Group 1 - The company Tennant Company (NYSE: TNC) was upgraded from a "hold" to a "buy" in early September of the previous year, indicating a positive outlook for its performance [1] - The focus of Crude Value Insights is on cash flow and companies that generate it, which leads to value and growth prospects with real potential in the oil and natural gas sector [1] Group 2 - Subscribers to the service have access to a 50+ stock model account, in-depth cash flow analyses of exploration and production (E&P) firms, and live chat discussions about the sector [2] - A two-week free trial is available for new subscribers, promoting engagement with the oil and gas investment community [3]

Q4 and Full-Year 2024 Results Full-Year 2025 Guidance February 18, 2025 www.investors.tennantco.com Earnings Release Call Tennant Company Safe Harbor Statement Certain statements contained in this document are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts and provide current expectations or forecasts of future events. Any such expectations or forecasts of future events are sub ...

Financial Data and Key Metrics Changes - For the full year 2024, net sales reached $1.287 billion, adjusted EBITDA rose to $208.8 million, and adjusted EBITDA margin expanded to 16.2% [9][52]. - The full year organic growth rate was 3.2%, primarily driven by price growth across regions, with a volume growth of over 5% in Q4 [9][10]. - GAAP net income for Q4 2024 was $6.6 million, down from $31 million in the prior year, while full year GAAP net income was $83.7 million compared to $109.5 million in 2023 [34][35]. Business Line Data and Key Metrics Changes - AMR equipment sales reached a record $75 million in 2024, driven by new product launches like the X4 ROVR [12][26]. - Equipment sales grew by 4.2% and service revenue increased by 8.5% in 2024 compared to 2023 [48]. - Parts and consumables sales decreased by 1.9% year-over-year, partly due to distributor consolidations [48]. Market Data and Key Metrics Changes - In the Americas, organic sales increased by 10%, driven by volume and price growth [44]. - EMEA organic sales increased by 4%, while APAC experienced a 19% decline in organic sales due to demand declines in China and Australia [45][51]. - The company noted a significant backlog reduction of $125 million, stabilizing backlog levels for future order alignment with revenue [10]. Company Strategy and Development Direction - The company aims to grow top-line revenue and expand bottom-line margins through pricing discipline, innovative product launches, and improved channel reach [16][32]. - Strategic investments in AMR and product line extensions are expected to drive future growth, with a target of exceeding $100 million in annual AMR revenue by 2027 [29][30]. - The company is actively pursuing M&A opportunities to add $150 million in net sales growth over three years [24]. Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving order growth of 3.5% to 7% in 2025, despite anticipating a negative organic sales decline of 1% to 4% due to backlog headwinds [30][58]. - The company is focused on managing costs and expanding margins, with expectations for gross margin expansion through pricing actions and cost-saving initiatives [32][60]. - Management acknowledged challenges in the APAC region, particularly in China, and plans to pivot strategies to focus on less competitive areas [96][99]. Other Important Information - The company plans to implement a staggered go-live of its ERP project in 2025, with total project costs expected to be around $50 million [61][137]. - A new share repurchase program was authorized for 2 million shares, reflecting a strategic approach to capital allocation [56][84]. - The company maintains strong liquidity with $99.8 million in cash and $449.3 million of unused borrowing capacity [57]. Q&A Session Summary Question: How does the company plan to maintain or grow margins in a declining revenue environment? - Management indicated that cost management initiatives and pricing realization will help offset inflation and support margin expansion [70][72]. Question: What were the order rates in Q4 and trends for early 2025? - Order rates in Q4 were strong, with nearly double-digit growth in the second half of 2024, and management expects 5% to 6% order rates in 2025 [80][81]. Question: Can you elaborate on the share repurchase strategy? - The share repurchase program has no time limit and is primarily aimed at offsetting dilution, with flexibility for opportunistic purchases [82][84]. Question: What are the opportunities in the Asia-Pacific market for 2025? - Management acknowledged challenges in APAC, particularly in China, and plans to focus on vertical markets with less competition [96][99]. Question: Can you provide an update on the ERP project costs and timeline? - The total ERP project costs are expected to be around $50 million, with expenses likely to be evenly split throughout 2025 [112][114].

