Delivers Record Net Sales and Net
Income
Increases Full-Year 2023 Guidance
Tennant Company ("Tennant" or the "Company") (NYSE: TNC) today
reported its financial results for the second quarter ended June
30, 2023.
(In millions, except per share data)
Three Months Ended June
30,
2023
2022
Increase (Decrease)
Net sales
$
321.7
$
280.2
14.8
%
Net income
$
31.3
$
16.6
88.6
%
Diluted EPS
$
1.68
$
0.89
89.1
%
Adjusted diluted EPS
$
1.86
$
0.92
102.6
%
Adjusted EBITDA
$
57.6
$
30.3
90.1
%
Adjusted EBITDA margin %
17.9
%
10.8
%
710 bps
Highlights
- Delivered net sales of $321.7 million for the second quarter of
2023, an increase of 14.8% from the second quarter of 2022, or
15.0% on an organic basis. The increase was primarily due to strong
pricing realization and continued volume growth.
- Reduced backlog by $43 million in the quarter to $255 million.
Supply-chain improvements drove a sequential increase in production
which resulted in a decrease in the Company’s backlog.
- Achieved Adjusted EBITDA of $57.6 million in the second quarter
of 2023, compared to $30.3 million in the prior-year period, an
increase of $27.3 million. Adjusted EBITDA margin of 17.9%,
increased 710 basis points, primarily due to strong sales growth
and gross margin improvements.
- Generated operating cash flow of $39.1 million and returned
$9.9 million to Tennant shareholders through dividends and share
repurchases. Continuing the trend from the first quarter, the
Company converted over 100% of net income to free cash flow in the
second quarter.
- The Company increased its full-year 2023 guidance and now
expects net sales to be between $1.2 billion and $1.25 billion and
Adjusted EBITDA to be between $175 million and $190 million.
- Broadened the Company's portfolio of innovative products and
solutions with the launch of two new ride-on sweepers in North
America. These highly maneuverable and affordable sweepers are
robust – yet compact – and provide flexibility for indoor and
outdoor applications.
“Thanks to our global Tennant team, we built on the momentum of
our strong first quarter performance to deliver record second
quarter results,” said Dave Huml, Tennant President and Chief
Executive Officer. “Our strong organic net sales growth and
expanding operating margins are the result of the meaningful
actions we have taken over the course of the past several quarters.
Looking ahead, I am pleased to say that we are entering the second
half of the year with resilient demand, substantial order backlog,
and expectations for continued improvements in our supply chain.
This backdrop, coupled with our profitable growth in the first half
of the year, underpins our confidence in raising our full-year 2023
guidance.”
Net Sales
Consolidated net sales for the second quarter of 2023 totaled
$321.7 million, a 14.8% increase as compared to consolidated net
sales of $280.2 million in the second quarter of 2022. The
components of the consolidated net sales change were as
follows:
Three Months Ended June
30,
Six Months Ended June
30,
2023 vs. 2022
Price
9.3%
10.0%
Volume
5.7%
7.9%
Organic growth
15.0%
17.9%
Foreign currency
(0.2)%
(1.3)%
Total growth
14.8%
16.6%
Organic Sales
Organic sales, which excludes the effects of foreign currency,
grew 15.0% compared to the prior year, due to growth across all
regions led by strong equipment sales, particularly in the Americas
region.
Three Months Ended June 30,
2023
Six Months Ended June 30,
2023
Americas
EMEA
APAC
Total
Americas
EMEA
APAC
Total
Organic net sales growth
21.7 %
2.4 %
6.3 %
15.0 %
24.6 %
6.5 %
6.6 %
17.9 %
Americas: The 21.7% increase in the Americas, which includes all
of North America and Latin America, was driven equally by price
realization and volume increases, led by strong equipment and parts
and consumables sales in North America.
EMEA: The 2.4% increase in EMEA, which includes Europe, the
Middle East and Africa, was the result of price realization in both
equipment and service product categories across the region.
APAC: The 6.3% increase in APAC, which includes China,
Australia, Japan and other Asian markets, was primarily driven by
price realization in Australia and volume growth in China.
Operating Results
Gross profit margin of 43.4% was 550 basis points higher in the
second quarter of 2023 compared to the second quarter of 2022. The
increase was the result of price realization, which more than
offset the multi-year impact of inflation on materials and
labor.
