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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-14 · 108 added, 96 removed, 272 unchanged (43% of the section changed)

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(the “Company,” “Atmus,” “we,” “our” and “us”) consolidated results of operations and financial condition.

The discussion should be read in

conjunction with Atmus’ consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

The discussion should be read in conjunction with Atmus’ consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described under the heading “Risk Factors.” Actual results may differ materially from those contained in any forward-looking statements.

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• The loss of a top OEM relationship or changes in the preferences of Atmus' aftermarket end-users;

• Atmus deriving significant earnings from investees that Atmus does not directly control;

• Deriving significant earnings from investees that Atmus does not directly control;

• Significant competition in the markets Atmus serves;

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• Inability or failure to adequately protect and enforce Atmus’ intellectual property rights and the cost of protecting or enforcing Atmus' intellectual property rights;

• Ineffective internal control over financial reporting;

• Unexpected events, including natural disasters;

• Difficulty operating as a standalone company;

• Sales of counterfeit versions of products, as well as unauthorized sales of products;

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• Potential economic downturns that could cause the balances of recorded goodwill to decrease;

• Increased tariffs or the imposition of other barriers to international trade;

• Political, economic, and social uncertainty in geographies where Atmus has significant operations or large offerings of products;

• Uncertain worldwide and regional market and economic conditions;

• The loss of Cummins’ reputation, economies of scale, capital base and other resources as a result of the Separation from Cummins;

• Potential failure of performance by Atmus or Cummins under transaction agreements executed as part of the Separation;

• Actual or potential conflicts of interests for certain of Atmus' executive officers and directors because of their equity interests in Cummins;

• Limited liability to Atmus from Cummins and its directors for breach of fiduciary duty;

• Potential indemnification liabilities to Cummins pursuant to the separation agreement;

• Potential indemnification from Cummins may be insufficient to insure Atmus against the full amount of such liabilities;

• Terms from unaffiliated third parties may have been better than what Atmus received in agreements with Cummins;

• Changes in capital and credit markets;

• Substantial indebtedness consisting of Atmus’ term loan and revolving credit facility, which may impact Atmus' ability to service all its indebtedness and react to changes in the industry;

• Substantially all Atmus' assets being pledged as security for its term loan and revolving credit facility.

• Substantially all Atmus' assets pledged as security for its term loan and revolving credit facility.

Additional information about these future factors and the material factors or assumptions underlying such forward-looking statements may be found under the section entitled Risk Factors in this Annual Report on Form 10-K.

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None of the proceeds of the IPO were for the benefit of Atmus.

As of the closing of the IPO, Cummins owned, and continues to own, approximately 80.5% of the outstanding shares of our common stock.

On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $1.0 billion credit agreement (“Credit Agreement”) with Cummins and a syndicate of banks, providing for a $600 million term loan facility (the “term loan”) and a $400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation.

As of the closing of the IPO, Cummins owned approximately 80.5% of the outstanding shares of our common stock.

On September 30, 2022, and as amended on February 15, 2023, Atmus entered into a $1.0 billion credit agreement (“Credit Agreement”) with a syndicate of banks, providing for a $600 million term loan facility (the “term loan”) and a $400 million revolving credit facility (the “revolving credit facility”), in anticipation of the Separation.

Borrowings under the Credit Agreement did not become available until the IPO occurred.

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These agreements comprehensively provide a framework for our relationship with Cummins and govern various interim and ongoing relationships between us and Cummins post IPO.

On February 14, 2024, Cummins announced an exchange offer whereby Cummins shareholders could exchange all or a portion of Cummins common stock for shares of Atmus common stock owned by Cummins.

The divestiture of Atmus shares by Cummins was completed on March 18, 2024 and resulted in the full separation of Atmus and divestitures of Cummins’ entire ownership and voting interest in Atmus (“Full Separation”).

