PART I - FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited statements show slightly lower YTD sales and net income, with negative operating cash flow due to inventory increases [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) YTD net sales slightly decreased while net income fell due to lower gross profit, though Q2 net income rose year-over-year Consolidated Statements of Income Highlights (in millions, except EPS) | Metric | Q2 2022 | Q2 2021 | YTD 2022 | YTD 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $280.2 | $279.1 | $538.3 | $542.4 | | Gross Profit | $106.1 | $114.9 | $205.0 | $228.2 | | Operating Income | $22.8 | $20.4 | $37.4 | $56.7 | | Net Income | $16.6 | $9.8 | $26.9 | $35.5 | | Diluted EPS | $0.89 | $0.51 | $1.44 | $1.88 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Total assets decreased slightly as cash declined significantly while inventories rose, with total debt remaining stable Key Balance Sheet Items (in millions) | Account | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash, cash equivalents, and restricted cash | $73.8 | $123.6 | | Inventories | $188.6 | $160.6 | | Total Assets | $1,025.2 | $1,061.7 | | Total Debt (Current + Long-term) | $265.8 | $267.6 | | Total Equity | $434.0 | $435.1 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating activities generated a significant cash outflow, reversing a prior-year inflow, driven by a large inventory increase Six Months Ended June 30 Cash Flow Summary (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(23.6) | $37.8 | | Net cash (used in) provided by investing activities | $(10.1) | $16.7 | | Net cash used in financing activities | $(12.2) | $(58.6) | | Net (decrease) in cash | $(49.8) | $(5.9) | - The primary reason for the **negative operating cash flow** was a significant increase in inventories ($44.7 million) and unfavorable changes in other operating assets and liabilities[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail geographic sales performance, significant inflationary impacts on inventory, and the company's debt structure Net Sales by Geographic Area (Six Months Ended June 30, in millions) | Region | 2022 | 2021 | | :--- | :--- | :--- | | Americas | $338.7 | $325.0 | | Europe, Middle East and Africa | $156.0 | $166.1 | | Asia Pacific | $43.6 | $51.3 | | **Total** | **$538.3** | **$542.4** | - The LIFO charge for the first six months of 2022 was **$6.0 million**, a substantial increase from $2.2 million in the same period of 2021, attributed to the broad effects of inflation on materials[46](index=46&type=chunk) - As of June 30, 2022, the company had **$265.8 million in total debt** outstanding and approximately **$279.1 million of unused borrowing capacity** on its revolving credit facility[55](index=55&type=chunk)[57](index=57&type=chunk) - In Q2 2022, the company sold a building in Minnesota, resulting in a **pre-tax gain of $3.7 million**, compared to a $9.8 million gain from the sale of its Coatings business in Q1 2021[41](index=41&type=chunk)[42](index=42&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Macroeconomic pressures, including inflation and supply chain issues, impacted results despite a slight sales increase [Macroeconomic Events and Outlook](index=26&type=section&id=Macroeconomic%20Events%20and%20Outlook) The company navigates ongoing supply chain disruptions, inflation, and geopolitical conflicts impacting operations - The company is experiencing disruptions in raw material and component supply, price inflation, and inefficiencies due to **supply chain issues**[83](index=83&type=chunk) - Sales to Russia and Belarus, which have been suspended, represented **less than 1% of 2021 consolidated net sales**[84](index=84&type=chunk) - Management anticipates that **supply chain challenges and inflationary trends will continue** in the second half of 2022[86](index=86&type=chunk) [Results of Operations](index=27&type=section&id=Results%20of%20Operations) Q2 organic sales growth from pricing was offset by currency headwinds, while gross margin fell due to inflation Q2 2022 vs Q2 2021 Net Sales Change Drivers | Driver | Impact on Net Sales | | :--- | :--- | | Organic Sales Growth | +4.4% | | Foreign Currency Exchange | -4.0% | | **Total Net Sales Change** | **+0.4%** | Q2 2022 Net Sales Growth by Region | Region | % Change vs Q2 2021 | | :--- | :--- | | Americas | +6.7% | | EMEA | -9.3% | | APAC | -8.2% | - **Gross profit margin decreased by 330 basis points** in Q2 2022 compared to Q2 2021, primarily due to inflation on materials, labor, and freight costs[96](index=96&type=chunk) - The order backlog at June 30, 2022, was **approximately three times larger than the prior year**, indicating strong demand but also persistent supply chain challenges[106](index=106&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) Cash decreased due to negative operating cash flow from working capital investments, but liquidity remains sufficient - Net cash used in operating activities was **$23.6 million for H1 2022**, compared to net cash provided of $37.8 million in H1 2021, driven by investments in working capital[110](index=110&type=chunk) - The company's **debt-to-capital ratio was stable at 38.0%** as of June 30, 2022[108](index=108&type=chunk) - On August 3, 2022, the Board of Directors authorized a **quarterly cash dividend of $0.25 per share**[109](index=109&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk were reported since the previous fiscal year-end - There have been **no material changes** in the company's market risk since December 31, 2021[117](index=117&type=chunk) [Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed effective with no material changes to internal controls during the quarter - Management concluded that **disclosure controls and procedures are effective** as of June 30, 