earnings release conference call first quarter...
TRANSCRIPT
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TENNANT COMPANYEarnings Release Conference Call
First Quarter 2016
Monday, April 25, 2016
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Chris KillingstadPresident and CEO
Tom PaulsonSenior VP, CFO
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TENNANT COMPANY
On the Call Today
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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.
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TENNANT COMPANY
FORWARD LOOKING STATEMENTS
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• 2016 first quarter consolidated net sales of $179.9M– Organic net sales equal to prior-year period
– Sluggish business environment continued in 2016 first quarter
– Increased sales through distribution and direct sales
– Favorable channel mix and product mix
– $32M sales quarter for scrubbers equipped with ec-H2OTM
– Net earnings of $0.29 per diluted share on a “Constant Currency” basis – up 7.4% versus prior-year quarter
• Sales momentum rose toward end of first quarter• Reaffirmed sales and earnings guidance for 2016 full year
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TENNANT COMPANY
2016 First Quarter Overview
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We remain committed to organic Sales goal of $1 Billion and 12% or above Operating Profit Margin
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TENNANT COMPANY
Growth Strategy
• Strong new product and technology pipeline
• Sales gains in emerging markets
• Return to growth in Europe
• Ongoing focus on strategic accounts
• Expansion of global market coverage
• Application of lean principles
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• New products and technologies
– Sales of new products introduced in
last three years rose to 36% of
equipment sales in 2016 first quarter
• Plan to launch 13 new products in 2016
– Several significant industrial machine
launches
– M17 released in late March
M17 Battery-Powered
Sweeper-Scrubber
TENNANT COMPANY
New Products
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ec-H2O NanoClean®
The Responsible Way to Clean
Next generation ec-H2O | Cleans more soils in more applications
HOW IT WORKS:EC-H2O™ SCRUBBERS | 2008-2015
$896 million+cumulative revenue
8,000+customers
30,000+ sites
77,000+machines
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Record Sales of $157M in 2015
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ORBIO® TechnologiesOn-Site Generation Technology
FOCUS ON “3Cs”CAMPUS | CHAINS | CONTRACTORS
Improving health and safety for the environment, employees and people in their care while reducing costs.
GENERATEScleaner & disinfectant/sanitizer on-site
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– +
Water
Recycling
Battery
Technologies
Robotics
(AGV)
Asset
Management
Advanced Product DevelopmentFuture Technologies
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ON-BOARD MACHINE
DIAGNOSTICS
CUSTOMERS• Manage cleaning
programs better
• Fleet management
• Lower cost-to-clean
• Increased Market
Differentiation
• Service Efficiency
• Customer Intimacy
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TENNANT COMPANY
IRIS® Asset Management System
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• Improving cost & availability
• ROI for customer
• Reduced weight & footprint size
• Sustainability
• Productivity
• Game-changing solution
– +
Water RecyclingLithium-Ion Batteries Robotics (AGV)
• Addresses labor costs
• Largest potential growth
opportunity
Advanced Product DevelopmentFuture Technologies
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DIGITAL TRANSFORMATION
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IRIS®
e-Business
e-CommercePlatform
CRM
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• 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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SALES
GROSS MARGIN
R&D EXPENSE (% of sales)
S&A EXPENSE (% of sales)
OPERATING PROFIT
OPERATING PROFIT MARGIN
DILUTED EPS
Q1’16 Q1’15 CHANGE
$179.9 M
43.1%
4.4%
34.7%
$7.1 M
3.9%
$0.25
$185.7 M
42.0%
4.2%
33.4%
$8.3 M
4.4%
$0.27
(3.2%)
+110 bps
+20 bps
+130 bps
(14.0%)
(50 bps)
(7.4%)
TENNANT COMPANY
2016 First QuarterOrganic Sales Growth 0% | Americas Sales up 1.7% organically
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• Sales up 1.7% organically(excluding 2.0% unfavorable foreign currency impact)
• Strong sales through distribution and direct sales
• Increased sales of scrubbers equipped with ec-H2O
• Brazil achieved 7.5% organic sales growth despite economic headwinds
TENNANT COMPANY
2016 First Quarter by Region
AMERICAS
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• Sales decreased 2.8% organically(excluding 2.0% unfavorable foreign currency impact and 6.5%impact from divestiture)
• Strong sales to strategic accounts more than offset by lower direct sales and sales through distribution
•Divested Green MachinesTM outdoor city cleaning line
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EMEA
TENNANT COMPANY
2016 First Quarter by Region
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• Sales declined 5.8% organically(excluding 3.0% unfavorable foreign currency impact)
• Organic sales growth in Australia, Japan and
China was more than offset by lower organic
sales in the other Asian countries
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APAC
TENNANT COMPANY
2016 First Quarter by Region
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SALES
GROSS MARGIN
R&D EXPENSE (% of sales)
S&A EXPENSE (% of sales)
OPERATING PROFIT
OPERATING PROFIT MARGIN
DILUTED EPS
Q1’16 Q1’15 CHANGE
$179.9 M
43.1%
4.4%
34.7%
$7.1 M
3.9%
$0.25
$185.7 M
42.0%
4.2%
33.4%
$8.3 M
4.4%
$0.27
(3.2%)
+110 bps
+20 bps
+130 bps
(14.0%)
(50 bps)
(7.4%)
TENNANT COMPANY
2016 First QuarterOrganic Sales Growth 0% | Americas Sales up 1.7% organically
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SALES
GROSS MARGIN
OPERATING PROFIT
OPERATING PROFIT MARGIN
DILUTED EPS
Q1’16 Q1’15 CHANGE
$183.5 M
43.5%
$8.2 M
4.5%
$0.29
$185.7 M
42.0%
$8.3 M
4.4%
$0.27
(1.2%)*
+150 bps
(0.8%)
+10 bps
+7.4%
TENNANT COMPANY
2016 First Quarter“CONSTANT CURRENCY” VIEW (excludes estimated foreign exchange impact)
CONSTANT(1)
CURRENCY
Q1’16
AS REPORTED
$179.9 M
43.1%
$7.1 M
3.9%
$0.25
(1)“Constant Currency”: estimated income statement which assumes no change in exchange rates from prior year.
*Organic Sales Growth, excluding approximately 2.0 percent unfavorable foreign currency exchange impact and the impact from the divestiture of the Green Machines outdoor city cleaning line of 1.2%, was 0%.
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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
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• Overall effective tax rate for 2016 first quarterof 32.0%
• Base tax rate of 30.3%(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
1Q’161Q’15FY’15
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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$2.25 to $2.55/$795M to $825M
KEY EXPECTATIONS FOR 2016• Net sales in the range of $795M to $825M versus $811.8M in 2015.• Slower economic growth in North America, modest improvement in Europe, and
growth in emerging markets.• Foreign currency impact on sales in the range of an unfavorable 1% to 2%.• Sales decline from divestiture of approximately 1%.• Organic sales growth, excluding foreign currency exchange impact and
divestiture, in the range of 0% to 4%.• Foreign currency exchange headwinds estimated to negatively impact operating
profit in the range of $3M to $6M, or approximately $0.10 to $0.20 EPS.• Gross margin of approximately 43%. • 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.
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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