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TNC Tennant

Participants
Tom Paulson SVP and CFO
Chris Killingstad President and CEO
Marco Rodriguez Stonegate Capital Management
Jon Fisher Dougherty & Company
Call transcript
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Operator

Good morning. My name is Casey and I will be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's First Quarter Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call. for Tennant you Earnings First Thank Call. Conference Instructions] participating Company's in Quarter [Operator is Mr. meeting today's Beginning Tom Vice Company. Paulson, for Officer Senior President and Financial Chief Tennant Mr. may you begin. Paulson,

Tom Paulson

Thanks, Senior Vice Tennant and Chief welcome earnings Casey. of call. President everyone, Tennant Officer quarter Company. conference Paulson, first XXXX to Tom I'm Financial Good morning, Company's and

Senior and General Corporate Chris Vice XXXX. President Cebulla, XXXX Today, are today and updated Controller; me our review achieved Andy Jeff Tennant's President recent outlook and during quarter CEO; first against strategy, Finance Treasurer; and Vice Tom we will Joining our for and Killingstad, the Stueve, Counsel. Tennant's and Cotter, Vice President President milestones of performance core

that, you for our I'll will we'll and brief up Chris First, the questions. on call financials. operations then open After cover the

to available our We our to you this until call along slides are easier this following We with of conference May conference website review it makes call XX, hope this on slides XXXX. these accompany Investor be using Relations this at for investors.tennantco.com results. replay A call. will

affect encourage Exchange Safe description We uncertainties news the our may our documents and for Commission. a advised subject we uncertainties in our statements to our expectations those we documents, release from risks please actual future company's the the risks may regarding be statements These contain of today's our that questions and before Now are with Securities and uncertainties results. the and statement, remarks this forward-looking Such performance. differ statements. materially and described and of review that Harbor to filed the answers especially to risks begin, are morning may results you those and contained in

non-GAAP we exclude Additionally, will include measures this or on call, that conference items. certain discuss

comparable There first and GAAP each measure, non-GAAP directly in both the XXXX quarters. we also were XXXX the items measure. non-GAAP most For provide

our results. XXXX release these non-GAAP first to of includes earnings reconciliation measures GAAP Our quarter a

Business Chris. over via on and website. Wire point, call this Investor Relations release this earnings morning At to our posted is the Our issued was also turn I'll

Chris Killingstad

Thank you, all thanks you of joining us. and to Tom for

first across XXXX approximately XX% organic sales the regions. adjusted growth reflecting $XXX IPC focus performance organic all net are the our our grew during grew pleased further nearly on For guidance X.X% we entered which sales an for share. the We making Tennant to geographic per generate of of earnings our success. overall very contribution million, both and basis, net operate strategies on On position totaled expectations. and to progress quarter, with from primarily efficiently Overall, consolidated intense and term the and our exceeded across period, XXXX growth, with business internal all an each long $X.XX

achieving progress during previously say first stated XXXX. We several are our devoted quarter goals on we I pleased am to that made to and the

our commitment first execution. The to sales involves

first organic XXXX. It geographic three the This highest the our second expansion quarterly Tennant growth. also consecutive all is organic is During quarter, regions. that have delivered growth drove across regions all since quarter three

excited account we this growth that quarter, begin the quarter. parts last contributed the and in would XXXX indicated anticipated of strategic performance As realize our to we benefits early to to are we of benefit those share

North and particularly service, in quarter, consumables experienced America. good the business parts our addition, growth in In

Second is with our integration work IPC.

