TENNANT CO
For the period ended Dec 31, 2024. Filed Feb 18, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 18, 2025
TNC$71.50+0.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-22.
0000097134-24-000008
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-18.
0000097134-25-000006
Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 94 previous paragraphs and 109 current paragraphs.
59 unchanged; 20 reworded; 30 added; 15 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 2 previous and 4 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (30)
Current report
Recent geopolitical and macroeconomic events have led to economic uncertainty and volatility globally. Additionally, shifts in the U.S. and international government policies and priorities such as changes in tariffs, trade barriers, and price and exchange controls could impact demand for our products and services, disrupt supply chain, and ultimately have an adverse effect on our business.
Current report
Our business is influenced by customer spending and global demand for our products. We are closely monitoring challenging business conditions in APAC, especially in China, which continues to experience market saturation, leading to decreased demand for our mid-tier products and heightened pricing pressures in the region. In Australia, there are signals of reduced demand as customers are delaying equipment orders or moving to rental units. To address these pressures, we've implemented adaptive measures, such as streamlining operations and refining cost management strategies.
Current report
Amid the uncertainty of a slowing global economy, global inflation, and geopolitical challenges, we continue to remain focused on long-term resilience. While we are unable to predict the full effect of these geopolitical and macroeconomic events and how they might evolve, we are committed to supporting our customers, maintaining operational stability, and navigating the volatile global landscape with a focus on sustainable growth.
Current report
See the "Risk Factors" section in Part I, Item 1A of this Annual Report for further discussion of the possible impact of the above conflicts and macroeconomic events on our business and financial results.
Current report
As we look ahead to 2025, while we expect to face a significant backlog headwind in 2025, the underlying business continues to drive year-over-year order growth. Given the robust reception to our recent product introductions and a solid pipeline of upcoming products, combined with expanded go-to-market strategies and a disciplined pricing approach, we are well positioned to continue to execute our enterprise growth strategy effectively.
Current report
•Organic sales growth of 3.2% attributed to price realization across all regions, favorable product and channel mix, and higher equipment sales in the Americas, partly offset by volume declines in the EMEA and APAC regions;
Current report
•Inorganic sales growth of 0.7% driven by the acquisition of TCS; partly offset by
Current report
•A net unfavorable impact from foreign currency exchange of approximately 0.4%.
Current report
Net sales in the Americas were $888.5 million in 2024, an increase of 5.7% from 2023 driven by:
Current report
•Organic sales growth of 6.3%, primarily due to price realization and volume increases in equipment and service, partly offset by volume declines in parts and consumables in North America; and
Current report
•A net unfavorable impact from foreign currency exchange of approximately 0.6%.
Current report
EMEA net sales were $318.5 million in 2024, an increase of 1.3% from 2023 driven by:
Current report
•Inorganic sales growth of 2.6% driven by the acquisition of TCS;
Current report
•Organic sales decrease of 1.6%, primarily due to volume declines in both equipment sales and parts and consumables, partly offset by price realization in all categories. EMEA volumes were impacted by weak economic conditions and a small contribution from backlog reduction.
Current report
APAC net sales were $79.7 million in 2024, a decrease of 10.3% from 2023 driven by:
Current report
•Organic sales decrease of 9.5%, primarily driven by volume declines partly offset by price realization in China and Australia; and
Current report
•A net unfavorable impact from foreign currency exchange of approximately 0.8%.
Current report
Gross profit margin of 42.7% was 30 basis points higher in 2024 compared to 2023. The margin rate increase was the result of pricing and cost-out initiative efforts, which outpaced the impact of inflation in the year. Strong margin rates are also supported by favorable product mix, including the reduction of industrial equipment backlog in the first half of 2024.
Current report
("ERP") modernization costs, legal contingency costs related to an intellectual property dispute, restructuring-related charges associated with our global workforce realignment, and transaction and integration costs.
Current report
We continue to invest in developing innovative products and technologies at levels necessary to propel our technology, innovative leadership position and drive growth.
