Delivers Strong Net Sales and Net Income
Growth
Increases Full-Year 2023 Guidance
Tennant Company ("Tennant" or the "Company") (NYSE: TNC) today
reported its financial results for the quarter ended September 30,
2023.
(In millions, except per share data)
Three Months Ended September
30,
2023
2022
Increase
Net sales
$
304.7
$
262.9
15.9
%
Net income
$
22.9
$
15.6
46.8
%
Diluted EPS
$
1.21
$
0.83
45.8
%
Adjusted diluted EPS
$
1.34
$
0.98
36.7
%
Adjusted EBITDA
$
45.9
$
33.8
35.8
%
Adjusted EBITDA margin %
15.1
%
12.9
%
220 bps
Highlights
- Delivered net sales of $304.7 million for the third quarter of
2023, an increase of 15.9% from the third quarter of 2022, or 13.9%
on an organic basis due to strong pricing realization and volume
growth. A more stable supply-chain environment drove a sequential
increase in production which resulted in a $41 million decrease in
the Company's backlog to $214 million.
- Achieved Adjusted EBITDA of $45.9 million in the third quarter
of 2023, compared to $33.8 million in the prior-year period, an
increase of $12.1 million. Adjusted EBITDA margin of 15.1% improved
by 220 basis points primarily due to strong sales growth and gross
margin improvements.
- Generated operating cash flow of $54.4 million and converted
over 100% of net income to free cash flow for the third consecutive
quarter. Announced a 5.7% increase in the Company's quarterly cash
dividend to $0.28 per share, marking the 52nd consecutive year the
Company has increased its annual cash dividend payout.
- Increased its full-year 2023 guidance and now expects net sales
between $1.23 billion and $1.25 billion and Adjusted EBITDA between
$190 million and $200 million.
- Expanded the Company's portfolio of innovative products and
solutions with the launch of two new ride-on scrubbers in North
America. These highly maneuverable and affordable scrubbers are
robust – yet compact – providing flexibility for indoor and outdoor
applications.
- Published the 2023 (FY22) Sustainability Report highlighting
the Company's commitment to leading the industry in
sustainability.
“We are pleased to report Tennant's strong third quarter
results, which built on the momentum in the first half of the year.
This was the fourth consecutive quarter our global team delivered
organic net sales and Adjusted EBITDA growth above our expectations
and puts us on pace to deliver a record-setting year. We are proud
of the teams who have worked diligently to execute our enterprise
strategy, manage the supply-chain crisis and serve Tennant's
customers around the world,” said Dave Huml, Tennant President and
Chief Executive Officer. “We are raising our full-year 2023
guidance on the strength of the quarter's results, our remaining
backlog position, and expectations of continuing resilience in
demand for the remainder of the year.”
Net Sales
Consolidated net sales for the third quarter of 2023 totaled
$304.7 million, a 15.9% increase compared to consolidated net sales
of $262.9 million in the third quarter of 2022. The components of
the consolidated net sales change were as follows:
Three Months Ended September
30,
2023 vs. 2022
Price
8.9%
Volume
5.0%
Organic growth
13.9%
Foreign currency
2.0%
Total growth
15.9%
Organic Sales
Organic sales, which excludes the effects of foreign currency,
increased 13.9% compared to the prior year, due to growth across
all regions led by strong equipment sales, particularly in the
Americas region.
Three Months Ended September
30, 2023
Americas
EMEA
APAC
Total
Organic net sales growth
20.8%
(2.8)%
11.8%
13.9%
Americas: The 20.8% increase in the Americas, which includes all
of North America and Latin America, was driven equally by price
realization and volume increases in equipment and service product
categories.
EMEA: The 2.8% decrease in EMEA, which includes Europe, the
Middle East and Africa, was due to volume declines in both
equipment and parts and consumables partly offset by price
realization in all product categories. EMEA volumes were impacted
by weaker-than-expected market conditions.
APAC: The 11.8% increase in APAC, which includes China,
Australia, Japan and other Asian markets, was primarily driven by
price realization in Australia and volume growth in China.
