITDA ratio of 1.2 times for the trailing 12 months ended June 30th. In closing, I want to thank the Global Admin team for their continued dedication and flexibility to deliver another strong performance in the quarter. Now, we will take your question.

This time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. We request that you limit yourself to one question and one follow-up. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Rob Mason with Baird. Your line is open.

Yes, good morning, Steph, Jack. As I listened to your updated outlook, some of the commentary, it sounds like your pricing expectations came down a little bit. Curious if you could just walk through how that's going to play out through the balance of the year, just your realization. And I'm assuming that's related to adjustments around tariff. But I'm curious if, you know, maybe you can clarify if that played into your base price expectations, too.

Great. Good morning, Rob. And thanks for the question. I'll just start talking around tariff. You're right. I think most of that movement on price has been related to tariff. In our last guide we had guided tariff in pricing of about 1.5 percent and i think this guide incorporates uh 0.8 percent so the movement there on our expectations around tariffs primarily related to the change in tariffs on china um i would say is where that movement is um as i noted in my opening remarks the way we have uh developed our guide in relation to pricing for tariffs is that it's as at 31 July. So I think what you can know is this will move around a little bit. We've obviously seen some changes since then with the 1st of August announcements and some of the additional announcements related to India. But right now, our outlook and guide incorporates a 0.8 pricing on tariffs. Our overall expectation on tariffs is to be price-cost neutral for the year and through the quarters. is how I would guide you on it and so hopefully that gives you a bit of a sense of the evolving landscape in tariff. Jack I might just ask you to talk through the sequential of pricing if there's anything else you would add.

Yeah thanks for the question Robin, good morning. So if you think about the you know the cadence on pricing it's been about from a tariff perspective in in particular, about $1 million in the first quarter, $5 million in the second quarter. And again, as Seth highlighted, based on the facts in hand as of July 31st, we would expect an additional approximately 4% in the second half.

But we'll, of course, keep you updated as that situation and the broader tariff environment But just as a follow-up as well, we certainly hear your consistent message, Steph, around capital allocation, particularly on the inorganic side and working the pipeline there. We have seen, it seems maybe there's a little more vibrancy in the industrial M&A space. Some of that leans towards larger deals. But I'm just curious if intra-quarter, if you saw anything in that environment that gives you any more encouragement as you go through the back half of the year.

Thanks, Rob. Exactly right to say a consistent message. We are very committed to the strategy of continuing to expand into industrial filtration markets and still see the primary path to do so through M&A. We are reviewing a robust pipeline of targets and continue to do so. I feel really good about the team we've got in place the targets that are coming to our desk that we're reviewing I think that there is a spectrum of those but you know we have said that we wanted to target a revenue of 50 to 100 million and broadly we've been looking to target that but we're not making that an early pipeline filter is what I would say so we are looking at all of the opportunities available to us and really you know it's a disciplined approach we're taking we've got a very clear view of the strategic rationale and the financial criteria for the deals that we want to make but we stay absolutely committed to the strategy and executing on that strategy.

Your next question comes from the line of Tammy Zicaria with JP Morgan. Your line is open.

Hey, good morning. Thank you so much. Very nice quarter. My question is on the EBITDA margin guide. If we look at the full year guide, but we know what you did in the first half, it seems like what's implied for the back half is somewhere below 19% EBITDA margin in the back half versus above 20 in the first half so just wanted to get some thoughts on how we should think about the sequential drivers behind that expected step down good morning tammy thanks for the comments on the quarter and good to talk to you jack do you want to say that yeah absolutely um so maybe i'll walk you a little bit uh tammy um from first half to second half so

So if I start first on the top line, typically we do see some seasonality where the first half of our revenue based on selling days is about, on average, on the long-term average, 5% higher than the second half. And so if you think about that normal seasonality, that would contribute about approximately $50 million top line headwind. We do expect the markets to be, particularly the first set markets, to be, you know, more down in the second half than, again, our original guide. And so that will contribute to a little more, you know, headwinds as I think about the second half dynamics than that typical seasonality. We do also expect some leveling out of share. If you think about, you know, our first half, we were about two and a half percent of share demonstration. some of that's driven by some timing and pull forward and pre-buys that we saw in our customer base ahead of mid-year pricing. And so we do expect that to level out and get back on a full year basis to 2%. We then have pricing. So, and I apologize, I missed a little bit to Rob's question earlier, so let me correct that. So the incremental price in the second half, we would expect $4 million in the second half incremental to the first half on base. and then an incremental of approximately three to four on tariffs. And so that would take your full year or full second half pricing actually to $8 million. SX has improved as we move through the year. And so we expect that to be a tailwind in the second half relative to the first half. And then if I think about relative to normal decrementals, what's on top of that? first of all we do expect the run rate of sar that we realized in the second quarter to essentially be maintained as we move into the third and fourth quarter that's reflective of some of the increases in people costs that we typically see in the second quarter of merit kicking in and then we do expect to you know to operate at a little bit worse decrementals in the second half just driven by that pronounced volume decline You know, there's always an equation of do you take out, you know, fixed costs to accommodate that new level of volume, or do you operate a little bit, you know, more pronounced decrementals, which allow those to be positioned for growth. So that's kind of how I'm overall still, you know, really pleased with where the implied guide puts up the full year of FY23.