Selling and administrative expense of $87.0 million increased
$7.9 million over the prior year primarily due to higher variable
costs associated with increased operating performance, such as
warranty and other employee costs. As a percent of sales, adjusted
selling and administrative expenses improved to 26.7%, compared to
28.1% in the second quarter last year.
Adjusted EBITDA was $57.6 million in the second quarter of 2023,
compared to $30.3 million in the prior-year period. The increase in
Adjusted EBITDA was primarily due to strong sales growth, driven by
both volume and price, and gross margin expansion. Adjusted EBITDA
margin for the second quarter 2023 was 17.9%, a 710-basis-point
increase over the prior-year period, and benefited from operating
leverage created by sales growth.
Net income was $31.3 million in the second quarter of 2023
compared to $16.6 million in the second quarter of 2022. Strong
operating performance, driven by higher pricing realization and
volume increases, was partly offset by higher variable costs,
interest costs and income taxes.
Cash Flow, Liquidity and Capital
Allocation
Tennant generated $39.1 million in cash flow from operations
during the second quarter of 2023, a $52.6 million increase
compared to the prior-year period. The increase was driven by
strong operating performance and moderating investments in working
capital.
Liquidity remained strong with a balance of $95.8 million in
cash and cash equivalents as of the end of the second quarter, with
approximately $261.9 million of unused borrowing capacity on the
Company’s revolving credit facility.
The Company continues to deploy cash flow toward operational
capital needs and to return capital to shareholders in line with
its capital allocation priorities, while managing debt and keeping
our net leverage well within our target range. During the second
quarter, the Company invested $5.0 million in capital expenditures,
reduced outstanding debt by $21.1 million, and returned $9.9
million to shareholders through dividends and share
repurchases.
As previously announced, Tennant’s Board of Directors authorized
a quarterly cash dividend of $0.265 per share payable on September
15, 2023, to shareholders of record at the close of business on
August 31, 2023.
2023 Guidance
Given the strong first half results and expectations for the
remainder of the year, the Company is updating its full year 2023
guidance ranges as noted below, including an increased outlook for
Net Sales and Adjusted EBITDA:
(In millions, except per share data)
Updated 2023
Guidance Ranges
Original 2023
Guidance Ranges
Net sales
$1,200 - $1,250
$1,115 - $1,155
Organic net sales growth
10.0 % - 14.0 %
3.0 % - 7.0 %
Diluted net income per share
$4.30 - $4.95
$3.10 - $3.90
Adjusted diluted net income per share*
$5.10 - $5.75
$3.70 - $4.50
Adjusted EBITDA*
$175 - $190
$140 - $160
Adjusted EBITDA margin
14.6 % - 15.2 %
12.6 % - 13.9 %
Capital expenditures
$20 - $25
$20 - $25
Adjusted effective tax rate*
20 % - 25 %
20 % - 25 %
*Excludes certain nonoperational items and
amortization expense
Conference Call
Tennant will host a conference call to discuss its 2023 second
quarter results today, August 4, 2023, at 10 a.m. Central Time (11
a.m. Eastern Time). The conference call and accompanying slides
will be available via webcast on Tennant's investor website. To
listen to the call live and view the slide presentation, go to
investors.tennantco.com and click on the link at the bottom of the
home page. A replay of the conference call, with slides, will be
available at investors.tennantco.com.
Company Profile
Founded in 1870, Tennant Company (TNC), headquartered in Eden
Prairie, Minnesota, is a world leader in the design, manufacture
and marketing of solutions that help create a cleaner, safer and
healthier world. Its products include equipment for maintaining
surfaces in industrial, commercial and outdoor environments;
detergent-free and other sustainable cleaning technologies; and
cleaning tools and supplies. Tennant's global field service network
is the most extensive in the industry. Tennant Company had sales of
$1.09 billion in 2022 and has approximately 4,300 employees.
Tennant has manufacturing operations throughout the world and sells
products directly in 15 countries and through distributors in more
than 100 countries. For more information, visit www.tennantco.com
and www.ipcworldwide.com. The Tennant Company logo and other
trademarks designated with the symbol “®” are trademarks of Tennant
Company registered in the United States and/or other countries.
Forward-Looking
Statements
Certain statements contained in this document are considered
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act. These statements do not relate to
strictly historical or current facts and provide current
expectations or forecasts of future events. Any such expectations
or forecasts of future events are subject to a variety of factors.
