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Atmus Filtration Technologies (ATMU -0.63%)
Q1 2024 Earnings Call
May 03, 2024, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello and thank you for standing by. At this time, I would like to welcome everyone to Atmus Filtration Technologies first quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.
[Operator instructions] I would now like to turn the conference over to Todd Chirillo, executive director of investor relations. Please go ahead.
Todd Chirillo -- Executive Director, Investor Relations
Thank you, operator. Good morning, everyone, and welcome to the Atmus Filtration Technologies first quarter 2024 earnings call. On the call today, we have Steph Disher, chief executive officer; and Jack Kienzler, chief financial officer. Certain information presented today will be forward-looking and involve risks and uncertainties that could materially affect expected results.
Please refer to our slides on our website for the disclosure of the risks that could affect our results and for a reconciliation of any non-GAAP measures referred to on our call. For additional information, please see our SEC filings in the investor relations pages available on our website at atmus.com. Now, I'll turn the call over to Steph.
Steph Disher -- Chief Executive Officer
Thank you, Todd, and good morning, everyone. We delivered strong performance in the first quarter. On the call today, I will provide an update on our performance in the quarter, our outlook for the year, and provide some comments on delivery of our growth strategy. Jack will then provide additional details regarding our financial performance.
Before I discuss the quarterly performance, I would like to acknowledge the significant milestone of Atmus becoming a fully independent company on March 18th. On February 14th, Cummins announced an exchange offer whereby Cummins shareholders could exchange all or a portion of Cummins common stock for shares of Atmus. Investors showed significant interest in the offer with the transaction approximately 12 times oversubscribed. The divestiture of Atmus shares by Cummins was completed on March 18th and resulted in the full separation of Atmus.
With the successful completion of the exchange offer, all former Cummins-appointed directors have resigned from the Atmus board of directors and two new independent directors, Diego Donoso and Stuart Taylor, have been appointed to the board. A majority of the Atmus board of directors is now independent, and I'm excited to be working with the board as we continue to accelerate growth and deliver long-term value for our shareholders. Now, let's turn to the first quarter financial results and our current outlook for 2024. We delivered strong financial performance in the first quarter.
Sales were 427 million, compared to 419 million during the same period last year, an increase of approximately 2%. Adjusted EBITDA in the first quarter was 80 million, or 18.8%, compared to 79 million, or 18.8%, in the prior period. Adjusted EBITDA for the quarter excludes 6 million of one-time stand-alone costs and 4 million for the same period last year. Adjusted earnings per share was $0.60 in the first quarter of 2024 and adjusted free cash flow was negative 13 million.
Adjusted free cash flow excludes 6 million of one-time separation-related items. Now, let me provide some insight into our global market. As expected, we saw softer freight activity during the first quarter. However, our continued market share gains are offsetting some of the market weakness.
Demand in the first-fit markets has started to show signs of slowing in the U.S. In India, markets remained robust, while in China, the market continues to fall short of expectations. Looking ahead to our outlook for global markets, I will start with aftermarket for both on-highway and off-highway. In North America, we saw the Cass Freight Index down 5% in the first quarter compared to the prior year.
The rate of decline slowed through the quarter with the month of March down 3.6% year over year. While we are expecting year-over-year freight activity to gradually improve through the balance of the year, we are still experiencing year-over-year declines and have not yet seen positive freight activity compared to the prior periods. In global off-highway markets, we continue to see strength in North American construction for both residential and nonresidential construction, partially aided by government infrastructure spending. Economic conditions in Europe continued to be depressed, with weakness in construction activity.
And in the Asia-Pacific region, we are seeing low utilization rates across a number of our key end markets. Overall, we expect aftermarket for on-highway and off-highway to be flat to up 2% during the year, down slightly from our previous guidance of flat to up 3%. Let's turn to our first-fit markets. In the U.S., we are anticipating declines to primarily impact the second half of 2024.
We are modestly raising our outlook for U.S. heavy-duty truck to be down 7% to 12% for the full year, from our previous guidance of down 10% to 15%. In medium-duty truck, our outlook remains unchanged at flat to down 5%. In China, we expect weakness to persist, and demand for trucks in India is expected to remain robust, driven by strong on-highway performance.
