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TNC Tennant

Participants
William Prate Investor Relations
Dave Huml President and CEO
Fay West SVP and CFO
Chris Moore CJS Securities
Steve Ferazani Sidoti & Company
Call transcript
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Operator

Good morning. My name is Debra, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's 2021 Second Quarter Earnings Conference call. This call is being recorded. [Operator Instructions] Thank you for participating in Tennant Company's 2021 Second Quarter Earnings Conference Call. Mr. is meeting today's Beginning William Prate, and -- Planning Global Director and Investor of Analysis Company. Financing Relations Financial Senior for Tennant Mr. may conference. begin you Prate, your

William Prate

Company's conference Good quarter Financial Senior Planning you. morning, and and Global to Thank Investor Analysis Relations. everyone, Director of XXXX I'm call. Tennant earnings and William Prate, welcome second

On will Vice will Vice Dave and remarks, Investor conference and Dan CFO; is you are available will today we investors.tennantco.com. Fay and website President me second and on and slide questions. Global Tennant's President quarter brief their we the CEO; guidance call Dave our cover and President at Senior open a today's you this to Fay call our enterprise strategy, regarding our Joining Relations accompanies our for will Huml, West, update After of Operations. our call, on Please operations Senior performance the Glusick, financials. XXXX. note and presentation

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

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

GAAP these to includes release and GAAP measures XXXX a our reconciliation quarter non-GAAP of Our comparable second the measures results. earnings

to Investor this Our over morning Wire our turn is was investors.tennantco.com. earnings issued also website the at I posted call now Dave. on via Relations will and release Business

Dave Huml

joining and William, today. thank Thanks, us you, everyone for

despite markets our and impacted the chain and recovery which overall across widespread commodity we our constraints saw cut fully Our demand. inflation industries geographic results business to the reflected of quarter customer that meet global in ability second across supply number increase QX a

of parts enterprise the issue material suppliers supply in actions teams you own our increase inflation, have is strategy. the parts customers. our steps managing teams expectations and some model was we help the actions improvements wherever upon current we exceeded availability, serving and effects possible benefit To costs, level to of cases, the labor through of are the QX, component the otherwise as while environment, macro these In customers. of to the I our and to to the challenges our material these our also our labor, their production, will needs address to our response, availability, as headwinds of strategic macro walk will take our made challenges or of had now demand chain most result continue the the to of some which manage such freight mitigate greater we've our partnerships and availability. minimize operating challenges from leveraging part While shortages for In impact expected. taken initial than of build strategic have logistical

additional smoother additional are the quality product teams to demand sources not To developed address our to secure are parts plants the running, our us to but in suppliers customer To parts year, second provide find forecast demand, material to our also increased inflation, demand. longer only and term strict in These meet also design and working fully. our diligently controls. allow alternatives developing go identifying process possible, and, all lines engineering plans drive have more the parts smarter strategies same machine. maintaining We to material a vendors plans and while supply reduce to help manufacturing time, manufacturing our inventory use securing keep ensure better teams that to of half to operations partners each the our to value and help align to At leverage sales develop we scale. where into and continue the robust consolidating

material Our will can foreseeable felt operations enterprise of higher manufacturers had manufacture To to region-for-region This by around freight the and lead helps minimize constrained but ensure our to pressures to and us and current manufacturing. future. ways to and deliver that the appropriate to not as help times. costs, This teams persist to one part industrial up challenge regularly with every local-for-local expect finding manufacturing markets effort world prioritize R&D of freight are that started remain headwinds are our given allows entirely resin, we already making value reduce the the we that the and quality strategy, innovation. significant while costs. Today's running and a which transportation market, proposition products is maintaining and our fortunate we we that supply our we impact for lead closer lines represent address that are in does customers, inflation, offset of products chain steel, our

effort in every fulfilling market rewarding and providing by Regarding wages specifically attract our labor we making and talent in competitive by are manufacturing areas, environment. shortages, to new safe, the work a staying adjusting