Company Operations - The Company operates 11 global manufacturing locations and serves three geographic areas: Americas, EMEA, and APAC[16]. - The Company has a diverse customer base with over 40,000 customers, including contract cleaners and businesses performing facilities maintenance[20]. - The Company employs local-for-local manufacturing strategies to mitigate cost inflation and supply chain challenges[24]. - The company operates through a large direct sales and service organization, supported by a network of authorized distributors worldwide[199]. Financial Performance - Consolidated net sales in 2024 totaled $1,286.7 million, a 3.5% increase compared to $1,243.6 million in 2023[118]. - Net income for 2024 was $83.7 million, a decrease of 23.6% from $109.5 million in 2023, with net income per share diluted at $4.38[117]. - Operating income decreased to $114.3 million in 2024 from $138.6 million in 2023, indicating a decline of 17.5%[188]. - Comprehensive income for 2024 was $53.3 million, significantly lower than $117.4 million in 2023, reflecting a decline of 54.6%[190]. - Total assets increased to $1,190.1 million in 2024, up from $1,113.4 million in 2023, reflecting a growth of about 6.9%[192]. - Cash, cash equivalents, and restricted cash totaled $99.8 million at December 31, 2024, down from $117.1 million at the end of 2023[132]. - Net cash provided by operating activities in 2024 was $89.7 million, a significant decrease from $188.4 million in 2023[134]. - Total current liabilities rose to $292.2 million in 2024, compared to $273.7 million in 2023, marking an increase of about 6.9%[192]. - Long-term debt increased slightly to $198.2 million in 2024 from $194.2 million in 2023, showing a growth of about 2.0%[192]. Research and Development - Research and development efforts are key drivers of success, with a focus on enhancing product functionality and sustainability[26]. - Research and Development expense was $43.8 million, or 3.4% of net sales, reflecting a 50 basis point increase compared to 2023[125]. - Research and development expenses increased to $43.8 million in 2024, up from $36.6 million in 2023, showing a growth of 19.6%[188]. - The company is committed to developing sustainable cleaning innovations and has a broad suite of products used in various environments, enhancing its market position[110]. Sustainability and Corporate Responsibility - The Company is committed to sustainability, focusing on high-performance solutions that minimize waste and enhance safety[17]. - Tennant Company focuses on sustainable cleaning innovations, enhancing its product suite including floor maintenance and cleaning equipment[197]. - Women represent 43% of the executive management team and 33% of the Board of Directors as of December 31, 2024[37]. Risks and Challenges - The company may face financial difficulties if the U.S. or global economies experience a long-term economic downturn, potentially leading to decreased revenues and profitability[53]. - International operations are at risk due to geopolitical tensions and regulatory changes, particularly in markets like Russia and China, which could negatively impact sales volume[54]. - Fluctuations in foreign currency exchange rates could adversely affect net sales and earnings, impacting financial stability[57]. - The competitive landscape and macroeconomic factors such as inflation may limit the company's ability to achieve pricing targets, affecting gross margin rates[59]. - Supply chain disruptions and increased costs of raw materials could negatively impact operating results and financial condition[62]. - The company is subject to risks associated with developing innovative products and technologies, which may impact sales volume and market share if not competitive[60]. - The company faces risks related to business transformation and strategic initiatives, including employee resistance and resource constraints, which could hinder effective execution[82]. Acquisitions and Goodwill - The company may consider acquisitions to achieve growth objectives, but successful integration of acquired businesses is critical for realizing operational efficiencies[78]. - The company has experienced challenges in integrating acquired businesses, which may not achieve expected revenue or profit levels, potentially impacting overall financial results[79]. - Significant goodwill or intangible assets may be recorded from acquisitions, requiring annual impairment tests that could materially affect operating results if values need to be written down[80]. - Goodwill was reported at $185.6 million and $187.4 million as of December 31, 2024, and 2023, respectively[150]. - The goodwill balance for the EMEA reporting unit was $151.1 million as of December 31, 2024, with no impairment recognized[176]. - No goodwill impairment was identified in any reporting units during the annual assessments for both 2023 and 2024[213][214]. Shareholder Returns - The company has paid cash dividends for 80 consecutive years, with an increase to $1.135 per share in 2024, marking a $0.06 increase from 2023[102]. - During the twelve months ended December 31, 2024, the company repurchased 198,352 shares for $19.6 million, with 623,061 shares remaining authorized for repurchase[103]. - The company's stock performance has shown a cumulative total shareholder return of $112 from an initial investment of $100 in 2019, compared to $149 for the S&P SmallCap 600[106]. Financial Reporting and Accounting - The company is evaluating the impact of new accounting standards on its financial disclosures, including ASU 2023-09 and ASU 2024-03[142][143]. - The company does not expect new accounting pronouncements to have a material impact on its financial position[144]. - The company has elected to not separate lease and non-lease components for all asset classes, impacting the calculation of operating lease assets and liabilities[210]. - Operating lease assets and liabilities are calculated based on the present value of future lease payments, using the company's incremental borrowing rate[210]. - The consolidated financial statements include all subsidiaries where the company has a controlling financial interest, ensuring comprehensive financial reporting[200].