Basis of Presentation

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The historical combined financial statements reflect our historical financial position, results of operations and cash flows, in conformity with generally accepted accounting principles in the United States of America (“U.S.

For the period subsequent to May 26, 2023, as a standalone public company, we present our financial statements on a consolidated basis.

The Consolidated Financial Statements have been prepared in conformity with U.S.

Refer to Note 2, Basis of Presentation , to the Consolidated Financial Statements included elsewhere in this report for additional information.

For the period subsequent to our IPO on May 26, 2023, as a standalone public company, we present our financial statements on a consolidated basis.

The Consolidated Financial Statements have been prepared in conformity with U.S.

Factors Affecting Our Performance

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Market demand

Aftermarket demand softened over the second half of 2023 while first-fit demand remained resilient.

We have continued to increase prices as a result of significant increases in our cost base, which has contributed to higher net sales in the year ended December 31, 2023.

In 2024, we expect first-fit demand to soften across many of our key markets whereas the aftermarket is expected to recover, particularly in the second half of 2024.

Supply chain constraints

We continue to experience supply chain disruptions, incremental costs and related challenges that unfavorably affect customer demand, its ability to meet customer demand and its production.

While overall supply chain conditions have substantially improved from a year ago, they continue to affect inventory and backlog levels throughout our supply chain.

Our management team continues to monitor and evaluate all of these factors and the related impacts on our business and operations and we are diligently working to minimize any supply chain impacts to our business and to our customers .

Aftermarket demand remained depressed in 2024 reflecting soft market conditions and first-fit demand softened across many of our key markets during the second half of 2024.

It is uncertain when a recovery can be expected.

Global supply chain

While overall supply chain conditions continue to affect inventory and backlog levels, they have largely stabilized with minimal disruptions now being experienced and backorders largely recovered.

Our management team continues to monitor and evaluate all of these factors and the related impacts of our business and operations, and we are diligently working to continue to minimize any supply chain impacts to our business and to our customers.

Commodity prices, labor, inflation and foreign currency exchange rates

We continue to experience generally high inflation, though it has moderated in the second half of 2023.

Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have stabilized, but we continue to see impacts from labor and energy.

Collectively, we realized lower material and freight costs which have driven a decrease in Cost of sales in 2023 and more than offset increases in other costs.

To further mitigate these pressures, we instituted pricing actions throughout 2023.

During 2023, our Selling, general and administrative expenses increased as a result of costs related to the Separation, inefficiencies due to delays in the execution of our IPO and increased variable compensation costs.

We have seen inflationary impacts largely subside in the second half of 2024.

Direct material cost pressures, driven largely by steel, resin and other petrochemical products, have stabilized, but we continue to see impacts from labor.

During 2024, our Selling, general and administrative expenses increased as a result of increased people-related and consulting expenses.

Additionally, the appreciation of the U.S.

dollar against foreign currencies has had and could continue to have a negative impact on our consolidated results of operations due to translation impacts.

Although we did see a slightly favorable impact on our results of operations in the second half of 2023, there can be no assurances that the overall negative impact will not continue in 2024.

dollar against foreign currencies has had an unfavorable impact on our consolidated results of operations in 2024.

There can be no assurances as to the impact of foreign currency exchange rates on our results in 2025.

Standalone costs

We have incurred, and expect to continue to incur, additional costs associated with becoming a standalone public company.

During the year ended December 31, 2023, we incurred approximately $28.6 million of expenses, including $10.8 million within Cost of sales and $17.3 million within Selling, general and administrative expenses in connection with becoming a standalone public company.

We expect to incur additional expenses of approximately $5 million to $15 million in 2024 in connection with becoming a standalone public company.

During the year ended December 31, 2024, we incurred approximately $25.2 million related to one-time separation costs including $14.5 million within Selling, general and administrative expenses and $10.7 million within Cost of sales.

We expect to incur one-time expenses of approximately $5 million to $10 million in 2025 in connection with becoming a standalone public company.