financial that our this on implementing offset strategy, customers, the are costs are maintaining At we the in are year not equipment, time, to to of processes, respect investing our our same appropriate internally. cost sold, With serve of enterprise some our We fourth help we benefit that meet goods our are needs the year to thoughtfully we ability targets. carefully while of we the and increases and our also also challenges of to our also price systems are managing level business, allows the a to facing where drive productivity. S&A to in deliver and the us overall in able the full quarter and invest will increased that absorb

time plant product response macro current at market I price value be to is their dynamics. internally in year our our practice market global this this part non-core key compelled and challenges. helped engineering, a increase approach strategy portfolio, divesting continue regions. simplifying of The as Tennant, and the addressing These countries proud made adjusting their our the for improvements are normal our markets of facilitate efforts post-pandemic operational we to businesses, these specific response to as not action improvements optimization, of enterprise current a recoveries. include: challenges teams navigate for we’ve to take While our go-to-market have in various in extremely

safeguard customer experience deliver on focused on to longer objectives. actions decisive commitments, while our and our financial taking the are We business remaining term

challenging year will our and industrial cleaning supply will Fay effective As full reflects that chain discuss, assumes and and growing management environment operations the long-term for confidence of continue. our a our continued global commercial guidance recovery

management our enterprise While overall that, a customer execute cost financials. focused the material parts call remain the and strategy our on vigilant of in Fay over will we inflation, continue turn delivering and against costs, issues to in for I With of experience. to availability the face possible discussion stay will our freight we higher best

Fay West

Thank Dave, you, hello, everyone. and

Asia-Pacific, XX.X% negative sale including favorable business divestitures, of quarter, Africa; which period. shortages. including Tennant of Europe, or the driven XXXX, X.X% organically, America the which parts Americas, chain orders as restrictions divestiture foreign in and business, categories Sales product both year-over-year, the X.X% labor divestiture and higher supply Middle Asia-Pacific XX.X%, Tennant which foreign America, strength first customer lapped XX.X%. includes with the at reported XX.X%, despite Americas X.X%. related Sales North of Sales the backlog second pandemic-related by X%. quarter EMEA, growth in normal a primarily global which growth of with includes rose effect of the EMEA in categories. effect effect across or company Organic of other were all managed of quarter XX.X% impact the growth XX.X% and the in exclude In effect as The currency Australia, the a X.X% the year to ago all a all sales across the exchange categories product of order Group foreign million, in a decline of constraints net company's Strong including with XX.X% AMR covers availability impact in of and North across increased sales geographies: East, increased impact in the and and across organically, product Latin Asian American the of a large company's results effects negative channels year-over-year the currency increased and exchange coatings resulted were a all eased. exchange X.X%. For of organic Australia a sales, countries the levels all end and up including robotics in Latin XX.X% strong, $XXX.X sales related China, Japan, foreign America; into of a region which and to and three markets. than and

China due flat was year-over-year, organic were quarter, the parts results limited which in During to availability.

saving adjusted and pandemic. credits margin and were to both of which in measures Reported compared in XX.X% margins. government with impact cost the period, gross to Turning received the the included XX.X% year-ago taken response

added continue initiatives. pressure discussed, also expected the a by decline These offset and start for previously to the actions the partially pricing savings other favorable related driving fourth and pricing cost costs in the were foreseeable are As impact. third future, Entering which expect quarter materials, the we freight, year, increased to of meaningful with labor, reflects and to quarter. headwinds

diluted net with cost is XX% pandemic. result million year interest $X.XX in second These of expense. lower and $XX.X compared non-operational and quarter, management by of adjusted Adjusted amortization of year-ago the the expense tighter XXXX second second As year-ago sales with direct diluted to include in was of during per actions driven decreased of or in per $X.XX and million in was taken incentives, period. share saving adjusted with reduced EPS, per share year-over-year items response were quarter quarter $X.X for million schedules, with the travel government The year-ago $XX.X the in compared S&A second the slightly which diluted excluding in compared to XX.X% sales share credits a $X.XX spending. to of work Adjusted EBITDA Net the in XX.X% income project the or the XX.X% furloughs, last share expenses was expenses period, $X.XX $XX.X quarter the or or per sales XXXX. our of compared deleverage primarily million actions period.