While the outlook for our markets is mixed, we continue to execute on our growth plans and expand our market share in both aftermarket and first-fit. Our revenue guidance is unchanged at down 1% to up 3%, with global sales in the range of 1.61 billion to 1.675 billion. We expect continued strong operational performance and to deliver adjusted EBITDA margins of 18.25% to 19.25%, unchanged from prior guidance. Additionally, adjusted EPS is unchanged from our prior outlook and anticipated to be in a range of $2.10 to $2.35.
As we have separated from Cummins, we have incurred separation costs and cash impacts associated with establishing a stand-alone company. These costs and cash flows are one-time in nature. We want to be transparent and highlight those items to enable a clear understanding of the ongoing performance and cash generation of our business. In relation to cash flow outlook, I want to highlight a one-time cash outflow, which is estimated to be 30 million in 2024.
This impact arises as a result of a change in working capital. Cummins previously processed our payroll on our behalf, and we received 60-day terms. As we transition to managing our own payroll directly, this cash will flow immediately upon payment to employees. Now, I would like to take a moment to share the progress we have made on implementing our growth strategy.
As a reminder, there are four pillars of our growth strategy. Our first pillar is to grow share in first-fit. We are a leader in fuel filtration and crankcase ventilation products, and we are focused on growing this leadership position with global OEM customers. We are winning with the winners and have continued to secure Cummins' new vehicle platforms.
We are also accelerating growth with other leading global OEMs. We have recently won the fuel filtration business of a global OEM for the European and North American business, and we are actively pursuing new customers who are out of reach to us as part of Cummins. Our second and third pillar are interrelated and focus on accelerating profitable growth in the aftermarket and transforming our supply chain. We are relentlessly focused on our customers and providing the right product when and where it is needed.
Our agility allows us to continue gaining share in the aftermarket with our world-class Fleetguard products. As a key component of our agility is the continued transformation of our global distribution capabilities to provide our customers with industry-leading product availability. Earlier this year, we inaugurated our Southern Distribution Center near Dallas, Texas, and we recently opened our newest distribution facility in Singapore. We now have coverage for over 80% of our volume being distributed through dedicated Atmus warehouse facilities.
We are on track to establish additional centers in Europe throughout 2024. We are also focused on driving efficiencies through our purchasing organization and investing in automation in our manufacturing operations. These focus areas will support continued reduction of our operating costs. We have demonstrated delivery of our transformation initiatives through expansion of our adjusted EBITDA margin, 300 basis points during 2023.
Our guidance for 2024 reflects continued momentum as we execute on our strategy. Our fourth pillar is to expand into industrial filtration markets. We intend to pursue this growth inorganically, and we see a strong pipeline of opportunities, which our team is continuously evaluating. We will take a disciplined programmatic approach, with a focus on creating long-term shareholder value.
Our capital allocation priorities will continue to reflect our focus on growing our business both organically and inorganically. We are also assessing our approach to returning cash to shareholders now that we are an independent company. I am proud of our Atmus team who delivered another strong quarter of performance. As a fully independent company, we will accelerate our growth strategy as we move through 2024.
Now, I will turn the call over to Jack, who will discuss our financial results in more detail.
Jack Kienzler -- Chief Financial Officer
Thank you, Steph, and good morning, everyone. We continued to deliver strong financial performance in the first quarter. Sales were 427 million, compared to 419 million during the same period last year, an increase of approximately 2%. The increase in sales was primarily driven by pricing of approximately 2% and the favorable impacts of currency, partially offset by a modest decrease in volume as market share gains continued to counterbalance challenging conditions across many of our markets.
Gross margin for the first quarter was 112 million, an increase of 2 million compared to the first quarter of 2023. In addition to pricing, we also benefited from lower commodities, which more than offset the impact of higher freight and manufacturing costs, along with lower volumes. Selling, administrative, and research expenses for the first quarter were 53 million, an increase of 5 million over the same period in the prior year. The increase was primarily driven by higher people-related and consulting costs as we continue to stand up our team and separate our functions from Cummins.
