Tennant Company Reports 2019 First-Quarter Results

Net sales of $262.5 million in the first quarter

First-quarter GAAP diluted earnings per share of $0.29; adjusted
diluted EPS of $0.49 per share

Adjusted EBITDA growth of 17 percent to $29.5 million, up 200
basis points to 11.2 percent of sales

Company reaffirms 2019 guidance for net sales, Adjusted EBITDA and
EPS

MINNEAPOLIS–(BUSINESS WIRE)–Tennant Company (“Tennant”) (NYSE: TNC), a world leader in designing,
manufacturing and marketing of solutions that help create a cleaner,
safer, healthier world, today reported first quarter 2019 results. For
the 2019 first quarter, Tennant Company reported net sales of $262.5
million, down 3.8 percent, which included a 3.4 percent reduction from
currency. Excluding currency impacts, organic sales were down 0.8
percent. Net earnings were $5.4 million, or $0.29 per diluted share,
compared to $3.3 million, or $0.18 per diluted share, in the 2018 first
quarter. Excluding non-operational items, adjusted net earnings grew 82
percent to $9.1 million, or $0.49 per share, compared to adjusted net
earnings of $5.0 million in the 2018 first quarter, or $0.27 per share.
(See the Supplemental Non-GAAP Financial Table.)

Chris Killingstad, Tennant Company’s president and chief executive
officer, said, “Our margin improvement initiatives and pursuit of
profitable top-line growth are key focus areas for Tennant. The
first-quarter results reflect progress in these areas, as well as some
challenging sales comparisons. During the quarter, our sales reflected a
combination of factors: difficult comparisons to the robust amount of
strategic account activity in last year’s first quarter, industry
softness in the United Kingdom, and the negative impact of currency.
These factors were partially offset by strength in Latin America and
across Asia Pacific. We are encouraged by our profitability gains during
the quarter, which reflect our ongoing, broad-based margin improvement
efforts, a favorable mix within our sales channels, and our disciplined
management of controllable expenses. Overall, we are pleased with our
earnings performance during the first quarter and are confident in our
underlying growth and profitability outlook.”

First-Quarter Operating Review

Regional Sales Highlights

  • Americas – Sales in the Americas declined 1.1 percent, but were up 0.3
    percent organically, reflecting strength in Latin America. The decline
    reflected challenging sales comparisons in North America due to strong
    strategic account activity in the 2018 first quarter.
  • EMEASales in EMEA declined 12.0 percent, or 5.0 percent
    organically, reflecting challenging sales comparisons in key countries
    due to strong strategic account and distributor-channel sales activity
    in the 2018 first quarter and general industry softness in the United
    Kingdom.
  • APAC – Sales in this region increased 10.3 percent, up 8.4 percent
    organically, due to broad-based strength across the region in both
    direct and distributor channels.

Profitability Measures

  • Gross margin – Gross margin in the 2019 first quarter was 41.2
    percent, up 120 basis points year over year and benefited from pricing
    actions and favorable channel mix.
  • Adjusted EBITDA – Adjusted earnings before interest, taxes,
    depreciation and amortization during the 2019 first quarter grew 17
    percent, an improvement of 200 basis points, to 11.2 percent of sales,
    reflecting Tennant’s broad-based efforts to balance spending
    discipline with investments in EBITDA expanding initiatives. (See the
    Supplemental Non-GAAP Financial Table.)

Cash Flow, Capital Allocation and Other Items
During
the quarter, cash flow from operations reflected a usage of $11.6
million, primarily from higher inventory levels to support future sales
growth and employee compensation and benefit related payments. During
the same period, the company borrowed $13.0 million from its available
credit facility, paid down $8.0 million of our outstanding debt and paid
$4.0 million in cash dividends to shareholders. In addition, during the
quarter the company implemented a restructuring action of $4.3 million
to further integration efforts related to the IPC Group and paid $11.3
million as an initial payment related to the Gaomei acquisition.