the thoughtfully, additional revenues This a sales category in Just in but that move by organizational Since growth This and these potential had product areas strong progress acquisition that causing to Separately, we Tennant’s and quarter, beginning targets pursued another towards To X% plan. IPC approximately growth. that may forecasted synergies to additional integration broadens organic synergies. our capture and efforts. made the aggressively multiple we of on results, quarter track over business run we year ago, region, IPC, past capture identified platform. date, have ways result transaction, our a synergy channel. we acquisition we efficiencies by announced rate also expands our delivering of remain [indiscernible] diversifies have

our efficiently. global is we commitment Last year, our growth better to support our realigned to Third operate initiatives. workforce

investments made are Investments also important to our service longer We our manufacturing to improve prior impacting and year capabilities while that, prospects. profitability, operations. strategically term

plants. service field labor are and into improvements and reported continuing we profitable investments normal at our efforts we technologies by levels allowed made the historical stabilize at progress Today, continued year. in XXXX quarter, of the growth. open are the end the operations These As first central last That our service our robotics to achieve level workforce skilled in other trucks in goal and the to of our quarter. manufacturing manufacturing us our to

have improve are room we is we new continue encouraged the innovation. highly And progress to to by so course, here, Of made ensuring we drive more but fourth that far. product

So have this XXXX, moved far, in on forward we front. boldly

our made Brain artificial of our launch designed care our newly environments autonomous end company that control. for Corp, the world through is to tackle robots. possible in relationship we real announced quarter, first Specifically machine, intelligence technology the autonomous forged direct specializes operator plans This first complex floor to just an without after with

designed safety. maximize and We efficiency to to are deliver optimize cleaning customers productivity, excited a solution to our increase

models how autonomous North follow. with This to additional we markets leader reputation Tennant first and America that product and as new innovation our an into the example a be to drive vitality looking support which as solution in we global to products later are creatively sales, a measure available of index. this expansion is in year expect our We to continue drive exciting

in index XX%. approximately past goal QX our vitality introduced of reminder, revenue XXXX, products percent represents vitality XX%, index a three the the our new above was In stated years. from our well As of

how pleased our and we we've potential throughout leadership progress far steadfastly with to value made strategic our quarter first believe term robust for diversifying well XXXX. our segments supporting Our market integration remain we we a on plans IPC technology and geographic Later efficiency of to growth plan investments, go focusing work reduction, share I to pipeline, for our long solid our right new recognized new sales We the and term completing also further and committed financial that commitments balancing and more successfully customer to address cash continue and growth believe shareholders. is over, dividends enhance on organic all strategic to following: the with operating growth positioned the about across in with being streams additional product growth substantial our to progress building from are and strategy generate but this are these managing value. drivers revenue products, the and expanding the and align strengthening our of our by momentum repurchases, rest strategies on our detailed regions our our opportunities debt minded we investments, plan improving balancing the share flow, growth operating to shareholder position open inorganic model. year, and long

Tom through Now, Tennant’s quarter Tom? take I’ll first results. financial you ask to

Tom Paulson

loss. basic diluted my share XXXX references which Thanks, result, In due to as-reported Chris. net except with fully comments the calculated outstanding per were GAAP today, average basis shares weighted the to on the for earnings a

This acquired XXXX that April from IPC quarterly the financial earnings diluted performance. organic of the is non-GAAP basis. XXXX XXXX. our the include where in reporting calculated results which at a Note performance beginning per our IPC However, period on of be will share last was financial fully are Group, excluded

to we’ll our the growth. continue and sales As We're is highlighted, efforts of we to that earnings outcome beginning performance Chris efforts optimistic the year. these move as our benefit the during period reflect to through improve from

Tennant XXXX, second Each our consecutive for million, sales contributed net quarter. quarter first reported higher year-over-year regions this organic to of XXX with of the approximately XX% the For improving sales organic growth X.X%. geographic

results sales Our IPC that about of organic impact of exclude a sales and XX.X%. impact the by X.X% net currency acquisition increased favorable the

quarter first per Turning or to X.X income was million share. the $X.XX XXXX net bottom line,

reported quarter in $X.XX in reflected Our the charges X.X or per pretax of items impact share. two million results totaling the

