TENNANT COMPANY. Earnings Release Conference Call First Quarter Monday, April 24, 2017

Transcription

1 Earnings Release Conference Call First Quarter 2017 Monday, April 24,

2 On the Call Today Chris Killingstad President and CEO Tom Paulson Senior VP, CFO 2

3 FORWARD LOOKING STATEMENTS & NON-GAAP MEASURES 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 2017 first quarter. There were no special non-gaap items in Our 2017 first quarter earnings release includes a reconciliation of these non-gaap measures to our GAAP results for the 2017 first quarter. 3

4 2017 First Quarter Overview 2017 first quarter consolidated net sales of $191.1M Record sales for a first quarter Adjusted net earnings of $0.31 per diluted share Growth of 24% vs prior year $0.25 per diluted share Organic sales growth of approximately 5% Americas +4.2% EMEA +14.3% 4

5 Core Strategies Maintaining strong new product and technology pipeline Expanding global market coverage IPC Acquisition Building e-business capabilities Leveraging cost structure to improve operating efficiency Restructuring Charge 5

6 Acquisition of IPC Group Closed April 6, 2017 All-cash transaction $353M or 330M IPC Group privately held designer and manufacturer of innovative professional cleaning equipment, tools and other solutions, based in Italy IPC Group 2016 annual sales of $206M or 186M Largest acquisition in Tennant Company history Anticipate acquisition will be accretive to 2018 full year earnings per share 6

7 IPC Group Overview Key Facts and Figures IPC Group produces machines and equipment for the professional cleaning sector Cleaning machines: floor sweepers and scrubbers, vacuum cleaners, high- pressure washers and related aftermarket parts and services Cleaning tools and supplies: trolleys, window cleaning tools and consumables 2016A Revenue: 186mm 2016A Adjusted EBITDA: 26mm (~14% margin) 5 manufacturing plants; 11 international branches with sales to over 100 countries ~1,000 Employees Eagle Eagan, Minnesota Geographic Coverage Soteco Benelux Wommelgem Foma Norge Langhus Gansow Unna 2016A Revenue Mix Revenue by Geography RoW 9% Americas 11% 2016A Revenue by Product High Pressure 18% Cleaning Tools and Supplies 19% Vacuum Cleaners 21% EMEA 80% Sweepers & Scrubbers 42% 2016A Revenue by Type ICA Épône Cedex China Trade Corporation Fo Shan, Guangdong Tools and Supplies 19% Machinery Aftermarket 22% Machinery 59% Industria e Comercio Pinhais Parana 3 7 Cleaning España Barcelona Western Floor PVT New Delhi

8 IPC s Diverse Product Portfolio Product Sweepers and Scrubbers % of Net Sales by Equipment Type Product Description 42% Ride On Sweeper Scrubber Walk Behind Sweeper Scrubber Scrubbers: 15L to 230L (tank size) Sweepers: 460mm to 1,200mm (brush size) Multiple Power Systems: Electric cables, batteries, diesel, petrol and hybrid Overlap with Existing TNC Products 1 Dry Wet & Dry Industrial Dry Vacuum Cleaners: 750W to 1,400W Vacuum Cleaners 21% Wet & Dry Vacuum Cleaners: 1,300W to 3,600W Single motor to three motor models Trolleys Equipment Mops and Cloths Small surface, window cleaning and room cleaning Tools 19% Carts for manual tools Window and mirror surface cleaning Surface and floor cleaning Continuous need for supply of related consumables 8 Pressure Washers 18% Hot Water Hydro-cleaners with high temperature water jets and internal heaters Cold Water Hydro-cleaners with cold water jets ¹ Shaded area represents approximate level of overlap with existing Tennant products Range of 2.5HP to 13HP Diesel versions up to 900 liters per hour Gasoline versions up to 1,260 liters per hour 8

9 IPC Synergy Opportunities Incremental Sales Complementary sales channels Cross-selling to reach new customers with both brands: Tennant and IPC 9 $10M run-rate Cost Synergies by 2019 Sourcing savings with greater volume to fewer vendors Improving sales and service capabilities Leveraging greater scale to improve operating efficiencies

10 First Quarter 2017 Restructuring To support key strategic growth initiatives and reduce costs to accelerate our ability to reach our 12% operating profit margin goal Approximate 3% net reduction in global workforce Restructuring charge of $8M pre-tax, or $0.32 per diluted share Savings anticipated to be $7M in 2017 and a total of $10M in

11 2017 Plan: 31 New Products/Variants Launched new family of T500 commercial walk-behind scrubbers comprised of 20 new products and product variants Five unique scrubbing heads on four different models Smart-Fill automatic battery watering system ec-h2o NanoClean technology 11

12 e-commerce Platform Cleaning solutions made easy online Good Experience Empower our customers Anticipate their needs Enhance their experience Increase Revenue New customers New geographies Expand products Lower Cost of Sale Self-service Reduce manual interventions Cost avoidance 12

13 Looking Ahead in 2017 Excited about strategic plans Remain cautious about global macroeconomic environment Tennant is competitively well positioned Acquisition of IPC Group expands product portfolio and geographic presence particularly in EMEA Restructuring actions expected to improve profitability 13 Remain committed to $1B Sales target and 12% OP Margin goal