In addition, we expect to incur capital expenditures in connection with the Separation of approximately $5 million to $10 million in 2025.

These expenses and capital expenditures primarily relate to the establishment of functions previously co-mingled with Cummins, such as information technologies, distribution centers and human resources.

Theses expenses and capital expenditures are

expected to be substantially complete by the end of 2024 but some expenses and capital expenditures may potentially be incurred in 2025.

The actual amount of the expenses and capital expenditures we will incur as a stand-alone public company may be higher, perhaps significantly, from our current estimates for a number of reasons, including, among others, the final terms we are able to negotiate with service providers, as well as additional costs we may incur that we have not currently anticipated.

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Other operating expense, net 2.0 0.7 5.0 (1.3) (185.7) % 4.3 86.0 %

0.7 5.0 — 4.3 86.0 % (5.0) — %

OPERATING INCOME 266.2 248.4 203.9 17.8 7.2 % 44.5 21.8 %

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(Unfavorable)

Percent of Net sales 2023 2022 2021 Percentage Points Percentage Points

Percent of Net sales 2024 2023 2022

Percentage Points Percentage Points

Gross margin 27.7 % 26.6 % 23.0 % 1.1% 3.6%

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Research, development and engineering expenses 2.4 % 2.6 % 2.5 % 0.2% (0.1)%

Net sales were $1,669.6 million for the year ended December 31, 2024, an increase of $41.5 million compared to $1,628.1 million for the year ended December 31, 2023.

The increase in Net sales was mainly due to $26.3 million of favorable pricing impacts and higher volumes of $22.3 million, partially offset by the unfavorable impacts of currency of $7.1 million.

Gross margin was $462.1 million f or the year ended December 31, 2024, an increase of $29.4 million compared to $432.7 million for the year ended December 31, 2023.

The increase in Gross margin was mainly due to approximately $26.3 million of favorable pricing impacts as described above, higher volumes of approximately $7.8 million, favorable variable compensation of $7.2 million and favorable materials costs of $7.0 million, partially offset by higher manufacturing and other costs of $9.0 million, higher logistics costs of $5.8 million, unfavorable currency impacts of $2.7 million and higher one-time restructuring costs of $1.4 million.

Gross margin as a percentage of Net sales was 27.7% , an increase of 1.1 percentage points

compared to 26.6% .

The increase in Gross margin as a percentage of Net sales was primarily due to the items noted above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $187.6 million for the year ended December 31, 2024, an increase of $12.9 million compared to $174.7 million for the year ended December 31, 2023.

The increase was primarily driven by increased people-related and consulting expenses, including one-time restructuring costs, partially offset by lower one-time separation costs.

Selling, general and administrative expenses as a percentage of Net sales were 11.2% for the year ended December 31, 2024 , an increase of 0.5 percentage points compared to 10.7% for the year ended December 31, 2023 .

The increase in Selling, general and administrative expenses as a percentage of Net sales was primarily driven by the items noted above increasing at a higher rate in relation to the increase in Net sales.

Research, Development and Engineering Expenses

Research, development and engineering expenses were $40.6 million for the year ended December 31, 2024, a decrease of $1.9 million compared to $42.5 million for the year ended December 31, 2023.

The decrease was primarily due to standalone costs being favorable to previously allocated expenses under Cummins and lower variable compensation costs.

Research, development and engineering expenses as a percentage of Net sales were 2.4% for the year ended December 31, 2024, a decrease of 0.2 percentage points compared to 2.6% for the year ended December 31, 2023.

The decrease in Research, development and engineering expenses as a percentage of Net sales was mainly due to the items noted above.

Equity, Royalty and Interest Income from Investees

Equity, royalty and interest income from investees was $34.3 million for the year ended December 31, 2024, an increase of $0.7 million compared to $33.6 million for the year ended December 31, 2023.

The increase was primarily due to higher earnings of $0.5 million from our joint ventures in India and China.

