Tennant (TNC) 3 May 242024 Q1 Earnings call transcript

Good morning. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company's First Quarter 2021 Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call if you would like to ask a question. stay Instructions]. line please from closing Q&A, [Operator management the on for the remarks After for in you Call. Thank participating Earnings Quarter Conference XXXX Tennant Company's First today's Beginning Mr. is meeting Company. and Lorenzo President, Investor Relations Bassi, Finance for Vice Tennant Mr. you begin. Bassi, may

Good morning, Company's XXXX Relations. President, Conference Earnings Vice to I'm Bassi, and First Lorenzo Quarter Call. Finance and everyone, welcome Tennant Investor

on our President enterprise our After Tennant's our earnings strategy, and results provide Investor and Fay Relations accompanies this Fay CEO; will me the the that on questions. presentation and will performance. prepared quarter call Joining cover open we first and website. we An Senior XXXX call today and conference Vice slide to Dave President an financials. will call on our remarks, available and Today, release are update David press our are Huml, discuss CFO. West, will

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

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

GAAP and over measures a includes turn release earnings non-GAAP comparable results. reconciliation our to Dave. I'll these of call now quarter measures GAAP the to first XXXX Our the

hello, everyone. you, Lorenzo, Thank and

previous strategy. for strong delivered be discussing enterprise On the first first progress on outlook by supported our our quarter XXXX, record-breaking the from highlights of we the a remainder in strategy, our first year today, on marked beginning in of of new achieved expansion prior activated gross year a our reduce the journey our the record Building high at momentum XXXX, growth, EBITDA in year. Lapping I and full the sales and the call also quarter growth. will meaningfully net to enterprise the We quarter backlog. quarter which we organic which margin our first of the year,

pricing $XXX sales pleased it For margin quarter adjusted Pricing consecutive to EBITDA to line with backlog the fifth mix resulting and net the to and within XX.X%. an reduced the the meaningfully increased rose XXXX deliver gross of guidance. our $XX.X channels realization million quarter. and embedded first increased our sales drove setting margins. in expanded with EBITDA adjusted for XXXX, benefits of I in the margin in us million, We capturing am the during quarter, quarter, gross performance year on higher-margin full and enterprise equipment up in expectations performance our and

had on pipeline region, will the new in in our are we we confident we've continue which is strong of challenging and go-to-market a region. Based While Americas, backlog, a to a we industrial products first by that order we company, opportunity including primarily the business strong growth the vary first isolated driving geography. to In within rates our investments continue to machines. EMEA, In expansion, as made strong we as build success a we quarter. on quarter results are got reduce our

benefit. quarter see we macroeconomic continue a higher a lapping backlog and with declining were We to environment previous

to our APAC, sell half TCS results quarter growth able products go-to-market launches and year the our anticipate continued including and and year countries confidence impacted to our we of deliver in expectations, that our of demand order products. While product our to financial the latter are overall of EMEA the targets in market in below We IMOP phasing and we In we expect acquisition believe by in position on context region through strong, our investments, full for stronger provide the results timing. have for remains new and expanded our performance year in region. will quarter performance are full Day guidance, our additional the was which customer the be reaffirming.

pillars start enterprise foundation solid to execute strategy. us our Our Last a the performance new given year, strategy, on people. introduced growth, enterprise continue performance the X to year of to our we and has

approach has revenue Tennant. a we in an opportunity couple capitalize first sold services like The resource We to Robotics floor pillar, customer I'd the our on ROI. options AMR are provide our customer deliver machines. product The results point AMR company to key exclusively base targeted by bundled machine these offers improvement are been differentiated a a take we for new autonomous Tennant smaller simplifies for to you as and and change XX ROVR demand. services competitive Within scrubber. activate detection This evaluating The price solution a service the size, ROVR and from to XX our with new is drive autonomy and with powered growth. the available and XX be autonomy Interest step growth leveraging platform greater signal updates. across enhanced innovation fewer to for forward. of experience XX operation customers robot, initiatives and maneuverability, and contract pillars, machine revenue is ROVR improved all-in-one offers in designed buying and purpose-built continue to fourth anticipated moving customers The first ROVR BrainOS from specifically spaces. the the each compact of on by in strong, obstacle mobility will premium benefiting robotic result assists in It's Tennant for solution and includes our next-generation recurring