These include factors that affect all businesses operating in a
global market as well as matters specific to us and the markets we
serve. Particular risks and uncertainties presently facing us
include: geopolitical and economic uncertainty throughout the
world; uncertainty surrounding the impacts and duration of the
COVID-19 pandemic; our ability to comply with global laws and
regulations; our ability to adapt to customer pricing
sensitivities; the competition in our business; fluctuations in the
cost, quality or availability of raw materials and purchased
components; our ability to adjust pricing to respond to cost
pressures; unforeseen product liability claims or product quality
issues; our ability to attract, retain and develop key personnel
and create effective succession planning strategies; our ability to
effectively develop and manage strategic planning and growth
processes and the related operational plans; our ability to
successfully upgrade and evolve our information technology systems;
our ability to successfully protect our information technology
systems from cybersecurity risks; the occurrence of a significant
business interruption; our ability to maintain the health and
safety of our workers; our ability to integrate acquisitions; and
our ability to develop and commercialize new innovative products
and services.
We caution that forward-looking statements must be considered
carefully and that actual results may differ in material ways due
to risks and uncertainties both known and unknown. Information
about factors that could materially affect our results can be found
in our 2022 Form 10-K. Shareholders, potential investors and other
readers are urged to consider these factors in evaluating
forward-looking statements and are cautioned not to place undue
reliance on such forward-looking statements.
We undertake no obligation to update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by law. Investors
are advised to consult any further disclosures by us in our filings
with the Securities and Exchange Commission and in other written
statements on related subjects. It is not possible to anticipate or
foresee all risk factors, and investors should not consider any
list of such factors to be an exhaustive or complete list of all
risks or uncertainties.
Non-GAAP Financial
Measures
This news release and the related conference call include
presentation of Non-GAAP measures that include or exclude special
items of a nonrecurring and/or nonoperational nature (hereinafter
referred to as “special items”). Management believes that the
Non-GAAP measures provide useful information to investors regarding
the Company’s results of operations and financial condition because
they permit a more meaningful comparison and understanding of
Tennant Company’s operating performance for the current, past or
future periods. Management uses these Non-GAAP measures to monitor
and evaluate ongoing operating results and trends and to gain an
understanding of the comparative operating performance of the
Company.
We believe that disclosing selling and administrative
(“S&A”) expense – as adjusted, S&A expense as a percent of
net sales – as adjusted, operating income – as adjusted, operating
margin – as adjusted, income before income taxes – as adjusted,
income tax expense – as adjusted, net income – as adjusted, net
income per diluted share – as adjusted, EBITDA – as adjusted, and
EBITDA margin – as adjusted (collectively, the “Non-GAAP
measures”), excluding the impacts from special items, is useful to
investors as a measure of operating performance. We use these as
one measure to monitor and evaluate operating performance. The
Non-GAAP measures are financial measures that do not reflect United
States Generally Accepted Accounting Principles (GAAP). We
calculate the Non-GAAP measures by adjusting for
restructuring-related charges and amortization expense, and any
gain or loss on a sale of assets. We calculate income tax expense –
as adjusted by adjusting for the tax effect of these Non-GAAP
measures. We calculate net income per diluted share – as adjusted
by adjusting for the after-tax effect of these Non-GAAP measures
and dividing the result by the diluted weighted average shares
outstanding. We calculate operating margin – as adjusted by
dividing operating income – as adjusted by net sales. We calculate
EBITDA margin – as adjusted by dividing EBITDA – as adjusted by net
sales.
FINANCIAL TABLES FOLLOW
TENNANT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions, except shares and per share
data)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Net sales
$
321.7
$
280.2
$
627.5
$
538.3
Cost of sales
182.2
174.1
362.5
333.3
Gross profit
139.5
106.1
265.0
205.0
Selling and administrative expense
87.0
79.1
168.7
155.7
Research and development expense
9.0
7.9
16.9
15.6
Gain on sale of assets
—
(3.7
)
—
(3.7
)
Operating income
43.5
22.8
79.4
37.4
Interest expense, net
(4.0
)
(1.2
)
(7.7
)
(1.5
)
Net foreign currency transaction gain
(loss)
1.0
(1.0
)
0.9
(0.4
)
Other expense, net
(0.6
)
(0.3
)
(0.7
)
(0.5
)
Income before income taxes
39.9
20.3
71.9
35.0
Income tax expense
8.6
3.7
16.3
8.1
Net income
$
31.3
$
16.6
$
55.6
$
26.9
Net income per share
Basic
$
1.70
$
0.90
$
3.02
$
1.46
Diluted
$
1.68
$
0.89
$
2.98
$
1.44
Weighted average shares outstanding
Basic
18,436,367
18,507,073
18,442,862
18,485,367
Diluted
18,713,455
18,683,798
18,691,736
18,735,913
GEOGRAPHICAL NET SALES(1)
(Unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
% Change
2023
2022
% Change
Americas
$
216.6
$
178.4
21.4
%
$
421.0
$
338.7
24.3
%
Europe, Middle East and Africa
80.0
77.3
3.5
%
162.1
156.0
3.9
%
Asia Pacific
25.1
24.5
2.4
%
44.4
43.6
1.8
%
Total
$
321.7
$
280.2
14.8
%
$
627.5
$
538.3
16.6
%
(1) Net of intercompany sales.
