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Kalkine IPO Report

Should You Subscribe to the IPO of Atmus Filtration Technologies Inc.?

May 25, 2023

The Offer

Company Overview

Atmus is a global leader in filtration products for commercial vehicles and off-highway equipment. Their advanced Fleetguard brand filters reduce emissions and protect assets. In 2022, 16% of revenue came from OEM sales, while 84% came from the aftermarket. With a 65-year history, Atmus expands its presence through a diverse product portfolio, advanced technology, and global distribution. They serve customers in 150 countries, with nearly half of sales outside the US and Canada. Strong customer relationships are maintained through joint ventures and an extensive network of facilities. Atmus offers premium filtration solutions, enabling optimized service intervals and reduced maintenance costs. With a comprehensive market presence, Atmus is a top competitor in the industry.

Key Highlights

Primary Offering: The firm is issuing 14,124,409 shares along with an additional 2,118,661 shares to the underwriter, who will have a 30-day option to acquire all these extra shares from the debt-for-equity exchange parties to cover sales by the underwriters of a greater number of shares than the total number.

Use of proceeds:

  • ATMU will not receive any proceeds from the sale of its common stock in this offering. Instead, all net proceeds will be received by the debt-for-equity exchange parties. Prior to the debt-for-equity exchange parties selling the shares to the underwriters, they will acquire the common stock from Cummins in exchange for Cummins' outstanding indebtedness held by the debt-for-equity exchange parties.
  • As part of the separation process and upon the completion of this offering, ATMU intends to compensate Cummins for the filtration business contributed to ATMU in connection with the separation. This compensation will include the existing cash amount, as well as the net proceeds from the term loan that ATMU will enter before the offering's closure, and any funds drawn under the revolving credit facility. The specific amount of cash to be retained by ATMU will be determined by Cummins.

Dividend policy: ATMU has not yet determined the potential payment of dividends on its common stock following the completion of this offering. The decision to pay dividends, including the timing and amount, is within the discretion of the Board and will be in accordance with applicable laws. Several factors will influence the Board's determination, including ATMU's financial condition, earnings, capital requirements, debt service obligations, restrictive covenants in ATMU's debt agreements (to be entered into prior to the offering's closure and in the future), industry norms, legal requirements, and other relevant considerations. ATMU's ability to pay dividends relies on its ongoing cash generation from operations and access to the capital markets. ATMU cannot provide assurance that dividends will be paid in the future or that any existing dividend payments will continue if initiated.

Filtration market Analysis:

  • ATMU believes that the filtration product market is both sizable and attractive, with an estimated total product sale of around USD 74 billion in 2021.
  • Within this market, the total engine products segment, including ATMU's core markets and the passenger car market, accounted for approximately USD 30 billion. ATMU's core markets, which experienced a compound annual growth rate (CAGR) of approximately 2% over the five-year period ending in 2021, represented a total addressable market of approximately USD 13 billion in 2021.
  • The passenger car market, although not a current or future focus for ATMU, had a total addressable market of approximately USD 17 billion in 2021.
  • The remaining portion of the filtration product market consists of industrial filtration markets, which had a total addressable market of approximately USD 44 billion in 2021.
  • ATMU's strategic plan involves expanding into these industrial filtration markets in the future, which have exhibited a CAGR of approximately 5% over the same five-year period.
  • Looking ahead, ATMU expects the industrial filtration markets to grow at a CAGR of approximately 4%, while their core markets are projected to grow at a CAGR of approximately 2%, both over the five-year period ending in 2025.

Financial Highlights (Expressed in USD):


  • Increased net sales and gross profit: Of the total net sales increase of USD 36.1 million, comprising USD 32.9 million in increased external sales and USD 3.2 million in increased related party sales, approximately USD 35.9 million can be attributed to higher pricing for OEM and aftermarket products in all major regions served, driven by increased inflationary costs. The rise in gross margin primarily stems from the favorable pricing mentioned above (approximately USD 35.9 million), along with higher sales volumes (approximately USD 2.5 million) and slightly favorable commodities and freight costs (approximately USD 2.6 million). These positive factors were partially offset by adverse currency impacts (approximately USD 3.7 million).
  • Increased Operating cash flow: Net cash provided by operating activities amounted to USD 67.5 million for the three-month period ending March 31, 2023, representing a surge of USD 64.7 million compared to the net cash provided by operating activities of USD 2.8 million for the three months ended March 31, 2022. This notable increase can be attributed primarily to reduced working capital needs amounting to USD 41.5 million, a favorable growth in net income totaling USD 17.9 million, and a decrease in other liabilities of USD 4.5 million.