Joint venture income was 10 million in the first quarter, an increase of 2 million from 2023, primarily due to strong performance at our joint venture in India. This resulted in adjusted EBITDA in the first quarter of 80 million, or 18.8%, compared to 79 million, or 18.8%, in the prior period. Adjusted EBITDA for the quarter excludes 6 million of one-time stand-alone costs and excludes 4 million for the same period last year. We believe these costs will be in a range of 10 million to 20 million in 2024, an increase from our prior guidance of 5 million to 15 million.
These one-time costs primarily relate to the establishment of functions previously co-mingled with Cummins such as information technologies, distribution centers, and human resources. Adjusted earnings per share was $0.60 in the first quarter of 2024, compared to $0.67 last year. The decrease was primarily due to higher interest expense incurred from debt issued at our IPO in May of 2023. Adjusted free cash flow was negative 13 million this quarter, compared to 37 million in the prior year.
The higher cash usage was primarily related to increased working capital requirements and the payment of incentive compensation for strong performance achieved in 2023. Free cash flow has been adjusted 3 million for capital expenditures related to our separation from Cummins, compared to 1 million in the previous year. As Steph mentioned earlier in the call, we are also adjusting free cash flow for working capital inefficiencies associated with the move from intercompany settlement terms with Cummins to stand-alone practices. In the first quarter, this adjustment is 3 million and relates to Cummins processing payroll on our behalf prior to the full separation, and we reimbursed them on 60-day terms, consistent with historical practices.
As we take over the payroll process, these cash obligations are funded as incurred. We expect these inefficiencies to impact us through the end of the third quarter of this year. The effective tax rate for the first quarter of 2024 was 22%, compared to 23.7% in 2023. The decrease was driven by a change in the mix of earnings between U.S.
and foreign operations. Now, let's turn to the continued strength of our balance sheet. We ended the quarter with 149 million of cash on hand. Combined with the full availability of our 400 million revolving credit facility, we have 549 million of available liquidity.
Our cash position and continued strong performance during the first quarter of 2024 has resulted in a net debt to adjusted EBITDA ratio of 1.5 times for the trailing 12 months ended March 31st. Our balance sheet provides us with operational flexibility as we focus on value creation and delivering total shareholder value by deploying capital for continued organic growth and strategic inorganic initiatives. In closing, I want to thank our global team for their hard work and dedication as we begin our first year as a fully independent company. I am looking forward to continuing our momentum and delivering on our strategy throughout the year.
Now, we will take your questions.
Questions & Answers:
Operator
[Operator instructions] The first question comes from the line of Rob Mason with Baird. Please go ahead. [Audio gap] And the second question comes from the line of Tami Zakaria with J.P. Morgan.
Please go ahead.
Tami Zakaria -- JPMorgan Chase and Company -- Analyst
Hi. Good morning. Thank you so much. So, the share gain you mentioned in the quarter, can you provide some color? Is that on the OE side or aftermarket side? Is it through coming from new customers or increase in share of wallet gains? Any color on the share gain comments you made?
Steph Disher -- Chief Executive Officer
Hi, Tami. Good morning. Thanks for the question. You know, I would say that the share gains are primarily coming in the aftermarket, that our share gains there in the aftermarket more than offset any headwinds we saw in market conditions.
So, that's primarily where we've seen the share gains.
Tami Zakaria -- JPMorgan Chase and Company -- Analyst
Got it. That's helpful. And then my second question is can you comment on whether you see any opportunity for your current products, especially in the coolant side, to be used in the data center end market in light of the liquid cooling technology that these data centers require?
Steph Disher -- Chief Executive Officer
Yeah. So, I guess, Tami, to answer your question broadly, we certainly see opportunity for growth. I think this week, on their call, Cummins talked about the significant growth in the PowerGen markets strongly linked to data centers. Certainly, we have product opportunities, both filtration and coolant opportunities, across that market.
