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].

Financial Performance - Q3 2024 - Net sales reached $315.8 million, with organic net sales growth of 2.7% driven by price increases across all regions and volume growth in the Americas, offset by volume declines in EMEA and APAC[3] - Adjusted EBITDA increased by 4.4% to $47.9 million[3] - Adjusted EBITDA margin increased by 10 bps to 15.2%[3] - Adjusted diluted EPS increased by 3.7% to $1.39 per share compared to Q3 2023[3, 12] - Net income decreased to $20.8 million compared to $22.9 million in the prior year, attributed to ERP modernization and M&A costs[12] Regional and Product Category Performance - Americas net sales increased by 4.6%, while EMEA decreased by 0.8% and APAC decreased by 4.3%[14] - Gross margin decreased by 90 bps to 42.4%, due to inflationary pressures on materials and freight costs, partially offset by price realization[15] - Adjusted S&A expense as a percentage of net sales improved by 80 bps to 28.1%[15] Strategic Initiatives and Outlook - The company reaffirms full-year 2024 guidance, projecting net sales between $1.28 billion and $1.305 billion and adjusted EBITDA between $205 million and $215 million[4] - AMR sales now account for approximately 5% of year-to-date net sales[8] - Capital expenditures are projected to be approximately $20 million for the full year 2024[19]

Company Performance - Tennant (TNC) reported quarterly earnings of $1.39 per share, exceeding the Zacks Consensus Estimate of $1.38 per share, and up from $1.34 per share a year ago [1] - The earnings surprise for this quarter was 0.72%, and the company has surpassed consensus EPS estimates in all four of the last quarters [2] - Revenues for the quarter ended September 2024 were $315.8 million, which missed the Zacks Consensus Estimate by 1.13%, but increased from $304.7 million year-over-year [3] Future Outlook - The immediate price movement of Tennant's stock will largely depend on management's commentary during the earnings call [4] - Current consensus EPS estimate for the upcoming quarter is $1.45 on revenues of $329.3 million, and for the current fiscal year, it is $6.48 on revenues of $1.29 billion [8] - The estimate revisions trend for Tennant is mixed, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market [7] Industry Context - The Manufacturing - General Industrial industry, to which Tennant belongs, is currently ranked in the top 39% of over 250 Zacks industries, suggesting a favorable outlook compared to the bottom 50% [9] - Another company in the same industry, Chart Industries (GTLS), is expected to report earnings of $2.56 per share, reflecting a year-over-year increase of 100%, with revenues projected at $1.12 billion, up 25.3% from the previous year [10][11]

Core Viewpoint - Tennant is positioned as a promising investment opportunity due to its strong market leadership, growth potential in autonomous mobile robots (AMRs), and a solid history of dividend payments despite recent share price fluctuations [1][2][13] Company Overview - Tennant is the global leader in mechanized cleaning equipment, holding a 14% market share in the $9 billion industry, with a dominant presence in North America, Mexico, and Brazil where it commands a 25% share [3] - The company generates 36% of its sales from aftermarket revenue, which historically equals 80% of the original equipment cost, providing a recurring revenue stream [4] Growth Potential - Tennant has intensified its focus on AMRs, signing an exclusive technology agreement with Brain Corp, which enhances its product offerings and potential for new recurring revenue from software subscriptions [5] - The launch of the X4 ROVR AMR has led to increased production to meet anticipated demand, with AMR unit sales trending well ahead of previous years [6] Financial Performance - Tennant's return on invested capital (ROIC) has improved, indicating better profit generation from its debt and equity, which is crucial for stock performance [7] - The company has raised its dividend payments for 51 consecutive years, with a current payout ratio of 19%, suggesting room for larger increases in the future [8] M&A Strategy - Tennant has over 800 merger and acquisition targets in its pipeline, and successful acquisitions could further enhance its growth and profitability [9][10] Valuation Insights - Tennant's earnings yield of 6.3% is near 10-year highs, indicating a potentially attractive valuation [11] - The company only needs to grow free cash flow by 3% annually over the next decade to justify its current price, with management guiding for sales growth of 3% to 5% [12]