Other Operating Expense, Net

Other operating expense, net was $2.0 million for the year ended December 31, 2024, an increase of $1.3 million compared to $0.7 million for the year ended December 31, 2023.

The increase in Other operating expense, net was primarily due to inventory write-offs related to warehouse transitions made during the year.

Interest Expense

Interest expense was $40.6 million for the year ended December 31, 2024, an increase of $14.8 million compared to $25.8 million for the year ended December 31, 2023.

The increase in Interest expense was primarily due to the timing of borrowings under the Credit Agreement which began with our IPO in May 2023 compared to 2024 where we have had outstanding borrowings for the duration of the year.

Other Income, Net

Other income, net was $9.2 million for the year ended December 31, 2024, an increase of $5.4 million compared to $3.8 million for the year ended December 31, 2023.

The increase in Other income, net was primarily due to higher interest income, as a result of higher cash balances.

Income Tax Expense

In connection with the Separation, the Company entered into a Tax Matters Agreement with Cummins that, among other things, formalized our agreement related to the responsibility for historical tax positions for the period prior to the IPO for jurisdictions where our business was included in the consolidated or combined tax returns of Cummins.

Our effective tax rate for the year ended December 31, 2024 was 21.0% , a decrease of 3.3 percentage points compared to 24.3% for the year ended December 31, 2023.

The decrease in the effective tax rate was driven by a favorable change in the mix of earnings among tax jurisdictions and discrete tax items

related to US and foreign tax return filings.

Our effective tax rate differs from the U.S.

statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes.

Net sales were $1,628.1 million (which included related party sales of $390.8 million) for the year ended December 31, 2023, an increase of $66.0 million compared to $1,562.1 million (which included related party sales of $344.9 million) for the year ended December 31, 2022.

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Gross margin was $432.7 million for the year ended December 31, 2023, an increase of $73.5 million compared to $359.2 million for the year ended December 31, 2022.

The increase in Gross margin was mainly due to approximately $102.0 million of favorable pricing as described above and approximately $41.0 million of favorable freight and commodities costs, partially offset by $32.1 million of unfavorable manufacturing and other costs, $11.9 million due to lower volumes, $11.1 million of increased variable compensation costs, $9.2 million of one-time separation costs, and $5.2 million of unfavorable currency impacts.

The increase in Gross margin was mainly due to favorable pricing as described above (approximately $102.0 million) and approximately $41.0 million of favorable freight and commodities costs, partially offset by $32.1 million of unfavorable manufacturing and other costs, $11.9 million due to lower volumes, $11.1 million of increased variable compensation costs, $9.2 million of one-time separation costs, and $5.2 million of unfavorable currency impacts.

Gross margin as a percentage of Net sales was 26.6% for the year ended December 31, 2023, an increase of 3.6% compared to 23.0% for the year ended December 31, 2022.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses were $174.7 million for the year ended December 31, 2023, an increase of $35.0 million compared to $139.7 million for the year ended December 31, 2022.

Selling, general and administrative expenses were $174.7 million for the year ended December 31, 2023, an increase of $35.0 million compared to $139.7 million for 2022.

The increase was primarily driven by $13.5 million of increased variable compensation costs, $9.8 million of one-time separation costs, $6.3 million of higher executive and incentive based compensation and $5.4 million of higher merit and other costs.

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statutory rate primarily due to differences in rates applicable to foreign subsidiaries, withholding taxes and state income taxes.

Net sales were $1,562.1 million (which included related party sales of $344.9 million) for 2022, an increase of $123.3 million compared to $1,438.8 million (which included related party sales of $328.6 million) for 2021.

Of the total net sales increase of $123.3 million, consisting of $107.0 million in increased external sales and $16.3 million in increased related party sales, approximately $115.9 million was due to increased pricing for OEM and aftermarket products across all major regions we serve due to higher inflationary costs.

The unfavorable impacts of foreign currency movements (approximately $37.8 million) were more than offset by increased volume.

