Tennant Company Reports 2014 First Quarter Results

  Tennant Company Reports 2014 First Quarter Results

   Net sales in quarter increased 9.5 percent, or 10.5 percent organically;
      Company posts record sales for a first quarter of $184.0 million;
              First quarter diluted EPS up 6.9 percent to$0.31;
               Company maintains 2014 full year guidance range

Business Wire

MINNEAPOLIS -- April 21, 2014

Tennant Company (NYSE:TNC), a world leader in designing, manufacturing and
marketing of solutions that help create a cleaner, safer, healthier world,
today reported net earnings of $5.8 million, or $0.31 per diluted share, on
net sales of $184.0 million for the first quarter ended March 31, 2014. In the
2013 first quarter, Tennant reported net earnings of $5.1 million, or $0.27
per diluted share, on net sales of $168.1 million. The 2013 first quarter
included two special items: a restructuring charge of $0.05 per diluted share
to rightsize the European operations and a $0.03 per diluted share tax benefit
related to the retroactive reinstatement of the 2012 U.S. Federal R&D Tax
Credit. Excluding these special items, adjusted 2013 first quarter earnings
totaled $5.5 million, or $0.29 per diluted share. (See the Supplemental
Non-GAAP Financial Table.)

Commented Chris Killingstad, Tennant Company's president and chief executive
officer: “We are pleased to report record revenues for a first quarter and
double-digit organic growth, with higher sales across all of our geographies.
The implementation of our growth strategy is off to a strong start in 2014, as
we strive to reach $1 billion in revenues by 2017. All of our key drivers to
reach this target performed well in the first quarter, and we anticipate
continued sales gains and improved profitability as the year progresses.”

First Quarter Operating Review

The company's 2014 first quarter consolidated net sales of $184.0 million rose
9.5 percent compared to the prior year quarter. Unfavorable foreign currency
exchange reduced consolidated net sales by approximately 1 percent. Organic
net sales, which exclude the impact of foreign currency exchange (and
acquisitions when applicable), increased approximately 10.5 percent.

Contributing to 2014 first quarter results was continued demand for newly
introduced products, especially the T12 rider scrubber, which is the first new
product in Tennant’s redesigned modular large equipment portfolio, as well as
strong sales of industrial equipment and sales through distribution and to
strategic accounts. Sales of scrubbers equipped with ec-H2O™ technology grew
11.7 percent compared to the first quarter of 2013.

Geographically, sales increased 8.1 percent in Tennant’s largest region, the
Americas, or 10.1 percent organically, excluding an unfavorable foreign
currency exchange impact of about 2.0 percent. Sales in Europe, Middle East
and Africa (EMEA) were up 9.9 percent, or 5.4 percent organically, excluding a
favorable foreign currency exchange impact of about 4.5 percent. EMEA results
benefited from higher sales through distribution, as well as increased sales
of Green Machines™ outdoor sweepers. Sales in the Asia Pacific region (APAC)
increased 18.3 percent, rising approximately 25.8 percent organically,
excluding an unfavorable foreign currency exchange impact of about 7.5
percent. The APAC organic sales gain was broad based and included continued
strong sales performance in China, which had approximately 50 percent organic
sales growth in the 2014 first quarter.

Tennant's gross margin in the 2014 first quarter was 41.8 percent compared to
43.1 percent in the prior year quarter. Gross margin in the 2014 first quarter
was impacted by the mix of products sold, and also the selling channel mix,
with strong sales through distribution and sales to strategic accounts. The
company anticipates gross margin for the 2014 full year will be in its target
range of 43 percent to 44 percent due to expected benefits from recently
enacted selling price increases.

Research and development (R&D) expense for the 2014 first quarter totaled $7.5
million, or 4.1 percent of sales, compared to $7.5 million, or 4.5 percent of
sales, in the prior year quarter. The company continued to invest in
developing innovative new products for its traditional core business, as well
as in its Orbio Technologies Group, which is focused on advancing a suite of
sustainable cleaning technologies.

Selling and administrative (S&A) expense in the 2014 first quarter totaled
$60.2 million, or 32.7 percent of sales. S&A in the 2013 first quarter was
$58.1 million, or 34.6 percent of sales, and $56.7 million as adjusted, or
33.7 percent of sales as adjusted. Tennant continued to gain leverage in S&A
spending due to cost controls and operating efficiencies.

Tennant's 2014 first quarter operating profit was $9.2 million, or 5.0 percent
of sales, versus an operating profit of $6.9 million, or 4.1 percent of sales,
in the year ago quarter. As adjusted, Tennant’s operating profit in the prior
year quarter was $8.3 million, or 5.0 percent of sales.

Cash from operations, which is typically negative in the first quarter due to
the seasonality in the business, totaled a negative $3.9 million compared to a
positive $7.3 million in the year earlier quarter. The company's total debt
was $28.2 million, down from $31.8 million at the end of the prior year
quarter. Cash on the balance sheet rose to $63.4 million, up from $49.8
million a year ago. Reflecting Tennant’s ongoing commitment to enhancing
shareholder return, the company paid cash dividends of $0.18 per share in the
2014 first quarter and repurchased 58,158 shares at a cost of $3.6 million.

New Product and Technology Pipeline

Tennant Company continues to have the most robust new product pipeline in its
history. The company plans to launch more than 63 new products and
technologies between 2014 and 2016, on top of 37 new products that were
introduced from 2012 to 2013.