And we see it as a strong growth market. I think -- I would just say that many of those applications are standby applications, and so don't drive as much recurring opportunity -- recurring revenue opportunities. But certainly, we see strong tailwinds in that market that we can -- we will avail ourselves of in both our filtration product range and coolants.
Tami Zakaria -- JPMorgan Chase and Company -- Analyst
Got it. Thank you so much.
Operator
Our next question comes from the line of Rob Mason with Baird. Please go ahead.
Rob Mason -- Robert W. Baird and Company -- Analyst
Yes. Can you hear me?
Steph Disher -- Chief Executive Officer
Yeah. Hi, Rob. Good morning.
Rob Mason -- Robert W. Baird and Company -- Analyst
Hi. Sorry about that. Just I'm just curious how the first quarter may have compared to your internal plan. I know you don't provide formal first -- or quarterly guidance, but I was just curious how it compared to internal plan.
If -- and if there's any thoughts you can maybe give us on how you think about seasonality as we start into the second quarter?
Steph Disher -- Chief Executive Officer
Absolutely. Thanks, Rob. So, firstly, I would say slightly ahead of expectations on our first quarter, mostly driven by our market share gains in the aftermarket that I spoke about. I'd say our price expectations were broadly in line.
Market expectations overall, broadly in line, but certainly, I think slightly ahead because of the share growth in aftermarket would be how I'd encapsulate the first quarter. As we look ahead, you know, I've given a bit of an outline to the markets and how I see 2024 playing out. I'll just start with first-fit markets for a moment. Really, the only change since our last guidance is the increase in our guidance on the heavy-duty truck in the U.S.
markets, aligned with where our customers are seeing it really, but, you know, moved up from down 10% to 15% up to down 7% to 12%, with a midpoint of 9.5%. So, that's really the only change in the first-fit markets. I would say we see that impact of declining markets in first-fit really starting to impact in the second half. It's a little earlier than that in Europe, but we're less -- we've got less exposure on first-fit markets in Europe.
And so, that's the first-fit side. If I turn to aftermarket, I talked about -- you know, this is predominantly -- I guess the U.S. is a heavy market for us in this regard. I talked about the Cass Freight Index through the first quarter, down 5% year over year.
We certainly saw that moderate throughout the quarter, and the March month was down more like 3%. So, we are certainly seeing freight activity starting to, you know, improve year over year. And the comparables in the second half of the year, as you know on aftermarket, because of the significant destocking through 2023, are much lower for us. So, we see aftermarket through the full year at around 0% to 2%.
So, a flattish market, I guess, is the best way to describe it, with the trend starting to lift here through the second quarter and then moderate through the rest of the year gradually is how I would describe it.
Rob Mason -- Robert W. Baird and Company -- Analyst
Thanks. That's helpful. Just as a follow-up, I noticed there was a revision to the separation cost outlook for the year. How were you thinking about, you know, as we go through this year, you know, completing all those activities or what might extend beyond 2024 and just maybe the reason the costs went up this year?
Steph Disher -- Chief Executive Officer
Yeah. Thanks, Rob. I'll just give some context about the overall separation, where we are on that journey, and what we see ahead of us. And then I'll let Jack talk to the sort of sequential story and on costs, separation costs.
So, if I just -- you know, it's been a significant undertaking as we step out of Cummins, obviously, the IPO in 2023 -- May of 2023. We completed the full separation from an ownership perspective just here in the quarter. And we have a number of transition service agreements in place with Cummins to continue to provide a level of services. The original approach to those services was that they would run no longer than 24 months from IPO.
We are about 55% of the way through those transition services agreements or winding them off if you like. A significant amount of that happened in this first quarter of 2024, and we expect to be majorly done through the -- by the end of 2024 effectively. I'll let Jack just talk to, you know, what drove the revision for the 2024 costs and the timing of this.
Jack Kienzler -- Chief Financial Officer
Yeah. Thanks, Steph. In terms of the revision, it's really pulsed by timing of certain projects, Rob, in this case, largely associated with IT systems and ensuring we are balancing, you know, switching the go-live on those systems with, you know, risk mitigation. And obviously, there's a cost element there.
