tnc q3 2017 earnings presentation final -...
TRANSCRIPT
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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