TENNANT COMPANY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Unaudited)
(In millions, except shares and per share
data)
June 30, 2023
December 31,
2022
ASSETS
Cash, cash equivalents, and restricted
cash
$
95.8
$
77.4
Receivables, less allowances of $8.0 and
$6.1, respectively
263.5
251.5
Inventories
198.4
206.6
Prepaid and other current assets
32.1
39.8
Total current assets
589.8
575.3
Property, plant and equipment, less
accumulated depreciation of $297.4 and $279.3, respectively
184.6
179.9
Operating lease assets
32.2
31.8
Goodwill
185.6
182.0
Intangible assets, net
69.6
76.4
Other assets
46.5
39.7
Total assets
$
1,108.3
$
1,085.1
LIABILITIES AND EQUITY
Current portion of long-term debt
$
5.3
$
5.2
Accounts payable
113.0
126.1
Employee compensation and benefits
51.6
44.0
Other current liabilities
87.9
86.3
Total current liabilities
257.8
261.6
Long-term debt
272.7
295.1
Long-term operating lease liabilities
17.4
17.1
Employee benefits
13.2
13.2
Deferred income taxes
9.7
11.5
Other liabilities
15.6
14.5
Total long-term liabilities
328.6
351.4
Total liabilities
$
586.4
$
613.0
Common Stock, $0.375 par value; 60,000,000
shares authorized; 18,540,598 and 18,521,485 shares issued and
outstanding, respectively
7.0
7.0
Additional paid-in capital
54.1
56.0
Retained earnings
503.8
458.0
Accumulated other comprehensive loss
(44.3
)
(50.2
)
Total Tennant Company shareholders'
equity
520.6
470.8
Noncontrolling interest
1.3
1.3
Total equity
521.9
472.1
Total liabilities and total equity
$
1,108.3
$
1,085.1
TENNANT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
Six Months Ended June
30,
2023
2022
OPERATING ACTIVITIES
Net income
$
55.6
$
26.9
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation expense
17.2
16.4
Amortization expense
7.5
8.4
Deferred income tax benefit
(5.6
)
(4.4
)
Share-based compensation expense
3.9
2.7
Bad debt and returns expense
1.7
0.7
Gain on sale of assets
—
(3.7
)
Other, net
0.4
0.5
Changes in operating assets and
liabilities:
Receivables
(10.9
)
(9.5
)
Inventories
(1.3
)
(44.7
)
Accounts payable
(10.5
)
6.5
Employee compensation and benefits
7.0
(8.7
)
Other assets and liabilities
5.2
(14.7
)
Net cash provided by (used in) operating
activities
70.2
(23.6
)
INVESTING ACTIVITIES
Purchases of property, plant and
equipment
(11.8
)
(10.5
)
Proceeds from sale of assets, net of cash
divested
—
4.1
Investment in leased assets
(0.5
)
(4.0
)
Cash received from leased assets
0.3
0.3
Net cash used in investing activities
(12.0
)
(10.1
)
FINANCING ACTIVITIES
Proceeds from borrowings
20.0
15.0
Repayments of borrowings
(42.5
)
(16.6
)
Proceeds (repurchases) from exercise of
stock options, net of employee tax withholdings obligations
4.2
(1.4
)
Repurchases of common stock
(10.0
)
—
Dividends paid
(9.8
)
(9.2
)
Net cash used in financing activities
(38.1
)
(12.2
)
Effect of exchange rate changes on cash,
cash equivalents and restricted cash
(1.7
)
(3.9
)
Net increase (decrease) in cash, cash
equivalents and restricted cash
18.4
(49.8
)
Cash, cash equivalents and restricted cash
at beginning of period
77.4
123.6
Cash, cash equivalents and restricted
cash at end of period
$
95.8
$
73.8
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL
TABLES
Reported to Adjusted Net Income and Net
Income Per Share