Key Management Highlights

Risk Associated (High)

Investment in the IPO of “ATMU” is exposed to a variety of risks such as:

  • Customer concentration: ATMU faces significant customer concentration, with Cummins, PACCAR, and the Traton Group accounting for approximately 19%, 16%, and 12% of net sales in 2022. Losing these customers would adversely affect business, financial condition, and results. Cummins is the largest customer, representing 19% of net sales. Customer acceptance and demand for Cummins' engines or generators using ATMU filters affect sales. This concentration increases operating result fluctuations and sensitivity to Cummins' adverse developments. Although ATMU's relationship with Cummins is defined by agreements, failure to renew or demands on pricing and terms may occur. Meeting delivery performance requirements is necessary, and competitive bids may be sought for future products, impacting sales. Loss or reduction in Cummins sales would significantly impact ATMU.
  • Variability in material costs: ATMU's businesses establish prices with customers based on contractual timeframes. However, the timing of material and commodity market price increases may hinder timely passing of additional costs, impacting profit margins. Gross margin declined by 1.4 percentage points from 2021 to 2022 due to faster cost increases compared to net sales. Global material and commodity costs may counter cost reduction efforts. Inflationary pressures persist worldwide, potentially leading to further price fluctuations. ATMU has no hedging arrangements for commodity purchases, relying on contractual pricing adjustments with customers. While these adjustments mitigate risks, adverse commodity price fluctuations can still affect operations and cash flows. Higher material and commodity costs, along with hedging during price declines, may result in declining margins.
  • Stiff competition: ATMU faces significant competition in its markets, necessitating consistent investment with uncertain returns. Factors such as price, quality, technology, manufacturing, innovation, and customer service influence the risk of losing business. Competitors with greater resources and capabilities pose a challenge. While ATMU believes it has technological advantages, maintaining them requires ongoing investment. The competitive landscape is subject to change, and successful implementation of new product expansions is not guaranteed. Unexpected costs and competitors' early entry or broader acceptance can affect market positioning. Maintaining a competitive edge and market presence requires continued efforts and adaptability.


ATMU is a prominent global provider of filtration products for on-highway commercial vehicles, as well as off-highway equipment used in agriculture, construction, mining, and power generation. As of December 31, 2022, ATMU possesses an extensive intellectual property portfolio, including over 1,300 active or pending patents and patent applications worldwide, along with more than 500 trademark registrations and applications. With a reputable track record, ATMU has been a reliable supplier to major original equipment manufacturers (OEMs) such as CNH Industrial, Cummins, Daimler, Deere, Doosan, Foton, Komatsu, PACCAR/DAF, the Traton Group (Navistar/Scania/MAN), and Volvo for over a decade. In 2022, these customers collectively contributed to approximately 68% of ATMU's net sales, consistently representing over 66% of net sales in the past five years. The financial performance of ATMU demonstrates resilience, evident in a net income margin of 10.9% and an EBITDA margin of 15.0% in 2022. Despite the economic impact of the COVID-19 pandemic, net sales rebounded with a 16.7% increase in 2021 compared to 2020 and further grew by 8.6% in 2022 compared to 2021. ATMU's operations generate robust operating cash flow with a high conversion rate, resulting in USD 592.4 million from 2020 to 2022.

Hence, given the financial performance of the company, increased revenue and net income, industry analysis, use of proceeds, and associated risks “Atmus Filtration Technologies Inc. (ATMU)” IPO seems “Attractive" at the IPO price.


Kalkine Equities LLC provides general information about companies and their securities. The information contained in the reports, including any recommendations regarding the value of or transactions in any securities, does not take into account any of your investment objectives, financial situation or needs. Kalkine Equities LLC is not registered as an investment adviser in the U.S. with either the federal or state government. Before you make a decision about whether to invest in any securities, you should take into account your own objectives, financial situation and needs and seek independent financial advice. All information in our reports represents our views as at the date of publication and may change without notice.

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