2019 Business Outlook
Killingstad
concluded, “Our approach to creating long-term value for our
shareholders prioritizes driving profitable growth by focusing our sales
efforts and investments on the most value-enhancing opportunities,
building on our position as an innovation leader, and deepening our
operational rigor and financial strength. We have initiatives in place
to address each of these key areas and we expect to make continued
progress in 2019 and beyond.” For 2019, Tennant reaffirms the following
previously provided guidance:

  • Net sales of $1.15 billion to $1.17 billion, reflecting organic sales
    growth of 2 to 3 percent;
  • Reported GAAP earnings in the range of $2.05 to $2.25 per diluted
    share;
  • Adjusted EPS of $2.30 to $2.50 per diluted share;
  • Adjusted EBITDA of $129 million to $133 million;
  • Capital expenditures in the range of $40 million to $45 million; and
  • An effective tax rate of approximately 20 percent.

Conference Call
Tennant will
host a conference call to discuss 2019 first-quarter results on April
30, 2019, at 10 a.m. Central Time (11 a.m. Eastern Time). The conference
call and accompanying slides will be available via webcast on Tennant’s
investor website. To listen to the call live and view the slide
presentation, go to investors.tennantco.com
and click on the link at the bottom of the home page. A taped replay of
the conference call, with slides, will be available at investors.tennantco.com
until May 30, 2019.

Company Profile
Founded in
1870, Tennant Company (TNC), headquartered in Minneapolis, Minnesota, is
a world leader in designing, manufacturing and marketing solutions that
empower customers to achieve quality cleaning performance, reduce their
environmental impact and help create a cleaner, safer, healthier world.
Its products include equipment for maintaining surfaces in industrial,
commercial and outdoor environments; detergent-free and other
sustainable cleaning technologies; cleaning tools and supplies; and
coatings for protecting, repairing and upgrading surfaces. Tennant’s
global field service network is the most extensive in the industry.
Tennant Company had sales of $1.12 billion in 2018 and has approximately
4,300 employees. Tennant has manufacturing operations throughout the
world and sells products directly in 15 countries and through
distributors in more than 100 countries. For more information, visit www.tennantco.com
and www.ipcworldwide.com.
The Tennant Company logo and other trademarks designated with the symbol
“®” are trademarks of Tennant Company registered in the United States
and/or other countries.

Forward-Looking Statements
Certain
statements contained in this document, as well as other written and oral
statements made by us from time to time, are considered “forward-looking
statements” within the meaning of the Private Securities Litigation
Reform Act. These statements do not relate to strictly historical or
current facts and provide current expectations or forecasts of future
events. Any such expectations or forecasts of future events are subject
to a variety of factors. These include factors that affect all
businesses operating in a global market as well as matters specific to
us and the markets we serve. Particular risks and uncertainties
presently facing us include: our ability to effectively develop and
manage strategic planning and growth processes and the related
operational plans; our ability to successfully upgrade and evolve our
information technology systems; fluctuations in the cost, quality or
availability of raw materials and purchased components; geopolitical and
economic uncertainty throughout the world; our ability to attract,
retain and develop key personnel and create effective succession
planning strategies; our ability to develop and commercialize new
innovative products and services; our ability to integrate acquisitions,
including IPC and Gaomei; the competition in our business; our ability
to successfully protect our information technology systems from
cybersecurity risks; the potential disruption of our business from
actions of activist investors or others; the occurrence of a significant
business interruption; our ability to comply with laws and regulations;
unforeseen product liability claims or product quality issues; our
ability to generate sufficient cash to satisfy our debt obligations; and
the relative strength of the U.S. dollar, which affects the cost of our
materials and products purchased and sold internationally.

We caution that forward-looking statements must be considered carefully
and that actual results may differ in material ways due to risks and
uncertainties both known and unknown. Information about factors that
could materially affect our results can be found in our 2018 Form 10-K
or 2019 Form 10-Qs. Shareholders, potential investors and other readers
are urged to consider these factors in evaluating forward-looking
statements and are cautioned not to place undue reliance on such
forward-looking statements.

We undertake no obligation to update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise, except as required by law. Investors are advised to consult
any further disclosures by us in our filings with the Securities and
Exchange Commission and in other written statements on related subjects.
It is not possible to anticipate or foresee all risk factors, and
investors should not consider any list of such factors to be an
exhaustive or complete list of all risks or uncertainties.

