tnc q3 2017 earnings presentation final -...

TENNANT COMPANYEarningsReleaseConferenceCall

ThirdQuarter2017

Thursday,November2,2017

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ChrisKillingstadPresidentandCEO

TomPaulsonSeniorVP,CFO

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TENNANTCOMPANYOntheCallToday

Ourremarksthismorningandouranswerstoquestionsmaycontainforward-lookingstatementsregardingthecompany’sexpectationsoffutureperformance.Suchstatementsaresubjecttorisksanduncertainties,andouractualresultsmaydiffermateriallyfromthosecontainedinthestatements.Theserisksanduncertaintiesaredescribedintoday’snewsreleaseandthedocumentswefilewiththeSecuritiesandExchangeCommission.Weencourageyoutoreviewthosedocuments,particularlyourSafeHarborstatement,foradescriptionoftherisksanduncertaintiesthatmayaffectourresults.

Additionally,onthisconferencecallwewilldiscussnon-GAAPmeasuresthat includeorexcludespecialornon-recurringitems.Foreachnon-GAAPmeasure,wealsoprovidethemostdirectlycomparableGAAPmeasure.Therewerespecialnon-GAAPitemsinthe2017thirdquarterandfirstninemonths.Therewerenospecialnon-GAAP itemsin2016.Our2017thirdquarterearningsreleaseincludesareconciliationofthesenon-GAAPmeasurestoourGAAPresultsforthe2017thirdquarterandfirstninemonths.

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TENNANTCOMPANYForwardLookingStatements&Non-GAAPMeasures

• Maintainstrongnewproductandtechnologypipeline

• Expandglobalmarketcoverage

• Leveragecoststructuretoimproveoperatingefficiency

• Improvefinancialstrengththroughsolidcashflowanddebtreduction

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TENNANTCOMPANYCoreInitiatives

• Expandgeographicreachthroughacquisitions

• Alignresourcesforgrowthandefficiencythroughrestructureactions

• Focusoninnovationtoimproveournewproductofferings

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TENNANTCOMPANYCoreStrategies

• Organicgrowthof1.3%,butcontinuedgrossmarginchallenges

• StrongperformanceofIPC,growing5%organicallyinQ3,whilealsogrowingourEMEAregionby14.6%organically

• SynergiesacrosscoreTennantandIPCwillallowforcross-sellingandreachingmorecustomers

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TENNANTCOMPANY2017ThirdQuarterOverview

• TimingofkeystrategicaccountsintheAmericasregionresultedinsoftnessinthequarter

• Restructuringchargeimpactsandmanufacturingautomationinitiativescontributedtogrossmarginheadwinds– Acontinuedfocusareaandpriorityforourleadershipandexpect

morenormalizedgrossmarginsof42%to43%byendofQ22018

• Excitingourcustomerbasebyofferingnewproductlaunches,whichtranslateintoastrongVitalityIndex(47%)– Examples includeournewT350Stand-OnCommercialScrubberandi-Mop

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TENNANTCOMPANY2017ThirdQuarter(Continued)

• RemaincommittedtodeliveringsynergiesrelatedtoIPC,whichallowsustoexpandourglobalmarketcoverageandproductofferings

• Maintainourstrongnewproductandtechnologypipeline

• Addressoperationalefficienciestoreturnmarginstonormalizedrates

• Focusonbuildingourfinancialstrengththroughsolidcashgenerationandrepaymentofdebt

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TENNANTCOMPANYLookingAhead

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Q3’17SALESAdjusted* GROSSMARGINR&DEXPENSE(%ofsales)Adjusted*S&AEXPENSE(%ofsales)Adjusted*OPERATINGPROFITAdjusted*OPERATINGPROFITMARGINAdjusted*EPS

Q3’16 CHANGE

TENNANTCOMPANY2017ThirdQuarter

$261.9M

40.8%3.0%

32.4%

$14.2M

5.4%

$0.32

$200.1M

42.6%4.2%

30.3%

$16.3M

8.1%

$0.64

+30.9%

(180bps)(120bps)

+210bps

(12.8%)

(270bps)

(50%)

OrganicSalesIncrease1.3%|OrganicSalesup14.6%inEMEA

*Q3’17resultsareadjustedtoexcludeinventorystep-upof$2.2Mpre-tax($0.09pershare)inGrossMarginandIPCacquisitioncostsof$0.9Mpre-tax($0.03pershare)inS&AExpense.EPSalsoincludes$7.3Mpre-tax($0.29pershare)relatedtoacceleratedamortizationforintangibleassetsforIPCacquisition.

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• Salesdeclined0.2%organically(excludingapprox.0.4%favorableforeigncurrencyimpactand5.5%impactfromFlorockandIPCacquisitions)

• Overalllowersalesduetotimingrelatedtokeystrategicaccounts

• StrongsalesgrowthinMexico

TENNANTCOMPANY2017ThirdQuarterbyRegion

AMERICAS

• Salesincreased14.6%organically(excludingapprox.5.7%favorableforeigncurrency impactand148.7%impact fromIPCacquisition)

• SolidsalesperformanceinWesternEurope

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EMEA

TENNANTCOMPANY2017ThirdQuarterbyRegion

• Salesdecreased8.5%organically(excludingapprox.0.4%favorableforeigncurrency impactand27.0%impactofIPCacquisition)

• SalesgrowthinJapanoffsetbylowersalesinChina,KoreaandSoutheastAsia

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APAC

TENNANTCOMPANY2017ThirdQuarterbyRegion

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Q3’17SALESAdjusted* GROSSMARGIN

Q3’16 CHANGE

TENNANTCOMPANYAdjustedGrossMargin

$261.9M

40.8%

$200.1M

42.6%

+30.9%

(180bps)

• 180bpsdecline:

– 68bps– dilutive impactofIPCacquisition

– 32bps– impactofmixduetohigherEMEAregionsales

– 26bps– duetorawmaterial inflation

– 54bps– duetofield serviceproductivity,challenges relatedtoorganizationalchangesfromrestructuringandnear-termmanufacturingautomationchallenges

• FullYearguidanceof41%to42%*Q3’17resultsareadjustedtoexcludeinventorystep-uprelatedtotheIPCacquisitionof$2.2Mpre-tax($0.09pershare)inGrossMargin.

