TNC - Earnings call transcript Q3 2019

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Operator

Good morning. My name is Jesse and I will be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's 2019 Third Quarter Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call [Operator Instruction] Thank you for participating in Tennant Company's 2019 Third Quarter Earnings Conference Call.

Mr. is meeting today's Beginning William Prate Investor and and Financial of for Tennant Global Relations Planning Company. Analysis Director Mr. Prate, you may begin.

William Prate

call. Director Thank you, Analysis third conference Company's welcome and to William Jesse. Good morning, quarter everyone Investor Relations. XXXX Planning Global Financial of and Tennant I'm and Prate, earnings

Senior Joining are of and Treasurer; and Andy Tennant's Vice President Chris President President Woodward, Controller; CEO; Keith Vice President me Vice Stueve President Counsel. Talbott, Vice and General today Finance Mary Corporate Senior and Killingstad, and CFO; and Tom Cebulla,

we quarter Today, our progress for up we will will against and After our update will on and questions. remarks, cover you and strategies regarding core open our strategies, our will the our performance you financials. Keith Chris call guidance. full-year operations first brief the third our

are at accompany slides a Investor of conference today's slides, on These will investors.tennantco.com. to Relations replay call. our along be available with call, website using We this

please advised uncertainties expectations morning we in in of today's statement for we Before Company's our a contained These subject and remarks Such may answers future are the differ Exchange affect particularly Safe to to this Harbor our release performance. and may you uncertainties from results. statements materially be forward-looking regarding documents, actual that and our and and uncertainties our questions statements. with these to those are begin, and contain description statements risks that results the encourage risks the our documents the We news described file Commission. and Securities review risks those of

exclude certain discuss non-GAAP will that items. call, or this include on we Additionally measures

non-GAAP a our include measures to results. Our XXXX GAAP third quarter release reconciliation of earnings these

and posted morning Relations was via our Our investors.tennantco.com. Business this Investor earnings is issued also Wire website at on release

I will over the to Chris. turn call Now

Chris Killingstad

to thanks for today. and joining William, you of us all you, Thank

profitable in value. quarter third results create consistent order our delivering shareholder to to reflect growth Our commitment long-term

mixed navigating expansion, conditions organic delivered economic growth worldwide. and quarter while the positive we, once again, and During EBITDA market

organic prior growth X.X% we was expanded over by and quarter the EBITDA XX.X%. year our margins points Specifically, to XX basis

in As are during our potential the which with is Company focused addressable moving profitable we value and on of platform. you extended we've Tennant and geographic shared unlocking of our previous from footprint market strategic now period a and expansion we quarters, broader growth

track involve will stronger the growth rebalancing of represents performance, we strategy our far year-to-date And core and the strategy -- This on seen we've we're that implementing right model. been performance move balancing the forward third of and that our with reasonable improving the are encouraged thus results XXXX. in as our EBITDA of can signal results initial and be we that which in quarter operating

strategy recall As you earnings based of on profitable three support call, is in from pillars growth. our last may our

have where competitive we is The first pillar strategic winning advantage.

also portfolio, our many We have evaluating business more advantage. we all refining the its business portfolio where ago. are customers our understand to of geographies, Tennant products, us three gives years including but the competitive and importance it a This and much underscores our channels, is truly was organization strengths than diversified advantages, capabilities. larger optimize and aspects to strongest of

within through profitability most strategic and and will create across our operational the of and to quality, supply business and completely we speed our organization By are our that processes. the Equally chain efficiency to options, scale our our enhance across decision configurations key selling building process to help important making. and and business second demand These the and increase are our of is entire actions simplify control. reducing popular The highest business designed on products complexity simplify plants effort the standardize overall is our focusing pillar processes. and the efficiencies and flow machine

our on challenges customers health as building to as with cleanliness position associated by they face and bring to labor The solutions innovation and Third our creative standards, leader, an new is ways goals. pressures, compelling finding pillar sustainability