2022[118](index=118&type=chunk) - **No changes in internal controls** over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[119](index=119&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) No material pending legal proceedings are reported outside of ordinary business litigation - There are **no material pending legal proceedings** other than ordinary routine litigation incidental to the business[120](index=120&type=chunk) [Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors have occurred since the last annual report - **No material changes** have occurred in the company's risk factors since the last annual report filing[121](index=121&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=34&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No shares were repurchased under the public program, though some were acquired to satisfy employee tax obligations Share Repurchase Activity (Q2 2022) | Month | Total Shares Purchased | Average Price Paid | Purchased as Part of Plan | | :--- | :--- | :--- | :--- | | April 2022 | 18 | $78.80 | — | | May 2022 | 2,018 | $60.54 | — | | June 2022 | 35 | $56.31 | — | | **Total** | **2,071** | **$60.63** | **—** | - The 2,071 shares purchased were delivered to **satisfy tax withholding obligations** by employees, not open market repurchases under the formal plan[123](index=123&type=chunk) - There are **1,192,089 shares that may yet be purchased** under the company's authorized share repurchase programs[122](index=122&type=chunk)[123](index=123&type=chunk) [Exhibits](index=34&type=section&id=Item%206.%20Exhibits) Filed exhibits include required CEO and CFO certifications under the Sarbanes-Oxley Act - Key exhibits filed include **CEO and CFO certifications** under Rule 13a-14(a)/15d-14(a) and Section 1350[124](index=124&type=chunk)

Financial Data and Key Metrics Changes - First quarter net income was $10.3 million, down from $25.7 million in the prior year, primarily due to gross margin compression from inflationary pressures [16] - Adjusted EPS for Q1 was $0.73 per diluted share, compared to $1.17 per diluted share in the prior year [17] - Net sales for Q1 were $258.1 million, a 2% decline year-over-year, impacted by unfavorable foreign exchange and the divestiture of the Coatings business [17][18] - Adjusted EBITDA for Q1 was $27.9 million, or 10.8% of sales, down from $40.7 million, or 15.5% of sales in 2021 [23] Business Line Data and Key Metrics Changes - The Americas net sales were $160.3 million, an increase of 1.6% from the prior year, driven by higher selling prices and strong sales in commercial and parts categories [19] - EMEA net sales were $78.7 million, a decrease of 2.7%, negatively impacted by foreign currency exchange [20] - APAC net sales were $19.1 million, a decrease of 22.4%, primarily due to government-mandated shutdowns in China [21][22] Market Data and Key Metrics Changes - Organic sales growth in the Americas was approximately 2.3%, while EMEA saw a favorable organic sales growth of approximately 4.2% [19][20] - APAC experienced an organic sales decline of approximately 20.2% due to COVID-19 related shutdowns [22] Company Strategy and Development Direction - The company is committed to maximizing output and safeguarding customer experience through dual sourcing and local sourcing strategies [11] - The enterprise strategy includes a focus on profitable innovation, with the introduction of lithium-ion technology in autonomous mobile robots [13][14] - The company is adjusting its full-year guidance for adjusted EBITDA to a range of $140 million to $155 million due to evolving market conditions [10][28] Management's Comments on Operating Environment and Future Outlook - Management noted that macro environment risks have not moderated as quickly as expected, impacting parts availability and inflation [9] - The company expects gross margins to improve throughout the year, driven by price realization and effective cost management [27] - Management remains optimistic about demand and is encouraged by the strong customer response despite challenges [55] Other Important Information - Cash flow used in operations was approximately $10.1 million, reflecting investments in working capital [24] - The company ended Q1 with a cash balance of approximately $110.4 million and strong liquidity of approximately $374.5 million [25] - Updated guidance for 2022 includes net sales of $1.125 billion to $1.17 billion and adjusted EPS of $4.15 to $4.75 per diluted share [28] Q&A Session Summary Question: Can you provide more detail on the pricing strategy for 2022? - Management indicated that a price increase was enacted in October 2021 and another in April 2022, expecting these to offset inflation, though backlog may mute their impact [34][35] Question: How has the China slowdown impacted revenue? - Management stated that top-line performance is largely influenced by production volume, which has been affected by supply chain shortages and the China impact [40][41] Question: What is the current status of backlog? - Backlog is currently at approximately five times the normal rate, reflecting strong customer demand despite extended lead times [43][44] Question: Is there a shift in CapEx priorities? - Management confirmed that CapEx composition remains unchanged, with some acceleration in strategic investments to mitigate short-term constraints [45][47] Question: Are there any shifts in acceptance of AMRs due to COVID restrictions easing? - Management noted that markets have opened up, allowing for more demonstrations of AMRs, which is expected to enhance customer acceptance [48][50]

| --- | --- | --- | |-------|-------|-------| | | | | | | | | 2 Forward-Looking Statements & Non-GAAP Measures 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 subject to a variety of factors. These include facto ...