Gross margin was $359.2 million for 2022, an increase of $9.9 million compared to $349.3 million for 2021.

The increase in Gross margin was mainly due to favorable pricing as described above (approximately $115.9 million) and higher sales volumes, largely offset by increased material costs (approximately $71.6 million), increased supply chain and freight costs (approximately $33.4 million) and the unfavorable impact of changes in foreign exchange rates on cost of sales (approximately $15.0 million).

Gross margin as a percentage of Net sales was approximately 23.0% for 2022, a decrease of 1.3 percentage points compared to 24.3% for 2021.

The decrease in Gross margin as a percentage of Net sales was primarily due to the high inflationary costs impacting material costs and increased freight costs due to supply chain constraints, which increased at a faster rate than the increase in Net sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $139.7 million for 2022, an increase of $13.5 million compared to $126.2 million for 2021, primarily due to increased costs related to the Separation, partially offset by lower variable compensation.

Selling, general and administrative expenses as a percentage of Net sales was 8.9% for 2022, an increase of 0.1 percentage points compared to 8.8% in 2021.

The increase in Selling, general and administrative expenses as a percentage of Net sales is primarily driven by the costs related to separation being higher compared to the increase in Net sales.

Research, Development and Engineering Expenses

Research, development and engineering expenses were $38.6 million for 2022, a decrease of $3.4 million compared to $42.0 million in 2021, primarily due to lower corporate allocations of $7.4 million in 2022 compared to $8.9 million in 2021.

Research, development and engineering expenses as a percentage of Net sales was 2.5% for 2022, a decrease of 0.4 percentage points compared to 2.9% for 2021.

The decrease in Research,

development and engineering expenses was mainly due to Net sales increasing at a higher rate than the increase in Research, development and engineering expenses and lower corporate allocations.

Equity, Royalty and Interest Income From Investees

Equity, royalty and interest income from investees were $28.0 million, a decrease of $4.4 million compared to $32.4 million for 2021, primarily due to lower earnings from our joint venture in China as a result of the COVID-19 response and declining economic conditions, as well as reduced demand in China.

Other Operating (Income) Expense, Net

Other operating (income) expense, net was $5.0 million for 2022, an increase of $5.0 million compared to zero for 2021.

The increase was primarily due to asset write-offs, partially offset by gains on asset sales.

Other Income, Net

Other income, net was $8.8 million for 2022, an increase of $4.9 million compared to $3.9 million for 2021.

The increase in Other income, net was primarily due to an increase in the non-service benefit of our defined benefit pension plans as compared to 2021.

Income Tax Expense

Our effective tax rate for 2022 was 19.6%, a decrease of 1.9 percentage points compared to 21.5% for 2021.

The year ended December 31, 2022 contained unfavorable discrete tax items of $5.4 million, primarily due to $5.2 million of unfavorable changes in tax reserves.

The year ended December 31, 2021 contained unfavorable net discrete tax items of $2.6 million, primarily due to $3.5 million of unfavorable changes in tax reserves, partially offset by $0.9 million of favorable other discrete tax items.

Liquidity and Capital Resources

Our facilities under the Credit Agreement provide for $1.0 billion in total availability, which includes the $600 million term loan and the $400 million revolving credit facility.

As of December 31, 2023 , we have borrowed $600 million on the term loan and zero on the revolving credit facility.

Our facilities under the Credit Agreement provide for $1.0 billion in total capacity, which includes a $600 million term loan and a $400 million revolving credit facility.

As of December 31, 2024 , we have outstanding borrowings of $592.5 million on the term loan and zero on the revolving credit facility.

As a result, we had capacity under our revolving credit facility of $400 million as of December 31, 2024 .

We believe that cash from operations and the facilities under our Credit Agreement will continue to provide sufficient liquidity for our working capital needs, planned capital expenditures and future payments of our contractual, tax and benefit plan obligations in both the short and long term.