Our highly three and strategic interconnected mutually pillars reinforcing. are

we competitive and identifying adjusting our overarching advantage, greatest enable areas and where have are product our generate for strategy, so, the can offerings us further our strongest innovate we simplifying implementing our Doing we accordingly. strategy, where in value to the customers In will shareholders. go-to-market the

first last in strategic the product to in are discontinuations to directly pillar. category tie mind, we Industrial that that similar additional announcing With quarter, our

have our and growth outdoor and Specifically, sweeper. the plans. Outdoor Vacuum, Sentinel, detract volumes, a operational customers, and All-Terrain Both vacuum unit ATLV discontinuing that have support declines investment and in we ride-on products Tennant's required margins, are experienced from

strategic Winning products value. changes These to pillar. within to allowing fit our are significant and strategy. our our profitable portfolio that investment require are growth differentiated In investments would and with us order our optimizing these greatest on second does deliver centric are refocus so, about executing in the we customer not doing

we're By ready make reducing the decision more evolving and needs dynamic our agile configurations, simplification the customers. sales That to models, a and manufacturing reduce meet us that and for times simplifying eliminating lead process older manufacturer and products, machine also team of same overlapping customers. our making will remains

us technology that our Simplification in in bringing the are biggest to can products addresses end, high-value pain directly points also our Optimizing that To our we to investing market. strategic product increase drive customers. our innovation, portfolio pillar. for new enable third will efforts

excited last new we innovation autonomous faced TX by As the robot, industry leading we North product last number addresses example of to is increasing challenges labor the in this an America. This our announce AMR, of quarter, highlighted of our customers. great our directly year, which were commercialization a time

introduce we excited all, EMEA company to month. the ahead. this surface can product starting in this We just look equally what of customers forward with to region, you in sharing to this and In the months are are innovative a our as We scratching going is accomplish. more we the where

Keith. to call turn Now, over the with that, I will

Keith Woodward

my non-GAAP are diluted Please and GAAP fully share and a Thank earnings morning, on good comments in per Chris, references basis. you, both note to that everyone. today,

better third quarter our balance from results a mixed profit of goals initiatives. efforts Tennant's with conditions ongoing growth factors reflect market to to end number enhancing our

quarter For XXXX, sales reported Tennant $XXX.X year-over-year. X.X% the net up of of million, third

Organic recent of the effects impact X.X%. acquisitions which currency and exclude rose sales,

Our QX softness last growth the This versus diversifying our is revenue this especially strong demonstrates of of as value organic total and markets Asia-Pacific European the encouraging streams. organic sales quarter. rose comparison well in light which growth the to tough year, sales as the across growth X.X% of year last in

diluted bottom XX.X% adjusted share. the line, $X.XX million On $X.XX per we share. net basis, per $XX.X diluted an or earnings or of earnings $XX.X grew On million to reported net

for We reflect results improvement expand are by model we quarter, our believe efforts to encouraged which operating the our profitability. our ongoing

our covers We Middle and sales and Americas, group We take sales Europe, markets. EMEA, which which geographies; Australia all East North of America; Asian the now look three Africa; a Asia into the Japan, will Latin at which America includes China, other includes results. closer Pacific, and and

and were and Sales for strength consumables or the North businesses. channel organic and America. an performance Americas demand related in on America Equipment, continued machine, the strong in driven autonomous in basis, X.X% X.X% direct by Industrial service America region parts was North Tennant's reflecting up cleaning in Latin The the in growth growth to and

what regions. strength the growth CEEMEA declined Sales of Xth of for X.X% in year-over-year In weakness and Industrial in was was This notable EMEA persistent consecutive the the result for X.X%, in United weakness organic Mexico America down Equipment region Kingdom the Latin America, region. the drove with demand quarter South organically. in market or and across sales

long-term While plans continued by on this market weakness purchasing industry-wide track. the customers, for region remain and is uncertainty by spurred our general delays

For a significant in when difficult reported sales was comparison we the combined Asia with XX.X% growth up APAC. region, X.X% X.X%, This but with QX, Pacific organically. due primarily reported China organic were to in softening declined XXXX,

