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Tennant(TNC) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Second quarter net income was $16.6 million compared to $9.8 million in the prior year period, impacted by nonrecurring items [25] - Adjusted EPS for the second quarter was $0.92 per diluted share compared to $1.18 per diluted share in the prior year, primarily due to lower gross profit and higher income tax expense [26] - Net sales for the second quarter were $280.2 million, a 0.4% increase year-over-year, driven by a 4.4% organic sales increase on a constant currency basis [28] Business Line Data and Key Metrics Changes - The increase in consolidated net sales was driven by higher selling prices and growth in services, parts, and consumables [29] - Adjusted EBITDA for Q2 was $30.3 million or 10.8% of sales, down from $35.1 million or 12.6% of sales in 2021, due to lower production volumes and inflationary pressures [32] Market Data and Key Metrics Changes - Organic sales in the Americas and EMEA increased by 6.5% and 3% respectively, while APAC organic sales declined by 4.5% due to volume declines in China [29][30] - Overall demand remains strong except for China, with limited availability of certain parts constraining the ability to meet volume demands [31] Company Strategy and Development Direction - The company is focused on stabilizing its supply chain to unlock production and reduce product lead times, while also executing pricing strategies and maintaining cost discipline [15][20] - Strategic investments are being made to drive short-term improvements and long-term growth, particularly in the AMR (Autonomous Mobile Robots) program [13][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to deliver results within the guided range despite supply chain constraints and foreign currency headwinds [37] - The company anticipates that supply chain constraints will continue to impact production but expects improvements in the third and fourth quarters [38] Other Important Information - The company reported a cash balance of $73.8 million and $279.1 million of unused borrowing capacity on its revolving credit facility, indicating strong liquidity [36] - The company is investing in solar panels to mitigate increasing energy costs and support sustainability goals [21][22] Q&A Session Summary Question: Backlog status and pricing impact - Management confirmed that backlog increased sequentially in Q2, driven by robust demand and inability to ramp production at the desired pace [45][46] - Approximately 80% of the backlog was booked in the first half of 2022, with strong price realization expected as backlog works through [50][51] Question: Supply chain visibility - Management noted a moderate change in supply chain visibility, with suppliers increasingly meeting extended lead times, but overall challenges remain [53][54] Question: Confidence in guidance amid FX headwinds - Management acknowledged the uncertainty and moving parts affecting guidance but emphasized control over certain elements and actions taken to mitigate risks [63][68] Question: Inventory and cash flow expectations - Management expects to consume inventory as plant output increases, leading to positive cash flow in the second half of the year [72][73] Question: AMR product performance and market penetration - Management expressed bullishness on AMR technology, noting significant sales and customer interest, with a focus on expanding the product portfolio [75][78]