Current report
Interest expense, net was $9.1 million in 2024, a decrease of $4.4 million compared to 2023. The decrease was the result of lower weighted average outstanding borrowings. The following table compares the weighted average outstanding borrowings, average interest rate, interest expense and interest income for the years ended December 31 (in millions, except percentages):
Current report
As of December 31, 2024, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $449.3 million of unused borrowing capacity on our revolving facility.
Current report
Stock Repurchase Program
Current report
On February 11, 2025, our board of directors authorized the repurchase of up to 2,000,000 shares of our common stock. This increase was in addition to the remaining authorized shares under our prior common stock repurchase program that was authorized on October 31, 2016 (the "Program"). Share repurchases may be made on an opportunistic basis through open market transactions, privately negotiated transactions, or by other means in accordance with applicable federal securities laws. We are not obligated to purchase any shares, and there is no set date that the program will expire. Our board of directors, at its discretion, may increase or decrease the number of authorized shares or terminate the Program at any time.
Current report
During the year ended December 31, 2024, we repurchased 198,352 shares under the Program, with 623,061 shares of common stock remaining.
Current report
For more information related to our stock repurchases, see Note 14, Shareholders' Equity, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this Form 10-K.
Current report
In November 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220) - Disaggregation of Income Statement Expenses, which requires disaggregation of certain income statement expense captions into specified categories to be disclosed within the notes to the financial statements, but does not change the expense captions on the consolidated income statement. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
Current report
•Changes in foreign currency translation rates.
Current report
•Ability to implement our new ERP system.
Current report
•Ability to execute our business transformation strategy.
Removed paragraphs (15)
Previous report
Supply chain challenges continue to impact the global economy. Our operating performance throughout 2023 has benefited from fewer supply chain disruptions enabling us to obtain key component parts, increase production and reduce backlog. We continue to address and adapt to these temporary supply chain disruptions by employing local-for-local and region-for-region manufacturing and sourcing strategies, which allows us to contain costs and manufacture our products closer to our customers. At the same time, our engineering teams are evaluating our platform design to increase our sourcing flexibility.
Previous report
We are impacted by customer spend and global demand for our products. We have been able to successfully manage volatility in demand through our broad and expanding product offerings.
Previous report
The global nature of our operations subjects us to exposures resulting from both foreign currency exchange fluctuations in the normal course of business and geopolitical risks stemming from global conflicts. While we do not have any direct operations or employees in areas experiencing conflict, our operating results have been and may continue to be negatively impacted by supply chain constraints and inflationary pressures stemming from these conflicts.
Previous report
As described in Part I, Item 1A - Risk Factors, we may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn as our product sales are sensitive to declines in capital spending by our customers. Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our future results of operations, financial position, or cash flows. We are actively monitoring the macroeconomic environment, especially the potential impact of global supply chain constraints on cost inflation, and the potential decreased demand for our products.
Previous report
While global economic conditions continue to be uncertain, including the ability to attract and retain skilled labor, lingering and targeted supply chain disruptions, and evolving compliance regulations, we remain agile as we continue to manage evolving conditions. We are confident in the long-term growth trends for all our products and services in the markets we serve.
Previous report
•Organic sales increase of approximately 13.6% primarily due to the impact of higher selling prices across all regions and volume increases; and
Previous report
Our strong organic sales increase was mainly supported by our ability to reduce backlog through the procurement of key component parts to facilitate increased production output.
Previous report
Net sales in the Americas were $840.3 million in 2023, an increase of 19.0% from 2022. Organic sales grew 18.9%, driven equally by price realization and increased volume across all geographies. Foreign currency exchange within the Americas favorably impacted net sales by approximately 0.1%.
Previous report
EMEA net sales were $314.4 million in 2023, an increase of 4.2% from 2022. Organic sales grew 2.6% in EMEA, driven by price realization in all product categories, partially offset by lower EMEA volumes that were impacted by weaker-than-expected market conditions. Foreign currency exchange within EMEA favorably impacted net sales by approximately 1.6%.