Operating Results
Gross profit margin of 43.3% was 500 basis points higher in the
third quarter of 2023 compared to the third quarter of 2022. The
increase was the result of price realization, which more than
offset the multi-year impact of inflation.
Selling and administrative expense of $88.2 million increased
$16.8 million over the prior year primarily due to higher variable
costs associated with increased operating performance. As a percent
of sales, adjusted selling and administrative expenses increased to
28.9%, compared to 27.0% in the third quarter last year due to
higher variable costs and investments in strategic initiatives.
Adjusted EBITDA was $45.9 million in the third quarter of 2023,
compared to $33.8 million in the prior-year period. The improvement
in Adjusted EBITDA was primarily due to strong sales growth, driven
by both volume and price, and gross margin expansion. Adjusted
EBITDA margin for the third quarter 2023 was 15.1%, a 220 basis
point increase over the prior-year period benefiting from operating
leverage created by sales growth.
Net income was $22.9 million in the third quarter of 2023
compared to $15.6 million in the third quarter of 2022. Strong
operating performance, driven by higher pricing realization and
volume increases, was partly offset by higher variable costs,
interest costs and income taxes.
Cash Flow, Liquidity and Capital
Allocation
Tennant generated $54.4 million in cash flow from operations
during the third quarter of 2023, a $69.6 million increase compared
to the prior-year period. The increase was driven by strong
operating performance and moderating investments in working
capital. The Company converted over 100% of net income to free cash
flow for the third consecutive quarter.
Liquidity remained strong with a balance of $97.0 million in
cash and cash equivalents as of the end of the third quarter, with
approximately $316.9 million of unused borrowing capacity on the
Company’s revolving credit facility.
The Company continues to deploy cash flow toward operational
capital needs and to return capital to shareholders in line with
its capital allocation priorities, while managing debt and keeping
its net leverage well within the targeted range. During the third
quarter, the Company invested $3.5 million in capital expenditures,
reduced outstanding debt by $56.2 million, and returned $6.7
million to shareholders through dividends and share
repurchases.
As previously announced, Tennant’s Board of Directors authorized
a 5.7% increase in the Company's quarterly cash dividend to $0.28
per share. The increased dividend is payable on December 15, 2023,
to shareholders of record at the close of business on November 30,
2023.
2023 Guidance
Given the strong results and expectations for the remainder of
the year, the Company is updating its full-year 2023 guidance
ranges as noted below, including a narrowing of net sales and an
increase of net income per share:
(In millions, except per share data)
Updated 2023
Guidance Ranges
Previous 2023
Guidance Ranges
Net sales
$1,230 - $1,250
$1,200 - $1,250
Organic net sales growth
12.5 % - 14.5 %
10.0 % - 14.0 %
Diluted net income per share
$5.00 - $5.40
$4.30 - $4.95
Adjusted diluted net income per share*
$5.70 - $6.10
$5.10 - $5.75
Adjusted EBITDA*
$190 - $200
$175 - $190
Adjusted EBITDA margin
15.4 % - 16.0 %
14.6 % - 15.2 %
Capital expenditures
$20 - $25
$20 - $25
Adjusted effective tax rate*
20 % - 25 %
20 % - 25 %
*Excludes certain nonoperational items and
amortization expense
Conference Call
Tennant will host a conference call to discuss its 2023 third
quarter results today, October, 31, 2023, 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
overview page. A replay of the conference call, with slides, will
be available at investors.tennantco.com.