Financial Performance - Fourth-quarter net sales increased by 5.6% to $328.9 million, with organic growth of 6.3% driven by volume growth in the Americas and EMEA[5] - Full-year net sales reached $1,286.7 million, a 3.5% increase from 2023, supported by organic growth of 3.2% from price growth across all regions[5] - Adjusted EBITDA for the full year was $208.8 million, an 8.2% increase compared to 2023, with an adjusted EBITDA margin of 16.2%, up 70 basis points year-over-year[5] - Net income for the year decreased to $83.7 million from $109.5 million in 2023, reflecting a decline in profitability[30] - Reported net income for Q4 2024 was $6.6 million, a decrease of 78.7% from $31.0 million in Q4 2023[34] - Adjusted net income for Q4 2024 was $29.0 million, compared to $36.2 million in Q4 2023, reflecting a decline of 19.9%[34] - Total net income for the full year 2024 was $83.7 million, a decrease from $109.5 million in 2023[38] - Adjusted net income for the full year 2024 was $94.2 million, compared to $110.7 million in 2023[38] Cash Flow and Liquidity - Operating cash flow for 2024 was $89.7 million, with free cash flow of $68.8 million, reflecting investments in ERP modernization[16] - The company maintained a strong liquidity position with $99.8 million in cash and $449.3 million of unused borrowing capacity as of the end of 2024[17] - The net leverage ratio was 0.48 times adjusted EBITDA, below the targeted range of 1x to 2x[18] - The company returned $41.0 million to shareholders in 2024 through dividends and share repurchases[18] - Cash and cash equivalents decreased to $99.8 million from $117.1 million, showing a reduction in liquidity[33] - The company reported a net cash provided by operating activities of $89.7 million, down from $188.4 million in 2023, reflecting reduced cash generation[33] - Cash provided by operating activities for Q4 2024 was $37.5 million, down from $63.8 million in Q4 2023[38] Sales and Revenue Trends - Net sales for Q4 2024 were $328.9 million, a 5.6% increase from $311.4 million in Q4 2023[30] - The Americas region saw a 5.7% increase in net sales for the year, totaling $888.5 million[31] - The Asia Pacific region experienced a 10.3% decline in net sales for the year, totaling $79.7 million, indicating market challenges[31] - For 2025, the company anticipates net sales between $1,210 million and $1,250 million, with an expected organic sales decline of 1.0% to 4.0%[19] Operating Performance - Operating income for Q4 2024 was $7.6 million, down from $24.5 million in Q4 2023, highlighting challenges in operational efficiency[30] - Gross profit for the year was $550.0 million, up from $527.8 million, reflecting a gross margin improvement[30] - Gross profit for Q4 2024 was $136.0 million, an increase of 3.9% from $130.8 million in Q4 2023[36] - Selling and administrative (S&A) expense for Q4 2024 was $116.4 million, up 21.6% from $95.7 million in Q4 2023[36] - EBITDA for Q4 2024 was $21.0 million, down 45.0% from $38.2 million in Q4 2023[35] - Adjusted EBITDA margin for Q4 2024 was 14.4%, compared to 13.3% in Q4 2023[35] Research and Development - Research and development expenses increased to $43.8 million for the year, compared to $36.6 million in 2023, indicating a focus on innovation[30] Future Outlook - The diluted net income per share guidance for 2025 is projected to be between $3.80 and $4.30[19] - The company announced the launch of the new X6 ROVR, a larger autonomous scrubber, expected to be commercially available in Q2 2025[5] Capital Expenditures and Investments - The company invested $37.3 million in ERP modernization initiatives in 2024, with $23.3 million capitalized[34] - Capital expenditures for Q4 2024 were $9.4 million, compared to $7.5 million in Q4 2023[38] - ERP modernization costs for Q4 2024 amounted to $3.5 million, up from $1.2 million in Q4 2023[38] Legal and Settlement Charges - Legal settlement charge related to an intellectual property dispute amounted to $14.5 million, awarded on November 25, 2024[34]