But want to make sure we get the transition right in order to optimize the business moving forward. As a -- in terms of sequential move, as you noted, it was 6 million in the first quarter, which, I would just say, indicates that, you know, the majority of the anticipated 2024 expenses were incurred in that first quarter, and we should see a moderation or a tapering as we move sequentially through the year. And again, from a comparison standpoint, you know, our -- the one-time cost that we incurred last year were about 29 million, and that compares to the range here of 10 million to 20 million, which kind of coincides, I would say, largely with the progress of 55% that Steph highlighted. We do anticipate to be substantially through that by the end of 2024, with really, you know, one more distribution center to go inside of 2025.
Rob Mason -- Robert W. Baird and Company -- Analyst
Very good. Thank you.
Jack Kienzler -- Chief Financial Officer
Thanks, Rob.
Operator
Our next question comes from the line of Jerry Revich with Goldman Sachs. Please go ahead.
Jerry Revich -- Goldman Sachs -- Analyst
Yes. Hi. Good morning, everyone.
Jack Kienzler -- Chief Financial Officer
Good morning, Jerry.
Jerry Revich -- Goldman Sachs -- Analyst
Steph, I'm wondering if -- hi. I'm wondering if I can just trouble you for an update on the M&A landscape. You know, you folks are coming up on a year as a public company, and, you know, I'm wondering what's the range of M&A opportunities for you folks over the next, call it, 12 to 18 months in terms of how much capital you expect to put to work and what that might look like based on your pipeline as you sit here today?
Steph Disher -- Chief Executive Officer
Thanks, Jerry. As you know, an important part of our strategy is expanding into industrial filtration markets. We have an established team that are working that significantly. We've conducted all of our, you know, analysis of those markets where we see the opportunity.
Obviously, attractive markets for us and the opportunity for us to have a compelling and winning proposition. We've assessed -- we're assessing a strong pipeline of targets. Our team are continuously assessing that as we speak. We've worked through assessment on a number of those and have decided not to proceed with a number so far.
And really, you know, as always with M&A, difficult to predict exactly when that opportunity will present itself. The way I see this playing out is consistent with what I've discussed previously. It is really a programmatic approach to acquisitions around that sort of 100 million, 150 million acquisition price, I guess, in terms of -- as the capital outlay for each transaction. Really important that we get the right first step underway.
And at a cadence going forward, you know, you could see us doing one to two of those a year as we build out our footprint in industrial filtration. So, that's the landscape as I see it. Nothing to report specifically yet. We're working through a strong pipeline of targets, very focused on balancing -- you know, pivoting our company into attractive growth markets while balancing strong returns to shareholders.
Jerry Revich -- Goldman Sachs -- Analyst
OK. Super. And then, you know, as we think about what 2027 U.S. regulations could mean for your business, you know, you have good visibility on engine platforms.
At this point, can you talk about the range of content increases that you expect to see on the new specifications? And then, you know, part of the warranty program that's essentially going to be included, it will be a five-year-type warranty on the entire engine platform. So, to what extent could you see higher market share as a result of that essentially extended warranty on every truck?
Steph Disher -- Chief Executive Officer
Yeah. Thanks, Jerry. I -- you know, I think we are a leader in fuel filtration and crankcase ventilation. We're certainly actively pursuing all opportunities ahead of us to move on to new platforms.
And as we look to the change in 2027 emissions, that's been a big focus for our sales team, our OE sales team. We've secured those platforms with Cummins. And as you would expect, without going into all the specific details of this, rising emissions regulations gives rise to more significant content for filtration products because the complexity that's required in those filtration needs. So, we certainly see that with the 2027 platforms that we're on, and we've had, you know, really strong wins in the fuel filtration and crankcase ventilation space.
In terms of your question about, you know, warranty and ownership, we really -- we see, you know, a very high aftermarket retention in that first owner. So, certainly, the way I would have you think about this is as we see extended periods of warranty, I would expect our aftermarket capture to extend would be the trend I would see associated with that.
Jerry Revich -- Goldman Sachs -- Analyst
Thank you.