Company Profile
Founded in 1870, Tennant Company (TNC), headquartered in Eden
Prairie, Minnesota, is a world leader in the design, manufacture
and marketing of solutions that help create a cleaner, safer and
healthier world. Its products include equipment for maintaining
surfaces in industrial, commercial and outdoor environments;
detergent-free and other sustainable cleaning technologies; and
cleaning tools and supplies. Tennant's global field service network
is the most extensive in the industry. Tennant Company had sales of
$1.09 billion in 2022 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 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 the Company and the
markets it serves. Particular risks and uncertainties presently
facing the Company include: geopolitical and economic uncertainty
throughout the world; uncertainty surrounding the impacts and
duration of the COVID-19 pandemic; the Company's ability to comply
with global laws and regulations; the Company's ability to adapt to
customer pricing sensitivities; the competition in its business;
fluctuations in the cost, quality or availability of raw materials
and purchased components; the Company's ability to adjust pricing
to respond to cost pressures; unforeseen product liability claims
or product quality issues; the Company's ability to attract, retain
and develop key personnel and create effective succession planning
strategies; the Company's ability to effectively develop and manage
strategic planning and growth processes and the related operational
plans; the Company's ability to successfully upgrade and evolve its
information technology systems; the Company's ability to
successfully protect its information technology systems from
cybersecurity risks; the occurrence of a significant business
interruption; the Company's ability to maintain the health and
safety of its workers; the Company's ability to integrate
acquisitions; and the Company's ability to develop and
commercialize new innovative products and services.
The Company cautions 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 the
Company's results can be found in its 2022 Form 10-K. 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.
The Company undertakes 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 the Company in
its 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 of a nonrecurring and/or nonoperational nature (hereinafter
referred to as “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.
The Company believes that disclosing selling and administrative
(“S&A”) expense – as adjusted, S&A expense as a percent of
net sales – as adjusted, operating income – as adjusted, operating
margin – as adjusted, income before income taxes – as adjusted,
income tax expense – as adjusted, net income – as adjusted, net
income per diluted share – as adjusted, EBITDA – as adjusted, and
EBITDA margin – as adjusted (collectively, the “Non-GAAP
measures”), excluding the impacts from special items, is useful to
investors as a measure of operating performance. The Company uses
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). The
Company calculates the Non-GAAP measures by adjusting for
restructuring-related charges and amortization expense, and any
gain or loss on a sale of assets. The Company calculates income tax
expense – as adjusted by adjusting for the tax effect of these
Non-GAAP measures. The Company calculates net income per diluted
share – as adjusted by adjusting for the after-tax effect of these
Non-GAAP measures and dividing the result by the diluted weighted
average shares outstanding. The Company calculates operating margin
– as adjusted by dividing operating income – as adjusted by net
sales. The Company calculates EBITDA margin – as adjusted by
dividing EBITDA – as adjusted by net sales.
FINANCIAL TABLES FOLLOW
TENNANT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except shares and per share
data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
2023
2022
Net sales
$
304.7
$
262.9
$
932.2
$
801.2
Cost of sales
172.7
162.2
535.2
495.5
Gross profit
132.0
100.7
397.0
305.7
Selling and administrative expense
88.2
71.4
256.9
227.1
Research and development expense
9.1
7.9
26.0
23.5
Gain on sale of assets
—
—
—
(3.7
)
Operating income
34.7
21.4
114.1
58.8
Interest expense, net
(3.3
)
(2.2
)
(11.0
)
(3.7
)
Net foreign currency transaction (loss)
gain
(0.4
)
—
0.5
(0.4
)
Other (expense) income, net
(1.1
)
0.6
(1.8
)
0.1
Income before income taxes
29.9
19.8
101.8
54.8
Income tax expense
7.0
4.2
23.3
12.3
Net income
$
22.9
$
15.6
$
78.5
$
42.5
Net income per share
Basic
$
1.23
$
0.84
$
4.25
$
2.30
Diluted
$
1.21
$
0.83
$
4.19
$
2.27
Weighted average shares outstanding
Basic
18,570,293
18,515,851
18,485,806
18,495,640
Diluted
18,878,311
18,691,916
18,747,128
18,713,337
GEOGRAPHICAL NET SALES(1)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2023
2022
% Change
2023
2022
% Change
Americas
$
211.2
$
174.0
21.4
%
$
632.2
$
512.7
23.3
%
Europe, Middle East and Africa
72.0
69.0
4.3
%
234.1
225.0
4.0
%
Asia Pacific
21.5
19.9
8.0
%
65.9
63.5
3.8
%
Total
$
304.7
$
262.9
15.9
%
$
932.2
$
801.2
16.4
%
(1) Net of intercompany sales.