grouped Japan, North a we look the quarter, are sales XX.X%, three up markets. China, Taking the share. million worth Europe, X.X% EMEA, earnings of quarter and sales per Africa; X.X per earnings to charge other geographic Asian and IPC the covers first Americas, America It's the or XXXX of $X.XX related X regions XXXX the comparison, to Tennant Tennant’s quarter. ago pretax in include $X.XX of a reported $X.XX expense which expanded assets organically. In million or adjusted in America; share all reported Pacific, which results and that first share Australia intangible of items, these includes net closer the Asia at and net and which or X.X Excluding of adjusted per year By East encompass quarter Latin first Americas, which clarifying the Middle acquisition. the amortization XXXX million

in improved parts first expansion North growth strength In strategic by sales organic Our business in broad continued and consumables our based and EMEA, accounts was economy. in the in Brazil reported service, driven our XXX.X% America, QX XXXX XX.X%. our Results sales of sales built XXXX in improved quarter, and reflect France, in growth up and the Netherlands organically. performance here approximately the solid on X.X% Iberia organic

driven Asia improved Australia rose performance the or Pacific X% our organically, in at business. XX.X% by region, Looking sales

impacts coatings inventory Turning to The reflects now higher a from change XX.X% well from gross to first mix business was revenue XXX the quarter. as margin, points quarter margin to basis prior the XXXX and Tennant’s in strategic negative year the compared as IPC. related gross in XX.X%, of our mainly account write-off

same through further That XXXX of progress year. first to within sales. in from of the our to X last expect as expense margin million to of or our period on guided quarter move improvement XXXX totaled range X.X% gross we and XX% X.X remain We million the X.X% or XX%. development sales Research still compares expect and

We Due was deferred year timing, quarter related guided of XXXX revenue Brain, You'll sales last to than quarter compared remain to development product R&D this of level our was new of our relationship project sales. expense higher with reporting committed we XX.X% of higher of to or first later normal projected the XXXX. support XX million this XX.X and expense or R&D to period, quarter million the and launches. spend X% the administrate recall in of spend that new during XX.X% Selling year. annual during prior to X.X% to primarily first

included XXXX million first of X.X The first charges and XXXX quarter the charges. of of XX.X of included quarter million

reflect both these and of expense sales. of administrative Excluding quarters items, XX% selling

related XXXX equals X reminder, percent a million of which quarter a first sales. IPC, as of points X.X amortization includes As expense percentage to

measure on increased result previously, level of Moving and going EBITDA, of the non-cash of important to amortization and expense before our forward, amortization impact earnings we be Tennant IPC an a the for acquisition. especially as depreciation considering will as discussed interest interest, taxes

the us our to rate the prior effective XX.X% was that and our million the Our fixed to scalability of simplifying XXXX quarter and US. first the to while of driving growth, the of measure. X.X% initiatives remain minimizing million legislation processes XX.X%, quarter the in business the first to the tax We our can of for adjusted EBITDA for in improving XX as reflecting year line tax standardizing profit operating compared organic sales. as globally volume quarter, costs model, XX.X compared These of Shifting improve committed or basis to help of manufacturing expenses. new to net areas was year every X.X% the quarter profitability our gross XXX in tax sales, or impact XXXX inflation in zero continue rises, managing ago our rate, adjusted include improve revenue driving points across increases

year to technology quarter on in Although information deliver guidance million investments new believe slightly first rate Current in totaled X.X related of full projects, guidance and and expenditures planned still tax our above of year to full compared XX% quarter XXXX XXXX quarter effective X.X we was of anticipate our CapEx in in to of to continues tooling Capital the XXXX. first product the development the reflect a rate first XXXX. ability million equipment. manufacturing in XX%,

of first used capital Tennant’s spending. XXXX from the quarter. operations first compared for for tightly million activities X.X cash We the in XX.X was operating continue manage quarter million cash to to

other debt X.X allocation, million in Tennant the of Looking reduced X aspects dividends at our our also million. paid first capital quarter cash of by of and XXXX

full moving our for outlook to XXXX. Now, the year

quarter drive As our and and Based confident momentum increasing guidance. results from stated, the to we're first generating revenue are strong strategies optimistic and growth are on Chris about we outlook enhance XXXX improvement. the tailwinds, in and our operational we currency the

compared $X.XX to we million increasing XXXX, For XX.X% to X.XX a X.XX or to sales of estimate now million, to adjusted share for X to X.X% full which the costs. per prior net are acquisition organically our to share we in to X.X% X% XXXX the range IPC range and range $X.XX X including year billion up be excludes billion, per to estimated $X.XX, year earnings by of