Company Overview - Tennant (NYSE: TNC) is a manufacturer of professional cleaning equipment, established in 1870, and holds a top position in the United States while being a challenger in international markets [1] - Over the past 30 years, Tennant's shares have returned over 1300% [1] Investment Strategy - The focus is on investment ideas about companies that pay a healthy dividend while waiting for capital appreciation [1] - The goal is to identify undervalued companies based on fundamentals, peers, and historical levels, with high odds for capital appreciation driven by foreseeable catalysts [1] - The investment strategy emphasizes finding good businesses that reward shareholders in two ways: dividends and capital appreciation [1] Industry Focus - There is a particular interest in HVAC-related stocks, reflecting the analyst's previous professional involvement in that industry before transitioning to full-time investing [1]

Financial Data and Key Metrics Changes - For Q3 2024, net sales increased by 3.6% to $315.8 million compared to $304.7 million in Q3 2023 [10][33] - Adjusted EBITDA rose to $47.9 million, yielding an adjusted EBITDA margin of 15.2%, up from the previous year [10][39] - GAAP net income for Q3 2024 was $20.8 million, down from $22.9 million in the prior year [29] - Adjusted net income increased by 4.7% year-over-year to $26.6 million, with adjusted EPS rising 3.7% to $1.39 per diluted share [32] Business Line Data and Key Metrics Changes - Equipment sales grew by 3.7%, while service products increased by 9.2% in Q3 2024 [35] - Parts and consumables sales remained unchanged [35] - Organic sales in the Americas increased by 4.6%, driven by a 60-40 split between volume and price [36] - Organic sales declined by 0.8% in EMEA and decreased by 4.3% in APAC, primarily due to volume declines [37][38] Market Data and Key Metrics Changes - Order rates in the Americas increased significantly, outperforming average growth rates seen in recent years [11] - EMEA saw double-digit order rate increases, particularly in the UK, despite overall market demand softness [12] - APAC faced challenges with declining demand in China and Australia, impacting overall performance [13] Company Strategy and Development Direction - The company is focused on three pillars of its enterprise strategy: growth, performance, and people [14] - Pricing growth is targeted at approximately 50 to 100 basis points annually, with expectations to offset inflationary pressures [15] - New product development is expected to contribute 150 to 200 basis points to growth, with successful launches planned [16][20] - The company is also investing in ERP modernization to enhance operational efficiencies and scalability [23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for a strong finish to 2024, driven by increasing order growth across all geographies [24] - The backlog reduction is expected to reach $130 million by year-end, exceeding initial expectations [25] - Despite anticipated strong order growth in 2025, management cautioned about potential headwinds from backlog reduction and regional softness [26] - The company remains committed to its long-term revenue growth targets of 3% to 5% [27] Other Important Information - The company generated free cash flow of $26.4 million in Q3 2024, with a strong liquidity position of $91.3 million in cash [43][45] - A 5.4% increase in the annual dividend was announced, marking the 53rd consecutive year of dividend increases [44] Q&A Session Summary Question: AMR performance and impact - Management clarified that AMR products accounted for 5% of year-to-date net sales, with the X4 ROVR contributing positively but not dramatically to this figure [52][53] Question: Backlog reduction expectations - The company expects to achieve a backlog reduction of $130 million, normalizing lead times by year-end [55] Question: ERP modernization impact - The ERP project is on track, with expected efficiency savings of $10 million to $15 million, enhancing decision-making and customer service [60][65] Question: APAC market initiatives - Management highlighted a focus on higher-end products in response to price pressures in China, aiming for profitable growth [68][70] Question: EMEA acquisition performance - The acquisition in EMEA is performing well, with positive early returns and aggressive growth plans [76]