TENNANT COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Unaudited)
(In millions, except shares and per share
data)
September 30,
2023
December 31,
2022
ASSETS
Cash, cash equivalents, and restricted
cash
$
97.0
$
77.4
Receivables, less allowances of $8.6 and
$6.1, respectively
241.9
251.5
Inventories
184.6
206.6
Prepaid and other current assets
31.1
39.8
Total current assets
554.6
575.3
Property, plant and equipment, less
accumulated depreciation of $299.7 and $279.3, respectively
182.0
179.9
Operating lease assets
32.4
31.8
Goodwill
180.5
182.0
Intangible assets, net
64.2
76.4
Other assets
45.6
39.7
Total assets
$
1,059.3
$
1,085.1
LIABILITIES AND EQUITY
Current portion of long-term debt
$
5.9
$
5.2
Accounts payable
98.5
126.1
Employee compensation and benefits
62.1
44.0
Other current liabilities
78.3
86.3
Total current liabilities
244.8
261.6
Long-term debt
215.9
295.1
Long-term operating lease liabilities
18.7
17.1
Employee benefits
13.0
13.2
Deferred income taxes
8.6
11.5
Other liabilities
12.0
14.5
Total long-term liabilities
268.2
351.4
Total liabilities
$
513.0
$
613.0
Common Stock, $0.375 par value; 60,000,000
shares authorized; 18,741,371 and 18,521,485 shares issued and
outstanding, respectively
7.0
7.0
Additional paid-in capital
71.0
56.0
Retained earnings
521.7
458.0
Accumulated other comprehensive loss
(54.7
)
(50.2
)
Total Tennant Company shareholders'
equity
545.0
470.8
Noncontrolling interest
1.3
1.3
Total equity
546.3
472.1
Total liabilities and total equity
$
1,059.3
$
1,085.1
TENNANT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Nine Months Ended
September 30,
2023
2022
OPERATING ACTIVITIES
Net income
$
78.5
$
42.5
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation expense
26.4
24.0
Amortization expense
11.0
12.1
Deferred income tax benefit
(7.4
)
(6.3
)
Share-based compensation expense
8.6
4.4
Bad debt and returns expense
3.2
0.5
Gain on sale of assets
—
(3.7
)
Other, net
0.5
0.7
Changes in operating assets and
liabilities:
Receivables
7.9
(17.3
)
Inventories
3.5
(65.5
)
Accounts payable
(25.1
)
(1.2
)
Employee compensation and benefits
18.3
(10.4
)
Other assets and liabilities
(0.8
)
(18.6
)
Net cash provided by (used in) operating
activities
124.6
(38.8
)
INVESTING ACTIVITIES
Purchases of property, plant and
equipment
(15.3
)
(19.4
)
Proceeds from sale of assets, net of cash
divested
—
4.1
Investment in leased assets
(0.5
)
(4.1
)
Cash received from leased assets
0.6
0.4
Net cash used in investing activities
(15.2
)
(19.0
)
FINANCING ACTIVITIES
Proceeds from borrowings
20.0
32.0
Repayments of borrowings
(98.7
)
(18.0
)
Proceeds (repurchases) from exercise of
stock options, net of employee tax withholdings obligations
18.1
(1.2
)
Repurchases of common stock
(11.7
)
—
Dividends paid
(14.8
)
(14.0
)
Net cash used in financing activities
(87.1
)
(1.2
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(2.7
)
(5.4
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
19.6
(64.4
)
Cash, cash equivalents and restricted cash
at beginning of period
77.4
123.6
Cash, cash equivalents and restricted
cash at end of period
$
97.0
$
59.2
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL
TABLES
Reported to Adjusted Net Income and Net
Income Per Share
(In millions, except per share data)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Net income - as reported