Now margins. onto

EBITDA strategic are growth. enhancing Our focused pillars on

our that of in and impact demonstrates margin XXX implementing result We path. favorable more quarter performance changes key as costs on basis are third believe points pricing material and to XX.X% the quarter are the efforts offset third than still the but Adjusted improved mix, right of tariffs. we lower stages of we and actions, gross year-over-year cost freight that a inflation geographic the in reduction earlier channel

XXXX period. initiatives costs, given benefits S&A of XX.X% to were Turning a the anticipated expenses net compared profitability compensation XX.X% the drive stronger the continue The third adjusted increase enhancement year-ago improvement was In to performance. and quarter, higher our our during the the in sales expenses, in XXXX quarter. of result total, to

of or of XX.X% X.X% adjusted improvement an basis sales, EBITDA Our points. XX $XX.X to million increased

country and the had tax expected As year the XX.X% ago decrease during in was items. discrete for primarily full-year in third to an to quarter. due increase The adjusted tax tax our in quarter, by the X.X% of earnings rate, taxable mix rate compared Tennant favorable a effective

balance quarter, primarily performance. in cash $XX.X accounts sheet the and Tennant overall items; with collections strong of of cash flow, Turning outstanding on now top improved operating to capital generated for from receivable allocation operations million

the cash shareholders. During in dividends $X period, to its outstanding reduced and the by paid million same debt million $XX Company

an the Lastly, revised $XX organic capital effective announcement, growth XXXX as adjusted diluted range adjusted $X.XX expenditures included billion $XXX $X.XXX earnings range of million million in to our share; $X.XX follows: which X.X%; as $X.XX $X.XX share; is with full-year EBITDA of $X.XXX per in have GAAP of $XX rate tax X.X% net per the million; earnings today's of sales million; XX%. to diluted $XXX to of of we and to billion EPS to guidance, of to approximately sales in

be market conditions. lowers growth expect softening sales to to We line top growth This rates. consistent due expectations QX global QX with our

operating and However, our we've ranges. EBITDA our given raised the guidance success of improvements, EPS model

our in in growth deliver reminder, on Overall, this and and the line we and our guidance improve reflects noted, executing As our to top growth progress EBITDA drive making we to are believe to strategy. a goals margin reasonable are commitment value. Chris order shareholder as

Operator, we the call open will go that, to ahead. questions. please With

Operator

Moore Thank with question Your first instructions] you. CJS comes Chris from Securities. [Operators

Your line is open.

Chris Moore

Hey, good morning guys.

Chris Killingstad

Chris. morning, Good

Chris Moore

Good morning.

autonomous perspective, bit of that the or January talked aggressive might that with start likely you're the seeing? scrubbers pace AMR. the for kind end of does still that your X,XXX -- XXXX. a Walmart Does Just look know by had little be I about from

Chris Killingstad

call AMR and in of we other introducing rollout with to expectations and our America sell year said in Asia next regarding the North No, of into as this customers I commercialized units expanding at also month. AMR that other interest AMR moving is And Japan we to beginning are Pacific. build. Europe news looking think continues Walmart for and this we're in and are Good we year. on to track both in in the are today, our parts We've

the a think we we with and with pleased extremely in we're are we progress are AMR position. so far So, making leadership

Chris Moore

in XXXX that coming to too And is reasonable that? think additional early know is it. for sales or Walmart it there Got that to to

Keith Woodward

we with don't That on a announce comment orders. unique was their initiatives. fairly customer Chris, situation they when Walmart

comment So, a we do we as not on general rule, that.

Chris Moore

Is of it's kind million there? level it there at been additional quarter it. will that a roughly R&D, Got or coming that moving $X of where forward, is or so. be expenditure the kind

Keith Woodward

bit a have it's timing, in of invest just to areas the space accordingly. it's on like of you, to and we and efforts, and of innovation old it's been continue year. robotic in tell a I work more on. will up lot lot innovate continue back-end want A Yes, which we Chris, to ramp to space of our the that related kind this loaded

Chris Moore

for they The talked contribute Got that this did first Sentinel, products nine the the about months ATL revenue you two it. significantly of to discontinuing, year? and

Keith Woodward

us, it's It's million Yes, a -- range to an in the for $XX $XX huge million basis. Chris. annual amount it's not on

partially still really those with in back in market XXXX, will half be businesses through out We those and of of XXXX. the the

Chris Moore

the a margins and -- if even Gross gross -- better margin Got is that's on well? side. but is know operating I'm that between level been a through say were though of to a as this it. so you're the let's better It's -- And absorption, helpful. we've sense EBITDA -- kind focus, targeting quarter. Is the understanding improved there EBITDA my longer-term improved this there still target, trying improved I is little margin just bit, a get on expense the gross that mix XX%.

