Tennant(TNC) - 2025 Q1 - Quarterly Results

First Quarter 2025 Results Overview This section summarizes Tennant Company's first-quarter 2025 financial performance, including sales, profit, and shareholder returns Financial Highlights Tennant Company reported first-quarter 2025 net sales of $290.0 million, a 6.8% decrease from the prior year, primarily due to lapping a significant $50 million backlog reduction in Q1 2024. Despite the decline in reported sales and profits, the company highlighted strong underlying business performance with a 13% increase in order rates. The company returned $25.8 million to shareholders and reaffirmed its full-year 2025 guidance, expressing confidence in its ability to manage macroeconomic challenges Q1 2025 Financial Summary | (In millions, except per share data) | 2025 | 2024 | Incr / (Decr) | | :--- | :--- | :--- | :--- | | Net sales | $290.0 | $311.0 | (6.8)% | | Net income | $13.1 | $28.4 | (53.9)% | | Diluted EPS | $0.69 | $1.49 | (53.7)% | | Adjusted diluted EPS | $1.12 | $1.81 | (38.1)% | | Adjusted EBITDA | $41.0 | $54.9 | (25.3)% | | Adjusted EBITDA margin % | 14.1 % | 17.7 % | (360 bps) | - Net sales decreased 6.8% (5.0% organic decline) primarily due to volume declines, as the prior-year period benefited from a $50 million backlog reduction[6] - Despite the sales decline, the underlying base business remains strong, with order rates increasing 13% compared to Q1 2024[6] - The company returned $25.8 million to shareholders, consisting of $5.6 million in dividends and $20.2 million in share repurchases[6] - Tennant reaffirmed its 2025 guidance and is actively implementing mitigation strategies, including supply-chain actions and pricing, to address known tariffs[6][7] Detailed Financial Performance This section details Q1 2025 financial performance, including sales analysis, regional results, operating profitability, and cash flow Net Sales Analysis Consolidated net sales for Q1 2025 were $290.0 million, a 6.8% decrease from Q1 2024. The decline was driven by a 4.9% drop in volume and a 2.1% negative impact from foreign currency, resulting in a 5.0% organic sales decline. A minor 0.3% contribution from acquisitions was not enough to offset these factors Components of Consolidated Net Sales Change (Q1 2025 vs. Q1 2024) | Component | Change | | :--- | :--- | | Price | (0.1)% | | Volume | (4.9)% | | Organic decline | (5.0)% | | Acquisitions | 0.3% | | Foreign currency | (2.1)% | | Total decline | (6.8)% | - The 5.0% organic sales decline was primarily driven by lower volumes across all geographic regions, especially in North America, which was compared against a period with a significant backlog-reduction benefit[8] Regional Sales Performance Organic sales performance varied significantly by region. The Americas saw a 6.9% decline, heavily impacted by lapping a $50 million backlog reduction in North America. EMEA posted a slight 0.6% organic growth due to price realization. APAC experienced the steepest decline at 7.5%, driven by market saturation and pricing pressure in China and slowing demand in Australia Organic Net Sales Growth by Region (Q1 2025) | Region | Organic Net Sales (Decline) Growth | | :--- | :--- | | Americas | (6.9)% | | EMEA | 0.6% | | APAC | (7.5)% | | Total | (5.0)% | - Americas: The 6.9% organic decline was mainly due to lower equipment volume in North America, which was lapping a $50 million backlog-reduction benefit from the prior year[9] - EMEA: The 0.6% organic growth was driven by price realization in parts, consumables, and service, which offset volume declines in equipment. Growth in the UK and Spain was partially offset by declines in France[10] - APAC: The 7.5% organic decline was caused by volume and price decreases in China and Australia. China faces market saturation and pricing pressure, while Australia shows signs of slowing demand with customers delaying orders[11] Operating Results and Profitability Profitability was significantly impacted by lower sales volumes and an unfavorable product mix compared to the prior year. Gross profit margin fell 280 basis points to 41.4%. Adjusted EBITDA decreased to $41.0 million from $54.9 million, with the margin contracting by 360 basis points to 14.1%. Net income fell to $13.1 million, or $21.2 million on an adjusted basis - Gross profit margin declined by 280 basis points to 41.4%, driven by unfavorable product/customer mix and inflation. The prior-year quarter had benefited from a backlog reduction of higher-margin products[13] - Adjusted S&A as a percentage of net sales increased to 28.7% from 27.6% in the prior year, driven by lower operating performance despite diligent cost management[14] - Adjusted EBITDA decreased to $41.0 million, and the Adjusted EBITDA margin fell 360 basis points to 14.1%, primarily due to sales volume declines and the unfavorable gross margin impact[14] - Adjusted net income was $21.2 million, a decrease of $13.5 million from Q1 2024, mainly due to lower operating performance, which was partly offset by lower income taxes[14] Cash Flow, Liquidity and Capital Allocation The company experienced a net cash usage of $0.4 million from operating activities in Q1 2025, a decrease from the prior