Core Viewpoint - Tennant's future remains promising despite a disappointing third-quarter performance, as the company is focusing on autonomous mobile robots (AMRs) which are gaining traction in the market [1][2]. Group 1: Financial Performance - Tennant's third-quarter sales and adjusted earnings-per-share growth were 3% and 4% respectively, which slightly missed analysts' expectations [1][2]. - The company's shares dropped by 5% following the earnings announcement, reflecting market dissatisfaction with the results [1]. Group 2: Autonomous Mobile Robots (AMRs) - Tennant launched the X4 ROVR AMR cleaning machine earlier this year, achieving over 2,200 unit sales in the first three quarters of 2024 [3]. - AMRs accounted for 5% of Tennant's total sales through the first nine months of 2024, indicating a significant shift towards technology-driven products [4]. - The recurring revenue from software subscriptions associated with AMRs adds value for investors, complementing other quasi-recurring sales that make up 36% of total sales [4][5]. Group 3: Valuation and Growth Potential - Despite the modest 3% sales growth, Tennant's low valuation suggests potential for market-beating performance, as the company only needs to maintain this growth rate to justify its current share price [5]. - The announcement of expanded manufacturing capacity for AMRs due to high order inflow indicates a positive outlook for future sales [6].

Financial Performance - Consolidated net sales for Q3 2024 totaled $315.8 million, a 3.6% increase from $304.7 million in Q3 2023[107]. - Organic sales growth for Q3 2024 was 2.7%, primarily due to price realization and higher equipment sales in the Americas[107]. - Gross profit margin for Q3 2024 was 42.4%, a decrease of 90 basis points compared to Q3 2023, attributed to higher inflationary pressure on materials[116]. - Selling and administrative expenses for Q3 2024 were $92.7 million, representing 29.4% of net sales, an increase of 50 basis points from Q3 2023[117]. - Research and development expenses for Q3 2024 were $10.5 million, or 3.3% of net sales, reflecting a 30 basis point increase compared to Q3 2023[118]. - Net income for Q3 2024 was $20.8 million, a decrease from $22.9 million in Q3 2023, resulting in diluted net income per share of $1.09[106]. Regional Sales Performance - Americas net sales for Q3 2024 were $218.7 million, a 3.6% increase from Q3 2023, driven by organic sales growth of 4.6%[111]. - EMEA net sales for Q3 2024 were $76.3 million, a 6.0% increase from Q3 2023, primarily due to inorganic sales from the acquisition of TCS[112]. - APAC net sales for Q3 2024 were $20.8 million, a decrease of 3.3% from Q3 2023, driven by organic sales decline in China and Australia[114]. Cash Flow and Liquidity - Net cash provided by operating activities for the nine months ended September 30, 2024, was $52.2 million, down from $124.6 million for the same period in 2023, attributed to working capital consumption and ERP modernization spending of $25.6 million[129]. - Net cash used in investing activities during the nine months ended September 30, 2024, was $69.1 million, compared to $15.2 million in the same period of 2023, primarily due to a $32.1 million investment in Brain Corp and a $25.7 million acquisition of TCS[130]. - The company's liquidity position included cash, cash equivalents, and restricted cash totaling $91.3 million as of September 30, 2024, down from $117.1 million at December 31, 2023[127]. Debt and Interest - The debt-to-capital ratio improved to 24.4% as of September 30, 2024, compared to 25.8% at December 31, 2023[127]. - Interest expense for the nine months ended September 30, 2024, was $3.6 million, down from $4.3 million in the same period of 2023[121]. - The average interest rate on borrowings increased to 6.54% for the nine months ended September 30, 2024, compared to 6.48% for the same period in 2023[121]. - The company has a notional amount of $120.0 million in interest rate swaps to manage floating rate debt exposure, exchanging variable rates for a fixed rate of 4.076%[121]. Tax and Currency - The effective tax rate for the third quarter of 2024 was 24.4%, an increase from 23.4% in the third quarter of 2023, mainly due to higher nondeductible executive compensation[123]. - The company reported a net foreign currency transaction loss of $0.4 million in the third quarters of 2024 and 2023, primarily due to the strengthening of the U.S. dollar against the Chinese renminbi and Mexican peso[122]. Business Outlook - The company remains confident in its long-term business health despite challenging economic conditions in EMEA and APAC[104]. - As of September 30, 2024, the company's order backlog was $76.8 million, a decrease from $186.2 million at December 31, 2023, due to improved production levels and component availability[126].

| --- | --- | --- | --- | --- | |-------------------------------------------------------------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | Earnings Release Call Third Quarter 2024 Results November 1, 2024 | | | | | SAFE HARBOR STATEMENT Certain statements contained in this document are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts a ...