Understood. That's very helpful. And one follow-up on the prior answer about repurchases, I think you said 1% to 3% of market cap you expect to buy back this year. Would that leave you with enough firepower should there be an acquisition opportunity later this year? I guess what I'm trying to understand is if you do the buyback, how big of a deal could you still do if an opportunity came up?

Thanks, Tammy, for the question. You know, we're looking at that. It's a very dynamic equation. We do see, I guess, the tradeoff between share repurchases and M&A investment. Our first priority, to be clear, is to invest for growth, organic growth and inorganic growth. and and then we will also look to return um uh to shareholders and so the range is pretty wide as you highlight we wanted to give some range to folks about we're actively thinking about share repurchases and so the one percent of three percent the one to three percent reflects really the flexibility for us should we proceed with an M&A target. I do want to highlight the cash generation capability of our business. We've talked about the separation activity coming to a close here in the third quarter. We have had to sustain expenses associated, one-time expenses, and also capital spend associated with separation costs. As that now comes to a close, coupled with a strong cash generation capability of the business through the cycle, we feel very confident in our ability to execute on our M&A strategy and continue to return to shareholders.

Your next question comes from the line of Joe Odee with Wells Fargo. Your line is open.

Hi, good morning. Thanks for taking my questions. Can you just expand a little bit on the volume experience in the second quarter, that plus four percent, which I imagine is a little bit bigger number on the aftermarket side of things, and just how you parse the underlying base demand versus some demand that would have been brought forward, just to understand the magnitude of that pull forward? And was that mostly just what you think was like Q3 to Q2 kind of event? Great.

Thanks, Jo, and good morning. The way I would characterise the volume performance in the second quarter, let me start there with your question. It was very strong performance in the second quarter, and we were very pleased with it. I'd point to three elements, really, in explaining that bridge, broadly speaking. We did see underperformance to our shared performance in the first quarter. That was around timing of additional content gains that we had seen and seeing those being delayed into implementation with some of our customers. And so we were able to realise those share gains in the second quarter and really catch that up for the first half of the year. So really pleased to see that performance coming in where we expected is the first thing I would highlight. The second question, the second point I would highlight in the share gains, and people to pass out exactly what the value of this is, that there will be some free buy activity inside that second quarter. We certainly had our mid-year price increases in July. There's also a lot of uncertainty around the tariff environment with what were pending announcements for 1st of August. And so we certainly believe there's some pre-buy activity in that second quarter. And we'll see that even out over the third quarter here is the second piece that I would highlight. The way we've reflected our share in our full year guide is how we see it, is really we see 2% share gain performance through the full year. And we see that solid performance continuing through the third and fourth quarters. If I just comment on the market side of that volume equation, as you will note, we lowered our guidance on FirstFit. First fit is a lower portion of our business. So we're running at about 86% aftermarket, 14% first fit. And so obviously it has a lower impact on us overall relative to the aftermarket. But we decreased our guidance on first fit market conditions significantly, 10% down at the midpoint relative to our previous guide. And that's really based on the activity that we've seen. the orders um in the u.s market in the second quarter and what we believe will be still a tough uh third quarter in particular driven by uncertainty in the regulatory environment with epa 2027 um and somewhat ongoing tariffs so really hoping to see some certainty emerging there and and and that will you know allow us to review that as we move forward after market weeks that expect continued challenging freight conditions really in line with what we've seen for a year. We're not including any rebound, if you like, in aftermarket in our second half.

That's a lot of great detail. I guess just your last point would really be, as we think about the aftermarket underlying market demand trends, just think about stable activity over the course of the year. It's just something that is still challenged, but kind of stable throughout the year.

That's right.

Okay. And then also just wanted to ask on the kind of the distribution and go-to-market and what you're doing there and one of the comments around expanding product coverage through the multi-channel path. And if you can just expand a little bit on some of the recent successes and then also just give us a sense of where you are in that initiative for kind of how much still kind of lies ahead.

