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TNC Tennant

Participants
William Prate Director, Global Financial Planning and Analysis and IR
Chris Killingstad President and CEO
Keith Woodward SVP and CFO
Tom Stueve VP and Treasurer
Andy Cebulla VP, Finance and Corporate Controller
Mary Talbott SVP and General Counsel
Chris Moore CJS Securities
Marco Rodriguez Stonegate Capital
Call transcript
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Operator

Good morning. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company's 2019 First Quarter Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call. for Call. Tennant you Quarter XXXX Thank Conference Earnings Instructions] participating Company's in First [Operator meeting Mr. today's Beginning is William Prate, Director and Investor of Global Financial for Company. Planning Tennant Relations and Analysis Mr. Prate, begin. you may

William Prate

Good Call. I William Tennant Jason. Thank and welcome Financial of am everyone, Relations. Analysis XXXX Conference Quarter and Prate, to Investor you, Earnings Company's morning, Global First Planning Director and

Finance Keith our Vice quarter Today, Joining and cover our After and Vice President and strategies, Vice Keith Woodward, we me today and Senior ongoing Mary Cebulla, our the and will for are will Controller; General core year remarks, first review Andy open Chris full and recent Chris Tom guidance. Corporate Killingstad, President the Stueve, Talbott, on will Tennant's progress our you President President Treasurer; of President we our and CEO; Vice first questions. financials. performance call and CFO; against up Senior will the brief during operations, our Counsel.

to slides website at call. call XXXX. on Relations Investor using replay These our will until be are May today's a with accompany investors.tennantco.com, XX, of We along available slides conference this

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

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

the each measure. comparable also measure, we GAAP directly For non-GAAP most provide

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

Business via on and website. Wire this Investor Relations release earnings morning our posted is Our issued was also

over Now turn call will I the to Chris.

Chris Killingstad

of all strategies for an Company have important a Thank is you, The been several core been unquestionably business mid-tier pursuing us. reach, our past our robust and strengthening Tennant and building you joining we to our broadening and William, address undergoing channels, go-to-market for and expanding the to years thanks geographic on diversifying ability have market pipeline. product transition. innovative growth, focused the a new

success We a have of rapidly has translated had these success the growth each as into that areas, in liked. lot would've of EBITDA as but not we

plan XXXX, and deliberately into between turning swing toward EBITDA in beginning share to reasonable in more year. are full show These expansion our this efforts balance central our is progress. As focus you as much are we we our we on new with that, a call, and component a later of They growth intend are to move enhancing strategic detail our activities. more last mentioned

During mixed but intense profitable our more began a first that quarter, posted growth. to reflect on results results focus Tennant

sales the sales posted and quarter, of was negative which Looking combination performance. a organic decline sales due Tennant a during negative net at currency. impact to in first

of primarily reflect factors. couple Our organic results a

The in market first factor, Industry due softness period. was of a is the in to a prior challenging contributing strategic account the specifically large United sales sales also level Kingdom. comparison the

performance. Looking at earnings

our factors mitigating is our is supply focused proposition value I external efforts where on on significant chain decision-making are playing Tennant. sales a EBITDA expansion optimizing our prioritizing As noted, we our previously impacting in and margins. Increasingly, more operations at focus strongest, role and our

freight the markets, Like Our XXX first factors, tight costs. tariffs, to XXXX positively labor we and face basis early gross Gross companies, our quarter. margin year-over-year. industrial jumped macro-driven impacted higher points this skilled margin efforts both continue performance including EBITDA many in quarter material and inflation

in Our our and prevailing Tennant's efforts quarter gross mitigate to from margin impact those the pricing headwinds. favorable from performance mix channel positive benefited actions,

performance expense pleased made last the our improved on to profitability all, disciplined result, this All XX% this a we margin As management, and intend year. along we gross with or with in quarter progress momentum. build basis XXX are we fully EBITDA on improvement points over by

This our know, one its month, our a As leader, new, customers, of customer Tennant Tennant application equipment our developing you of to Tennant's example strategic supply may substantial. emerging an in a all to position businesses help finding important reputation represents be is marketplace. towards autonomous and for that large, cleaning a solutions has technology Earlier their the to more run autonomous this and adoption advantages of AMR on innovation trend, safely, This solution in the efficiently and ways will and Walmart robotic an announced this with to cleaning with compelling agreement bring is sophisticated built relationship our Walmart. just as needs, innovations step broader The can creative TX customers. first case, customers profitably. promising

