Tennant(TNC) - 2024 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements This section presents Tennant Company's unaudited consolidated financial statements, highlighting Q2 2024 sales growth and decreased net income, alongside changes in assets and cash flow Consolidated Statements of Income Q2 2024 net sales increased to $331.0 million, but operating income and net income decreased, while year-to-date net income remained relatively flat Consolidated Statements of Income Highlights (in millions, except per share data) | Metric | Q2 2024 | Q2 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $331.0 | $321.7 | $642.0 | $627.5 | | Gross profit | $142.7 | $139.5 | $280.2 | $265.0 | | Operating income | $38.6 | $43.5 | $76.1 | $79.4 | | Net income | $27.9 | $31.3 | $56.3 | $55.6 | | Diluted EPS | $1.45 | $1.68 | $2.94 | $2.98 | Consolidated Statements of Comprehensive Income Comprehensive income for Q2 2024 and YTD 2024 decreased, primarily due to significant negative foreign currency translation adjustments Comprehensive Income (in millions) | Period | Net Income | Other Comprehensive (Loss) Income | Comprehensive Income | | :--- | :--- | :--- | :--- | | Q2 2024 | $27.9 | $(6.8) | $21.1 | | Q2 2023 | $31.3 | $1.2 | $32.5 | | YTD 2024 | $56.3 | $(14.0) | $42.3 | | YTD 2023 | $55.6 | $5.9 | $61.5 | Consolidated Balance Sheets Total assets increased to $1,167.5 million as of June 30, 2024, driven by higher receivables and inventories, with corresponding increases in liabilities and equity Key Balance Sheet Items (in millions) | Account | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash, cash equivalents, and restricted cash | $84.6 | $117.1 | | Inventories | $189.7 | $175.9 | | Total current assets | $577.8 | $569.1 | | Total assets | $1,167.5 | $1,113.4 | | Total current liabilities | $266.2 | $273.7 | | Long-term debt | $205.6 | $194.2 | | Total liabilities | $541.6 | $535.1 | | Total equity | $625.9 | $578.3 | Consolidated Statements of Cash Flows Net cash from operations significantly decreased for the first six months of 2024 due to working capital changes, while investing activities increased due to acquisitions and financing activities provided cash Six-Month Cash Flow Summary (in millions) | Activity | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $21.5 | $70.2 | | Net cash used in investing activities | $(64.9) | $(12.0) | | Net cash provided by (used) in financing activities | $12.4 | $(38.1) | | Net (decrease) increase in cash | $(32.5) | $18.4 | Notes to Consolidated Financial Statements This section details accounting policies, revenue disaggregation, recent acquisitions (M&F/TCS, Brain Corp), debt facilities, and a new credit agreement post-quarter end - On February 29, 2024, the company acquired 100% of M&F Management and Financing GmbH ("M&F"), the parent company of TCS EMEA GmbH ("TCS"), its largest Central and Eastern Europe distributor, to accelerate growth in the EMEA region[38] - On February 21, 2024, the Company acquired certain investment securities in Brain Corp, a privately held autonomous technology company, to drive development of next-generation robotic and AI technologies. The total investment includes $12.1 million of debt securities and $20.0 million of equity instruments[71][72] - Subsequent to the quarter end, on August 7, 2024, the company entered into a new credit agreement, increasing its revolving credit facility to $650.0 million to repay existing debt and for general corporate purposes[81][82] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2024 financial results, noting sales growth from price and acquisition, slight gross margin decrease, increased operating expenses, improved supply chains, and reduced backlog Consolidated Net Sales Change (Q2 2024 vs Q2 2023) | Component | Percentage Change | | :--- | :--- | | Price | 2.7% | | Volume | 0.0% | | Organic growth | 2.7% | | Acquisitions | 0.8% | | Foreign currency | (0.6)% | | Total growth | 2.9% | - Gross profit margin for Q2 2024 was 43.1%, a 30 basis point decrease from Q2 2023, attributed to higher inflation offset by price realization and favorable product/channel mix[99] - Order backlog decreased significantly to $110.0 million at June 30, 2024, from $186.2 million at December 31, 2023, as the company was able to obtain key component parts and increase production[107] - Net cash provided by operating activities for the first six months of 2024 was $21.5 million, a sharp decline from $70.2 million in the prior-year period, due to working capital consumption and spending on an ERP modernization project[108] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its market risk since the end of the previous fiscal year, December 31, 2023 - There have been no material changes in the company's market risk since December 31, 2023[118] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal controls over financial reporting - The CEO and Principal Financial and Accounting Officer concluded that the company's disclosure controls and procedures are effective as of June 30, 2024[119] - No changes in internal controls over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal control[120] PART II – OTHER INFORMATION Legal Proceedings The company reports 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 business[121] Risk Factors There have been no material changes to the company's risk factors since the filing of its Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to risk factors have occurred since the filing of the 2023 Form 10-K[122] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2024, the company repurchased a total of 82,798 shares at an average price of $103.44 per share, with 731,174 shares remaining authorized for repurchase Share Repurchases for Q2 2024 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | April 2024 | 204 | $121.80 | — | | May 2024 | 65,772 | $104.53 | 60,692 | | June 2024 | 16,822 | $101.07 | 16,822 | | Total | 82,798 | $103.44 | 77,514 | - As of June 30, 2024, 731,174 shares remain authorized for repurchase under the company's share repurchase program[124] Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2024 - During Q2 2024, no director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement[125] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and iXBRL financial statements