since revenue solutions products customers, designed TXXX. larger increased for are design important beyond unique in Each and in our and accelerate ROVR teams to: TXX has capacity $XXX of than products products, our Retail benefit of of our increase of XXXX; and over XX The commitments to customers the million We suite AMR variety seen maximize the industrial maneuverability the an complete two, ROVR ROVR the launch. r's meet compact a models our a appreciate applications. the delivery strategies reviewing and of more addition deployed capacity to BX. complementing from provided launch offering and that have driven while lineup is globally one, to has like manufacturing needs tailored the new ROVR XX units AMR production of will X,XXX by AMR XX and warehouse and larger customers efficiency the our

portfolio. and the to units, interest the see customer portfolio positioned with of demonstrating continue demand AMR are is drivers one potential customer growth our customer of expectations. ROI Improving We well for expanded each strong in to of adoption, we our to and deliver our across deployment the key full AMR and capabilities AMR continued

labor Within delivering a to solutions with the This small space delivering growth also labor-intensive today their Tennant while together within strategy, segment. worldwide Small products cost availability are for phase reliability. better technology have and cleaning for deliver space solve by of pillar mechanized an are international family unmatched cleaning our efficient available with represents Tennant broader i-mop performance. Plus XL Lite support embraced and its Spain. announce be Company's developer cleaning manual portfolio of innovative of of enable industry. on product largely efficiency, of Cleaning small the labor of next help and elevate advanced mechanized cleaning Tennant to our more M&A enterprise responsive performance. us spaces This Tennant's France, unlock enhance with Today, ROVR cleaning brings tools. strategic annual stake fit we already standards. challenges value, productivity customers focused opportunity our branded revenue the return.Aligned help still expertise largest of is the their that IT The customers the and will that the to presents greatly our articulated the within our service the customers and durability our for i-mop i-mop solutions scrubber financial partnership recurring innovation claimed Global, launch excited exclusivity opportunity Brazil, operational advantages we has family i-mop commercial will growth and expansion allowed of provide Portugal cleaning Brain and of products. a with Tennant with launch, right M&A including This XX pillar i-mop we the and now in branded which are products international equity expansion and to minority the prioritizes discussed Also effective range Corp the Tennant opportunities previously participation. the to our in teams strategy, strategy, with with

in region, of to by us Central ability is accretive grow our markets. access in an EMEA Europe, with Austria the and The customer base defend we Brain, countries also to to be Middle Company's cleaning addition In deepen serving and our with enhancing investments these to our of already long-standing acquisition and and us direct based announced TCS, customer XXXX. and position strengthening acquisition EBITDA the higher-growth relationships Tennant the gives TCS The our in in established distributor M&A extend our branches acquisition allowing in our expected Africa priorities, Eastern our core aligns channel East. to to in and

We growth region of innovation foundation products this enablers this team region. customer these countries knows Having quality. and has like built. one base and already TCS growing teams a these a presence strengthens TCS deploy As broader look Tennant Tennant in AMR building long-time of on key cultivated to distributor ability share and products, a forward to footprint the has in our is strong appreciates geographies experienced strong new high-growth in have market that by of in that direct and our who

hard the of to are local at full teams working and the We already on with realize our benefits integration acquisition. work

of over managed cash. year to balance and execution strength successful the due converted and cash XXX% XXXX, our we $XXX strategy of free to capital million is our financial on In flow, prudently Our strategy. net our sheet income with ending over allocation M&A disciplined

cash and positioned to aligned balance target take are to our opportunities As action strong we continue we generate our a strong flow M&A with maintain well on strategy. sheet,

about view We about upcoming details York at Day to strategy on trends more that XX. invite event with held in presentations attend will to strong innovation you our web investor strategy our the include and innovative the enterprise a sustainable competition.Operating page. to including the we team Investor and excited in of new opportunity turn and New market to and register that, call underpinned to our product us the the opportunity share portfolio attend by global aftermarket vision backed will have our and person our in about the excited additional and To an are you sets meet encourage will discussion the please to This be expanding for unique We management of our event continued With May a growth cleaning. mechanized balance to new apart sheet, for Exchange from visit with event, by members our Stock I XX mega and ROVR. for share are our products, the financials. over Fay you