mentioned call, million pandemic. the to that measures we due XXXX the of $XX savings and cost of in in the our to estimated occurred response quarter XXXX saving within As second taken QX earnings actions

compared X% with recent second our tax in primarily period. law effective for in was quarter, rate, tax valuation of a the tax adjusted impacting benefit loss rate, year-ago excluding XX.X% an decrease to a of result a release As change related had Dutch discrete amortization allowance the a The tax carryovers. the for Tennant as expense

Turning sheet to XXXX, $XX.X operations mainly due million balance cash in cash business the items. Tennant second from quarter to of strong flow flow generated performance. and in

per As future the guidance. was X.Xx. for restructured greater In $X in covenants April, of million cash cash June also the had reflected prior to already pre-payment with leverage million approximately our reducing and of agreement managing within in the $XXX.X which company company the debt credit expense structure. minimal penalties, XXXX, to by interest change stated allows This and while its flexibility our guidance optimize XX, equivalents, while no X.X month,

to turning Lastly, guidance.

there our significant confidence of markets. implement challenges. chain strategy, in our and Dave our operational economic It long-term guidance our to major management's current no and recovery, pandemic-related our will ability growth management mentioned, broadening the assumes restrictions supply in effective a be also As reflects

As the share, sales $X.XX approximately guidance organic $XXX million; included amortization to certain billion and amortization questions. items XX%; Tennant $X.XX range of rate call $XXX XX%, share, expenditures follows: $X.XX the of please to million expense X% diluted of of rising excludes open $XX announcement, effective for $X.XX sales of per EBITDA full in XXXX adjusted billion capital share $X.XX tax year excludes adjustment. to million Operator, to today's adjusted that, we go and at to affirms an adjusted share the With GAAP which which net expense; in earnings ahead. as approximately non-operational per to will its per the earnings per $X.XX of with EPS

Operator

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

Chris Moore

Good few just morning, taking picture. a big Thanks for guys. Maybe questions.

by that case revenue you I to of there of I the felt think that. end 'XX, the middle the take you that just at levels was Is recently, point? Most your pre-pandemic on by beginning fiscal still of of the expectation XXXX. want could get that perhaps could the get kind approach 'XX.

Dave Huml

some our QX We we optimism -- drew experience. are from

across Our our demand a snapped fashion channels, our dramatic and across fairly across markets, back geographic in categories. product

really feel said demand within above the quarter. the that, good coming still short we expectations So it's in within the quarter. about XXXX of Having

And cross perspective, anticipating so pre-pandemic trajectory level. -- you we a into when we look are it demand being half the of at from where first the over position 'XX crossed still

Chris Moore

I I continue in it. and still Understanding improvement but Got QX? supply the characterize how this on example, the challenging for you more the that. Or ball, current to at get do mean, crystal the appreciate both into to input would visibility late no costs. you chain likely stage, -- going expect QX? it's

Dave Huml

daily I that That's question. relative our to tell great we guidance. will Yes, taken think basis. we’ve actions listen, about on a a it's the you one

supply we possible. supply got forward-looking as closely we to very as to trying challenges our working partners to down our best in demand interested and as with quickly So for understand are they close backlog are overcome. that our as working what chain well a are forecast very We’ve

We we and chain constraints guidance. the supply are have our acknowledging operations, reflected in and in the of that’s that reality our

sort when occur, on view foreseeable the future. we forward-looking see the in don't recovery So of could recovery

get we I it's acknowledged the a quarter will the taken as to things we fully And to has reality will that have tell anticipate tell. address can so forward. us actions challenge to I’m you don't really being of we improve, the projecting that into and today for the always in go proud just challenges I are And of aware issues see the want when team of guidance. forward-looking our a difficult we