Keith Woodward

talked I've about Chris. this before,

in all P&L. it We get have the of parts to

handling making So of us tariffs, of inflation focus the in of increases on out, efforts kind way at any we efficiency cost our it in as are and etcetera. come our sure terms

we'll the and to have all We are focus way that, but gross our the on sure make right margins continue P&L. through also to

going margins So for as we're going come that to to it's it's we keep safe gross forward. as and assume the areas from S&A the to we and going focused both are well on year performance seeing like our costs that on

both. combination So be a will it of

Chris Moore

it. Got

appreciate I line. will back jump in it. Okay, I

Keith Woodward

Thanks, Chris. right. All

Operator

comes from Your with Instructions] Capital Stonegate next Rodriguez [Operator question Market. Marco

Your line open. is

Marco Rodriguez

guys. Thank for taking morning, Good my questions. you

Chris Killingstad

Marco. Good morning,

Marco Rodriguez

can growth the of X% wondering was little and about Americas hey, prior if a wondering and was a saw there. I the -- you more growth strong organic growth year bit maybe well. nice the I just in if had pretty you as you rate shy of quarter Pretty organic talk

would You’ve the out the if channel of that the kind TX pulled direct helpful. Maybe can strength of be organic services. was where kind kind of rank comp there that you drove

Chris Killingstad

And it were in That would we to direct a third of historical for EMEA came us contributor it's I categories. across about declines most most still North saw channel, and in has is the this APAC. sweet and No, draw of that the Yes. as consumables, through that in pleased the would of and America. it well. sales and TX of say all business parts market kind the quarter which you the I through mean, AMR tends in or in spot businesses in also strength the quarters was those been What America, highest see But high margins. part I the North margin a said that year. robust our to has all most also also say are all we've the it significant to industrial which now

fairly all weak guess. So anybody's those I whether now, markets are Europe just that's think, holistically short long across term, right it's markets, in or term think I

based that have a North remained the of market little North has is we've China. In in seen up. the years, there drop-off three that and in bit but then I ramp seen back two, We over happened significant seeing signaling a again, slowdown what's American activity a we in America, it too, robust, are think slowdowns they last on we're

us for in more So, business down this a in there's as just no move XXXX. it's point, lull a way into to step or at if the action activity tell sustained we

Keith Woodward

add What just initiative, the driver to the Marco, positive robotics well. is demand I but you a America, in for innovation to in would continues certainly certainly and innovation be that know is globally too, as North very

for So us. that continue will and to support be big focus a

Chris Killingstad

for Yes. our think competition. been us that's differentiator I And versus a

our our is the performance they’re You may have including that and and North all America, industry geographies publicly much seen, only think favorable struggling in company We puts publishes I Nilfisk results like more in position. that our in a light.

Marco Rodriguez

it. Got very That's helpful.

I feedback called guys you for well there this to one America if is first sort seem the in your will. but you as the China, in crystal obviously and out has of this weakness as what a you're wondering that what Just from Asia, far think that China bit. to obviously Americas I hearing specific change though, nobody the see saying ball, that as North know clients outlook, starting time from to a has perfect is have some -- kind of softening and you're I be no mean, you're in receiving