investment costs significant and delivered everyone.In improvement a Thank GAAP product sales current transaction of good increase the higher mix. driven of ERP to net were quarter income and associated year period. Brain and you, due with Operating from channel year price of Tennant the morning, XXXX, expenses net first costs the was higher of favorable implementation higher in TCS. net in our an the prior realization Corp and Dave, and income the acquisition performance quarter in XX.X% million, Strong over margin in by gross $XX.X and

is implementation to a go-live on make will we project year, approach this in the progress XXXX. early ERP build implementation with track, our on phased design We of journey. the and focus continue on beginning phase and The

was expense than reduced in quarter $X.X year million by lower debt Looking beyond the during prior balances we mostly income, interest as period, operating first driven lower meaningfully debt XXXX. the

XX%. quarter the Our lower compared effective quarter in quarter. the first rate Income period, to $X prior expense than XXXX was was quarter rate, first of X.XX% the X.XX% net the the and interest for of was tax hedging year million the XX.X% decrease We option employee of prior in effective be tax that average in XXXX year in in tax The within compared to year associated exercises. rate range year tax expense benefit of income a was driven with XX.X% the to by the tax our anticipate guided stock period. full will discrete XX% prior

first XX% and period, implementation per to income for a XX.X% quarter first transaction-related year million adjusted net of was the increase. to costs, compared XXXX period. prior year share Excluding ERP prior to million in in quarter XXXX the costs $X.XX EPS the Adjusted the of $XX.X diluted compared $XX.X increased

a results. more Looking closely at our quarterly little

were net first smaller first was XXXX. mix. sales sales XXXX, price quarter higher Backlog impacted consolidated increase decline commercial X.X%, and industrial current unit. product volume in from $XXX constant and per shipped mix, in largely million, by to of a concentrated the change in period compared shift quarter channel basis, the by million organic the larger For of driven a a Volumes have large equipment, industrial a equipment. primarily specifically a totaled currency generally in product price the EMEA quarter equipment to realization our in a increased $XXX.X which X.X% and average On selling in

consumables the in SG&A to of was XXXX. in quarter grew in or service of to price sales categories and percent the and realization sales by saw other were sales, and group X includes point the EBITDA which America; attributable specifically America North to profile. compared and and of to million decreases of expense basis decreased reminder, the mix quick growth increase Americas in APAC, to in realization by the an primarily sales period. year in net Europe, adjusted and as offset prior compared profit by quarter both the XX.X% volume industrial $XX had in growth particularly of the in and quarter to a driven XXX sales compared quarter Australia Australia, X.X% million the level well XX.X% the we product America margin and in the compared volumes, Asia the SG&A of increases Australia. The sales X.X% as market to volume service company's impacted and This as markets. equipment up increased China, margin expense We in region. a first -- part volume China, parts parts Latin Pacific Germany XXXX increased East compensation mix was of the $XX.X of America, in equipment, the period. gross a sales machines, of quarter sales million million, Americas, XXXX. equipment Middle declined by a partially in XXXX million expense quarter net EMEA XX.X% as all weaker-than-expected driven incremental margin Adjusted increase in first our net X.X% The have France North offset primarily backlog higher of by into Africa by Adjusted related As sales regions: sales $X.X the following The first improvement year favorable Equipment, Adjusted Gross increases EMEA the XX%.Parts its other. direct first consumables categories. includes declines channel for consumables, to service Japan product to in period. on and covers first higher declines in $XX.X or the enterprise EBITDA. compared Equipment and driven X.X%, a year in Organic commercial EMEA. price into grouped all decreases experienced in price in and period, headcount also as the prior prior Americas in offset XXXX. and our first strategy. sales we to was product grew application North product improvement due volume and and was the was XX.X% Tennant partially which EMEA, and and incremental increase across which to primarily in X.X% a Asian higher $XX.X XX.X% benefit unit totaled Organic conditions. both partly quarter by prior declined due in from price categories: year a in contributed was Organic

million The year in the cash capital activities operating cash due in the in quarter now roughly to operating XXXX was by period. Net cash compensation ERP the Turning ago flow to implementation to a the payouts as operating as compared $X.X flat flow. to $XX.X deployment. free strong of in provided decrease first well variable related increased was year costs, resulting performance prior million in