Chris Moore

products Got term there. of maybe And what’s you standardization And goal made progress it. just where reduction longer strategy, Appreciate focus, huge a are terms to terms in of is the of Can SKUs? -- overall of on the a that. maybe enterprise of there? just kind talk really lot obviously, of kind you what the in

Dave Huml

Yes.

we’ve So enterprise highlighting the across and our is made components strategy, fantastic portfolios. one you're which optimizing progress our of

We’ve we've about had be and end as we not got continue striving pegged of some are that moves to within businesses, From I’m we’ve enterprise and models with across to a the significant to to we're at You internal accretive the level we've divest you're to an public progress exit non-core achieve. product the targets are standardizing businesses to last look at been made our a business. months, not some for where made go-forward. the we process, going were we that that reduction standardization value and themselves, we portfolio. also progress. use products We've over both It our a process. in and made. us model to focus models, that made if components. in standardizing engineering XX% use, our mentioned progress then products the and facets, two more common not that XX done sure our process harmonize will across individual We’ve We’ve ever but We’ve portfolio the where we fantastic

change proud product are That refine offering. We which important and new At think our that. that products, the portfolio. to SKUs our portfolio, innovative was same are step note, new time, continue we into we launching of represents in I a product to it's

and cycle life those in a of enhancing offering balance new existing by are portfolio our So, innovative of and the really, then portfolio. the products we streamlining it's pruning launching, the our product, our

Chris Moore

guys. line. back I Got it. appreciate helpful. I Very in it, will jump

Dave Huml

Chris. Thanks,

Operator

Sidoti [Operator the Steve Instructions] line & next comes from Company. with of Your question Ferazani

Steve Ferazani

morning, Good everyone.

supply way the terms the year? in you in everything pushing right sales quantify you generate you're that? to think supply the need supply because those that chain about with. we didn't challenges any are dealing this do chain to You of challenge? of in Can chain how Or -- quarter talked about So of you

Dave Huml

quarter obviously backlog back chain where Yes. this, significant our to we operational in experiencing It's that supply has challenges, snapped above grown. a expectations, are and quantify. one a I will you tell and our demand tough

-- so dimensionalize to will I And that. try just

about Xx levels. is normal Our backlog

dramatic we about to able hoped in we other think were in the supply the to due to on spoke you we that, that's the number have to service have chain that the challenges constraints not so the and that's would that of customers the And a increase script. and that quarter

Steve Ferazani

Okay. terms of haven't That’s helpful. And prices, in then I you of to so. do know raise -- kind wanted to hesitant you're

about by margins you you that’s the on something might Now Can it that talk to do forward timing with. response what QX? like customers sounds move from and the that will

Dave Huml

Yes.

we wanted impacts Let a It in are of It's about other very and doing haven't price, to like selling your things. because time price, raising that relationship. couple there's from me your we away it selling raise take innovative that. organizations organization not selling One, takes activities respectful or price customer new products.

perspective. a put -- is command it's able thing to so the we that price through, increases are a And premium. from But we to make that great price sure we’ve financial

We are sure the a fantastic we’ve command we publish. that value a premium-based that product, to can and We’ve make we premium proposition.

stick So sure it's can sell and we want not make with in We it that hesitant it in make to that are our price. put to customers. we

said feedback and surprised. think are We don't opinion. obviously we this it. increase, are tell just challenges. announced, is about challenge we’ve market be I a having would gauge within announced so that, I anyone we’ve my recently facing The So customer our price that that early is that it's just macro you, implemented increase. will business to

customers market these the are broadly challenges. and our of aware So

the fantastic in in demonstrating have They I’m the really selling will carry we our So they'll of to to that weren't customer-facing price our deliver with sales can increases. surprised a and conversation organization I the of they with that expecting do they'll if -- having proud it, service think add, job stick I about we And the value this I price message. this have customers. be think just don't increase, and

Fay West

The don't quarter. price really the expect just one these thing I to a impact we increases while add due until recently announced we would that, current backlog, fourth meaningful is the

Steve Ferazani

Right.