Previous report
APAC net sales were $88.9 million in 2023, an increase of 5.0% from 2022. Organic sales grew 8.6% in APAC, driven by price realization in Australia and volume increases in Australia and China. Foreign currency exchange within APAC unfavorably impacted net sales by approximately 3.6% in 2023.
Previous report
Gross profit margin of 42.4% was 390 basis points higher in 2023 compared to 2022. The margin rate increase was the result of price realization and cost saving initiatives, which more than offset the multi-year impact of inflation.
Previous report
We conduct research and development activities to develop new products and to enhance the functionality, effectiveness, ease of use and reliability of our existing products. We believe that our research and development efforts have been, and continue to be, key drivers of our success in the marketplace.
Previous report
Interest expense, net was $13.5 million in 2023, an increase of $6.4 million compared to 2022. The increase was the result of rising interest rates on our variable interest rate debt, partially offset by lower debt levels.
Previous report
In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires an entity to disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of adoption on our financial disclosures.
Previous report
•Ability to successfully upgrade and evolve our information technology systems.
Reworded paragraphs (20)
Previous wording
Consolidated net sales in 2023 totaled $1,243.6 million, a 13.9% increase as compared to consolidated net sales of $1,092.2 million in 2022.
Current wording
Consolidated net sales in 2024 totaled $1,286.7 million, a 3.5% increase as compared to consolidated net sales of $1,243.6 million in 2023. The components of the consolidated net sales change were as follows:
Previous wording
The 13.9% increase in consolidated net sales was driven by:
Current wording
The 3.5% increase in consolidated net sales was driven by:
Previous wording
•A net favorable impact from foreign currency exchange across all business units of approximately 0.3%.
Current wording
•A net favorable impact from foreign currency exchange of approximately 0.3%; partly offset by
Previous wording
Backlog is one of the many indicators of business conditions in the Company's markets. Our order backlog was approximately $186.2 million at December 31, 2023 compared to $326.4 million at December 31, 2022. The decrease in our order backlog is the result of the Company's ability to obtain key component parts and increase 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 approximately $61.5 million at December 31, 2024, compared to $186.2 million at December 31, 2023. From 2020 to 2022, our backlog grew to unusually high levels due to supply chain constraints resulting from the COVID-19 pandemic. This trend began to reverse in 2023 as supply chain conditions improved, allowing us to obtain key component parts and increase production levels. As a result, our order backlog at December 31, 2024 reflects a return to normalized levels.
Previous wording
Selling and Administrative expense ("S&A expense") was $352.6 million in 2023, an increase of $46.3 million compared to 2022. As a percentage of net sales, S&A expense in 2023 increased 40 basis points to 28.4% from 28.0% in 2022. The S&A expense increase was driven by higher variable costs linked to improved operating performance as well as strategic investments aimed at fostering future growth.
Current wording
Selling and Administrative expense ("S&A expense") was $391.9 million in 2024, an increase of $39.3 million compared to 2023. As a percentage of net sales, S&A expense in 2024 increased 210 basis points to 30.5% from 28.4% in 2023. The S&A expense increase was primarily driven by Enterprise Resource Planning
Previous wording
Research and Development ("R&D") expense was $36.6 million, or 2.9% of net sales, in 2023, nearly flat as a percentage of net sales compared to 2022.
Current wording
Research and Development ("R&D") expense was $43.8 million, or 3.4% of net sales, in 2024, with R&D as a percentage of sales increasing 50 basis points compared to 2023.
Previous wording
Net foreign currency transaction gain was $0.3 million in 2023, compared to a $1.2 million loss in 2022. The favorable impact was primarily due to weakening of the Chinese Renminbi relative to the U.S. dollar on foreign U.S. dollar denominated receivables during 2023, compared to strengthening of the U.S. dollar relative to the Brazilian real on foreign denominated liabilities in 2022.
Current wording
Net foreign currency transaction gain was $0.1 million in 2024, compared to a $0.3 million gain in 2023. The favorable impact was primarily due to hedging gains on foreign denominated receivables.
Previous wording
The effective tax rate for 2023 was 11.6% compared to 16.6% in 2022. The decrease in the effective tax rate was primarily driven by certain nonrecurring tax items. Both the 2023 and 2022 tax rates include benefits related to a reduction to a deferred tax liability on undistributed foreign earnings as those cumulative earnings were reduced by current year statutory book losses. These nonrecurring events had one-time impacts of (12.0%) in 2023 and (7.2%) in 2022.
Current wording
The effective tax rate for 2024 was 20.1% compared to 11.6% in 2023. The increase in the effective tax rate was primarily driven by the value of certain non-cash exceptional tax items. Both the 2024 and 2023 tax rates include benefits related to a reduction to a deferred tax liability on undistributed foreign earnings as those cumulative earnings were reduced by current year statutory book losses. We do not expect similar benefits in future years. These non-cash events had impacts of (3.7%) in 2024 and (12.0%) in 2023. Absent these benefits the effective tax rate for 2024 and 2023 would be 23.8% and 23.6%, respectively.
Previous wording
In December 2021, the Organization for Economic Cooperation and Development (OECD), which is an international public policy setting organization comprised of member countries including the U.S., published a proposal for the establishment of a global minimum tax rate of 15% (the "Pillar Two rule"). The OECD has recommended that the Pillar Two rule become effective for fiscal years beginning on or after January 1, 2024. To date, member states are in various stages of implementing the rules through local legislation, and the OECD continues to refine the technical guidance. We are closely monitoring developments of the Pillar Two rule and are currently evaluating the potential effect in each of the countries we operate in.
Current wording
In December 2021, the Organization for Economic Cooperation and Development ("OECD"), which is an international public policy setting organization comprised of member countries including the U.S., published a proposal for the establishment of a global minimum tax rate of 15% (the "Pillar Two rule"). Member states have begun implementing the rules through local legislation and the OECD continues to refine technical guidance. Member states have begun implementing the rules through local legislation and the OECD continues to refine technical guidance. We have considered the applicable developments under the Pillar Two rules and there is no material impact on the 2024 consolidated financial statements.
Previous wording
Cash, cash equivalents and restricted cash totaled $117.1 million at December 31, 2023, as compared to $77.4 million as of December 31, 2022. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.1 as of December 31, 2023 and 2.2 as of December 31, 2022. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payable was $312.1 million as of December 31, 2023 and $332.0 million as of December 31, 2022. Our debt-to-capital ratio was 25.8% as of December 31, 2023, compared to 40.9% as of December 31, 2022.
Current wording
Cash, cash equivalents and restricted cash totaled $99.8 million at December 31, 2024, as 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 2.0 as of December 31, 2024 and 2.1 as of December 31, 2023. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payable was $316.0 million as of December 31, 2024 and $312.1 million as of December 31, 2023. Our debt-to-capital ratio was 24.3% as of December 31, 2024, compared to 25.8% as of December 31, 2023.
Previous wording
On February 13, 2024, the Company's Board of Directors authorized a quarterly cash dividend of $0.28 per share payable on March 15, 2024, to shareholders of record at the close of business on February 29, 2024.
Current wording
On February 11, 2025, the Company's Board of Directors authorized a quarterly cash dividend of $0.295 per share payable on March 14, 2025, to shareholders of record at the close of business on February 28, 2025.
Previous wording
Net cash provided by operating activities in 2023 was $188.4 million compared to net cash provided by operating activities of $25.1 million in 2022. The increase in cash provided was the result of strong operating performance and managed reductions in working capital investments.
Current wording
Net cash provided by operating activities in 2024 was $89.7 million compared to net cash provided by operating activities of $188.4 million in 2023. The decrease in cash provided was the result of consumption of working capital, mainly related to inventories, accounts receivable and bonus payouts, and spend on our ERP modernization project of $37.3 million.