Non-GAAP Financial Measures
This
news release and the related conference call include presentation of
non-GAAP measures that include or exclude special items. Management
believes that the non-GAAP measures provide useful information to
investors regarding the company’s results of operations and financial
condition because they permit a more meaningful comparison and
understanding of Tennant Company’s operating performance for the
current, past or future periods. Management uses these non-GAAP measures
to monitor and evaluate ongoing operating results and trends and to gain
an understanding of the comparative operating performance of the company.

We believe that disclosing Selling and Administrative Expense – as
adjusted, Selling and Administrative Expense as a percent of Net Sales –
as adjusted, Profit from Operations – as adjusted, Operating Margin – as
adjusted, Profit Before Income Taxes – as adjusted, Income Tax Expense –
as adjusted, Net Earnings Attributable to Tennant Company – as adjusted
and Net Earnings Attributable to Tennant Company per Share – as adjusted
(collectively, the “Non-GAAP Measures”), excluding the impacts from the
restructuring charge, acquisition and integration costs, and certain
non-operational professional services are useful to investors as a
measure of operating performance. We use these as one measure to monitor
and evaluate operating performance. The non-GAAP measures are financial
measures that do not reflect United States Generally Accepted Accounting
Principles (GAAP). We calculate Selling and Administrative Expense – as
adjusted, Selling and Administrative Expense as a percent of Net Sales –
as adjusted, Profit from Operations – as adjusted, Operating Margin – as
adjusted, and Profit Before Income Taxes – as adjusted by adding back
the pre-tax effect of the restructuring charge, acquisition and
integration costs, and certain non-operational professional services. We
calculate Income Tax Expense – as adjusted by adding back the tax effect
of the restructuring charge, acquisition and integration costs, and
certain non-operational professional services. We calculate Net Earnings
Attributable to Tennant Company – as adjusted by adding back the
after-tax effect of the restructuring charge, acquisition and
integration costs, and certain non-operational professional services. We
calculate Net Earnings Attributable to Tennant Company per Share – as
adjusted by adding back the after-tax effect of the restructuring
charge, acquisition and integration costs, and certain non-operational
professional services, and dividing the result by the diluted weighted
average shares outstanding.

We believe that disclosing Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA) and EBITDA Margin, excluding the impact from
the restructuring charge, acquisition and integration costs, and certain
non-operational professional services (EBITDA – as adjusted) and EBITDA
Margin – as adjusted, is useful to investors as a measure of operating
performance. We use these measures to monitor and evaluate operating
performance. EBITDA – as adjusted and EBITDA Margin – as adjusted are
financial measures that do not reflect GAAP. We calculate EBITDA – as
adjusted by adding back the pre-tax effect of the restructuring charge,
acquisition and integration costs, and certain non-operational
professional services, Interest Income, Interest Expense, Income Tax
Expense, Depreciation Expense and Amortization Expense to Net Earnings
(Loss) – as reported. We calculate EBITDA Margin – as adjusted by
dividing EBITDA – as adjusted by Net Sales.

Investors should consider these non-GAAP financial measures in addition
to, not as a substitute for, or better than, financial measures prepared
in accordance with GAAP. Reconciliations of the components of these
measures to the most directly comparable GAAP financial measures are
included in the Supplemental Non-GAAP Financial Table to this earnings
release.

 
TENNANT COMPANY    
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In millions, except shares and per share data) Three Months Ended
March 31
2019     2018
Net Sales $ 262.5 $ 272.8
Cost of Sales   154.3     163.7  
Gross Profit   108.2     109.1  
Gross Margin 41.2 % 40.0 %
Operating Expense:
Research and Development Expense 7.2 8.0
Selling and Administrative Expense   90.2     90.7  
Total Operating Expense   97.4     98.7  
Profit from Operations 10.8 10.4
Operating Margin 4.1 % 3.8 %
Other Income (Expense):
Interest Income 0.8 0.7
Interest Expense (5.0 ) (5.7 )
Net Foreign Currency Transaction Losses 0.2 (0.7 )
Other Expense, Net   (0.2 )   (0.3 )
Total Other Expense, Net   (4.2 )   (6.0 )
Profit Before Income Taxes 6.6 4.4
Income Tax Expense   1.2     1.1  
Net Earnings Including Noncontrolling Interest   5.4     3.3  
Net Earnings Attributable to Tennant Company $ 5.4   $ 3.3  
 
Net Earnings Attributable to Tennant Company per Share:
Basic $ 0.30   $ 0.18  
Diluted $ 0.29   $ 0.18  
 