We robotics in mover promising and have play are by the advantage large-scale technology, at our our commercialization are and received, capitalize fully on it. role will very the how We to pleased future. TX AMRs excited first we are intend by of being we this we believe

our and among to around complete commitment for move at advantages first move to relocate the strengthening underscores future. helping to This by by collaboration efficiencies also for the first headquarters Tennant Eden this headquarters our adding to several to currently our drive of current attract half headquarters us intend the optimize We better accommodate operations and will quarter, retain this Minnesota. neighboring growth, give in Ultimately, Tennant location. move together employees location, to buildings the the additional corporate XXX announced allowing and space our current manufacturing repurpose we talent bringing our spread roughly are XXXX. to During Prairie, decision our allowing separate who

Keith Tennant's quarter Now first ask you I'll take Keith? results. to through financial

Keith Woodward

a share, non-GAAP, GAAP per on to today, references earnings and Thank In both are Chris. you, basis. diluted my comments fully

our committed emphasis across particular strength are expansion. Chris entire building As a with EBITDA enterprise we on growth and dollar stated, to

took some Most challenges. of as performance progress year. lacked growth those last illustrates of Our these as first sales in challenges accounts the the tougher we along quarter as strategic comparisons in strong form well lines

the was first X.X% included organic an XXXX, and acquisition. positive down Tennant X.X%, $XXX.X net of impact a from X.X% million. on of our reported quarter X.X% sales from translation, which of reduction That reduction a For Gaomei currency a basis plus

bottom the to Turning line.

$X.XX to share. Our $X.X adjusted earnings earnings basis, or XXXX $X.XX XX% or per grew share. reported grew On first XX% quarter million million to per $X.X an net net

margin continue to strive will moment, the more in and and As a are more progress. we quarter improvement in by I EBITDA for explain encouraged our

and in recently Walmart Now strong Americas which not to with strategic other Sales comparison cleaners important a our the let's last organic includes quarter. East in and sales Latin offset The to all Europe, Americas, the sales Asian Mexico of from into announced sales and America; EMEA, note, results. increased examine Africa; group and X.X% did America partially our Asia was America basis. challenging by region. account autonomous the for our contribute Australia significantly Middle partnership an the which reflects the contributions markets. X.X% Latin strong with covers strength activity It's We sales increase actually to Pacific, but year's and in region includes three Japan, North geographies: declined China, which on

into Onto up ramp gradually and to contribution and were this XXXX. region the year were Reported this or sales over the expect of two down X% course primarily impacted EMEA. XX% by We organically in factors.

also strategic year's the account strong some also market reflect the EMEA reflected to The the and sales in sales first, activity, channel Kingdom. last comparison Americas, EMEA the United like industry period and softness general secondly, during distributed

Looking geography or QX. of and strength sales X.X% pleased closing the the contributor across organically, reflecting up region. were to the XX.X% to forward. as happy with becoming were at performance to move the are in look we region forward Gaomei of a this January this Asia-Pacific this we acquisition them the We Reported solid region, finalize also during sales broad

Now margins to expenses. and turning

addition pointed pursuing designed broad-based this. growth, guiding we our focus address initiatives on our Chris to and are EBITDA renovation, is out, As decision-making, increasingly in to

While we year-over-year. by XX.X%, up macro favorable improvement as first The R&D decreased points at look and make, well as margin a such pricing improvements improved as mitigate and points Gross prevailing raw the the basis a XX mix encouraged progress margin headwinds of tariffs, quarter. and a we our levels. EBITDA led our sales to higher channel still material XXX percentage actions basis price are inflations positive ongoing S&A year-over-year. to gross have of was impacts efforts expense spend as more Taking to during costs. by R&D freight XXXX and

sustain and innovator that industry. we've customer remain our investing As a in to as competitive, meet position allow R&D before, levels in stated to our needs are we at leadership the us top committed

proactive of We discipline. also practice S&A continued our

flat During of expenses the roughly Tennant. X.X% were down remains S&A as and for quarter, adjusted a profitability basis an measure important percentage sales. an on EBITDA absolute

entire growth initiatives This with XX.X%. holistic during with reflects or on We our EBITDA are growth pleased to balancing strategic expansion the and XXX quarter, line investments. points growing costs up and top P&L basis our XX% focus while dollar the managing

ahead, offset activities and including other as performance, driving tariffs we operational pressures of and organic macro will look help leverage, such goods expanding working that us to managing headwinds focus the on expense. to controllable continue EBITDA improve As cost our we tightly revenue, inflation, can cost

and allocation capital sheet future Tennant cash benefit-related million expansion for balance for the support compensation employee to used flow, in inventory and first cash items. to now and primarily operations quarter, Turning $XX.X for payments. sales

and $X million down quarter, debt dividends company an in During million paid shareholders. another the in paid additional the outstanding cash $X to

we today's GAAP follows: growth stated X%; of $X.XX XXXX as $X.XX X% to with our the sales earnings of As range billion of sales year which to organic guidance, million we With billion call reaffirming in are $X.XX to share; $X.XX rate per $X.XX full diluted per in to diluted of EBITDA reported expenditures approximately to and $X.XX announcement, EPS will capital the Net is of adjusted million open $XX $XXX $XX your XX%. to million effective tax share; $XXX of million; of that, questions. to approximately an adjusted earnings

Operator

Instructions] from Chris of [Operator comes CJS question Moore Securities. line from the first Your

Your line is open.

