Tennant(TNC) - 2023 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents Tennant Company's unaudited consolidated financial statements for Q1 2023 and 2022, including income, balance sheets, cash flows, equity, and detailed accounting notes Consolidated Statements of Income Q1 2023 saw significant growth in net sales, gross profit, operating income, and net income, with diluted EPS rising to $1.30 from $0.55 year-over-year Q1 2023 vs Q1 2022 Income Statement Highlights | Metric | Q1 2023 (In millions) | Q1 2022 (In millions) | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $305.8 | $258.1 | +18.5% | | Gross Profit | $125.5 | $98.9 | +26.9% | | Operating Income | $35.9 | $14.6 | +145.9% | | Net Income | $24.3 | $10.3 | +135.9% | | Diluted EPS | $1.30 | $0.55 | +136.4% | Consolidated Balance Sheets As of March 31, 2023, total assets increased to $1.1 billion, total liabilities marginally decreased, and total equity rose to $493.2 million from $472.1 million at year-end 2022 Balance Sheet Summary | Metric (In millions) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $582.4 | $575.3 | | Total Assets | $1,100.7 | $1,085.1 | | Total Current Liabilities | $256.8 | $261.6 | | Long-term Debt | $293.8 | $295.1 | | Total Liabilities | $607.5 | $613.0 | | Total Equity | $493.2 | $472.1 | Consolidated Statements of Cash Flows Q1 2023 operating cash flow significantly improved to $31.1 million from a $10.1 million use in Q1 2022, driven by higher net income and better working capital management Cash Flow Summary (Q1 2023 vs Q1 2022) | Activity (In millions) | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $31.1 | $(10.1) | | Net cash used in investing activities | $(6.8) | $(8.6) | | Net cash (used in) provided by financing activities | $(10.3) | $8.3 | | Net increase (decrease) in cash | $14.0 | $(13.2) | Notes to Consolidated Financial Statements These notes detail significant accounting policies, revenue disaggregation, debt structure, and derivative instruments, highlighting strong revenue growth across all regions and product categories Q1 Net Sales by Geographic Area (In millions) | Region | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Americas | $204.4 | $160.3 | | Europe, Middle East and Africa | $82.1 | $78.7 | | Asia Pacific | $19.4 | $19.1 | | Total | $305.8 | $258.1 | Q1 Net Sales by Product/Service (In millions) | Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Equipment | $186.4 | $158.1 | | Parts and consumables | $73.4 | $60.6 | | Service and other | $46.0 | $39.4 | | Total | $305.8 | $258.1 | - As of March 31, 2023, total debt outstanding was $299.1 million, with $242.3 million of unused borrowing capacity on the revolving credit facility[52][53] - The company uses interest rate swaps to manage floating rate debt exposure, with an aggregate notional amount of $120 million effective December 1, 2022, exchanging a variable rate for a fixed rate of 4.076%[60] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2023 performance to 21.0% organic sales growth, driven by price and volume, with gross profit margin improving to 41.0% due to effective pricing Results of Operations Q1 2023 consolidated net sales increased 18.5% to $305.8 million, driven by 21.0% organic growth, with gross margin expanding to 41.0% and operating income rising to $35.9 million Components of Consolidated Net Sales Change (Q1 2023 vs. Q1 2022) | Component | Percentage Change | | :--- | :--- | | Price | 10.7% | | Volume | 10.3% | | Organic growth | 21.0% | | Foreign currency | (2.5)% | | Total growth | 18.5% | - Gross profit margin increased by 270 basis points to 41.0% in Q1 2023, driven by pricing realization that offset multi-year inflation on materials and labor[86] - S&A expense as a percentage of net sales decreased by 300 basis points to 26.7%, driven by sales leverage and cost-containment initiatives[87] - The order backlog decreased to approximately $298.5 million at March 31, 2023, from $326.4 million at December 31, 2022, as the company improved its ability to obtain key components and increase production[94] Liquidity and Capital Resources Q1 2023 liquidity strengthened with cash increasing to $91.4 million, operating cash flow improving to $31.1 million, and the debt-to-capital ratio improving to 37.8% - Net cash provided by operating activities was $31.1 million for Q1 2023, a significant improvement from a net cash use of $10.1 million in Q1 2022, driven by improved operating performance and moderating working capital investments[97] - The company repurchased 73,525 shares of common stock for $5.0 million during the first quarter of 2023[99] Key Liquidity Metrics | Metric | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $91.4M | $77.4M | | Current Ratio | 2.3 | 2.2 | | Debt-to-Capital Ratio | 37.8% | 38.9% | Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk have occurred since the end of fiscal year 2022, with further details available in the annual Form 10-K - There have been no material changes in the company's market risk since December 31, 2022[105] Controls and Procedures As of March 31, 2023, disclosure controls and procedures were deemed effective, with no material changes in internal controls over financial reporting during the quarter - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective[106] - 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[107] 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[108] Risk Factors No material changes to risk factors have occurred since the filing of the annual report on Form 10-K for December 31, 2022 - No material changes to risk factors have occurred since the filing of the 2022 Form 10-K[109] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2023, the company repurchased 91,993 shares at an average price of $68.91, with 1,038,808 shares remaining authorized for future repurchase Share Repurchases for Q1 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Purchased Under Plan | | :--- | :--- | :--- | :--- | | January 2023 | 34,637 | $65.90 | 34,637 | | February 2023 | 37,188 | $71.00 | 21,355 | | March 2023 | 20,168 | $70.23 | 17,533 | | Total | 91,993 | $68.91 | 73,525 | - As of March 31, 2023, 1,038,808 shares remain available for repurchase under the company's authorized plans[112] Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and iXBRL financial data - Exhibits filed with the report include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as iXBRL financial statements[113]