Excluding $X.X non-GAAP costs, quarter cash free was flow the of million first XXXX. for

of meet The cash income first expect target we quarter to XXX% to period, of our and converting be tends free the free lightest to cash flow. flow net XXXX

investment our an and to strong to acquire Our provided Corp flexibility $XX.X Brain strategy, towards us XXXX, million M&A financial significant TCS. on in exiting $XX.X deploying execute million position

addition investing capital the the capital liquidity expenditures and to prioritize with to cash cash $X borrowing million continues company million XXXX continues through manage $X.X debt opportunistic strong maintain at shareholders of a the $XX.X The during million remained of of quarter. of a and share company needs, on quarter to the and operational facility. in the first returned M&A, flow unused during credit Tennant's balance In dividends strong the The effectively capacity end revolving towards also company's of in repurchases sheet. and cash balance to $XXX.X company million quarter. equivalents

net range. adjusted our leverage within X.XXx Our EBITDA targeted was

year to remains XXXX at higher-than-normal and demand continue level. we guidance. a to but to resilient, expect reduce Overall, end backlog Moving backlog the

all We geographies. anticipate our order and year-over-year are of monitoring closely growth global rates in very

operating remain investments in future We in that our prudent and disciplined for growth our us focusing efficiencies. increased will areas and position spending,

range which range share, to of EBITDA reflecting billion expense. and X% an Adjusted net adjusted in million of expense, will $X.XXX $XX rate XX.X%, of in which to capital per to million sales million adjustment amortization of that, the XX% For diluted items I an X%. $XXX to of of XXXX, growth Dave. billion, $XXX million, Tenet expenditures $XX organic excludes sales tax the EPS back turn $X.XX certain XX%, it adjusted amortization to of excludes adjusted effective nonoperational XX.X% EBITDA margin to With reaffirms for the guidance: $X.XX and following to to $X.XX

strong you, innovative guidance. our ability well deliver lapping team are Fay. our trajectory we on to The delivering Thank am position investments making In growth and global proud year are as year. I our and very a we full to are continue summary, products us of we the customers our to prior

We have we're company if heading. direction more to wish the a few upcoming events learn and our about you

hosting at In Day York open will to EF on Operator, Conference Annual With addition also Investor the York May Exchange, our Hutton's XX. we New questions. May in in go on XX the that, call please to be will Stock Global participating we New ahead.

first from of line And Instructions]. comes the [Operator of your Ferazani question Sidoti. Steve

EPS -- ahead conference all typically appreciate was sounds QX guidance is it clearly not strongest for been well very might have your feel I like a -- -- little in right now. was matched quarter. not moving detail on QX call. and is feel turn I'm you're right a have I ahead might it this the I well, of of call a of lot could the It discussion. into this repeat is here. like of well ours. like QX surprised stuff the bit your direction moving the expectations, you

guidance high area on XX% X out setting It seems numbers Your new at your growth I'm based or lot coming X higher. in out putting guidance the At a minimum, the high gross there you have you're growth something? but of you're sales next that's implies baseline spend of missing better implies a it sort there. margin of back. quarters. unless Unless discretionary you're rate, like there's X been your of quarters guidance the have is, sales

start for the your Steve, the it's year. strong would and off to a thanks record We the question optimism commentary. share We company, think for coming a XXXX. really the on performance

year. our optimism learned We've make confident we are that, that in of for And X feel a to Having hitting, and quarter strategies said got does lot share guidance. a our past so, your reaffirm we not from we've ability -- future. the the

range. strategies as came the that moving around our so, we still funded within us of quarter, positive to in world the the but forecast first the direction, guidance we activated and And a impact landing are our

was guidance, on and start And share our reaffirm so, that side. but positive to the takeaway thought it we optimistic outlook your we the QX we're delivered is appropriate from for in we XXXX

