TENNANT CO Q3 FY2024 earnings call

• Third quarter net sales were $315.8 million, a 3.6% increase. Adjusted EBITDA was $47.9 million with a margin of 15.2%.
• Order rates were strong, up mid-single digits year-to-date. Americas had strong order growth due to pricing and volume; EMEA had double-digit order rate growth despite market softness; APAC was impacted by China's market slowdown.
• Strategic initiatives include focusing on pricing (targeting 50-100 basis points annual growth), new product development (X4 Rover launched, targeting 150-200 basis points growth), and ERP modernization project on track with staggered go-lives in 2025.
• Product launches: T291 small walk-behind scrubber in North America; iMOP family expanded to new geographies.

In the third quarter, equipment sales grew 3.7%, service and other grew 9.2% while parts and consumables remained unchanged. Organic sales in the Americas increased 4.6% compared to the prior year period. Organic sales declined 0.8% in EMEA and 4.3% in APAC. AMR products accounted for approximately 5% of net sales for the first nine months of 2024.

• Reaffirmed 2024 guidance: Net sales in the range of $1.28 billion to $1.305 billion (organic growth 2.5% to 4.5%), adjusted EPS $6.15 to $6.55 per diluted share, adjusted EBITDA $205 million to $215 million, adjusted EBITDA margin 16% to 16.5%, and capital expenditures approximately $20 million.

• Backlog reduction faster than expected due to lower than expected incoming orders for industrial equipment. - Economic softness in EMEA and challenging business environment in APAC. - Freight costs and inflationary pressures as temporary headwinds.

Q: About AMR performance A: Dave Huml clarified that the 5% number is on total revenue for all AMR products, with the X4 Rover ramping up.

Q: Backlog and industrial orders A: Dave explained that backlog reduction is on track to $130 million by year-end, due to lower industrial equipment orders specific to the rental channel.

Q: ERP modernization A: Fay West detailed $25 million spent year-to-date on ERP, $37 million full-year plan, expecting $10 million to $15 million efficiency savings.

Q: APAC strategy A: Dave discussed focusing on the higher end of the product line, industrial verticals to offset China's commercial product pressure.

Q: EMEA acquisition A: Dave noted the acquisition is performing well, leveraging existing customer relationships.

Q: Q4 guidance A: Dave explained Q4 needs $334 million revenue, driven by backlog reduction and strong pipeline.

Q: AMR impact on growth A: Dave highlighted AMR's long-term potential, over 8,700 units deployed, expecting continued growth.

Q: Rental industry impact A: Dave addressed rental industry's extended replacement cycles as temporary, focusing on other growth levers.

Q: Freight and inflation A: Dave and Fay noted temporary freight headwinds, pricing expected to offset inflation.