Weighted Average Shares Outstanding:
Basic 18,042,468 17,790,989
Diluted 18,345,211 18,245,359
 
Cash Dividends Declared per Common Share $ 0.22 $ 0.21
 
   

GEOGRAPHICAL NET SALES(1) (Unaudited)

(In millions) Three Months Ended
March 31
2019     2018     %
Americas $ 160.8 $ 162.6 (1.1 )
Europe, Middle East and Africa 78.1 88.8 (12.0 )
Asia Pacific   23.6   21.4 10.3  
Total $ 262.5 $ 272.8 (3.8 )
 

(1) Net of intercompany sales.

 
 
TENNANT COMPANY        
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions) March 31, December 31
2019 2018
ASSETS
Current Assets:
Cash, Cash Equivalents and Restricted Cash $ 46.9 $ 86.1
Receivables:
Trade, less Allowances of $2.7 and $2.5, respectively 204.2 208.0
Other   9.5     8.2  
Net Receivables 213.7 216.2
Inventories 158.2 135.1
Prepaid and Other Current Assets   33.6     31.2  
Total Current Assets   452.4     468.6  
Property, Plant and Equipment 405.7 386.6
Accumulated Depreciation   (230.8 )   (223.2 )
Property, Plant and Equipment, Net 174.9 163.4
Operating Lease Assets 40.7
Goodwill 189.7 182.7
Intangible Assets, Net 156.0 146.5
Other Assets   27.0     31.3  
Total Assets $ 1,040.7   $ 992.5  
 
LIABILITIES AND TOTAL EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 30.1 $ 27.0
Accounts Payable 94.9 98.4
Employee Compensation and Benefits 41.6 56.1
Other Current Liabilities   100.6     67.4  
Total Current Liabilities   267.2     248.9  
Long-Term Liabilities:
Long-Term Debt 330.1 328.1
Long-Term Operating Lease Liabilities 24.7
Employee-Related Benefits 20.6 21.1
Deferred Income Taxes 46.2 46.0
Other Liabilities   31.7     32.1  
Total Long-Term Liabilities   453.3     427.3  
Total Liabilities   720.5     676.2  
Equity:
Common Stock 6.8 6.8
Additional Paid-In Capital 32.0 28.5
Retained Earnings 317.7 316.3
Accumulated Other Comprehensive Loss   (38.5 )   (37.2 )
Total Tennant Company Shareholders’ Equity   318.0     314.4  
Noncontrolling Interest   2.2     1.9  
Total Equity   320.2     316.3  
Total Liabilities and Total Equity $ 1,040.7   $ 992.5  
 
   
TENNANT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions) Three Months Ended
March 31
2019     2018
OPERATING ACTIVITIES
Net Earnings Including Noncontrolling Interest $ 5.4 $ 3.3
Adjustments to reconcile Net Earnings to Net Cash (Used in) Provided
by Operating Activities:
Depreciation 8.0 7.7
Amortization of Intangible Assets 5.7 5.9
Amortization of Debt Issuance Costs 0.4 0.5
Deferred Income Taxes 1.3 (3.1 )
Share-Based Compensation Expense 3.3 2.7
Allowance for Doubtful Accounts and Returns 0.1 0.7
Other, Net 0.2 0.1
Changes in Operating Assets and Liabilities, Net of Assets Acquired:
Receivables, Net 0.8 (0.4 )
Inventories (20.3 ) (10.8 )
Accounts Payable (2.0 ) 5.7
Employee Compensation and Benefits (13.6 ) (4.4 )
Other Current Liabilities 0.3 (1.0 )
Other Assets and Liabilities   (1.2 )   (1.4 )
Net Cash (Used in) Provided by Operating Activities (11.6 ) 5.5
 
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment (20.5 ) (3.5 )
Proceeds from Principal Payments Received on Long-Term Note
Receivable
0.1 0.2
Acquisition of Business, Net of Cash, Cash Equivalents and
Restricted Cash Acquired
(9.0 )
Purchase of Intangible Assets   (0.2 )   (1.0 )
Net Cash Used in Investing Activities (29.6 ) (4.3 )
 