$
22.9
$
15.6
$
78.5
$
42.5
Adjustments:
Gain on sale of assets
—
—
—
(2.8
)
Amortization expense
2.5
2.7
7.9
8.8
Restructuring-related charge (S&A
expense)
—
0.3
0.8
0.8
Net income - as adjusted
$
25.4
$
18.6
$
87.2
$
49.3
Net income per share - as
reported:
Diluted
$
1.21
$
0.83
$
4.19
$
2.27
Adjustments:
Gain on sale of assets
—
—
—
(0.15
)
Amortization expense
0.13
0.14
0.42
0.47
Restructuring-related charge (S&A
expense)
—
0.01
0.04
0.04
Net income per diluted share - as
adjusted
$
1.34
$
0.98
$
4.65
$
2.63
Reported Net Income to Adjusted
Earnings Before Interest, Taxes, Depreciation, and Amortization
(EBITDA)
(In millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Net income - as reported
$
22.9
$
15.6
$
78.5
$
42.5
Less:
Interest expense, net
3.3
2.2
11.0
3.7
Income tax expense
7.0
4.2
23.3
12.3
Depreciation expense
9.2
7.6
26.4
24.0
Amortization expense
3.5
3.7
11.0
12.1
EBITDA
45.9
33.3
150.2
94.6
Adjustments:
Gain on sale of assets
—
—
—
(3.7
)
Restructuring-related charge (S&A
expense)
—
0.5
1.2
1.1
EBITDA - as adjusted
$
45.9
$
33.8
$
151.4
$
92.0
EBITDA margin - as adjusted
15.1
%
12.9
%
16.2
%
11.5
%
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL
TABLES
Reported to Adjusted Selling and
Administrative Expense (S&A expense) and Operating
Income
(In millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
S&A expense - as reported
$
88.2
$
71.4
$
256.9
$
227.1
S&A expense as a percent of net sales
- as reported
28.9
%
27.2
%
27.6
%
28.3
%
Adjustments:
Restructuring-related charge (S&A
expense)
—
(0.5
)
(1.2
)
(1.1
)
S&A expense - as adjusted
$
88.2
$
70.9
$
255.7
$
226.0
S&A expense as a percent of net sales
- as adjusted
28.9
%
27.0
%
27.4
%
28.2
%
Operating income - as reported
$
34.7
$
21.4
$
114.1
$
58.8
Operating margin - as reported
11.4
%
8.1
%
12.2
%
7.3
%
Adjustments:
Gain on sale of assets
—
—
—
(3.7
)
Restructuring-related charge (S&A
expense)
—
0.5
1.2
1.1
Operating income - as adjusted
$
34.7
$
21.9
$
115.3
$
56.2
Operating margin - as adjusted
11.4
%
8.3
%
12.4
%
7.0
%
Reported to Adjusted Income Before Income Taxes and Income
Tax Expense
(In millions)
Three Months Ended September
30,
Nine Months Ended September
30,
2023
2022
2023
2022
Income before income taxes - as
reported
$
29.9
$
19.8
$
101.8
$
54.8
Adjustments:
Gain on sale of assets
—
—
—
(3.7
)
Amortization expense
3.5
3.7
11.0
12.1
Restructuring-related charge (S&A
expense)
—
0.5
1.2
1.1
Income before income taxes - as
adjusted
$
33.4
$
24.0
$
114.0
$
64.3
Income tax expense - as
reported
$
7.0
$
4.2
$
23.3
$
12.3
Effective tax rate - as reported
23.4
%
21.2
%
22.9
%
22.4
%
Adjustments(1):
Gain on sale of assets
—
—
—
(0.9
)
Amortization expense
1.0
1.0
3.1
3.3
Restructuring-related charge (S&A
expense)
—
0.2
0.4
0.3
Income tax expense - as
adjusted
$
8.0
$
5.4
$
26.8
$
15.0
Effective tax rate - as adjusted
24.0
%
22.5
%
23.5
%
23.3
%
(1) In determining the tax impact, we
applied the statutory rate in effect for each jurisdiction where
income or expenses were generated.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231031681863/en/
Lorenzo Bassi Vice President, Finance and Investor Relations
investors@tennantco.com 763-540-1242
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