Overall, we do not expect negative effects to our funding sources that would have a material effect on our liquidity.

However, if a serious economic or credit market crisis ensues or other adverse developments arise, it could have a material adverse effect on our liquidity, financial condition, results of operations and cash flows.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, tax liabilities, benefit plan obligations and lease expenses) as well as periodic expenditures for anticipated capital investments, interest payments on our long-term debt and supporting any future acquisitions.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for raw materials, labor, manufacturing and distribution, trade and promotions, advertising and marketing, tax liabilities, benefit plan obligations and lease expenses) as well as periodic expenditures for anticipated capital investments, shareholder returns (such as dividend payments and share repurchases), interest payments on our long-term debt and supporting any future acquisitions.

Long-term cash requirements primarily relate to funding long-term debt repayments and our long-term benefit plan obligations.

Our management reviews our liquidity needs in determining any and all indebtedness options.

allow us to manage our business and give us flexibility to meet our short- and long-term financial commitments.

We have the ability to access the capital markets following the IPO, and we continue to generate substantial cash from operating activities and believe that our operating cash flow and other sources of liquidity will be sufficient to allow us to manage our business and give us flexibility to meet our short- and long-term financial commitments.

Our cash flow activity is noted below:

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Net cash used in investing activities (48.6) (45.8) (37.5)

Net cash provided by (used in) financing activities 24.8 (128.2) (176.5)

Net cash (used in) provided by financing activities

(35.8) 24.8 (128.2)

Operating Cash Flow

Net cash provided by operating activities was $105.4 million for the year ended December 31, 2024, a decrease of $83.6 million compared to Net cash provided by operating activities of $189.0 million for the year ended December 31, 2023.

The decrease was driven primarily by higher working capital requirements of $117.1 million, partially offset by higher net income, higher equity income from investees and a favorable change in other liabilities.

During the year ended December 31, 2024, higher working capital requirements resulted in a cash outflow of $103.3 million compared to a cash inflow of $11.3 million for the year ended December 31, 2023, mainly due to lower trade accounts payable, lower other accrued expenses, higher inventories, higher prepaids and higher trade accounts receivable.

Net cash provided by operating activities was $189.0 million for the year ended December 31, 2023, an increase of $23.3 million compared to Net cash provided by operating activities of $165.7 million for the year ended December 31, 2022.

The increase was driven primarily by lower working capital requirements of $26.1 million and a favorable change in other liabilities of $6.0 million, partially offset by an unfavorable change in income from equity method investees of $8.2 million.

During the year ended December 31, 2023, lower working capital requirements resulted in a cash inflow of $11.3 million compared to a cash outflow of $14.8 million for the year ended December 31, 2022, mainly due to higher other accrued expenses, higher trade accounts payable, lower trade and related party receivables and lower inventories, partially offset by lower related party payables.

Net cash provided by operating activities was $165.7 million in 2022, a decrease of $44.2 million compared to $209.9 million in 2021.

The overall decrease was driven primarily by higher working capital requirements of $41.9 million and an increase in deferred taxes of $10.0 million, partially offset by favorable changes in other assets and pension liabilities of $9.4 million.

The higher working capital requirements were driven by lower related party payables and lower other accrued expenses, partially offset by lower inventories.

During the year ended December 31, 2023, lower working capital requirements resulting in a cash inflow of $11.3 million compared to a cash outflow of $14.8 million for the year ended December 31, 2022, mainly due to higher other accrued expenses, higher trade accounts

payable, lower trade and related party receivables and lower inventories, partially offset by lower related party payables.

Dividends received from our unconsolidated equity investees were $25.5 million and $19.8 million for the years ended December 31, 2024 and December 31, 2023, respectively.

Dividends are typically paid in the second through the fourth quarters and are included in Net cash provided by operating activities.

Dividends are included in Net cash provided by operating activities.

Investing Cash Flow

Net cash used in investing activities for each fiscal year presented was primarily used for capital expenditures.