So the not you repricing are backlog?

Fay West

Correct.

Steve Ferazani

given cash little quarters? enough. are keeps sheet Obviously, the topics of couple uses the balance Fair a about how next switch of improving environment, you To over the thinking Okay. bit.

Fay West

our our foremost and And So haven't our capital and remain to strategy. enterprise changed priorities against growth really in same, execute the allocation to first reinvesting is drive dramatically. business

number that's X. So priority

also balance want X.Xx to to leverage and our stated we flexibility managing because with would are we we We the optionality. be target sheet as as maintain need of financial to of the that X.Xx well that like

We is our continue our dividend value shareholder And capital history way to M&A. flow. then potentially and shareholders cash support always lastly, quarterly to will we dividends, are of as opportunistically enhance and And have dividend. evaluating to through share our by evaluate opportunistically a in of we of return opportunities are we repurchases what

So those are our priorities.

Steve Ferazani

in one last launch, autonomous in the of your the recent two the you last of sales more in of that lapping given launched the first I were year, two terms one product color terms products. kind provide Can you’ve sales, marketing big any know you products? [Indiscernible] the more autonomous that in for autonomous of

Dave Huml

color some put that for me Let around you.

really a the to capacity, well was make customers with majority of took the lapping our That sold the and sure level significant that are are order. frankly, order to of proud retailers our deployed world's that, in largest last that year, time expected. we our we very So

noting since orders I customers the large that -- large worth think that were reordered. customer lapping it's the

They're seen that in. have benefits the technology point proof important have early adopters the an of the down that's think and doubling on technology. the back bought I

we for we that in last have they TXXXAMR the say in those launching of of confidence The two don't customer year, but are us since customer lapped we track. that We noticed our feedback just a products. additional interest the both are significant launched gives would both right it of approach still TXXAMR. of the volumes the products about been process and has you've levels we on talking orders the products those So fantastic. I are

a demonstration basis. that having trained of I think selling market now deployed can three the an and power have on up portfolio that range a organization is address units are global extremely we broad applications. We've our product vertical of global

operating vertical, especially of compelling an verticals. in So we customers especially TXXAMR in very gives discussion facility. important to a industrial the retail it while typically them think it entree into say, automation a about And adopting and those problem elsewhere be and it customers the the industrial at don't us facilities. their your customers worry have then playing robots important -- setting, at now all depth about excited verticals as customers because for having environment. virtually business robotics can And dynamic robotics keep through tend you helping labor our have about when walking being solves the and engage industrial important shortage, you they of keen in I’m in an to more Industrial

a try environment really friendly robotics. to it's to So in sell

We fantastic about the products, feedback are the customer TXXAMR. getting especially all

AMR. on bullish very are we So

about are the that basis, out We our gate, and bullish kudos the very future. a AMR of customers and organizations landing other customers of couple selling global proud large for still a are on in we for really large potential now pursuing right couple a of had the we of to fact customers

Steve Ferazani

Great. Thanks, Thanks, Dave. the Fay. I appreciate time.

Dave Huml

you. Thank

Operator

question have turn are Securities. the And with Since follow-up time, call to for It appears was I Chris to closing the Moore this there further remarks. of a would no like from CJS that question withdrawn. management you over line at questions

Dave Huml

be of your joining Tennant. you. our for proud all environment. again global team call. for for performing. nice the and day. teams more in this work hard thank Thank a we are Have and how concludes dedication Tennant This I I you our to extremely couldn't of in want interest their Thank challenging earnings us and

Operator

may Ladies disconnect now you lines. and your gentlemen,