Financial Performance - Consolidated net sales for Q1 2022 totaled $258.1 million, a 2.0% decrease from $263.3 million in Q1 2021[82] - Net income attributable to Tennant Company was $10.3 million, or $0.55 per diluted share, compared to $25.7 million, or $1.37 per diluted share in Q1 2021[81] - Gross profit margin decreased to 38.3%, down 470 basis points compared to Q1 2021, primarily due to material inflation and higher freight costs[87] Expenses - Research and Development expense was $7.7 million, representing 3.0% of net sales, reflecting continued investment in new product development[89] - Selling and administrative expenses were $76.6 million, a decrease of $2.8 million compared to Q1 2021, with S&A expense as a percentage of net sales decreasing to 29.7%[88] - Interest expense, net was $0.3 million in Q1 2022, significantly lower than $3.9 million in the same period of 2021 due to debt restructuring[91] Cash and Liquidity - Cash, cash equivalents, and restricted cash totaled $110.4 million as of March 31, 2022, down from $123.6 million at the end of 2021[97] Taxation - The effective tax rate for Q1 2022 was 30.1%, an increase from 22.1% in Q1 2021, due to changes in forecasted taxable earnings by country[93] Order Backlog and Supply Chain - The order backlog at March 31, 2022, was approximately five times larger compared to March 31, 2021, driven by higher order rates and supply chain challenges[95] - The company anticipates ongoing supply chain challenges and inflationary trends throughout 2022, while maintaining confidence in long-term growth trends[79] Risks and Uncertainties - The company has identified various risks and uncertainties, including geopolitical and economic uncertainty, competition, and the impacts of the COVID-19 pandemic[103] - There have been no material changes in the company's market risk since December 31, 2021[106] Forward-Looking Statements - The company emphasizes the importance of considering forward-looking statements carefully due to potential material differences in actual results[104] - The company has no obligation to update or revise any forward-looking statements unless required by law[105]

| --- | --- | --- | |-------|-------|-------| | | | | | | | | 2 Forward-Looking Statements & Non-GAAP Measures 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 subject to a variety of factors. These include facto ...

Financial Data and Key Metrics Changes - Fourth quarter net income was $7.9 million, up $5.2 million from the prior year [19] - Full year 2021 net income reached $64.9 million compared to $33.7 million in 2020 [19] - Adjusted earnings per diluted share for Q4 2021 was $0.71 compared to $0.48 in the prior year [20] - Full year 2021 adjusted earnings per diluted share was $4.39 compared to $2.91 in 2020, an increase of $1.48 [20] - Adjusted EBITDA for the full year 2021 was $140.2 million, or 12.9% of sales, compared to $119.4 million, or 11.9% of sales in 2020 [24] Business Line Data and Key Metrics Changes - Sales in the Americas grew 4.3% year-over-year or 7.4% organically, driven by service, parts, and consumables [22] - EMEA sales grew 19.3% year-over-year or 14.2% organically, with growth across all countries and product categories [23] - Asia Pacific sales increased 9.6% year-over-year or 5.6% organically, with strong demand in Australia and Korea [23] - Fourth quarter sales in the Americas grew 1.3% year-over-year or 4.9% organically [26] - EMEA sales in Q4 were up 3.9% year-over-year or 7.4% organically [27] Market Data and Key Metrics Changes - The company ended 2021 with a backlog of 3x to 5x normal ranges, indicating strong demand for 2022 [51] - The company anticipates continued supply chain constraints impacting production and delivery throughout 2022 [32] Company Strategy and Development Direction - The company focuses on three strategic pillars: winning where there is competitive advantage, reducing complexity, and innovating for profitable growth [11] - The company is prioritizing local-for-local manufacturing to mitigate supply chain disruptions [10] - The launch of the Inventory Scan product represents a move into an attractive adjacency, enhancing customer value [14][62] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver on 2022 targets despite macroeconomic headwinds [6] - The company expects organic net sales growth between 4.5% and 8.5% for 2022, with adjusted EBITDA between $145 million and $160 million [9][34] - Management noted that pricing is being driven by inflation, with robust demand and a significant backlog available for monetization [41] Other Important Information - The company generated cash flow from operations of approximately $70 million in 2021 and returned over 60% of net cash flows to shareholders [9] - The company refinanced its debt, resulting in annual interest savings exceeding $12 million [30] Q&A Session Summary Question: Revenue guidance breakdown between volume and price - Management indicated that the guidance for 2022 is weighted more towards price than volume, but both factors contribute [39][40] Question: Impact of the Russia-Ukraine situation - Management noted no direct assets in affected regions but acknowledged potential ripple effects on the macro economy [44][45] Question: M&A opportunities - Management is always exploring M&A opportunities but prioritizes protecting the core business and addressing short-term challenges [46][47] Question: Top line guidance support - Management highlighted strong organic growth and significant backlog as key factors supporting the guidance [51] Question: Autonomous market development - Management reported high interest levels in the Autonomous market, with expectations for significant sales growth in 2022 [56][68]