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Q3’17SALESAdjusted* GROSSMARGINR&DEXPENSE(%ofsales)Adjusted*S&AEXPENSE(%ofsales)Adjusted*OPERATINGPROFITAdjusted*OPERATINGPROFITMARGINAdjusted*EPS

Q3’16 CHANGE

TENNANTCOMPANY2017ThirdQuarter

$261.9M

40.8%3.0%

32.4%

$14.2M

5.4%

$0.32

$200.1M

42.6%4.2%

30.3%

$16.3M

8.1%

$0.64

+30.9%

(180bps)(120bps)

+210bps

(12.8%)

(270bps)

(50%)

OrganicSalesIncrease1.3%|OrganicSalesup14.6%inEMEA

*Q3’17resultsareadjustedtoexcludeinventorystep-upof$2.2Mpre-tax($0.09pershare)inGrossMarginandIPCacquisitioncostsof$0.9Mpre-tax($0.03pershare)inS&AExpense.EPSalsoincludes$7.3Mpre-tax($0.29pershare)relatedtoacceleratedamortizationforintangibleassetsforIPCacquisition.

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Q3’17SALESAdjusted* GROSSMARGINR&DEXPENSE(%ofsales)Adjusted*S&AEXPENSE(%ofsales)

Q3’16 CHANGE

TENNANTCOMPANY2017ThirdQuarter

$261.9M

40.8%3.0%

32.4%

$200.1M

42.6%4.2%

30.3%

+30.9%

(180bps)(120bps)

+210bps

OrganicSalesIncrease1.3%|OrganicSalesup14.6%inEMEA

*Q3’17resultsareadjustedtoexcludeIPCacquisitioncostsof$0.9Mpre-tax($0.03pershare)inS&AExpense.

• Q3IPC-RelatedS&AExpenses=$23.4M

– $0.9MofIPCacquisitionpre-taxcosts(excludedinAdj.S&Aexpensealready)

– $7.3Mofnon-cashamortizationforintangibleassetsforIPCacquisition

• $2.0MassociatedwithaQ2catch-upand$5.3MexpenseinQ3

– $15.2MofS&ArelatedtoIPCbusinessoperations

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Q3’17SALESAdjusted* GROSSMARGINR&DEXPENSE(%ofsales)Adjusted*S&AEXPENSE(%ofsales)Adjusted*OPERATINGPROFITAdjusted*OPERATINGPROFITMARGINAdjusted*EPS

Q3’16 CHANGE

TENNANTCOMPANY2017ThirdQuarter

$261.9M

40.8%3.0%

32.4%

$14.2M

5.4%

$0.32

$200.1M

42.6%4.2%

30.3%

$16.3M

8.1%

$0.64

+30.9%

(180bps)(120bps)

+210bps

(12.8%)

(270bps)

(50%)

OrganicSalesIncrease1.3%|OrganicSalesup14.6%inEMEA

*Q3’17resultsareadjustedtoexcludeinventorystep-upof$2.2Mpre-tax($0.09pershare)inGrossMarginandIPCacquisitioncostsof$0.9Mpre-tax($0.03pershare)inS&AExpense.EPSalsoincludes$7.3Mpre-tax($0.29pershare)relatedtoacceleratedamortizationforintangibleassetsforIPCacquisition.

EBITDAisabettermeasureofourperformance,especiallyinlightofnon-cashamortizationimpactofIPCacquisition

Tennantstillremainscommittedtoexpandingoperatingprofitmarginsby:• Drivingorganicrevenuegrowthinmid- tohigh-single digits

• Holdingfixedcostsessentially flatinmanufacturingasvolume rises

• Strivingforzeronetinflationatgrossprofitline• Standardizingandsimplifying processes toimprovescalabilityofbusiness model17

TENNANTCOMPANYEBITDAandOperatingProfit

Q3’17EBITDAEBITDA%

Q3’16 CHANGE$28.0M

10.7%

$20.7M

10.3%

+35.2%

+40bps

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TENNANTCOMPANYCashFlow

Commitmenttodeliverstrongcashflow,reducedebtanddriveshareholderreturn

3M’16 3M’17

TENNANTCOMPANYGuidance

KeyAssumptions:• Netsalesintherangeof$960Mto$990Mversus$808.6Min2016.

• Unfavorableforeigncurrencyimpact onsalesofapproximately0%to1%.

• Organicsalesgrowth,excludingforeigncurrencyexchangeimpactandacquisitions, intherangeof1%to2%.

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KeyAssumptions(continued):• Adjustmentsof$32.5Mpre-tax,or$1.40pershare,non-recurringspecial items (seenon-GAAPschedule).

• Grossmarginperformanceintherangeof41%to42%.• R&Dexpenseintherangeof3%to4%ofsales.• Effective taxrateofapproximately29%.• Capitalexpendituresintherangeof$20Mto$25M.

QUESTIONS?

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