Our capital expenditures were $45.8 million (of which approximately $9.2 million related to one-time separation costs), $37.5 million and $33.4 million for the years ended December 31, 2023, December 31, 2022,and December 31, 2021, respectively, corresponding to approximately 2.8%, 2.4% and 2.3% of Net sales in 2023, 2022 and 2021, respectively.

Our capital expenditures were $48.6 million (of which approximately $15.0 million related to one-time separation costs), $45.8 million (of which approximately $9.2 million related to one-time separation costs) and $37.5 million for the years ended December 31, 2024, December 31, 2023,and December 31, 2022, respectively, corresponding to approximately 2.9%, 2.8% and 2.4% of Net sales in 2024, 2023 and 2022, respectively.

Financing Cash Flow

Net cash used in financing activities for the year ended December 31, 2024 consisted primarily of repurchases of common stock of $20.0 million, dividends paid of $8.3 million and payments made on our term loan of $7.5 million.

Net cash provided by financing activities for the year ended December 31, 2023 consisted primarily of long-term debt proceeds from our borrowings of $650 million under our Credit Agreement, partially offset by net transfers of $579.5 million to Cummins as part of the Separation and $50.0 million in payments made on our revolving credit facility.

Net cash used in financing activities for the years ended December 31, 2022 and December 31, 2021 consisted entirely of transfers to Cummins.

Net cash used in financing activities for the year ended December 31, 2022 consisted entirely of transfers to Cummins.

We paid dividends of $8.3 million in 2024 and none in 2023 and 2022.

The current quarterly dividend rate is $0.05 per share of common stock.

The declaration of dividends is subject to the discretion of our Board of Directors and depends on various factors, including our net earnings, financial condition, cash requirements, future prospects and other factors that our Board of Directors deems relevant to its analysis and decision making.

2024 distributions have been characterized as dividends under the U.S.

federal income tax rules.

The final determination was made on an IRS Form 1099-DIV issued in early 2025.

Contractual Obligations

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For more information regarding our lease obligations, see Note 9, Leases , to the Consolidated Financial Statements , which provides a summary of our future minimum lease payments.

Our total debt outstanding was $600 million at December 31, 2023.

We had no debt outstanding at either December 31, 2022 or December 31, 2021.

At December 31, 2023, the weighted-average term of our

outstanding long-term debt was 3.8 years.

Our total debt outstanding was $592.5 million at December 31, 2024 and was $600.0 million at December 31, 2023.

We had no debt outstanding at December 31, 2022.

At December 31, 2024, the weighted-average term of our outstanding long-term debt was 2.9 years.

Refer to Note 12, Debt and Borrowing Arrangements , to the Consolidated Financial Statements for more information on our debt and debt covenants.

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Additionally, we believe these metrics are widely used by investors, securities analysts, ratings agencies and others in our industry in evaluating performance.

• “Adjusted EBITDA” is defined as EBITDA after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, including costs associated with becoming a standalone public company and “Adjusted EBITDA margin” is defined as Adjusted EBITDA as a percent of Net sales.

We believe Adjusted EBITDA and Adjusted EBITDA margin are useful measures of our operating performance as it allows investors and debt holders to compare our performance on a consistent basis without regard to one-time costs attributable to our becoming a standalone public company.

• “Adjusted EBITDA” is defined as EBITDA after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, associated with becoming a standalone public company and one-time restructuring costs and “Adjusted EBITDA margin” is defined as Adjusted EBITDA as a percent of Net sales.

We believe Adjusted EBITDA and Adjusted EBITDA margin are useful measures of our operating performance as they allow investors and debt holders to compare our performance on a consistent basis without regard to one-time costs attributable to our becoming a standalone public company.

• “Adjusted earnings per share” is defined as diluted earnings per share (the most comparable U.S.

GAAP financial measure) after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, including costs associated with becoming a standalone public company less the related tax impact of the same one-time expenses.