Operator
Our next question comes from the line of Joseph O'Dea with Wells Fargo. Please go ahead.
Joe O'Dea -- Wells Fargo Securities -- Analyst
Hi, Good morning, everyone.
Steph Disher -- Chief Executive Officer
Good morning, Joe.
Jack Kienzler -- Chief Financial Officer
Good morning, Joe.
Joe O'Dea -- Wells Fargo Securities -- Analyst
Hey. Wanted to -- just wanted to touch on the aftermarket share gains and sort of talk about your approach to that a little bit. I would think, in terms of like-for-like replacement, you know, the incumbent has the natural advantage. And so, when you're gaining share in the aftermarket, what efforts have been going on there, you know, whether that's introducing new product to more broadly sort of compete, what you're doing on the pricing side, and any quantification of how much share you think you're picking up?
Steph Disher -- Chief Executive Officer
Yeah. So, I would say there's a number of things driving aftermarket share. And as you think about our strategy of accelerating profitable growth in the aftermarket, that pillar, it has a number of focus areas underneath that we've been very disciplined in working on, and we're starting to see those many initiatives, I would say, come to fruition. And so, the first is just making sure we've got a highly capable distribution network that is very focused on aftermarket customers and having product availability where we need it.
I think I've mentioned this several times before, previously, our distribution centers were intermingled with Cummins' supply chain management. Cummins is predominantly a first-fit market, and so that meant we weren't focusing on our customers in the right way in terms of their availability needs in product. And we've just been able to capture gains because, actually, our customers preferred to have our products. It was just we weren't putting it where they needed it to be.
So, that's been a big part of driving our share gain. It's been predominantly in the U.S., I would say. But also, we've seen that across other markets across the world. So, that's the first thing, I would say, is seeing that come to life.
This strategy of winning with the winners and partnering with those that are successful in growing their share, I would say, that's playing out in our market share gains in aftermarket as well. So, you know, we see that we're partnered with those that are really capturing share as well, and we're seeing the flow on benefits of that. In addition, I would say there's a number of other initiatives that we've been pushing on the aftermarket front. We have revamped our branding and marketing around our Fleetguard brand, starting to see that in the filtration science capability that we have that, you know, competitors are not able to match.
And we're starting to see the benefits of that flowing through as awareness, you know, increases across our aftermarket. So, I wouldn't point to one thing ever in aftermarket. This is about doing a lot of things well. But if I was to lean to where is most of it coming from, it's really tailoring that distribution and availability network to drive outcomes for our customers.
Joe O'Dea -- Wells Fargo Securities -- Analyst
I appreciate all the details. And then also just wanted to ask on the aftermarket outlook for the year. It seems like the quarter trended in line, maybe even better than anticipated, but if you can comment on that and sort of what aftermarket revenues did for you in the quarter. And then in terms of what you're seeing the rest of the year that would lead you to think that, you know, maybe it's a point lower than what you previously had in terms of the outlook?
Steph Disher -- Chief Executive Officer
Yeah. So, I guess without laboring, I think the quarter in aftermarket was stronger than we expected, largely due to these share gains that I talked about. As we look ahead to the market outlook, we really are, I guess, relying pretty heavily on the external market sources. The Cass Freight Index we've seen, that's a pretty reliable source for us as a predictor of the U.S.
market and correlated pretty closely with our aftermarket revenues. So, as we see freight activity increase, we tend to see our aftermarket, you know, revenues follow that. And so, that -- they have -- the Cass Freight Index have revised down their outlook for the year. They're slightly softer Q2 and a slightly softer Q4 is kind of the way that played out from memory.
I think Q2 will be interesting to watch here. And, you know, as we monitor our guidance and outlook for the future, as -- and we see Q2 hopefully move freight activity more into positive territory year over year, and so that will be an important sign for us as we look to the health of the aftermarket throughout the rest of 2024.
Joe O'Dea -- Wells Fargo Securities -- Analyst
Thank you.
Operator
Our next question comes from the line of Bobby Brooks with Northland Securities. Please go ahead.