We are XXX increasing reported to earnings expect range year million. XXXX the the and adjusted per full range remain million share XXX EBITDA $X.XX by range X to to to gap a of the million in $X.XX of anticipated

As reminder, the and outlook call XX%. to expenditures in questions. X.X% includes XX XX% expense And of range X% of rate annual the the to especially additional we in reasonable XX any like a the to effective the capital of North in now, range would million performance Casey? assumptions, million to our following approximately sales, America, gross of in margin up range an XXXX regions, financial all R&D open tax of in strategic growth to XX%, accounts

Operator

from first comes Stonegate Management. Instructions] your Marco [Operator Capital Rodriguez from And question

Marco Rodriguez

Good morning, taking questions. guys. my you Thank for

Chris Killingstad

Our pleasure.

Marco Rodriguez

I can in surpass America. kind in maybe to in internal strategic sales accounts? could bit with And was if the execution, some what saw of little you results bit in wondering of the drivers about expectations? the a your you Were talk here saw for a that talk if strategic detail QX, did little you they quarter accounts North you this then on more the regard specifically

Chris Killingstad

year, fruition are anticipated accounts Yeah. on than talked did, would happy we hit about deals. them they Well, that results. remember probably that that We’d you if first XXXX but that through to accounts report got good strategic look impacting indicated solid growth and that number come some they our the working quarter, rest starting have to to did we earlier the and of large the to of we’re strategic in remarks and We they’re to continue say is, in We've a that should were is throughout they the of our exceed our you momentum. news expectations. we pretty that

Marco Rodriguez

had better us kind in the all gotten as to pushed on accounts you. do that lot Got of of that or had Maybe feeling recall the And you that, of ’XX give it deals as for that accounts, color backlog working I can strategic a little accounts, through that accounts, us were we bit through idea. there were of a lack you sense being we delayed the of to those Are of you a of will. conversations a somewhat? strategic regards the mean halfway I are strategic far yet kind have right of to if through? delayed word, an sort the the give may we Just any and

Tom Paulson

see current year. and in benefits would really and QX will happen renewal back we where the continue and there. can was some in believe accelerated QX in the still wins insight renewal That last business in all provide to then coming I into year. haven’t bit hoped some We QX. didn't half the we for to We even won we us the knew of back the for in the Yeah. I mean, do next up a of in year. mean that year business, that year QX I a we of have that's didn't and that felt that we of amount into fair the [ph] we business began little that half to it give ship coming start

will. So anticipate to some We have that we certainly wins. get we still more

anticipate frankly you off of one we but the we a winning have and, to time really the back we’re business do get success that the is still where a see good at It’s great in that again. we'll of at We’re year. ensuring further things but got to one start, and win you it

Marco Rodriguez

and win regard you bit, in sales of any the then taking or accounts, And as can you you're processes actual those you. part the have in little add to changed the if for to or that accounts well. execution you started talk IPC Got whether of a to if methods not maybe strategic

Chris Killingstad

changes made we our substantial think don't any I to No. processes.

our or industry the the what best mean, decides which effort us four the the to last still. accrue XXXX, is and was goes the years, Over think we're future we of strategic on material here I why beginning that organization and time in from and going is paying that's forward. impact same. see first the customer seen we’ve they a process of And have building the in the IPC than for That's all longer normal the thing any took benefits in dividends this on always spent front. not lot account now only quarter long process XXXX. in bid five can't I how We is work really the yet the that with control is

Marco Rodriguez

Got IPC I already some caught prepared synergies I thought that had remarks. additional in if sure you above said identified heard you. I communicated. Then integration, potential what in get the that that this regard to you your correctly? I correctly I’/m not Did you