GAAP financial measure) after adding back certain one-time expenses, reflected in Cost of sales and Selling, general and administrative expenses, associated with becoming a standalone public company and one-time restructuring costs less the related tax impact of the same one-time expenses.

We believe Adjusted earnings per share provides improved comparability of underlying operating results.

• “Free cash flow” is defined as cash flows provided by (used for) operating activities less capital expenditures and “Adjusted free cash flow” is defined as Free cash flow after adding back certain one-time capital expenditures including costs associated with becoming a standalone public company.

• “Free cash flow” is defined as cash flows provided by (used for) operating activities less capital expenditures and “Adjusted free cash flow” is defined as Free cash flow after adding back certain one-time capital expenditures and other separation related costs associated with becoming a standalone public company and one-time restructuring costs.

We believe Free cash flow and Adjusted free cash flow are useful metrics used by management and investors to analyze our ability to service and repay debt and return value to shareholders.

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For the Years Ended

2023 2022 2021

(in millions)

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EBITDA (non-GAAP) $ 300.2 $ 273.7 $ 234.3

One-time restructuring costs

$ 4.1 $ — $ —

One-time separation costs (a)

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Adjusted EBITDA margin (non-GAAP) 19.7 % 18.6 % 15.6 %

(a) Primarily comprised of one-time expenses related to information technology, warehousing and human resources separation costs.

(a) Primarily comprised of one-time expenses related to Information Technology, warehousing, manufacturing and Human Resources separation costs.

A reconciliation of Diluted earnings per share to Adjusted earnings per share is shown in the table below:

For the Years Ended

2023 2022 2021

Diluted earnings per share $ 2.22 $ 2.05 $ 2.05

One-time restructuring costs (a)

$ 0.05 $ — $ —

One-time separation costs (a)

0.30 0.34 0.11

Tax impact of one-time restructuring costs (a)

$ 0.01 $ — $ —

Tax impact of one-time separation costs (a)

1 unchanged sentence

Adjusted earnings per share (non-GAAP) $ 2.50 $ 2.31 $ 2.13

$ 2.31 $ 2.13 $ 2.04

(a) Primarily comprised of one-time expenses related to information technology, warehousing and human resources separation costs and the related tax impact of those expenses.

The tax impact of one-time separation costs for the years ended December 31, 2023 , 2022 and 2021 were $6.9 million, $1.8 million and zero, respectively.

(a) Primarily comprised of one-time expenses related to Information Technology, warehousing, manufacturing, restructuring and Human Resources separation costs and the related tax impact of those expenses.

The tax impact of one-time restructuring costs for the year ended December 31, 2024 were $0.9 million and the tax impact of one-time separation costs for the years ended December 31, 2024 , 2023 and 2022 were $5.3 million, $6.9 million and $1.8 million, respectively.

A reconciliation of Net cash provided by operating activities to Free cash flow and Adjusted free cash flow is shown in the table below:

For the Years Ended

2023 2022 2021

(in millions)

2 unchanged sentences

Free cash flow (non-GAAP) $ 56.8 $ 143.2 $ 128.2

One-time restructuring costs

$ 4.1 $ — $ —

One-time separation capital expenditures 15.0 9.2 0.5

$ 9.2 $ 0.5 $ —

Other one-time separation related (a)

Adjusted free cash flow (non-GAAP) $ 114.5 $ 152.4 $ 128.7

$ 152.4 $ 128.7 $ 176.5

(a) Primarily comprised of one-time working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to standalone practices.

Critical Accounting Policies and Estimates

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Future tax benefits of net operating loss and credit carryforwards are also recognized as deferred tax assets.

We evaluate the

recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets.

We evaluate the recoverability of our deferred tax assets each quarter by assessing the likelihood of future profitability and available tax planning strategies that could be implemented to realize our net deferred tax assets.

At December 31, 2024 , we recorded net deferred tax assets of $16.9 million.

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis