TENNANT CO

Previous wording

We are impacted by customer spend and global demand for our products. We are monitoring a weaker-than-expected economic environment in our EMEA region and facing challenging business conditions in APAC, especially in China, where government efforts to support manufacturing amid weaker demand are resulting in market oversupply and pricing pressure.

Current wording

Recent macroeconomic events including inflation, slower economic growth, and political unrest have led to economic uncertainty and volatility globally. Our business is influenced by customer spending and global demand for our products. We are closely monitoring a weaker-than-expected economic environment in our EMEA region and are facing challenging business conditions in APAC, especially in China, where excess manufacturing capacity and government-induced overproduction are resulting in increased pricing pressure.

Previous wording

With growing volatility in global economics, including political relations between major economies, we remain agile as we continue to manage these evolving conditions. Despite the challenging economic environment, particularly in EMEA and APAC, we remain confident in the long-term growth prospects for our products and services across the markets we service.

Current wording

Despite the challenging economic environment, particularly in EMEA and APAC, we remain confident in the long-term overall health of our business and the strength of our products and services across the markets we serve.

Previous wording

The following table compares the results of operations for the three and six months ended June 30, 2024 and 2023, respectively (in millions, except per share data and percentages):

Current wording

The following table compares the results of operations for the three and nine months ended September 30, 2024 and 2023, respectively (in millions, except per share data and percentages):

Previous wording

Consolidated net sales for the second quarter of 2024 totaled $331.0 million, a 2.9% increase as compared to consolidated net sales of $321.7 million in the second quarter of 2023. The components of the consolidated net sales change were as follows:

Current wording

Consolidated net sales for the third quarter of 2024 totaled $315.8 million, a 3.6% increase as compared to consolidated net sales of $304.7 million in the third quarter of 2023. The components of the consolidated net sales change were as follows:

Previous wording

The 2.9% increase in consolidated net sales in the second quarter of 2024 as compared to the same period in 2023 was driven by:

Current wording

The 3.6% increase in consolidated net sales in the third quarter of 2024 as compared to the same period in 2023 was driven by:

Previous wording

•Inorganic growth of 0.6% driven by the acquisition of TCS; partly offset by

Current wording

•Inorganic growth of 1.3% driven by the acquisition of TCS; partly offset by

Previous wording

The 2.3% increase in consolidated net sales in the first six months of 2024 as compared to the same period in 2024 was driven by:

Current wording

The 2.7% increase in consolidated net sales in the first nine months of 2024 as compared to the same period in 2023 was driven by:

Previous wording

•Organic sales growth of 1.8% attributed to price realization across the regions and higher equipment sales in the Americas, partly offset by lower sales in the EMEA and APAC regions;

Current wording

•Organic sales growth of 2.1% attributed to price realization across all regions and favorable product and channel mix and higher equipment sales in the Americas, partly offset by lower organic sales in the EMEA and APAC regions;

Previous wording

•A net unfavorable impact from foreign currency exchange across all regions of approximately 0.1%.

Current wording

•A net unfavorable impact from foreign currency exchange across all regions of approximately 0.2%.

Previous wording

The following table sets forth the net sales by geographic area for the three and six months ended June 30, 2024 and 2023 (in millions, except percentages):

Current wording

The following table sets forth the net sales by geographic area for the three and nine months ended September 30, 2024 and 2023 (in millions, except percentages):

Previous wording

•Organic sales growth of 5.3% driven by price realization and higher equipment sales, including a favorable product and channel mix across the region, partly offset by unit volume declines in North America commercial equipment.

Current wording

•Organic sales growth of 5.0% driven by strong price realization and higher equipment sales, including favorable product and channel mix in North America, partly offset by unit volume declines in North America commercial equipment; and

Previous wording

•Inorganic sales increase of 2.2% due to the acquisition of TCS.

Current wording

•Inorganic sales increase of 5.8% due to the acquisition of TCS;

Previous wording

•Organic sales decline of 4.8% driven by volume declines in both equipment and parts and consumables, partly offset by price realization; and

Current wording

•Organic sales decrease of 0.8% driven by volume declines in both equipment and parts and consumables, partly offset by price realization.

Previous wording

•Inorganic sales increase of 3.1% due to the acquisition of TCS; partly offset by

Current wording

•Inorganic sales increase of 3.3% due to the acquisition of TCS;

Previous wording

•Organic sales decline of 0.3% driven by volume declines in both equipment and parts and consumables attributed to weaker-than-expected economic conditions, partly offset by price realization.

Current wording

•Organic sales decrease of 3.6% driven by volume declines in both equipment and parts and consumables, partly offset by price realization.

Previous wording

•Organic sales decline of 11.9% driven by volume declines in China and Australia, partly offset by price realization in Australia; and

Current wording

•Organic sales decrease of 4.3% driven by volume declines in China and Australia, partly offset by price realization in Australia; and

Previous wording

•Organic sales decline of 7.1% attributed to product mix and volume declines, particularly in China, partly offset by price realization; and

Current wording

•Organic sales decrease of 6.2% attributed to volume declines in China, partly offset by price realization in Australia; and

Previous wording

Gross profit margin of 43.1% was 30 basis points lower in the second quarter of 2024 compared to the second quarter of 2023. The slight margin rate decrease is attributed to higher inflation, offset by price realization, while the overall margin rate is supported by favorable channel and product mix. Gross profit margin of 43.6% was 140 basis points higher in the first six months of 2024 compared to the first six months of 2023. The margin rate increase was driven by price realization and cost saving initiatives, which more than offset the effects of inflation. Strong margin rates are also supported by favorable product mix, including higher industrial equipment sales, and a shift to direct channel sales.

Current wording

Gross profit margin of 42.4% was 90 basis points lower in the third quarter of 2024 compared to the third quarter of 2023. The margin rate decrease is primarily attributed to higher inflationary pressure on materials as well as elevated freight costs, partly offset by price realization. Gross profit margin of 43.2% was 60 basis points higher in the first nine months of 2024 compared to the first nine months of 2023. The margin rate increase was driven by price realization and cost saving initiatives, which more than offset the effects of inflation. Strong margin rates are also supported by favorable product mix, including higher industrial equipment sales.

Previous wording

Selling and administrative expense ("S&A expense") was $92.9 million for the second quarter of 2024, an increase of $5.9 million compared to the second quarter of 2023. As a percentage of net sales, S&A expense for the second quarter of 2024 increased 110 basis points to 28.1% from 27.0% in the second quarter of 2023. The S&A expense increase was driven by higher costs linked to our strategic investments and higher compensation and benefits expense related to incremental resources to support the Company's enterprise growth strategy.

Current wording

Selling and administrative expense ("S&A expense") was $92.7 million for the third quarter of 2024, an increase of $4.5 million compared to the third quarter of 2023. As a percentage of net sales, S&A expense for the third quarter of 2024 increased 50 basis points to 29.4% from 28.9% in the third quarter of 2023. S&A expense was $275.5 million for the first nine months of 2024, an increase of $18.6 million compared to the first nine months of 2023. S&A expense as a percentage of net sales for the first nine months of 2024 increased 120 basis points to 28.8% from 27.6% in the first nine months of 2023. The S&A expense increase in both periods was driven by higher costs linked to our strategic investments and higher compensation and benefits expense related to incremental resources to support the Company's enterprise growth strategy, partly offset by lower bad debt expense, lower legal fees, and a decrease in warranty claims.

Previous wording

Research and development expense ("R&D expense") was $11.2 million, or 3.4% of net sales, for the second quarter of 2024, with R&D expense as a percentage of net sales increasing 60 basis points compared to the second quarter of 2023. R&D expense was $21.3 million, or 3.3% of net sales, for the first six month of 2024, increasing 60 basis points compared to the first six months of 2023.

Current wording

Research and development expense ("R&D expense") was $10.5 million, or 3.3% of net sales, for the third quarter of 2024, with R&D expense as a percentage of net sales increasing 30 basis points compared to the third quarter of 2023. R&D expense was $31.8 million, or 3.3% of net sales, for the first nine months of 2024, increasing 50 basis points compared to the first nine months of 2023.

Previous wording

Interest expense, net was $2.5 million in the second quarter of 2024 compared to $4.0 million in the same period of 2023. The decrease was the result of lower weighted average outstanding borrowings. The following table compares the debt levels, average interest rate, interest income and interest expense for the three and six months ended June 30, 2024 and 2023, respectively (in millions, except percentages):

Current wording

Interest expense, net was $2.7 million in the third quarter of 2024 compared to $3.3 million in the same period of 2023. The decrease was the result of lower weighted average outstanding borrowings. The following table compares the debt levels, average interest rate, interest income and interest expense for the three and nine months ended September 30, 2024 and 2023, respectively (in millions, except percentages):

Previous wording

Net Foreign Currency Transaction Gain

Current wording

Net Foreign Currency Transaction Gain (Loss)

Previous wording

Net foreign currency transaction gain was $0.7 million in the second quarter of 2024 compared to $1.0 million in the second quarter of 2023. Net currency transaction gain was $0.5 million in the first six months of 2024 compared to a gain of $0.9 million in the first six months of 2023. The favorable impact in both periods was primarily due to the strengthening of the U.S. dollar relative to the Euro and other currencies.

Current wording

Net foreign currency transaction loss was $0.4 million in the third quarters of 2024 and 2023. The unfavorable impact was primarily due to the strengthening of the U.S. dollar relative to the Chinese renminbi and Mexican peso. Net currency transaction gain was $0.1 million in the first nine months of 2024 compared to a gain of $0.5 million in the first nine months of 2023. The favorable impact was primarily due to hedging gains on foreign denominated receivables.

Previous wording

The effective tax rate for the second quarter of 2024 was 24.4% compared to 21.6% for the second quarter of 2023. The increase was primarily due to an increase in nondeductible executive compensation and unfavorable changes in the mix in forecasted earnings by country.

Current wording

The effective tax rate for the third quarter of 2024 was 24.4% compared to 23.4% for the third quarter of 2023. The increase was primarily due to an increase in nondeductible executive compensation and unfavorable changes in the mix in forecasted earnings by country.

Previous wording

The effective tax rate for the first six months of 2024 was 21.8% compared to 22.7% for the first six months of 2023. The decrease was primarily due to an increase in discrete tax benefits associated with share-based compensation partly offset by an increase in nondeductible executive compensation.

Current wording

The effective tax rate for the first nine months of 2024 was 22.5% compared to 22.9% for the first nine months of 2023. The decrease was primarily due to an increase in discrete tax benefits associated with share-based compensation partly offset by an increase in nondeductible executive compensation.

Previous wording

Backlog is one of the many indicators of business conditions in the Company's markets. Our order backlog was $110.0 million at June 30, 2024 compared to $186.2 million at December 31, 2023. The decrease was the result of the Company's ability to obtain key component parts and drive strong production levels. Backlog includes orders that can be cancelled or postponed at the option of the customer at any time without penalty.

Current wording

Backlog is one of the many indicators of business conditions in the Company's markets. Our order backlog was $76.8 million at September 30, 2024 compared to $186.2 million at December 31, 2023. The decrease was the result of the Company's ability to obtain key component parts and drive strong production levels. Backlog includes orders that can be cancelled or postponed at the option of the customer at any time without penalty.

Previous wording

Cash, cash equivalents and restricted cash totaled $84.6 million at June 30, 2024 compared to $117.1 million as of December 31, 2023. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.2 as of June 30, 2024 and 2.1 as of December 31, 2023. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payables, was $329.8 million as of June 30, 2024 and $312.1 million as of December 31, 2023. Our debt-to-capital ratio was 25.4% as of June 30, 2024 compared to 25.8% as of December 31, 2023.

Current wording

Cash, cash equivalents and restricted cash totaled $91.3 million at September 30, 2024 compared to $117.1 million as of December 31, 2023. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.2 as of September 30, 2024 and 2.1 as of December 31, 2023. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payables, was $334.0 million as of September 30, 2024 and $312.1 million as of December 31, 2023. Our debt-to-capital ratio was 24.4% as of September 30, 2024 compared to 25.8% as of December 31, 2023.

Previous wording

As of June 30, 2024, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $321.8 million of unused borrowing capacity on our revolving facility.

Current wording

As of September 30, 2024, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $439.3 million of unused borrowing capacity on our revolving facility.

Previous wording

Net cash provided by operating activities during the six months ended June 30, 2024 was $21.5 million compared to net cash provided by operating activities of $70.2 million during the six months ended June 30, 2023. The decrease was the result of consumption of working capital and spend on our ERP modernization project, which was partly offset by strong operating performance.

Current wording

Net cash provided by operating activities during the nine months ended September 30, 2024 was $52.2 million compared to net cash provided by operating activities of $124.6 million during the nine months ended September 30, 2023. The decrease was the result of consumption of working capital and spend on our ERP modernization project of $25.6 million.

Previous wording

Net cash used in investing activities during the six months ended June 30, 2024 was $64.9 million compared to net cash used by investing activities of $12.0 million during the six months ended June 30, 2023. The increase in cash outflows was primarily driven by cash used for the investment in Brain Corp of $32.1 million and cash used, net of cash acquired, for the acquisition of TCS of $25.7 million.

Current wording

Net cash used in investing activities during the nine months ended September 30, 2024 was $69.1 million compared to net cash used in investing activities of $15.2 million during the nine months ended September 30, 2023. The increase in cash outflows was primarily driven by cash used for the investment in Brain Corp of $32.1 million and cash used, net of cash acquired, for the acquisition of TCS of $25.7 million.

Previous wording

Net cash provided by financing activities during the six months ended June 30, 2024 was $12.4 million compared to net cash used by financing activities of $38.1 million during the six months ended June 30, 2023. The increase in cash inflows was primarily driven by proceeds from exercises of stock options and net proceeds from borrowings, partly offset by share repurchases and dividend payments.

Current wording

Net cash used in financing activities during the nine months ended September 30, 2024 was $8.1 million compared to net cash used in financing activities of $87.1 million during the nine months ended September 30, 2023. The decrease in cash outflows was primarily driven by proceeds from exercises of stock options and net proceeds from borrowings, partly offset by share repurchases and dividend payments.