14 14 TENNANT COMPANY 2017 FIRST QUARTER Organic Sales Growth 5.0% Organic Sales up 4.2% in Americas, up 14.3% in EMEA SALES GROSS MARGIN R&D EXPENSE (% of sales) Adjusted* S&A EXPENSE (% of sales) Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS Q1 17 $191.1 M 41.7% 4.4% 33.0% $8.3 M 4.3% $0.31 Q1 16 CHANGE $179.9 M 43.1% 4.4% 34.7% $7.1 M 3.9% $ % (140 bps) +0 bps (170 bps) +16.7% +40 bps +24.0% *Q1 17 results are adjusted to exclude restructuring charge of $8.0M pre-tax ($0.32 per share) and IPC acquisition costs of $2.9M pre-tax ($0.17 per share) in S&A Expense. Diluted EPS also excludes financing costs related to IPC acquisition of $1.2M pre-tax ($0.04 per share).

15 2017 First Quarter by Region AMERICAS 15 Sales up 4.2% organically (excluding approximately 1.0% favorable foreign currency impact and 1.7% impact from Florock acquisition) Strong sales to strategic accounts and direct sales fueled by demand for new products in North America Latin America achieved 14% organic sales growth

16 2017 First Quarter by Region EMEA Sales increased 14.3% organically (excluding approx. 5.5% unfavorable foreign currency impact and 0.5% impact from divestiture of Green Machines TM outdoor city cleaning line) Positive organic sales growth in all countries Particular strength in Central Eastern Europe, Middle East and Africa markets, and also Iberia, France and Netherlands 16

17 2017 First Quarter by Region APAC Sales declined 4.1% organically (excluding 0.5% favorable foreign currency impact) Robust sales growth in Japan and Korea more than offset by lower sales in Australia and China 17

18 18 TENNANT COMPANY 2017 FIRST QUARTER Organic Sales Growth 5.0% Organic Sales up 4.2% in Americas, up 14.3% in EMEA SALES GROSS MARGIN R&D EXPENSE (% of sales) Adjusted* S&A EXPENSE (% of sales) Adjusted* OPERATING PROFIT Adjusted* OPERATING PROFIT MARGIN Adjusted* DILUTED EPS Q1 17 $191.1 M 41.7% 4.4% 33.0% $8.3 M 4.3% $0.31 Q1 16 CHANGE $179.9 M 43.1% 4.4% 34.7% $7.1 M 3.9% $ % (140 bps) +0 bps (170 bps) +16.7% +40 bps +24.0% *Q1 17 results are adjusted to exclude restructuring charge of $8.0M pre-tax ($0.32 per share) and IPC acquisition costs of $2.9M pre-tax ($0.17 per share) in S&A Expense. Diluted EPS also excludes financing costs related to IPC acquisition of $1.2M pre-tax ($0.04 per share).

19 Operating Profit Margin Goal 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 19

20 Successful Tax Strategies Overall effective tax rate for 2016 full year was 29.9% Overall effective tax rate for 2017 first quarter, excluding special items, of 27.7% Base tax rate for 2017 first quarter of 31.3% (excluding special items and routine discrete items) 20

21 Strong Balance Sheet 1Q 16 1Q Commitment To Shareholder Return

22 Financing Activities April 5, 2017 New $600M Senior Secured Credit Facility $200M Revolving Credit Facility $100M Term Loan A-1 $300M Term Loan A-2 April 6, 2017 Funds drawn under $600M Senior Secured Credit Facility $100M Term Loan A-1 $300M Term Loan A-2 April 7/18, 2017 Offered/Closed on $300M Senior Unsecured Notes Senior Notes were priced at 5.625% Proceeds used to pay off $300M Term Loan A-2 4.2% Overall Weighted Average Cost of Debt $100M Term Loan A-1 $300M Senior Notes Related Cross-Currency Swap Instrument 22

23 2017 EPS & Sales Guidance 2016 ACTUAL As Reported $2.59 EPS $808.6M SALES 2017 Financial Outlook As Adjusted and Constant Currency $2.50 to $2.70 As Reported $1.05 to $1.25/$960M to $990M 23 KEY EXPECTATIONS FOR 2017 (includes the impact of the April 2017 IPC Group acquisition) Net sales in the range of $960M to $990M versus $808.6M in Stable economy in North America, modest improvement in Europe, and challenging environment in APAC. Unfavorable foreign currency impact on sales of approximately 1%. Sales increase from acquisitions: 2016 Florock of approximately 0.8%; 2017 IPC range of 18.6% to 20.4%. Organic sales growth, excluding foreign currency exchange impact and acquisitions, in the range of 1% to 3%. Adjustments of $30.8M pre-tax, or $1.35 per share, non-recurring special items: $8.0M Restructuring Charge, $7.5M IPC acquisition costs, $8.1M IPC related financing costs, $7.2M IPC acquisition inventory step-up. Foreign currency exchange headwinds estimated to negatively impact operating profit by approximately $2.5M, or approximately $0.10 EPS. Gross margin performance in the range of 42% to 43%. R&D expense of approximately 4% of sales. Effective tax rate of approximately 28%. Capital expenditures in the range of $25M to $30M.

24 24 QUESTIONS?

25 Tennant is Well Positioned! Competitively advantaged in the market with our innovative product and technology portfolio and go-tomarket strategy Well positioned to leverage our operational efficiency 25 Remain committed to $1B Sales target and 12% OP Margin goal