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 competitors are not able to match. And we’re starting to see the benefits of that flowing through as awareness 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 I was to link it 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: 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 are seeing rest of year that would lead you to think that maybe it’s a point lower than what you previously had in terms of the outlook.
Steph Disher : Yes. So I guess without laboring — I think the quarter in aftermarket was stronger than we expected, largely due to the 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 source of the cash 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 revenues follow that. And so that they have — the cash freight index have revised down their outlook for the year, a 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 as we monitor our guidance and outlook for the future, then 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: Thank you.
Operator: Our next question comes from the line of Bob Brooks with Northland Securities. Please go ahead.
Bobby Brooks: Hi, good morning guys. Thanks for taking my question. So just trying to starting with switching it up and wanted to talk about the first-fit could you discuss how share gains within the first-fit market have progressed now that we are almost 1 year post the initial split off from Cummins. I know, Steph, you mentioned 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 weren’t used to be got in the first bid 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 could go ahead.
Steph Disher : No. Thank you, Bobby, for the question. I appreciate it. Firstly, I’d call out, as you noted in my prepared remarks, obviously, it is always tricky to work out how I give you a sense of this in advance, whilst managing commercially sensitive information. So I’ll do my best to straddle that. I will emphasize where we are 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 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 US 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, focused on [canvasing] (ph) and winning this business. And so hopefully, as we move ahead here, 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: Yes. No, I can definitely appreciate how that works. And thank you for the color. And maybe just sticking with that, 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 80% aftermarket weighting, like winning new first-fit job doesn’t necessarily mean your aftermarket exposure drops to, I don’t know, say, 70%, 60%, you can still win to make notable wins while keeping that high aftermarket exposure?
Steph Disher : Yes. We certainly see that flywheel impact. I’d just make a couple of comments on that. We are very focused in our first-fit activity that we’re doing that where we have a technology advantage where that also drive 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, whilst we are looking to grow both sides of that, I think the mix holds.
Bobby Brooks: Terrific. That’s awesome. And then — maybe just last question for me is, so in my view, one of the most — one of the most exciting part of that in the stores being able to reinvest in the business after years of being a Cummins cash [talent] (ph). I mean you’ve previously talked about some exciting reinvestment initiatives such as the fully automated manufacturing line in your France facility. So could you just maybe discuss and curious to hear Jack’s thoughts on this as well. But you just discuss maybe early learning that specifically and maybe more broadly, how the overall reinvestment programs have progressed versus expectations? And just generally, any early learnings from them.
Steph Disher : Jack, do you want to take this one?
Jack Kienzler: Yes, sure. So I think — thanks for the question, Bobby. I think absolutely one of the key initiatives for us as we move outside of the Cummins environment is to make targeted 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 highlighted one of those — which is in our compare France facility, fully automated green cartridge line. The first fully automated line that we have put in. So of course, there are some learnings there, but it’s been really good to see that now come into — largely into full production, which has allowed us to continue to meet our customers’ needs then — and then potentially leverage those learnings into other markets as we continue to win new business.
I do think the range of 2% to 3% is still largely what we are thinking from a capital expenditure standpoint to accommodate that top-line growth. But as we identify new opportunities, we’ll continue to assess 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: That’s terrific. Thank you very much Jack and Steph. I will hop back in the queue. Thanks.
Jack Kienzler: Thanks, Bobby.
Operator: Our next question comes from the line of Andrew Obin with Bank of America. Please go ahead.
David Ridley-Lane: This is David Ridley-Lane on for Andrew. You had very good growth in the independent distributor channel last year. I wanted to just see if you could share some of the most relevant stats for you. Is this about signing up new distributors this about initiatives to kind of grow share within the distributors? How are you getting this kind of market share gain as that has continued here in the first quarter?
Steph Disher : Yes. Thanks, David, for the question. I would say, really, it is a bit different by different region is how I would best describe that. We see that we have got the best footprint in the US to service, in particular, our on-highway customers with our established partners today. So I would say that 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, we are 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: Thank you. And 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 : 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 we’ll be able to provide updates as and when is appropriate on returns to shareholders.