Bobby Brooks -- Northland Capital Markets -- Analyst
Hey. Good morning, guys. Thanks for taking my question. So, just kind of starting with switching it up and wanting to talk about the first-fit, you know, could you discuss how the share gains within the first-fit market have progressed now that we are, you know, almost one year post the initial split off from Cummins.
I know, Steph, you mentioned a win in the -- in your prepared remarks. Maybe talk about that road map of winning that contract. Or maybe more just broadly, have you felt you've made inroads with those larger OEMs who previously wouldn't use Fleetguard in their first-fit production because they looked at it as helping a competitor? Were some maybe still not willing to engage pre-share exchange since that ownership? And I'm sorry to interrupt, but you go ahead.
Steph Disher -- Chief Executive Officer
No, thank you, Bobby, for the question. I appreciate it. You know, firstly, I would call out, as you noted in my prepared remarks, obviously, it's always tricky to work out how I give you a sense of this in advance while managing commercially sensitive information. So, I'll do my best to straddle that.
I will emphasize where we're seeing wins here is where we have clear technology advantage, right? And so, on the fuel filtration side, on the crankcase ventilation side, we are seeing more and more wins with our customers on that first-fit side beyond Cummins. And so, I referenced one that we've won recently that has driven, you know, gains for us in the North American market and in Europe. So, that's been a great win here. And then I would say we've made really good progress with the initial discussions with other target growth customers.
And I'd say they're not only U.S.-based but also in other parts of the world, we are making very good progress. We have invested consciously and deliberately in our sales team to increase the resources there, focus on canvassing and winning this business. And so, hopefully, as we move ahead here, you'll -- I'll be able to see the profits of that effort and also be able to share those with you, probably not in advance of them, unfortunately.
Bobby Brooks -- Northland Capital Markets -- Analyst
Yeah, no, I can definitely appreciate how that works, and thank you for the color there. And maybe just sticking with that, you know, obviously, with my discussions with investors, one of the things that I think people are most interested in and positive on with Atmus is just your high aftermarket exposures. But to flip that back to the first-fit, am I right in thinking that you could make notable new first-fit wins while keeping that, you know, 80% aftermarket weighting? Like new -- like winning new first-fit job doesn't necessarily mean your aftermarket exposure drops, I don't know, say, 70%, 60%. You can still win those -- make notable wins while keeping that high aftermarket exposure.
Steph Disher -- Chief Executive Officer
Yeah, we certainly see that flywheel impact. I'll just make a couple of comments on that. We're very focused in our first-fit activity, that we're doing that where we have a technology advantage, where that also drives further aftermarket growth. We already have a significant installed vehicle base, which continues to grow our aftermarket naturally anyway from the installed base that is out there.
So, I think that 80-20 is about the right mix for our business. And certainly, while we're looking to grow both sides of that, I think the mix holds.
Bobby Brooks -- Northland Capital Markets -- Analyst
Terrific. That's awesome. And then maybe just last question for me is, so in my view, one of the most exciting parts of the Atmus story is, you know, being able to reinvest in the business after years of being, you know, a Cummins cash cow. And you've previously talked about some exciting reinvestment initiatives such as the fully automated manufacturing line and your France facility.
So, could you just maybe discuss -- and curious to hear Jack's thoughts on this as well, but can you just discuss maybe early learnings from that specifically, and maybe more broadly, how the overall reinvestment programs have progressed versus expectations and, you know, just generally, any early learnings from them?
Steph Disher -- Chief Executive Officer
Jack, do you want to take this one?
Jack Kienzler -- Chief Financial Officer
Yeah. Sure. So, I think -- thanks for the question, Bobby. I think, absolutely, one of the key initiatives for us as we, you know, move outside of the Cummins environment is to make targeted, you know, capital expenditures to increase both capacity and to accommodate growth initiatives as our sales teams engage with customers and we work to meet their expectations.
And so, you know, you highlighted one of those, which is in our Quimper, France facility fully automated green cartridge line. You know, it is the first fully automated line that we put in. So, of course, there are some learnings there, but it's been a really good to see that now come into -- largely into full production, which has allowed us to continue to meet our customer's needs and then potentially leverage those learnings into other markets as we continue to win new business. I do think, you know, the range of 2% to 3% is still largely what we're thinking from a capital expenditure standpoint to accommodate that top-line growth.