Part I [Business](index=3&type=section&id=Item%201%20Business) Tennant Company, a global leader in cleaning solutions across Americas, EMEA, and APAC, navigated 2021 raw material inflation while prioritizing human capital - The company operates **11 global manufacturing locations** and serves customers in **over 100 countries** through direct sales and a distributor network[10](index=10&type=chunk)[14](index=14&type=chunk) - Principal products include mechanized cleaning equipment, detergent-free technologies, aftermarket parts, and maintenance services, marketed under brands like Tennant®, Nobles®, and IPC®[12](index=12&type=chunk)[13](index=13&type=chunk) - In **2021**, the company experienced **raw material price inflation** and **supply constraints** for components like steel, metal alloys, and resin, which it expects to continue[15](index=15&type=chunk) - As of **December 31, 2021**, women represented **57% of the executive management team** and **33% of the Board of Directors**[26](index=26&type=chunk) Employees by Gender and Region as of December 31, 2021 | | Female | Male | Total | | :--- | :--- | :--- | :--- | | Americas | 404 | 1,776 | 2,180 | | Europe, Middle East, Africa | 406 | 1,265 | 1,671 | | Asia Pacific | 156 | 256 | 412 | | **Total** | **966** | **3,297** | **4,263** | [Risk Factors](index=6&type=section&id=Item%201A%20Risk%20Factors) The company identifies macroeconomic, industry, and operational risks, including economic downturns, supply chain disruptions, and challenges in talent management and IT systems - Macroeconomic risks include potential long-term economic downturns affecting capital spending, uncertainty from the COVID-19 pandemic impacting supply chains and labor, and the high cost of compliance with complex international laws[42](index=42&type=chunk)[43](index=43&type=chunk)[45](index=45&type=chunk) - Industry risks stem from a competitive marketplace with price sensitivity, challenges in developing innovative products, and significant disruptions in the availability and cost of raw materials and components like semiconductors[46](index=46&type=chunk)[47](index=47&type=chunk)[50](index=50&type=chunk) - Operational risks include the inability to attract and retain key personnel, difficulties in managing strategic growth processes, potential failures in upgrading IT infrastructure, cybersecurity threats, and challenges in successfully integrating acquired businesses[55](index=55&type=chunk)[58](index=58&type=chunk)[60](index=60&type=chunk)[65](index=65&type=chunk) [Unresolved Staff Comments](index=9&type=section&id=Item%201B%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[69](index=69&type=chunk) [Properties](index=9&type=section&id=Item%202%20Properties) The company owns corporate offices and manufacturing facilities in several countries, with all facilities reported to be in good operating condition - The company owns its corporate offices in the Minneapolis, Minnesota metropolitan area[70](index=70&type=chunk) - Owned manufacturing facilities are located in Minneapolis, MN; Holland, MI; Uden, The Netherlands; and several cities in Italy, while leased facilities are in Louisville, KY; São Paulo, Brazil; and Hefei, China[70](index=70&type=chunk) [Legal Proceedings](index=9&type=section&id=Item%203%20Legal%20Proceedings) The company states there are no material pending legal proceedings beyond ordinary routine litigation incidental to its business - There are no material pending legal proceedings other than ordinary routine litigation incidental to the Company's business[73](index=73&type=chunk) [Mine Safety Disclosures](index=9&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[74](index=74&type=chunk) Part II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=10&type=section&id=Item%205%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Tennant's common stock trades on the NYSE, with a 50-year history of increased dividends, and the company repurchased **$15.0 million** of its stock in 2021, though its performance lagged major indices - The company's annual cash dividend increased for the **50th consecutive year** to **$0.94 per share** in **2021**[78](index=78&type=chunk) - In the twelve months ended **December 31, 2021**, the company repurchased **196,982 shares** of its common stock for **$15.0 million**[80](index=80&type=chunk) Share Repurchases for Quarter Ended December 31, 2021 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Publicly Announced Programs | | :--- | :--- | :--- | :--- | | October 1–31, 2021 | 63,692 | $77.26 | 63,674 | | November 1–30, 2021 | 31,173 | $82.97 | 31,079 | | December 1–31, 2021 | 8,902 | $83.46 | — | | **Total** | **103,767** | **$79.51** | **94,753** | Stock Performance Comparison (2016-2021, Indexed to $100) | | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Tennant Company | $100 | $103 | $75 | $114 | $104 | $121 | | S&P SmallCap 600 | $100 | $113 | $104 | $127 | $142 | $180 | | S&P 500 Industrials (Sector) | $100 | $121 | $105 | $136 | $151 | $183 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=12&type=section&id=Item%207%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, Tennant Company's net sales grew **9.0%** to **$1,090.8 million** with net income nearly doubling, despite gross margin pressure from inflation and decreased operating cash flow [Historical Results](index=13&type=section&id=Historical%20Results) Consolidated net sales for 2021 increased **9.0%** to **$1,090.8 million** due to organic growth across all regions, leading to a significant rise in operating and net income despite gross margin decline Financial Performance Summary (2021 vs. 2020, In millions) | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,090.8 | $1,001.0 | +9.0% | | Gross Profit | $438.0 | $407.8 | +7.4% | | Gross Margin | 40.2% | 40.7% | -50 bps | | Operating Income | $93.7 | $63.7 | +47.1% | | Net Income | $64.9 | $33.7 | +92.6% | | Diluted EPS | $3.44 | $1.81 | +90.1% | Net Sales by Geographic Area (2021 vs. 2020, In millions) | Region | 2021 Net Sales | 2020 Net Sales | % Change | | :--- | :--- | :--- | :--- | | Americas | $658.3 | $631.0 | +4.3% | | EMEA | $331.9 | $278.2 | +19.3% | | APAC | $100.6 | $91.8 | +9.6% | | **Total** | **$1,090.8** | **$1,001.0** | **+9.0%** | - The **9.0% increase** in consolidated net sales was driven by a **9.1% organic sales increase**, a **2.1% unfavorable impact** from the divestiture of the Coatings business, and a **2.0% favorable impact** from foreign currency exchange[96](index=96&type=chunk) - The company recorded a one-time **loss on extinguishment of debt of $11.3 million** in **2021** due to debt restructuring[106](index=106&type=chunk) [Liquidity and Capital Resources](index=15&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with **$123.6 million** cash at year-end 2021, restructured debt for lower interest, and improved its debt-to-capital ratio, despite decreased operating cash flow due to inventory and receivables increases - Cash, cash equivalents, and restricted cash totaled **$123.6 million** at **December 31, 2021**, compared to **$141.0 million** at year-end **2020**[112](index=112&type=chunk) - In **Q2 2021**, the company entered a new credit agreement with a **$100.0 million term loan** and a **$450.0 million revolving facility**, using the proceeds to retire its **5.625% Senior Notes**, which is expected to lower future interest expense by approximately **$1.0 million per month**[113](index=113&type=chunk) - Cash provided by operating activities was **$69.4 million** in **2021**, a decrease from **2020**, driven by outflows from a **$56.0 million increase in inventory** and a **$20.3 million increase in receivables**[115](index=115&type=chunk) - The debt-to-capital ratio improved from **43.2%** at the end of **2020** to **38.1%** as of **December 31, 2021**[112](index=112&type=chunk) [Critical Accounting Policies and Estimates](index=16&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Goodwill, totaling **$193.1 million**, and Income Taxes are critical accounting policies requiring significant judgment, with goodwill tested annually for impairment and a **$4.8 million** valuation allowance for deferred tax assets - Goodwill is tested for impairment annually as of **October 1**, with a qualitative test used for most reporting units and a quantitative test for the EMEA unit in **2021**, recognizing no impairment[124](index=124&type=chunk)[125](index=125&type=chunk) - The carrying amount of goodwill was **$193.1 million** as of **December 31, 2021**[126](index=126&type=chunk) - Income tax accounting requires significant estimates for current tax obligations, reserves for uncertain tax matters, and assessing the need for a valuation allowance against deferred tax assets, with a valuation allowance of **$4.8 million** recorded as of **December 31, 2021**[127](index=127&type=chunk)[128](index=128&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=18&type=section&id=Item%207A%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from commodity price fluctuations, interest rate changes on its **$266.8 million** variable-rate debt, and foreign currency volatility, which it actively manages through hedging instruments - The company is exposed to commodity price risk for materials such as steel, oil, and lead, but does not use derivative instruments to manage this exposure[134](index=134&type=chunk) - As of **December 31, 2021**, the company has **$266.8 million** in variable-rate debt, where a hypothetical **50 basis point increase** in short-term interest rates would have increased **2021** interest expense by approximately **$1.0 million**[138](index=138&type=chunk) - The company actively manages foreign currency exchange rate risk for currencies like the euro, Australian and Canadian dollars, and others using hedging instruments, including forward contracts and cross-currency swaps[139](index=139&type=chunk)[140](index=140&type=chunk) [Financial Statements and Supplementary Data](index=19&type=section&id=Item%208%20Financial%20Statements%20and%20Supplementary%20Data) This section includes unqualified audit opinions on financial statements and internal controls, identifying goodwill impairment for EMEA as a critical audit matter, and presents detailed consolidated financial statements and notes [Reports of Independent Registered Public Accounting Firms](index=19&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firms) Deloitte & Touche LLP issued unqualified opinions on the consolidated financial statements and internal controls, highlighting the goodwill impairment test for the EMEA reporting unit as a critical audit matter - The independent auditor, Deloitte & Touche LLP, provided an **unqualified opinion** on the financial statements for **2021** and **2020**[145](index=145&type=chunk) - The auditor also issued an **unqualified opinion** on the effectiveness of the Company's internal control over financial reporting as of **December 31, 2021**[156](index=156&type=chunk) - The audit identified the goodwill impairment evaluation for the EMEA reporting unit as a **Critical Audit Matter**, due to the significant judgments required by management in forecasting future revenues, profit margins, and selecting discount rates[151](index=151&type=chunk)[153](index=153&type=chunk) [Consolidated Financial Statements](index=23&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show **2021** net sales of **$1,090.8 million**, net income of **$64.9 million**, total assets of **$1,061.7 million**, and a net decrease in cash of **$17.4 million** Consolidated Statements of Income Highlights (Year ended Dec 31, In millions) | (In millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net sales | $1,090.8 | $1,001.0 | | Gross profit | $438.0 | $407.8 | | Operating income | $93.7 | $63.7 | | Net income attributable to Tennant Company | $64.9 | $33.7 | Consolidated Balance Sheets Highlights (As of Dec 31, In millions) | (In millions) | 2021 | 2020 | | :--- | :--- | :--- | | Total current assets | $526.8 | $493.6 | | Total assets | $1,061.7 | $1,082.6 | | Total current liabilities | $290.3 | $254.3 | | Long-term debt | $263.4 | $297.6 | | Total equity | $435.1 | $406.1 | Consolidated Statements of Cash Flows Highlights (Year ended Dec 31, In millions) | (In millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $69.4 | $133.8 | | Net cash provided by (used in) investing activities | $1.7 | $(29.9) | | Net cash used in financing activities | $(84.5) | $(42.8) | | Net (decrease) increase in cash | $(17.4) | $66.4 | [Notes to the Consolidated Financial Statements](index=28&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) Detailed notes reveal equipment sales as the largest revenue category, a **$9.8 million** gain from the Coatings business sale, debt restructuring, increased inventories, and **$15.0 million** in share repurchases 2021 Net Sales Disaggregation (In millions) | Category | Amount (in millions) | | :--- | :--- | | **By Geography:** | | | Americas | $658.3 | | EMEA | $331.9 | | APAC | $100.6 | | **By Product/Service:** | | | Equipment | $679.9 | | Parts and consumables | $249.3 | | Service and other | $160.1 | - In the first quarter of **2021**, the company sold its Coatings business, resulting in a pre-tax gain of **$9.8 million** and net proceeds of **$24.7 million**[239](index=239&type=chunk) - On **April 5, 2021**, the company entered into a new credit agreement providing a **$100.0 million term loan** and a **$450.0 million revolving facility**, which was used to redeem its **$300.0 million 5.625% Senior Notes**[248](index=248&type=chunk)[252](index=252&type=chunk) - During **2021**, the company paid **$15.0 million** to repurchase **196,982 shares** of its common stock at an average price of **$76.13 per share**[298](index=298&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=60&type=section&id=Item%209%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[336](index=336&type=chunk) [Controls and Procedures](index=60&type=section&id=Item%209A%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of **December 31, 2021**, with no significant changes reported during Q4 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of **December 31, 2021**[337](index=337&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of **December 31, 2021**, based on the COSO framework[342](index=342&type=chunk) - There were no significant changes in internal control over financial reporting during the fourth quarter of **2021**[344](index=344&type=chunk) [Other Information](index=60&type=section&id=Item%209B%20Other%20Information) The company reports no other information for this item - None[345](index=345&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=61&type=section&id=Item%2010%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors and executive officers is incorporated by reference from the **2022 Proxy Statement**, and the company maintains a Business Ethics Guide - Required information regarding directors is incorporated by reference from the **2022 Proxy Statement**[349](index=349&type=chunk) - The company has adopted the Tennant Company Business Ethics Guide, which is available on its investor relations website[350](index=350&type=chunk) [Executive Compensation](index=61&type=section&id=Item%2011%20Executive%20Compensation) Information regarding executive compensation, including the CEO pay ratio, is incorporated by reference from the company's **2022 Proxy Statement** - Information required under this item is contained in the company's **2022 Proxy Statement** and is incorporated by reference[351](index=351&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=61&type=section&id=Item%2012%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the company's **2022 Proxy Statement** - Information required under this item is contained in the company's **2022 Proxy Statement** and is incorporated by reference[352](index=352&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=61&type=section&id=Item%2013%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on director independence and related-person transaction policies is incorporated by reference from the company's **2022 Proxy Statement** - Information required under this item is contained in the company's **2022 Proxy Statement** and is incorporated by reference[353](index=353&type=chunk) [Principal Accountant Fees and Services](index=61&type=section&id=Item%2014%20Principal%20Accountant%20Fees%20and%20Services) Information detailing fees paid to the independent registered public accounting firm is incorporated by reference from the company's **2022 Proxy Statement** - Information required under this item is contained in the company's **2022 Proxy Statement** and is incorporated by reference[354](index=354&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=62&type=section&id=Item%2015%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, the schedule for valuation and qualifying accounts, and various exhibits filed as part of the Form 10-K Schedule II - Valuation and Qualifying Accounts (2021, In millions) | (In millions) | Beginning Balance | Charged to Costs | Deductions/Other | Ending Balance | | :--- | :--- | :--- | :--- | :--- | | Allowance for doubtful accounts | $4.6 | $1.5 | $(0.8) | $5.3 | | Allowance for excess and obsolete inventories | $13.6 | $1.7 | $(1.0) | $14.3 | | Valuation allowance for deferred tax assets | $7.5 | $(2.6) | $(0.1) | $4.8 | | Warranty reserve | $11.1 | $8.5 | $(9.2) | $10.4 | [Form 10-K Summary](index=65&type=section&id=Item%2016%20Form%2010-K%20Summary) The company reports no summary for this item - None[362](index=362&type=chunk)

| --- | --- | --- | --- | --- | --- | --- | --- | |-------|-------|-------|--------------------------------------------------------------------|-------|-------|-------|-------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Earnings Release Call Third Quarter 2021 Tuesday, November 2, 2021 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | On the Call Today Dave Huml President and CEO Fay West SVP and CFO 2 Forward-Looking Statements & Non-GAAP Measures 3 Our re ...