Tom Paulson

mean, excess worth going fact it of more there's We're I of excess we -- XX amount, do but have identified but savings XX $XX upside. will We've correct. that amount deliver to and we a identified not we gives modest to ready synergies. million, of million million. commit in number exceeded cost in deliver that we confidence us hope we by That's in total have we're that that

little little to bit from opportunity this the but have we we slower, bit savings than of anything, year next we slower or overdeliver. like, we de-committed also but a might commented level this if year, As going come we it's not before, have a -- in it but still

Marco Rodriguez

machine the the the And helpful. with a making here just launch question, with and thinking bit on Brain, how in late of can you the launching quick undergo looking about talk Got you're you're at new the product marketing of last autonomous about the -- then you maybe it. ’XX the you’re little That's terms to how efforts in rest the will geographies? the rollout side,

Tom Paulson

business We targeted. going it's begin there that to very We will to more we the model we'll on side, splashy need typical about on out that do than but great the will will to measured that with of going we But it started will going revenue know our that's be announce be on will weren't to different -- model, be meaningful, We're this not very years could at really get confident ensuring know We going and support, get we and or to couple end side be believe is focused to but be year. do roll a we both simple roll the perform. business and the basis. it's really we're we're where a going first but stay we controlled equipment pace big we we before but if which will we market rollout, out, the a wouldn't it. not the of software

Chris Killingstad

term to is with and connections. also autonomous on second the beginning where going that early of important product have in other because from we're large strong note generate They're guided we the and And sales volumes we strategy do handful whole Brain thing a to going the the with can and forward. that's customers for so generation have and been our the focus they with interested where continue initial to vehicle that's of really adopter short the working lot efforts, a us

Operator

Fisher with comes Your Instructions] Jon Dougherty next question [Operator Company. & from

Jon Fisher

Thank Very quarter. good you. morning. Good

and obviously you on rate you've of over rate quarter the organic about line, of focusing since spoken the accounts organic ago and easier have growth The growth was renewal little renewal gets a for momentum and year for rest very strategic positively of pace. X%. outlook the negative Americas’ of year rest the and the over kind the X% a revenue Just still the year

to less figure of attractive would rest me guidance this I’m given to was itself seem I be beat year, in outlook Americas what the why the organic guess, for for trying year. than this quarter, the As less and in pretty the to increase of a out was revenue growth in

Tom Paulson

the continued did Fair hate we're and first conservative question, Jon. us numbers be did, I year. that the year. on want has to QX low finish did of trend it organically important remind overly unimportant, we is also I taking of to the hope it that think quarter. but that you is of is being really mean, increased prudent year we but current We last next break the X.X% again -- I lower with the everyone and point only being time. but our ambitious but grow don't and where QX and the least year. the QX, in basis stronger is through And make It's our typically quarter the being QX we we I year conservative, not folks up hope and I'd at we’re the that's we remind point,

Jon Fisher

the geographies is that where non-North sustainable expect Sure quarters this organic a into is all of put next have the to course think geographies year rest positive the one would this up Okay. year? just over row had major enough. that a in year you that trend we of growth, in or American then and change you of for And three now have because two

Tom Paulson

to couple we’ll of actually see QX the in organic growth. of see that top in we'll to of XX% we’ll we are see prior year. We accelerating our in think notable a of acceleration Pacific. Europe that to in We only a do all IPC percent in continue We trend the think grew see on continue and in geographies, I did in that in that it's bit it also confident acquisition. going area. very but do think have not the growth We feel Asia growth geographies, we're We the

and world So we're the across bit momentum hope better. seeing get it we a continues to

Chris Killingstad

countries, geographies was in more think biggest cost what to against I structure, is the I'm said, we the they to partly to we and maybe EMEA that hopeful year both last management some time getting the is and in importantly -- get this guaranteed, so and key to we realign going that's are our we while and come. extremely that say for rightsize trend the ever had. traction have to opportunities we've a remember in nothing's but our best And probably in in teams are did continue proud And resources they restructuring APAC