Previous wording
Net cash used in investing activities in 2023 was $23.2 million compared to net cash used in investing activities of $24.5 million in 2022. The decrease in cash outflows was primarily driven by reduced property, plant and equipment investments as the Company continues to deploy cash flow toward operational capital needs.
Current wording
Net cash used in investing activities in 2024 was $78.4 million compared to net cash used in investing activities of $23.2 million in 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 used in financing activities in 2023 was $122.6 million compared to net cash provided by financing activities of $8.1 million in 2022. The increase in cash used was primarily driven by repayments of borrowings and share repurchases.
Current wording
Net cash used in financing activities in 2024 was $25.2 million compared to net cash used in financing activities of $122.6 million in 2023. The decrease in cash outflows was primarily driven by proceeds from exercises of stock options decreased net repayments of borrowings, partly offset by dividend payments and share repurchases.
Previous wording
The Company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its short-term and long-term cash requirements. Significant contractual obligations include principal and interest payments on long-term debt (Note 9) and operating lease commitments (Note 15). We also have contractual purchase obligations of approximately $76 million for 2024.
Current wording
The Company believes the liquidity available from the combination of expected cash generated by operating activities, existing cash and available credit under existing credit facilities will be sufficient to meet its short-term and long-term cash requirements. Significant contractual obligations include principal and interest payments on long-term debt (Note 9) and operating lease commitments (Note 15). We also have contractual purchase obligations of approximately $62 million for 2025.
Previous wording
See Note 2 to the consolidated financial statements for information on new accounting pronouncements.
Current wording
See Note 2 to the consolidated financial statements for information on newly adopted accounting pronouncements.
Previous wording
When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.
Current wording
When we perform a qualitative goodwill test, we analyze qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative test indicates there may be an impairment, we perform the quantitative test, which measures the amount of the goodwill impairment, if any. To perform the quantitative test, we calculate the fair value of each reporting unit, primarily utilizing the income approach and market approach. The income approach is based on discounted cash flow models that use reporting unit estimates for forecasted future financial performance, including revenues, margins, operating expenses, capital expenditures, depreciation, amortization, tax and discount rates. The market approach is based on assumptions related to earnings before interest, taxes, depreciation, and amortization ("EBITDA") multiples. These estimates are developed as part of our planning process based on assumed growth rates, along with historical data and various internal estimates. Projected future cash flows are then discounted to a present value employing a discount rate that properly accounts for the estimated risk-adjusted weighted-average cost of capital relevant to each reporting unit.
Previous wording
In 2023, we elected to perform the qualitative test on all reporting units. Our test indicated that there is no goodwill impairment in any of our reporting units as of our annual assessment date.
Current wording
In 2024, we elected to perform the quantitative test on the EMEA and APAC reporting units. Our test indicated that the fair value was substantially in excess of its carrying value. There was no goodwill impairment in any of our reporting units as of our annual assessment date.
Previous wording
We had goodwill of $187.4 million and $182.0 million at December 31, 2023 and 2022, respectively.
Current wording
We had goodwill of $185.6 million and $187.4 million at December 31, 2024 and 2023, respectively.
Previous wording
Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our consolidated statements of income. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2023, a valuation allowance of $3.2 million was recorded against foreign and state tax credit carryforwards.
Current wording
Tax law requires certain items to be included in our tax return at different times than the items are reflected in our results of operations. Some of these differences are permanent, such as expenses that are not deductible in our tax returns, and some differences will reverse over time, such as depreciation expense on property, plant and equipment. These temporary differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheets. Deferred tax assets generally represent items that can be used as a tax deduction or credit in our tax returns in future years but have already been recorded as an expense in our consolidated statements of income. We assess the likelihood that our deferred tax assets will be recovered from future taxable income, and, based on management’s judgment, to the extent we believe that recovery is not more likely than not, we establish a valuation allowance against those deferred tax assets. The deferred tax asset valuation allowance could be materially different from actual results because of changes in the mix of future taxable income, the relationship between book and taxable income and our tax planning strategies. As of December 31, 2024, a valuation allowance of $3.3 million was recorded against foreign and state tax credit carryforwards.