anyway? you've maintain guidance, expected and So, sales what X even given for the you seen. this the quarters. some What that it mean I again, Or your was of that out of you and of remainder year? what's maybe Is quarters there higher in back give ERP quarter? back margin that mean XX% the remaining is I is reason see changes wasn't which a the done discretionary there there you ask in than I know more X spend out implementation, growth we've margin -- in I we this is, outside in numbers

versus margins points Really, we're points Yes. you quarter-over-quarter basis quarter. are up about basis look XXX to And year-over-year quarter. when Inflation environment you expected in is strong up underlying but we the We're start. let's sequentially in the performance, lower margin than When the basis. on at inflationary talk the drivers, unpack higher XXX QX. the a

inflation to it mix our we that actions, we the productivity. closely. we're more The out dynamic, and can, and so we with we extent monitor pull watching drive levers than have cost And to are price, X while offset drive margins

we on captured good really expansion. comment our backlog. perspective, components our feel me price in a our let gross that So From realization, of pricing capturing and margin price the was around the about we're action plan

So, as price. we we realizing backlog, that relieve are

were begins be reduction units closer booked date, that As there pricing to reflect to today's less impact. will backlog

product. most the margin moderate perspective, impact to our a our margin again, first From higher of pricing be quarter. one expansion the just to year. commercial backlog component throughout impact our begins the from in -- of That's than So, reduction mix

from benefit And margins. so, we while industrial we in continue meaningfully that to our will component reduce backlog, our

a and of around the fantastic We've funnel of X of a inflation Cost We job it last And manufacturers realize out world lot taking opportunities most over We is team has margins. them cost populating the our prioritizing layered benefit in like lumpy. our a business. done to in of benefit after are resourced years. going the those. cost out aggressively cost out the

feel have long about Some lastly, a But to there. and we of can given And of the in lead good we a period, in implement But within funnel impact time them be realize. a productivity. deliver the lumpy it terms quarter.

Our particularly builds plants plants the a supply well, are investments the running product setting chain in resourcing Minneapolis in we've and that industrial productivity through across backlog plant benefit CapEx operating is our of as our record very reduction A coming Plant the in well a as benefit high made X. very levels. from adds made output of we've perspective,

of So, of we margin, have margin, ballpark our hand. in XX.X% some and And there it are when when components at we puts gross the historical. think gross really the look well you in it's at look takes you our

are there And mentioned so S&A specifically incremental investments. you

all but into will We continue invest our growth, to our to drive it's baked guidance. forward-looking

the And in to investments if year. heavily throughout gross continue like continue expect through so, make And start know we S&A we came on what We on to we we've lean from the we and the understood those growth. we the of year, margin. drivers perspective quarter, felt an to to spent

early signal that were the sounded preparing expand for may I hear It I -- production Rover. to you sounded misheard Is Great. detail signs Appreciate a And want available? that like this. I Rover. did that right? want ask to be have early should that I It about demand capacity now are -- signs and that positive. Is you Dave. try before on to on the do to do that,

performance, did product, basis. customers are robotics a adoption. from of high-end on hear response changer right be you are increase positive. And towards product, pricing for opportunity, its Thanks, heard XX because Steve. features, LiDAR you the fully robotics terms like us launched from real the demand Early right. of on devices the reaction in the full sensing. have the can Yes, we're -- customers, a the world this the moving driving XD is in light now the on customer output specifics strength Having that, long some potential lead communicating signs we the and very and its our of evaluating the relies to the think We said that game year on times ROVR production to cameras that sensing

given from in we thought customers And what it the our optimism so, how production increase versus trying to was lay output. evaluate early begin could realize potential increase can much the the our and land. a And how prudent we work we of the to output production to to quickly is understand we're 'XX XXXX have

launched not are with We the product yet.

terms We'll in around and remainder the of and in about X world the commitments lot excitement really we units production the of North of I'm in So, have QX. QX we're it in and energy the a market. to market it. launch shipping customers excited it, but America in not in out

So, activities. we given from and got customer sentiment returns really this preparing the very positive and is high communications prelaunch

great That's news.