But as we identify new opportunities, we'll continue to assess, you know, as -- where we need to invest from an organic standpoint, on top of all of the initiatives that we've discussed in the inorganic space.
Bobby Brooks -- Northland Capital Markets -- Analyst
That's terrific. Thank you very much, Jack and Steph. I'll jump back in the queue. Thanks.
Jack Kienzler -- Chief Financial Officer
Thanks, Bobby.
Steph Disher -- Chief Executive Officer
Thanks, Bobby.
Operator
Our next question comes from the line of Andrew Obin with Bank of America. Please go ahead.
David Ridley-Lane -- Bank of America Merrill Lynch -- Analyst
Hey. This is David Ridley-Lane on for Andrew. You know, you had very good growth in the independent distributor channel last year. I wanted to just, you know, see if you could share some of the most, you know, relevant stats for you.
Is this about signing up new distributors? Is this about initiatives to kind of grow share within the distributors? How are you, you know, getting this kind of market share gain as that has continued here in the first quarter?
Steph Disher -- Chief Executive Officer
Yeah. Thanks, David, for the question. I would say, really, it is a bit different by different region is how I would best describe that. You know, we see that we've got the best footprint in the U.S.
to service, in particular, our on-highway customers with our established partners today. So, I'd say that's a very mature, established, well-operating distribution network, very capable distributors. I talked about being partnered with the winners that are also growing their share and how that has a flow-on consequence in the U.S. aftermarket.
So, I really think that's about doing it better largely with those customers, although there is some expansion opportunity. Whereas in other markets like Latin America, for example, we really see an emphasis on expanding that network of distributors, growing those consciously. And we've seen the significant benefits of that coming through the aftermarket as well. So, tailored region by region is how I would describe it to you.
The way I would think about it is those where we've got mature, established, capable distributors, and we're really looking to be partnered with the winners, and doing that really well is the focus. And then in other regions that are growth emerging regions, really looking to expand a capable distribution network quickly to support our profitable growth in the aftermarket.
David Ridley-Lane -- Bank of America Merrill Lynch -- Analyst
Thank you. And, you know, now that you are formally separated from Cummins and with an updated board, do you have any update on sort of the priorities for free cash flow or possible cash return to shareholders? Thank you.
Steph Disher -- Chief Executive Officer
Thank you. I did make some mention of this in my prepared remarks. The way I think about our capital allocation is, first and foremost, our focus is on funding our growth strategy, both organically through our core markets where we still see significant growth opportunity, and inorganically as we expand into industrial filtration markets. After that, we certainly are assessing now what return to shareholders would look like, both in the form of a dividend and in share buybacks.
Obviously, that's a decision for our new independent board. So, we're working through those discussions with them. And, you know, we'll be able to provide updates as and when is appropriate on returns to shareholders.
David Ridley-Lane -- Bank of America Merrill Lynch -- Analyst
Thank you very much.
Jack Kienzler -- Chief Financial Officer
Thanks, David.
Operator
There are no further questions at this time, so I'll turn the call back over to Todd Chirillo.
Todd Chirillo -- Executive Director, Investor Relations
That concludes our teleconference for today. Thank you all for participating and your continued interest. As always, the investor relations team will be available for questions after the call. Thank you.
Operator
[Operator signoff]
Duration: 0 minutes
Call participants:
Todd Chirillo -- Executive Director, Investor Relations
Steph Disher -- Chief Executive Officer
Jack Kienzler -- Chief Financial Officer
Tami Zakaria -- JPMorgan Chase and Company -- Analyst
Rob Mason -- Robert W. Baird and Company -- Analyst
Jerry Revich -- Goldman Sachs -- Analyst
Joe O'Dea -- Wells Fargo Securities -- Analyst
Bobby Brooks -- Northland Capital Markets -- Analyst
David Ridley-Lane -- Bank of America Merrill Lynch -- Analyst