Financial Data and Key Metrics Changes - For Q3 2021, Tennant reported net sales of $272 million, an increase of 3.9% year-over-year, with organic sales growth of 4.7% [24][25] - Net income for the third quarter was $21.5 million, or $1.14 per diluted share, compared to $11.7 million, or $0.63 per diluted share in the prior year [32] - Adjusted EBITDA increased to $36 million, representing 13.2% of sales, compared to $32.6 million, or 12.4% of sales in Q3 of the previous year [33] Business Line Data and Key Metrics Changes - Sales in the Americas decreased by 0.6% year-over-year, with a negative divestiture impact of 3.1% and organic growth of 2% [26] - EMEA sales increased by 15.1%, or 14% organically, reflecting growth across all countries and product categories [27] - APAC sales decreased by 0.4%, or 2.9% organically, impacted by pandemic-related lockdowns in some markets [28] Market Data and Key Metrics Changes - North America faced the most significant supply chain and labor challenges, affecting overall sales performance [25][26] - Strong customer demand in Brazil and Mexico contributed to sales growth in Latin America [26] - The APAC region experienced strong results for parts and consumables, particularly in Australia, despite supply chain disruptions [29] Company Strategy and Development Direction - The company is focusing on local-for-local manufacturing and sourcing to mitigate supply chain disruptions and freight costs [12][13] - Investments are being made to enhance production efficiency, including new tooling and production capabilities in local markets [14][15] - The enterprise strategy includes a long-term move toward platform design to increase sourcing flexibility and adapt to available parts [16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing global supply chain disruptions and labor constraints but expressed confidence in long-term growth and operational efficiency improvements [10][11] - The company expects macro headwinds to persist into 2022 but remains committed to meeting customer needs and executing its enterprise strategy [18] - Management highlighted the importance of innovation for profitable growth and the introduction of new products to meet evolving customer needs [19][20] Other Important Information - Tennant's adjusted effective tax rate for Q3 was 3.8%, down from 11.3% in the previous year, primarily due to a tax benefit from asset basis adjustments in Italy [34] - The company ended the quarter with $140.6 million in cash and cash equivalents, with a net leverage of 0.93 times adjusted EBITDA [36] - A 9% increase in the quarterly cash dividend was announced, marking the 50th consecutive year of dividend increases [37][38] Q&A Session Summary Question: Is there evidence of pre-buying by customers due to supply chain challenges? - Management noted that while there are instances of customers buying ahead, the majority of orders are driven by current demand rather than pre-buying [48] Question: How do supply chain challenges impact competitive positioning in the U.S. and Europe? - Management indicated that the ability to respond to supply chain challenges is more dependent on product platforming and local supply chains than on geographic headquarters [50][51] Question: What led to the change in EBITDA guidance? - The decision to lower guidance was based on the ongoing supply chain challenges and the trend observed over the past months [56][57] Question: How is SG&A expected to change in Q4? - SG&A is expected to return to a normal run rate of about $85 million per quarter, with no significant benefits anticipated as seen in Q3 [60] Question: How does the company view its capital allocation priorities? - The company remains focused on investing in growth, managing leverage, and returning excess cash to shareholders through dividends and share repurchases [64][66]

PART I - FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Tennant Company's unaudited consolidated financial statements as of September 30, 2021, showing increased net income and a stable balance sheet [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net sales and income significantly increased for both the three and nine months ended September 30, 2021, driven by higher gross profit Consolidated Statements of Income Highlights (In millions, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $272.0 | $261.9 | $814.4 | $728.0 | | **Gross profit** | $109.2 | $103.6 | $337.4 | $296.0 | | **Operating income** | $23.9 | $18.4 | $80.6 | $55.7 | | **Net income attributable to Tennant Company** | $21.5 | $11.7 | $57.0 | $31.2 | | **Diluted EPS** | $1.14 | $0.63 | $3.02 | $1.68 | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets slightly decreased, while inventories increased and total equity grew to $443.1 million Consolidated Balance Sheet Highlights (In millions) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Total current assets** | $526.3 | $493.6 | | Inventories | $158.3 | $127.7 | | **Total assets** | $1,067.1 | $1,082.6 | | **Total current liabilities** | $276.2 | $254.3 | | Long-term debt | $264.7 | $297.6 | | **Total liabilities** | $624.0 | $676.5 | | **Total equity** | $443.1 | $406.1 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow decreased to $62.9 million due to inventory increases, while investing activities provided cash and financing used cash for debt repayment Cash Flow Summary (Nine Months Ended Sep 30, In millions) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $62.9 | $97.5 | | **Net cash provided by (used in) investing activities** | $12.6 | $(25.5) | | **Net cash used in financing activities** | $(72.3) | $(24.5) | | Net (decrease) increase in cash | $(0.4) | $50.1 | | Cash at end of period | $140.6 | $124.7 | - The decrease in operating cash flow was significantly impacted by a **$48.9 million increase in inventories**, compared to a $13.1 million decrease in the prior year period[16](index=16&type=chunk) - Investing