earnings release conference call third quarter...

TENNANT COMPANYEarnings Release Conference Call

Third Quarter 2016

Tuesday, October 25, 2016

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Chris KillingstadPresident and CEO

Tom PaulsonSenior VP, CFO

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TENNANT COMPANY

On the Call Today

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

Additionally, on this conference call we will discuss non-GAAP measures that include or exclude special or non-recurring items. For each non-GAAP measure, we also provide the most directly comparable GAAP measure. There were special non-GAAP items in the third quarter of 2015. Our 2016 third quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results for the third quarter and EPS for 2015 full year.

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TENNANT COMPANY

FORWARD LOOKING STATEMENTS & NON-GAAP MEASURES

• 2016 third quarter consolidated net sales of $200.1M– Sluggish environment for industrial manufacturers– Lower sales in EMEA and APAC– Record revenue for a third quarter in Americas

• Sales through strategic accounts and sales of new products

– Net earnings of $0.64 per diluted share• Tennant remains competitively well positioned

for growth– Expect to return to organic sales growth in 2016

fourth quarter

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TENNANT COMPANY

2016 Third Quarter Overview

• Acquired Florock® Brand– Expands our commercial floor coatings business– Combination of Tennant Coatings and Florock opens

new markets and strengthens value proposition

• Acquired Assets of Dofesa Barrido Mecanizado– Long-time distributor of Tennant equipment in

central Mexico– Acquisition is a key investment for growth in Latin

America– Enhances Tennant’s sales and service capabilities

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TENNANT COMPANY

2016 Third Quarter Acquisitions

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• New products and technologies

– Sales of new products introduced in last three years

was 37% of equipment sales in 2016 first nine

months

• Plan to launch 10 new products in 2016

– Several significant industrial machine launches

– Launched M20 & M30 Sweeper-Scrubbers and T20

Heavy-Duty Industrial Rider Scrubber with high-tech

features

– Launched M17 Battery-Powered Sweeper-Scrubber

TENNANT COMPANY

New Products

ec-H2O NanoClean®

The Responsible Way to Clean

Next generation ec-H2O | Cleans more soils in more applications

HOW IT WORKS:EC-H2O™ SCRUBBERS | 2008 thru 3Q 2016

$1.0 billion+cumulative revenue

8,000+customers

30,000+ sites

85,000+machines

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Record Sales of $157M in 2015

– +

Water

Recycling

Battery

TechnologiesRobotics

(AGV)

Asset

Management

Advanced Product DevelopmentFuture Technologies

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DIGITAL TRANSFORMATION

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IRIS®

e-Business

e-CommercePlatform

CRM

• Diverse portfolio of initiatives to create value

• Introductions of new products and technologies

• Expanding global sales and marketing to increase global market share

• Building Tennant’s e-Business capabilities

• Concurrently running a more efficient business to raise productivity

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TENNANT COMPANY

Growth & Profitability

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Q3’16

SALES

GROSS MARGIN

R&D EXPENSE (% of sales)

Adjusted*S&A EXPENSE (% of sales)

Adjusted*

OPERATING PROFITAdjusted*

OPERATING PROFIT MARGINAdjusted*DILUTED EPS

Q3’15 CHANGE

TENNANT COMPANY

2016 THIRD QUARTER

$200.1 M

42.6%

4.2%

30.3%

$16.3 M

8.1%

$0.64

$204.8 M

43.3%

4.0%

30.7%

$17.5 M

8.6%

$0.68

(2.3%)

(70 bps)

+20 bps

(40 bps)

(7.4%)

(50 bps)

(5.9%)

Organic Sales Growth (2.2%) | Americas Organic Growth 1.2%

*Q3’15 results are adjusted to exclude restructuring charge in S&A of $1.8M pre-tax ($0.09 per diluted share) and non-cash long-lived asset impairment of $11.2M pre-tax ($0.64 per diluted share).

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• Sales up 1.2% organically(excluding 1.0% impact from Florock acquisition)

• Record sales for a third quarter

• Increased sales to strategic accounts and sales of new products

• Latin America achieved 10% organic sales growth

• Larger-than-normal order backlog at quarter end

TENNANT COMPANY

2016 Third Quarter by Region

AMERICAS

• Sales decreased 7.6% organically(excluding approx. 2.5% unfavorable foreign currency impact and 5.0%impact from divestiture of Green MachinesTM outdoor city cleaning line)

• Positive organic sales growth through distribution in Western Europe, more than offset by organic sales declines elsewhere, particularly in the U.K.