Yeah. So there's a number of factors that really falls under this second pillar of our strategy of us wanting to accelerate profitable growth in the aftermarket. And a number of factors in that, I think first was really getting this distribution network set up and fully inside our control. We've effectively over the last three years transitioned eight distribution locations. And as I mentioned in my comments, we've actually finalised the South Africa location just here in the second quarter. And now we have 100% control of our distribution network. That's really setting us up to be able to support new partnerships, new distribution agreements through a multi-channel path. So I really feel like we've got that base foundation of support in our warehousing and distribution capability to support the global landscape. And that was an important foundational piece for us to get to. And we want to continue to optimise our availability performance to be able to support our aftermarket aspirations. The second piece of it I would say, and this is very regionally focused, so we have regional leaders across our business who are very focused on developing their strategies in region to partner with new distribution networks, so we've signed up new distribution capabilities. we see continued growth opportunity in the US and Latin America, for example, and so we're certainly investing to unlock the potential in those pockets and continuing to make sure we understand the product needs across the broader distribution network and developing product with greater speed is another key focus in our team so that we can support our customers more effectively.

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

Hey, good morning, guys. Thanks for taking the question. On the 3Q print last year, you guys announced an organic entry to the industrial space with, I believe it was a new filter product. I just wanted to check back in there and hear how the reception has gone so far or any specific lessons learned on that launch that you'll apply on future industrial solutions?

Yeah, good morning, Bobby, and thanks for the question. You've got a good memory, as it turns out. We certainly are determined to enter into industrial filtration markets, and we're doing that through a multi-faceted approach. Our primary approach will continue to be through inorganic expansion and M&A and I think we've highlighted that previously. We are also looking to take steps organically and that has included new distribution agreements and the launch of new products and we've continued to do that. I think our outlook for growth in that area is modest over the course of this year. I would say it's sort of in that sort of five million range so I think I indicated at the time it's it's not yet something to get excited about but it's really more about starting that engine of us understanding that market more uh growing growing where we can organically and that will continue to be enhanced obviously uh as and when we support that with um an acquisition got it and then just any specifics like lessons that you've learned as uh as you're kind of understanding the market anything that's kind of stuck out to you as from what you've learned through that initial rollout look nothing that i would say that is revolutionary i i think just working out how do we set up our organizational capability to support that market that's an ongoing approach we have a strength in working with distributors and channel management and so leveraging that strength across an additional set of end markets is something we've demonstrated some capability in really trying to I talked about speed of product to market in our in our core markets really trying to you know do that here in the industrial filtration markets as well so the importance of speed to market nothing revolutionary in there I would say, but just reinforcing good business.

Your next question comes from the line of Andrew Olbein with Bank of America. Your line is open.

This is David Ridley-Lane on for Andrew. I just want to dive into the drivers of the outperformance in the quarter, right?

So if you go back for a decade the average sequential growth in the second quarter is about two percent you grew nine this quarter what went right hi David good morning and thank you well lots of things I would say and it's the cumulative effect of a lot of hard work um and um so let me just break down the block if you like uh last year quarter to 24 to um quarter to 25 and um the way we think about this is we think about what's happening in the market what did we do on pricing what were the fx impacts and then what were our share gains and so i'll start with the biggest contributor of this and you know over four percent in share gain was a significant contributor to our out performance here in the quarter what's driving that is what I spoke to in my earlier comments really the three things one of those was catch up from Q1 we knew we had opportunities in share gamers content it had been delayed in terms of implementation and we saw that come through as expected into into quarter two the second I would say there is some pre-buy activity in there which is difficult to pass out and the third is really the great work of our team to continue to continue to grow content and win share and to continue to win with our partners as they continue to grow their businesses so really strong performance on share in the quarter very pleased to see that we also saw pricing impacts of course as we as we responded very well to the tariff environment You know, I've been really impressed with our team's ability to build the capability to sense quickly what's going on in the market, to synthesise that, to understand it. We've had a position on tariffs that we will be price-cost neutral. And our first step in all of our understanding of tariffs has been to work hard to mitigate the cost of those tariffs. Our team did an excellent job in the quarter of securing USMCA exemptions for substantially all of our products coming out of Mexico, which made a significant difference for our customers. And then we obviously, where we cannot mitigate that cost of tariff impact, we took appropriate action to work in partnership with our customers to pass those on through price. And then there are the usual pricing pieces that we have in there. All of those were offset by some headwinds. Tough market that we're in, I think I've talked to that sufficiently, and still headwinds on FX, so we do expect that to turn positively in the second half here. Hopefully that gives you a bit of a flavor of the things that went right.

Got it. And then in the quarter, so I know your expectation is to be price cost positive for the full year. But in the quarter, were you price cost positive or was this a drag? And I guess more importantly, does that imply that you're going to get some catch up and some really good favorability in the second half?

So our objective is to be price cost neutral and we were about price cost neutral in the quarter. That's what we're working to. It's difficult to balance that exactly over the quarters here but we've got a team, not me necessarily, but a team that's working on this daily and weekly and have got a really good way of working through it right now and so that price-cost neutral for the year and in La Portis.

I will now turn the call back to Todd Chiarello for closing remarks.

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