activities were positively impacted by **$24.7 million in proceeds from the sale of a business**, net of cash divested[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, the Coatings business sale, a major debt restructuring, and revenue growth, particularly in EMEA Net Sales by Geographic Area (Nine Months Ended Sep 30, In millions) | Region | 2021 | 2020 | | :--- | :--- | :--- | | Americas | $491.7 | $466.6 | | Europe, Middle East and Africa | $246.8 | $196.3 | | Asia Pacific | $75.9 | $65.1 | | **Total** | **$814.4** | **$728.0** | - On February 1, 2021, the company sold its Coatings business, resulting in a **pre-tax gain of $9.8 million**, which was included in selling and administrative expense[32](index=32&type=chunk)[47](index=47&type=chunk) - In April 2021, the company entered a new **$550 million credit facility** ($100M term loan, $450M revolver) and used the proceeds to redeem its **$300 million 5.625% Senior Notes**, resulting in an **$11.3 million loss on debt extinguishment**[54](index=54&type=chunk)[58](index=58&type=chunk) - The company repurchased **102,229 shares** of its common stock for **$7.5 million** during the nine months ended September 30, 2021[81](index=81&type=chunk) [Management's Discussion and Analysis (MD&A)](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A highlights increased net sales and improved gross profit margin, driven by organic growth and debt restructuring, despite ongoing COVID-19 cost pressures Q3 2021 vs Q3 2020 Performance Summary (In millions) | Metric | Q3 2021 | Q3 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | $272.0 | $261.9 | $10.1 | 3.9% | | **Gross Profit** | $109.2 | $103.6 | $5.6 | 5.4% | | **Operating Income** | $23.9 | $18.4 | $5.5 | 29.9% | | **Net Income** | $21.5 | $11.7 | $9.8 | 83.8% | - The company continues to actively manage the impacts of the COVID-19 pandemic, but expects increased costs for freight, materials, and labor to affect results in Q4 2021 and early 2022[91](index=91&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q3 2021 net sales grew 3.9% organically, with EMEA leading, gross profit margin expanding, and a lower effective tax rate Net Sales Growth Drivers (Q3 2021 vs Q3 2020) | Driver | Impact on Sales Growth | | :--- | :--- | | Organic Sales | +4.7% | | Divestiture of Coatings Business | -2.0% | | Foreign Currency Exchange | +1.2% | | **Total Net Sales Growth** | **+3.9%** | - Gross profit margin increased by **50 basis points** YoY to **40.1%** in Q3 2021, despite supply and labor constraints, reflecting the lapping of prior-year strategic investments and productivity challenges[101](index=101&type=chunk) - S&A expense decreased by **$0.9 million** in Q3 2021, primarily due to adjustments to management incentives, partially offset by more normalized spending compared to the prior year[106](index=106&type=chunk) - Interest expense decreased to **$0.6 million** in Q3 2021 from $4.4 million in Q3 2020 due to the debt restructuring completed in Q2 2021[108](index=108&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$140.6 million** cash, an improved debt-to-capital ratio, and significant unused borrowing capacity Key Liquidity Metrics | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $140.6M | $141.0M | | Working Capital | $250.1M | $239.3M | | Current Ratio | 1.9 | 1.9 | | Debt-to-Capital Ratio | 37.7% | 43.2% | - In Q2 2021, the company restructured its debt with a new credit agreement, providing greater flexibility and more favorable interest rates. As of September 30, 2021, unused borrowing capacity was approximately **$279.1 million**[116](index=116&type=chunk) - The Board of Directors authorized a quarterly cash dividend of **$0.25 per share**, payable in December 2021[117](index=117&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=34&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes in market risk have occurred since December 31, 2020, with further details available in the annual 10-K report - There have been **no material changes** in the company's market risk since December 31, 2020[127](index=127&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls - The CEO and Principal Financial and Accounting Officer concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2021[128](index=128&type=chunk) - **No material changes** were made to the company's internal controls over financial reporting during the most recently completed fiscal quarter[129](index=129&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) The company is not involved in any material pending legal proceedings beyond ordinary routine litigation incidental to its business - The company is not involved in any **material pending legal proceedings** outside of ordinary routine litigation[130](index=130&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since the December 31, 2020 annual report on Form 10-K - **No material changes** to the company's risk factors have occurred since the filing of the 2020 Form 10-K[131](index=131&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q3 2021, the company repurchased **102,229 shares** for **$7.5 million**, with **1,288,167 shares** remaining for repurchase Share Repurchases (Quarter Ended Sep 30, 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | **July 2021** | 18 | $79.85 | $1,437 | | **August 2021** | 43,731 | $72.69 | $3.18M | | **September 2021** | 58,498 | $73.84 | $4.32M | | **Total** | **102,247** | **$73.35** | **$7.5M** | - As of September 30, 2021, **1,288,167 shares** were still available for repurchase under the company's publicly announced plans[133](index=133&type=chunk) [Exhibits](index=35&type=section&id=Item%206.%20Exhibits) Exhibits filed with Form 10-Q include CEO/CFO certifications and financial statements in iXBRL format - Exhibits filed include CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350) and financial data in iXBRL format[134](index=134&type=chunk)