Chris Killingstad

we business China, is split two. in our into Well, --

where enough quarter in dealers and ordering and in We draw by extensive have an felt direct of slowdown pretty we differently, inventory of to much sales still dealer parts far an business these stopped really conditions. the the and dealer kind two the And uncertain have the it is but biggest. third inventory where we That's emerging saw service they more perform a down business. had network the

building is to is, to I good and So know. and the continues momentum. whether that's channel sales not, the is it gain service that or growing direct we're don't be news sustained But

to sign that's in time. very and forward a mix So we bigger going positive much us of bigger and part that for like see China sales a be over our

signal Now them when start U.S us that to the having place and delaying delay orders, been and and a for keep recessions and since they seen has then lot XXXX been their that, them. ups customers of at they key Tennant of meaning all and downs historically our

that. seeing yet not are We

are are deals, of is off that period a right, things big a impacted One sales. positively facing of we lot that we really of have the our coming

is, So are pull to a little the more that us. being that big time could is there are right of that deals deciding in it customers that think what there the I when replacement out trigger to on cautious fleets, large is come

business, the So down we're seeing we're kind market and up that's of not downturns. the one watching far the the precede carefully. signals street But traditional piece that so past day-to-day

Marco Rodriguez

brought mix, Then now manufacturing a pricing guys gross pricing Got Can bit positive you you reductions it. talk shifting little and here expenses. lower costs to out of the aspects. helpful. the margins, Very freight overall about

you through or the on I of the did in being kind think maybe your percentage some just overall us through you channel board prices higher increases direct can these buckets? sales. with kind mix, think of But touched of the across the help different push you significant

Keith Woodward

mean year, I the we of are would to costs the going coming, we a the took we at were XXXX, hit where that say of see it I us little behind. pricing inflation, freight beginning and didn't year the if the you ahead in tariffs XXXX. this go We Yes, didn't see we what Marco, bit got to is back

XXXX in that back it we're ahead which mid-year and took gross on would through that's in pricing little we than XXXX, pricing relative a for our January helped So of you first tell really in it basis, the that the so and And XXXX, of sustaining XXXX. bit that half half. year, I and took we in got more carrying margins a

Marco Rodriguez

to understand need to take more margin on SG&A the level. you last actions earlier quick OpEx question. hit just in Obviously, to Helpful. earlier here, on Got kind margin a then And bit here of EBITDA your comments your targets. gross side, question an it. side And those your little then

consideration running quarters add contingent and prior around you $XX back million. the the $XX With you're of the two were $XX million; in million

how the too the line, sense your SG&A more get want assuming Just given you strategy. of trying can away to part innovation of R&D, you much a take take out from much of obviously don't to

Keith Woodward

up I then P&L. I out I gross opportunities on are the our of as kind are really you, you, tell think just our And start would what Marco, the S&A, just tell like in our of think cost margin and it's continued said portfolio Yes, that there getting earlier said in initiatives doing productivity streamline side. parts all Chris like will feeds and I and I on we focused to through. cleaning processes and on I comments, his before,

are there to continue where organization? grow things organization approach disciplined think I opportunities to So do getting to lot more being large a and of etcetera. our more and on taking there how additional getting professional processes of matter kind into across services, we efficient this the focused a Really just, of

for I focus it. in on we and continue get that and will it after still see opportunities space us So to

Chris Killingstad

also and make take think appropriate say like efficiency to actually to to that happen. in that get that after some that it's to investments would to going IT I the we get ensure enablers service short-term we’ve and levels to possible, areas are the

Keith Woodward

invest will, that In thoughtful P&L, we then disciplined do that you in things going if it and kind about in appear, the earn to we just is, the way throughout the right are see those are as we being we fashion. a about of very

Marco Rodriguez

your Got time, Appreciate it. Understood. guys.

Chris Killingstad

Marco. Thanks,

Operator

over would management the Since to no at time, remarks. like I there to closing turn for call this further questions are

Chris Killingstad

Jesse. Thanks,

joining thanks us for again So today.

note, on City. be final Day York in Investor XXXX will an March a XX, as So, we hosting New

with are to you operations comprehensive goals our forward up to strategy, and forward there. end look look we and an of seeing many We providing and investors looking at

call. this you our concludes and day. nice So, Thank third a have quarter earnings

Operator

This concludes today’s conference call.

You may now disconnect.

Tennant (TNC) 1 Nov 192019 Q3 Earnings call transcript