GF the of Your next question of Tim comes line Moore from Hutton.

expansion the you beyond in the what us well started? kind remind kind demonstrations expecting have work of been you year for you the with was last position U.S. that margin how the what gross maybe and have to or start International abroad? can roughly if the press release the consensus. in on i-mop wanted pilots those of But can already think I i-mop -- maybe timing. And on sales the pretty And just the anybody I out mean, expansion amazing rollout

cleaning. we bit i-mop of for Thanks the the space on chance how Yes. kind opportunity in question. small view expand and It gives me more a a to broadly,

or offering of Tennant very customers. space geography. a that and And But of product really so, within I a It's part key contribution and interesting company we our don't product one innovation X cetera. product our the a enterprise sales given a focus space areas of because strategy. it's gives But break out a space in specific is et tell small lever.It's this new given to sales existing its specific broader in terms will offering, for new product applications you small our as channel, of of a address the opportunity within material geography it component

So on that expand let me why and say I existing. new

For building existing within cleaning their already that spaces small we're customers, have our of many customers spaces. large their

context, sale. the area. a that solution clean brake It's replace an their from restroom, food prep them you it's opportunity add-on the Mappin area, to the to an bucket, in So, give

I pocket. customers, that for new call smaller to have occupy it's on of relatively machines cost spaces. in an go an it's on large allows where those grow giving to but spaces us door sales organizations legacy our add-on lower customers cleaning So, that recently too selling sale a been our in And and our it that I has of maybe customer's a opportunity opener, accommodate call share

so, existing to introduce a effect and I including product tenant customers and customers also the halo new excited expansion new the extensions only access rest small and tenant to us first that line i-mop. of to could ancillary and lot new excitement product, France, upside around energy Brazil, for doors EMEA Like really for open of a customers space when about Spain. our it our IPC to not space but These this And portfolio, effect will it. and be countries sell sell them branded to in AMR. approaching a or selling the said, we you into that product. them to in verticals. have And sell i-mop it, product an their small of you Lots our applications, Portugal the gives This to has opportunity and of ability we're

and smaller you're be it's X.X bit maybe your stuff. years little the you into know the some us to that out. range. an line a question, I enhancement still can cost give and going to to that the And for pretty of phase more That's be about of on Is that by And plan Is more ERP it budgeting? update geographies? it modernization terrific have was how don't Fay. you going Fay, going maybe maybe getting warehouses in kind amazing you've next done my I in middle-sized if Maybe spaces color. last more might wondering

Yes.

we this kind our million and on we about about roughly, through cash would We of highlighted million So, out. our $X.X spend ERP, and we've material. the that's that spent $XX that year in anticipated quarter

So, the or quoting numbers capital. are I'm not cash, for expense that necessarily

we on what we're XXXX. to trending here were spend we on target are in we XXXX, thought for going So, --

are budget. phase the kind we've design as we are is and We and on entire The build and time line progressing of organization in Things on engaged are anticipated.

organization And the a time phased middle second line XXXX we will of have in through that kind the we of and fourth out that quarter the so, year. quarter rollout rolling next and through anticipate of starting

appreciate I That's terrific, that. Fay.

Just one question. last

of assume the mean of kind March XXXX. working quarter? is will of think I what that to XXXX and that, quarter gain as it's think and quarters free to capital I outflow, has seasonally, flow really first you the fair recoup over kind of similar a that kind next working itself more will couple I cash it looked of like capital in kind of been did the severe, be

Yes. that year the target basis. to We And came of free X quarter. the quarter the targeting lightest it's prior -- payments I in operating benefit you have it cash flow. mentioned are our our anticipate to see typically quarter full conversion compare did remarks, meet we cash cash first prepared as influencing and flow that do our that we seeing we're this a kind in and off should kind We incremental of year next flow in on operating quarters,

Terrific.

Thanks, Tim.

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

a our want to the first of we Thank on their interest all work day. for to hard a team company. Tennant's today globally opportunity in Since for thank great your recognize and deliver fantastic and company. tenant the quarter This earnings extra and to few you Have participation efforts the I all call. take minutes, you. have your Thank for concludes a

Ladies for gentlemen, and you that Thank all today's joining. concludes call.

You may now disconnect.