year, influenced by ERP modernization project investments and lower operating performance. Liquidity remains strong with $79.5 million in cash and $434.3 million in unused borrowing capacity. The company maintained a low net leverage ratio of 0.66x Adjusted EBITDA - Cash used for operating activities was $0.4 million, impacted by ERP modernization investments, working capital changes, and lower operating performance[15] - Liquidity remained strong with $79.5 million in cash and cash equivalents and $434.3 million of unused borrowing capacity on its revolving credit facility[15] - During the quarter, the company invested $7.0 million in capital expenditures and returned $25.8 million to shareholders via dividends and share repurchases[16] - The company's net leverage ratio was 0.66 times Adjusted EBITDA, which is below its target range of 1.0x to 2.0x[16] 2025 Guidance This section reaffirms Tennant Company's full-year 2025 financial outlook, including projected sales, adjusted EPS, and Adjusted EBITDA Reaffirmed 2025 Full-Year Outlook Tennant Company reaffirmed its full-year 2025 guidance, signaling confidence in its operational plans despite macroeconomic uncertainties. The company expects net sales to be between $1,210 million and $1,250 million, with an adjusted diluted EPS in the range of $5.70 to $6.20. Adjusted EBITDA is projected to be between $196 million and $209 million 2025 Full-Year Guidance | (In millions, except per share data) | 2025 Guidance Ranges | | :--- | :--- | | Net sales | $1,210 - $1,250 | | Organic net sales decline | (1.0)% - (4.0)% | | Diluted net income per share | $3.80 - $4.30 | | Adjusted diluted net income per share | $5.70 - $6.20 | | Adjusted EBITDA | $196 - $209 | | Adjusted EBITDA margin | 16.2% - 16.7% | | Capital expenditures | ~$20 | | Adjusted effective tax rate | 23% - 27% | Company Information and Disclosures This section outlines Tennant Company's profile, forward-looking statements, and the use of non-GAAP financial measures Company Profile Founded in 1870 and headquartered in Minnesota, Tennant Company is a global leader in designing and manufacturing cleaning solutions. With sales of $1.29 billion in 2024 and approximately 4,500 employees, the company sells its products in over 100 countries through direct sales and distributor networks - Tennant is a world leader in cleaning solutions, founded in 1870, with products including equipment, sustainable cleaning technologies, and supplies[19] - The company achieved sales of $1.29 billion in 2024, has around 4,500 employees, and sells products in over 100 countries[19] Forward-Looking Statements This report contains forward-looking statements subject to various risks and uncertainties. Key risks highlighted include geopolitical and economic uncertainty, foreign currency exchange rate changes, competition, raw material costs, supply chain issues, cybersecurity risks, and potential complications with its new ERP system - The company identifies several risks that could affect future performance, including geopolitical uncertainty, currency fluctuations, cost pressures, competition, and supply chain availability[20] - Internal risks include the ability to manage strategic growth, successfully upgrade IT systems (including the new ERP), protect against cybersecurity threats, and integrate acquisitions[20] Non-GAAP Financial Measures The company uses non-GAAP financial measures to provide investors with a clearer understanding of its ongoing operating performance by excluding special, non-recurring, or non-operational items. These adjustments include costs related to its ERP modernization, restructuring charges, transaction costs, and amortization expense - Management believes non-GAAP measures allow for a more meaningful comparison of operating performance across periods by excluding special items[24] - Key non-GAAP adjustments include ERP modernization costs, restructuring-related charges, transaction-related costs, and amortization expense[25] Financial Tables This section presents unaudited consolidated financial statements, including income, balance sheets, cash flows, and non-GAAP reconciliations Consolidated Statements of Income (Unaudited) This section provides the unaudited consolidated income statement for the three months ended March 31, 2025, compared to the same period in 2024, detailing net sales, costs, expenses, and net income Geographical Net Sales (Unaudited) This table breaks down net sales by geographic region (Americas, EMEA, Asia Pacific) for the three months ended March 31, 2025, and 2024 Consolidated Balance Sheets (Unaudited) This section presents the unaudited consolidated balance sheet as of March 31, 2025, compared to December 31, 2024, showing assets, liabilities, and equity Consolidated Statements of Cash Flows (Unaudited) This table details the cash flows from operating, investing, and financing activities for the three months ended March 31, 2025, and 2024 Supplemental Non-GAAP Financial Tables This section provides detailed reconciliations of reported GAAP financial measures to adjusted non-GAAP measures, including net income, EPS, EBITDA, operating income, and free cash flow, for the three months ended March 31, 2025 and 2024