FINANCING ACTIVITIES
Proceeds from Credit Facility Borrowings 13.0
Repayments of Debt (8.0 ) (3.9 )
Change in Finance Lease Obligations (0.1 )
Proceeds from Issuances of Common Stock 0.6 0.8
Dividends Paid   (4.0 )   (3.8 )
Net Cash Provided by (Used in) Financing Activities 1.5 (6.9 )
 
 
Effect of Exchange Rate Changes on Cash, Cash Equivalents and
Restricted Cash
0.5 1.3
 
Net Decrease in Cash, Cash Equivalents and Restricted Cash (39.2 ) (4.4 )
 
Cash, Cash Equivalents and Restricted Cash at Beginning of Period 86.1 59.0
   
Cash, Cash Equivalents and Restricted Cash at End of Period $ 46.9   $ 54.6  
 
   
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
(In millions, except per share data) Three Months Ended
March 31
2019     2018
 
Selling and Administrative Expense – as reported $ 90.2

$

90.7
Selling and Administrative Expense as a percent of Net Sales – as
reported
34.4 % 33.2 %

Adjustments:

Acquisition and Integration Costs (S&A Expense) (0.6 ) (1.0 )
Professional Services (0.1 ) (1.2 )
Restructuring Charge   (4.3 )    
Selling and Administrative Expense – as adjusted $ 85.2   $ 88.5  
Selling and Administrative Expense as a percent of Net Sales – as
adjusted
      32.5 %       32.4 %
 
Profit from Operations – as reported $ 10.8 $ 10.4
Operating Margin – as reported 4.1 % 3.8 %

Adjustments:

Acquisition and Integration Costs 0.6 1.0
Professional Services 0.1 1.2
Restructuring Charge   4.3      
Profit from Operations – as adjusted $ 15.8   $ 12.6  
Operating Margin – as adjusted       6.0 %       4.6 %
 
Profit Before Income Taxes – as reported $ 6.6 $ 4.4

Adjustments:

Acquisition and Integration Costs 0.6 1.0
Professional Services 0.1 1.2
Restructuring Charge   4.3      
Profit Before Income Taxes – as adjusted     $ 11.6       $ 6.6  
 
   
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
(In millions, except per share data) Three Months Ended
March 31
2019     2018
 
Income Tax Expense – as reported $ 1.2 $ 1.1

Adjustments:

Acquisition and Integration Costs(1) 0.1 0.2
Professional Services(1) 0.3
Restructuring Charge(1)   1.2  
Income Tax Expense – as adjusted     $ 2.5     $ 1.6
 
Net Earnings Attributable to Tennant Company – as reported $ 5.4 $ 3.3

Adjustments:

Acquisition and Integration Costs 0.5 0.8
Professional Services 0.1 0.9
Restructuring Charge   3.1  
Net Earnings Attributable to Tennant Company – as adjusted     $ 9.1     $ 5.0
 
Net Earnings Attributable to Tennant Company per Share – as reported:
Diluted $ 0.29 $ 0.18

Adjustments:

Acquisition and Integration Costs 0.03 0.04
Professional Services 0.05
Restructuring Charge   0.17      
Net Earnings Attributable to Tennant Company per Share – as adjusted $ 0.49 $ 0.27
 
(1)   In determining the tax impact, we applied the statutory rate in
effect for each jurisdiction where expenses were incurred and
deductible for tax purposes.
 
   
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE
(In millions, except per share data) Three Months Ended
March 31
2019     2018
 
Net Earnings Including Noncontrolling Interest – as reported $ 5.4 $ 3.3

Adjustments:

Interest Income (0.8 ) (0.7 )
Interest Expense 5.0 5.7
Income Tax Expense 1.2 1.1
Depreciation Expense 8.0 7.7
Amortization Expense 5.7 5.9
Acquisition and Integration Costs 0.6 1.0
Professional Services 0.1 1.2
Restructuring Charge   4.3      
Earnings Before Interest, Taxes, Depreciation & Amortization – as
adjusted
$ 29.5   $ 25.2  
EBITDA Margin – as adjusted       11.2 %       9.2 %
 

Contacts

INVESTOR CONTACT:
Keith A. Woodward
Senior Vice President and
Chief Financial Officer
[email protected]
763-540-1205

MEDIA CONTACT:
Kathryn Lovik
Global Communications Director
[email protected]tennantco.com
763-540-1212

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