Jon Fisher

Good to hear. to hear. Good

Moving math kind and on of to for I the the is significant the different, line down quarter. under the margin of gross little with target bit a beat, kind gross come know margin but in my you did

comfort price no You year a last get a that year before you've anticipated both I lower guess because was mentioned IPC strategic that and this of those didn't costs standpoint, to raise QX you again and level maybe want I than it you on cost drag, I this of accounts beyond of kind year? there then just revenues input just, as to and as no mentioned with, from have should could year-over-year, for price underpricing materials want are that costs cost of margin. kind just worse increasing ever prices obviously sounds you're or -- categories mix in much with gross raw there's drag explore like are

Tom Paulson

to on of the pricing. to assumptions have We full little there lead. year the pressure that We have -- we we'll to in future be but to a did the we controls we're pricing. we one for okay. remain obviously. in we an surprise have accounts, see planning need is remain We issues, profitability confident additional and confident piece, by that and our ability margin The that -- it take the strategic the nature. only that But revenue. get that will inflation We steel We adequate We've in do margins. adequate our adequate we'll feel successful that don't we're mean, commented to it putting and not margins. inventory it additive to place. drain particularly The gross be in was in resins did Yeah. That's a bit quarter is I get being we feel executed any do pricing on due market. points. seeing get we our in affect had the XX did write-off in that basis one-time think gross We

other assumptions our improving sourcing seeing right are stronger true. on expectations where and to organization we're struggle our underlying performing year. our factories holding of we service All get We're seeing last plan. organization two relative We're our

So we feel has far all the as year of true gotten are our other holding so assumptions started.

Jon Fisher

the Okay. Great. just modeled. interest I then touching expense, than was that less had And on

of you had mentioned paid debt X million in down quarter. You the

a standpoint, from entire the here, wondering interest or fixed expense? cost variable Just mix interest interest what's fixed with again, rates increasing is variable base your fixed on

Tom Paulson

It the but not in credit is mean, nature. and is LIBOR fixed. It's fixed, majority a completely facility I is plus, the vast of fixed debt our

vagaries we move to inflation We interest interest rate the much. don't see continue our we're very feel feel we’ll have side -- of if we to have suffer not on of, that expense things. positioned So the well

Jon Fisher

is the much quarter the a me done going Okay. of what I fully function should share forward million Difficulty]? Great. And XX or a price during Is how guess from then share diluted assume last that plus stock count we [Technical for had question count.

Tom Paulson

Modest movements in our share count.

So the reason going an all our even we're through time buying We're year. we we see though share do don’t we move count any significant see significant any forward. as current go as we the shares but at forward for authorization, in don't back a movement not have

Operator

questions to I no there call this over closing further since And turn at time, would the like are to remarks. management for

Chris Killingstad

Thank Casey. you, All right.

QX, diversity that toward have as across worth momentum improving further work XXXX. significant you, organic growth revenue global the over year, past head into we leave it's So before we we reemphasizing and believe demonstrated we growth. we region we would encouraging committed every and In

S&A and that revenue, significant we accounts organic line in opportunities in toward would our all strategic revenue with only did keeping also resources growth and post QX for we we enhanced growth efficiency. Not expanded while We captured committed our internal expectations. aftermarket regions, refocus still with solid growth in

We our also would product we new maintain committed innovation. in investment that

investments year, index strategy meet we've we past will help balance shareholder accomplish the new dividend, and developed and our the to with are of XX% to its remainder important debt to our target the these Tennant created commitment ongoing And all organic would deliver above items Tennant its of kept reduction and our we’ll capital the consider Overall, year. that vitality non-organic growing of pursue that has investments value. the committed momentum lastly, opportunities. needs Company the customers. far with maintained a throughout continues we and Over allocation flexibility we've excited growth and relationships experience to we believe

Finally, to thank Tennant to team for of Take have everybody. whose your members to today questions. all to and continue central And time for efforts thanks our and will you I also wish your success. be across care our

Operator

And this ladies conference and gentlemen, concludes today's call.

You disconnect. may now