(In millions, except per share data)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Net income - as reported
$
31.3
$
16.6
$
55.6
$
26.9
Adjustments:
Gain on sale of assets
—
(2.8
)
—
(2.8
)
Amortization expense
2.6
2.9
5.4
6.1
Restructuring-related charge (S&A
expense)
0.8
0.3
0.8
0.5
Net income - as adjusted
$
34.7
$
17.0
$
61.8
$
30.7
Net income per share - as
reported:
Diluted
$
1.68
$
0.89
$
2.98
$
1.44
Adjustments:
Gain on sale of assets
—
(0.15
)
—
(0.15
)
Amortization expense
0.14
0.16
0.29
0.33
Restructuring-related charge (S&A
expense)
0.04
0.02
0.04
0.03
Net income per diluted share - as
adjusted
$
1.86
$
0.92
$
3.31
$
1.65
Reported Net Income to Adjusted
Earnings Before Interest, Taxes, Depreciation, and Amortization
(EBITDA)
(In millions)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Net income - as reported
$
31.3
$
16.6
$
55.6
$
26.9
Less:
Interest expense, net
4.0
1.2
7.7
1.5
Income tax expense
8.6
3.7
16.3
8.1
Depreciation expense
8.9
8.2
17.2
16.4
Amortization expense
3.6
3.9
7.5
8.4
EBITDA
56.4
33.6
104.3
61.3
Adjustments:
Gain on sale of assets
—
(3.7
)
—
(3.7
)
Restructuring-related charge (S&A
expense)
1.2
0.4
1.2
0.6
EBITDA - as adjusted
$
57.6
$
30.3
$
105.5
$
58.2
EBITDA margin - as adjusted
17.9
%
10.8
%
16.8
%
10.8
%
TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL
TABLES
Reported to Adjusted Selling and
Administrative Expense (S&A expense) and Operating
Income
(In millions)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
S&A expense - as reported
$
87.0
$
79.1
$
168.7
$
155.7
S&A expense as a percent of net sales
- as reported
27.0
%
28.2
%
26.9
%
28.9
%
Adjustments:
Restructuring-related charge (S&A
expense)
(1.2
)
(0.4
)
(1.2
)
(0.6
)
S&A expense - as adjusted
$
85.8
$
78.7
$
167.5
$
155.1
S&A expense as a percent of net sales
- as adjusted
26.7
%
28.1
%
26.7
%
28.8
%
Operating income - as reported
$
43.5
$
22.8
$
79.4
$
37.4
Operating margin - as reported
13.5
%
8.1
%
12.7
%
6.9
%
Adjustments:
Gain on sale of assets
—
(3.7
)
—
(3.7
)
Restructuring-related charge (S&A
expense)
1.2
0.4
1.2
0.6
Operating income - as adjusted
$
44.7
$
19.5
$
80.6
$
34.3
Operating margin - as adjusted
13.9
%
7.0
%
12.8
%
6.4
%
Reported to Adjusted Income Before
Income Taxes and Income Tax Expense
(In millions)
Three Months Ended June
30,
Six Months Ended June
30,
2023
2022
2023
2022
Income before income taxes - as
reported
$
39.9
$
20.3
$
71.9
$
35.0
Adjustments:
Gain on sale of assets
—
(3.7
)
—
(3.7
)
Amortization expense
3.6
3.9
7.5
8.4
Restructuring-related charge (S&A
expense)
1.2
0.4
1.2
0.6
Income before income taxes - as
adjusted
$
44.7
$
20.9
$
80.6
$
40.3
Income tax expense - as
reported
$
8.6
$
3.7
$
16.3
$
8.1
Effective tax rate - as reported
21.6
%
18.2
%
22.7
%
23.1
%
Adjustments(1):
Gain on sale of assets
—
(0.9
)
—
(0.9
)
Amortization expense
1.0
1.0
2.1
2.3
Restructuring-related charge (S&A
expense)
0.4
0.1
0.4
0.1
Income tax expense - as
adjusted
$
10.0
$
3.9
$
18.8
$
9.6
Effective tax rate - as adjusted
22.4
%
18.7
%
23.3
%
23.8
%
(1) In determining the tax impact, we
applied the statutory rate in effect for each jurisdiction where
income or expenses were generated.
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version on businesswire.com: https://www.businesswire.com/news/home/20230804041007/en/
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