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EMEA

TENNANT COMPANY


• Sales declined 15.1% organically in 2016 third quarter(excluding 2.0% favorable foreign currency impact)

• Strong organic sales growth of 21.3% in 2015 third quarter and organic sales increased in all countries within this region

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APAC

TENNANT COMPANY


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Q3’16

SALES

GROSS MARGIN

R&D EXPENSE (% of sales)

Adjusted*S&A EXPENSE (% of sales)

Adjusted*

OPERATING PROFITAdjusted*

OPERATING PROFIT MARGINAdjusted*DILUTED EPS

Q3’15 CHANGE

TENNANT COMPANY

2016 THIRD QUARTER

$200.1 M

42.6%

4.2%

30.3%

$16.3 M

8.1%

$0.64

$204.8 M

43.3%

4.0%

30.7%

$17.5 M

8.6%

$0.68

(2.3%)

(70 bps)

+20 bps

(40 bps)

(7.4%)

(50 bps)

(5.9%)

Organic Sales Growth (2.2%) | Americas Organic Growth 1.2%


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SALES

GROSS MARGINAdjusted*OPERATING PROFITAdjusted*

OPERATING PROFIT MARGINAdjusted*

DILUTED EPS

Q3’16 Q3’15 CHANGE

TENNANT COMPANY

2016 THIRD QUARTER“CONSTANT CURRENCY” VIEW (excludes estimated foreign exchange impact)

CONSTANT(1)

CURRENCY

Q3’16

AS REPORTED

(1)“Constant Currency”: estimated income statement which assumes no change in exchange rates from prior year.


$200.1 M

42.4%

$15.8 M

7.9%

$0.62

$204.8 M

43.3%

$17.5 M

8.6%

$0.68

(2.3%)

(90 bps)

(10.2%)

(70 bps)

(8.8%)

$200.1 M

42.6%

$16.3 M

8.1%

$0.64

Remain committed to at least 12% OP Margin

• Drive organic revenue growth in mid- to high-single digits

• Hold fixed costs essentially flat in manufacturing as volume rises

• Strive for zero net inflation at gross profit line

• Standardize and simplify processes to improve scalability of business model

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TENNANT COMPANY

Operating Profit Margin Goal

• Overall effective tax rate for 2016 first nine monthsof 30.6%

• Base tax rate of 31.7%(excluding routine discrete items)

• Federal R&D tax credit – was re-enacted for 2016; favorable benefit included in 2016 tax rate

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TENNANT COMPANY

Successful Tax Strategies

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TENNANT COMPANY

Strong Balance Sheet

Commitment To Shareholder Return

FY ‘15 YTD Sept ‘15 YTD Sept ‘16

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TENNANT COMPANY

2016 EPS & Sales Guidance

2015ACTUAL

As Reported$1.74 EPS

$811.8M SALES

As Adjusted

$2.49 EPS$811.8M SALES

2016 Financial Outlook$2.40 to $2.60/$805M to $815M

KEY EXPECTATIONS FOR 2016• Net sales in the range of $805M to $815M versus $811.8M in 2015.• Continued slow economic growth in North America, modest improvement in

Europe, and growth in emerging markets.• Unfavorable foreign currency impact on sales of approximately 1%.• Sales decline from Green Machines divestiture of approximately 1%.• Sales increase from Florock acquisition of approximately 1%.• Organic sales growth, excluding foreign currency exchange impact, divestiture

and acquisition in the range of 0.2% to 1.4%.• Foreign currency exchange headwinds estimated to negatively impact operating

profit in the range of $2M to $3M, or approximately $0.08 to $0.12 EPS.• Gross margin performance in the range of 43% to 44%. • R&D expense of approximately 4% of sales.• Effective tax rate of approximately 31% (negatively impacting 2016 by

approximately $0.05).• Capital expenditures in the range of $25M to $30M.

QUESTIONS?

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Tennant is Well Positioned!

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Competitively advantaged in the market

with our innovative product and technology

portfolio and go-to-market strategy

Well positioned to leverage our

operational efficiency

earnings release conference call third quarter...

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