Chris Moore

of guys. -- of when you first you is good approach a kind morning. and talk some of of Good of model Maybe to it think Hey that becoming equipment Thanks of that think taking that little questions. kind you evolving? thing increasingly seems for kind sales, like bit model's Tennant, picture, bigger a is morning think you just said, how Can important. service obviously, but

Chris Killingstad

I as really where business I look like to national think secret reasons advantage. Walmart America No, North market at competitive actually I I'd of mean, that a only can important that. -- direct well. our as is refer we an actually I sauce. the talk it to service service mean if the service And footprint, one both won have we sales and it's the you

further So and hover and service forward sales. go have -- always in XX% as plan, think direction. then business I collectively that They been we the a But strategic is new more with of drive one around to P&C model areas consumables of be the and equipment business more to how going to leverage drive emphasis parts our service see business. also we to can but

said, fair going on As aggressively and the to attractive. share. go labor that today we as grow our not to but we're interesting, more getting much the are the judgment, And extremely business our margins margins our that forward. we're we've P&C service are on strive all That's not

Chris Moore

service Is that talk more. scrubber kind revenue model anything? -- of more that to of the whole the that? important? that component the side Is Or less autonomous on maybe Does things, Helpful. of that of bit change kind important, a does

Chris Killingstad

robotic well but Right. going machine evolving, still to the cleaning increasingly all basis. with you updating it's and software -- only I the more on think having it's I judgment Well, as components, that all are service have to the place the our we important a but is used because become take regular to that not and Walmart, component

so coordination crucial service that of which as is be is our And the between front, part going on to Brain, model. us our partner and

component is space an forward. say going of I more in proposition important that would even service autonomous our So value the

Chris Moore

were Gross strong you. quite margins obviously quarter. Thank it. Got this

about that. talked different were You pieces the that driving

up the at down, -- bit? that new looking that from XX.X% become more is is important of Or a likely it to it more perhaps to strategic is it slide likely accounts back fiscal -- So a with a normal? that especially, and is little 'XX perspective,

Keith Woodward

from it's an company is versus said likely our margin a say, accretive we've Chris, it's this about is I Keith. would a cleaning slide little back EBITDA to but average, autonomous that slightly the and standpoint below autonomous What percentage. it's from bit. gross TX

and So a that there expect half, bit as of back hit well ongoing tariffs up we we start to just here little in see the ramp to as as would pressure the us. that to expect we inflation

So probably bit. we'll slide back a

Chris Moore

question. Last it. Got

the accurate? process? And kind maybe IPC of two feels It about bit. almost a like little are taking integration Just still some ago. Is of years that is acquisition a there talk if in I areas still mean which work it is, place. bit was

Chris Killingstad

I exceed we're continues France together the two has Spain, in team creating and to basically lifting teams IPC of mean, as model. IPC of Tennant expectations. integration a new lot acquisition and the I think, and the heavy Yes. of But the said, we've key the on together, and bringing U.K., team Germany, countries, operating a the our middle doing the the the

the in maybe significant. a is more And turn benefits again, right, and but to the here stages say all we kind months, we we we've are later would focused that I internally of going our last once have at as been the are outward five that of tried three, effort. that of bit to four, the little get be So over place, integration belief

Operator

come Your instructions] Rodriguez line Capital. Stonegate from [Operator question Marco from the of next

Marco Rodriguez

I strategic bit for organic if a the was just Obviously, a maybe you Just kind guidance X% given growth little real X% to you that you last strong fiscal could Maybe expectations. little that if to through 'XX. of bit wondering growth about three remaining the fold have year. could talk organic you about more out account talk of how had growth the fact you, expect of, the quarters? kind

Chris Killingstad

strategic we've we're the Yes. account strong strongest ever of very lapping No, one growth, year-over-year had.

you the we're revenue is, little we're to So but fact bit the that's and at be we going to Walmart guidance. sticking without on if that look forward, our a AMR. we And pipeline our backlog those to at base challenge. the in accretive look we numbers. the visibility But you behind quarter, the business get A will confident first can have

Keith Woodward

to going us makes Marco, that just returns I'd to that, the we to on say, also sense focused want. that out for very add and we're getting the profitability be

managing about be it just going we're go that disciplined So we accordingly. to as and forward

us and in you'll guidance. see X% our incorporated to So just continue, X% that's

Marco Rodriguez

you. Got

geographies there? about the organic your your Okay. bit expectations expectations And then you terms if could just on little the in talk a of here rates and growth

Chris Killingstad

Well, we again organic the should had of is this part in have struggled geographies growth year. we've results a there have with maintain organic year. said all which expectation. is level, three for our business of that can that it quite the That we news Good Asia Pacific first for quarter. we the that we while, strong is, growth at robust rest should sure extremely in I'm but not the

our at If has many maintain years been engine digits growth Expect last now. look in America EMEA. grown And mid-single to many, you the EMEA, years. X the that we've of in in growth kind North the for

sales decent and expectation of that our So a consistent delivering record pretty growth, organic going track is forward. it's

Keith Woodward

to coming is North The Walmart AMR I'd of add in quarter. and fourth Marco, second, other in America, third that keep mind, the thing the too, ramp-up is

So that in as region. we well us as go help will the forward Americas

Marco Rodriguez

want in kind been here rate R&D. commentary bit in marketplace, to Got you. shifting the you've a of maybe side. frame had obviously, on the decline. I you you're just kind couple a I downside where change here be of direction. but pretty little The growth kind year-over-year gears more of you of bit to last sure the understand bit far strategic and had of to has us Then help consistently of the that the of out? expense spend little as to seems competitive you sort make help Can just a for understand, the R&D? a more heard It significant that a as levels kind years, operating on

Chris Killingstad

first at to needs all in billion it's able bigger as remember but our sales, are dollars of much the now, billion, we're percent a under of X% in And with how pipeline terms I we're in so Yes. including of occasions, that meeting we also that fund product The number the budget we basically a robust fully R&D we is thing that major number on AMR, business. that of business programs, find have you're is been the sales the spending against we greatest the mean, marketplace. new as look a a higher now, right $X.X $X.X percent of are a when place.

are and we, anything of time, and the agenda innovation over serve little leader, less our single-mindedly to that never agenda, drive think to they as optimal customers gradually allow this, decline focused the our R&D But growth. bit. than will innovation our needs on our we I be

Keith Woodward

been spending lot with in largely Brain, automation of And R&D as about we're a versus $XX innovation. build spend. absolute level addressing that down differentiated point, $XX our fairly that we million, say million, exploring Marco, Chris' to robotics, it's $XX our much that areas focused those spending areas truly has from operator We're was level. kind and of We on just basically it, behind I and consistent. maybe peaked really on more million partnered needs would to back million, we're on us that took and where of the where $XX well, the with when to XXXX, $XX getting level And million not smarter

focused is the where getting returns. we're and right So at, we good feel the spending right about team the on and very

Marco Rodriguez

then And around or SG&A the number change. line, in so the on million adjusted you. Got $XX

stripped that there well out. as charge restructuring was there that, obviously, you, So

additional the of get costs million, should rate, that restructuring feel. expecting Just in type new is that next couple we or of quarters? kind a kind run $XX.X of better want Is be a to

Keith Woodward

more We attention for It's and have a [Technical to but China little Australia. rest the that year, the markets are of is bit focused restructuring the biggest. come X Difficulty] on Marco,

We operate have feet to our placed over those their the the last They're to of that. expectations, new starting ground geographies on results management teams or year in kind and reflecting both getting so. of the are and

because a through thing a volatile, we've The network, were shift that sales most and more is Europe U.S. And of other model, direct our in for distribution centers, that begun to the of go that's driven geographies more going us was major and advantaged in more and our helping effort so that and China, forward. we And also drive to like we metropolitan little especially in the as doing are where again, see that, to we're you're example, is more sales. our of

Keith Woodward

Gaomei to how market. strategic in grow of too mid-tier continue out such the then a And for that critical us piece we is play figuring in that

about So that. we're excited

Chris Killingstad

Yes.

is not IPC what to market. it's it's biggest remember, in in Gaomei We do So And are our China. EMEA, or trying results not traditionally have the doing by part the we material to we're mid-tier EMEA the in of right? in China either but access had markets yet, what China, with far, with in to

the through very opportunity So Gaomei and China is significant.

Operator

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

Chris Killingstad

team pushing value on want before initiatives Well, and to Tennant our conclude, to forward right. are deliver to global to I we All our our shareholders. innovation again members who thank customers

for time delivering today and Take committed into further you driving on care, questions. everybody. and for and value. shareholder your your move to are guidance we as excited are We our XXXX Thank

Operator

That concludes call. today's conference

now disconnect. may You