“The introduction of new products and technologies is important to our revenue
growth. We are encouraged by customers’ responses to our new and expanded
product lines, and we are excited to add a variety of new core equipment
models and sustainable technologies to our portfolio this year and into the
future,” said Killingstad.

In 2014, Tennant is launching nine products in the first half of the year,
followed by seven new products in the second half. Among the 2014 first
quarter new product highlights, Tennant introduced a line of walk-behind
burnishers. These new core equipment offerings are engineered to improve the
customers’ cleaning performance and operator safety, lower operating costs and
reduce environmental impact.

In April, the Orbio Technologies Group from Tennant Company introduced the
Orbio^® os3, which uses Split Stream™ Technology to deliver on-site generation
of an anti-microbial solution, as well as an effective multi-surface cleaner,
for use in a wide variety of customer segments. The Orbio os3 is small enough
to fit inside most janitorial closets.

Tennant remains committed to being an industry innovation leader and aims to
set the standard for sustainable cleaning around the world.

Tennant Company Targets $1 Billion in Revenues By 2017

Earlier this year, Tennant announced its growth strategy to reach sales of $1
billion by 2017. The plan reflects the fact that over the past five years,
Tennant has been building a scalable business model capable of delivering
improved operational efficiency and profitability. To take full advantage of
that effort, the company has shifted its focus to organic revenue growth to
increase market share and enhance the organization’s ability to reach a 12
percent or above operating profit margin.

Stated Killingstad, “We have identified opportunities to increase our market
coverage and customer penetration in underserved markets where our value
proposition is compelling. The robust organic sales gains we saw in the first
quarter are an early indication that we are on the right path. We have been
investing in additional direct sales, distribution and marketing capabilities
to accelerate growth.”

Tennant plans to meet its objectives through a strong new product pipeline in
both the core business and in theOrbio Technologies Group, continued gains in
emerging markets, growth in Europe, focus on strategic accounts and an
enhanced go-to-market strategy designed to significantly expand its global
market coverage and customer base.

Business Outlook

Based on its 2014 first quarter results and expectations of future
performance, Tennant Company continues to estimate 2014 full year net sales in
the range of $780 million to $800 million, up 4 percent to 6 percent, and
earnings in the range of $2.50 to $2.80 per diluted share, an increase of 11
percent to 24 percent, compared to 2013, as adjusted. The company anticipates
that its 2014 earnings will be stronger in the second half of the year, as its
growth investments gain further traction and generate incremental revenues and
profits. For the 2013 full year, adjusted diluted earnings per share totaled
$2.26 on net sales of $752 million. (See the Supplemental Non-GAAP Financial
Table.)

The company's 2014 annual financial outlook includes the following
expectations:

  *Modest economic improvement in North America and Europe, and steady growth
    in emerging markets;
  *Unfavorable foreign currency impact on sales for the full year of
    approximately 1 percent;
  *Gross margin performance in the range of 43 percent to 44 percent;
  *R&D expense of approximately 4 percent of sales, as the company continues
    to invest in its core products and in water-based cleaning technologies;
    and
  *Capital expenditures in the range of $20 million to $22 million.

“We will continue to focus on growth, building on an excellent start to 2014
with the first quarter results,” said Killingstad. “At the same time, we are
committed to operational excellence and strong cost controls, in order to
deliver improved profitability.”

Conference Call

Tennant will host a conference call to discuss the 2014 first quarter results
today, April 21, 2014, at 10 a.m. Central Time (11 a.m. Eastern Time). The
conference call will be available via webcast on the investor portion of
Tennant's website. To listen to the call live, go to www.tennantco.com and
click on Company, Investors. A taped replay of the conference call will be
available at www.tennantco.com for approximately two weeks after the call.

Company Profile

Minneapolis-based Tennant Company (TNC) is a world leader in designing,
manufacturing and marketing solutions that help create a cleaner, safer,
healthier world. Its products include equipment for maintaining surfaces in
industrial, commercial and outdoor environments; chemical-free and other
sustainable cleaning technologies; and coatings for protecting, repairing and
upgrading surfaces. Tennant's global field service network is the most
extensive in the industry. Tennant has manufacturing operations in
Minneapolis, Minn.; Holland, Mich.; Louisville, Ky.; Uden, The Netherlands;
the United Kingdom; São Paulo, Brazil; and Shanghai, China; and sells products
directly in 15 countries and through distributors in more than 80 countries.
For more information, visit www.tennantco.com.

Forward-Looking Statements

Certain statements contained in this document, as well as other written and
oral statements made by us from time to time, 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; the competition in our
business; our ability to attract and retain key personnel; our ability to
successfully upgrade, evolve and protect our information technology systems;
our ability to develop and commercialize new innovative products and services;
our ability to comply with laws and regulations; fluctuations in the cost or
availability of raw materials and purchased components; unforeseen product
liability claims or product quality issues; the occurrence of a significant
business interruption; the occurrence of disruptions to our supply and
delivery chains; and the relative strength of the U.S. dollar, which affects
the cost of our materials and products purchased and sold internationally.

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. 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. For additional information about factors that could materially
affect Tennant's results, please see our other Securities and Exchange
Commission filings, including disclosures under “Risk Factors.”

We do not undertake to update any forward-looking statement, and investors are
advised to consult any further disclosures by us on this matter in our filings
with the Securities and Exchange Commission and in other written statements we
make from time to time. 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 includes presentations of non-GAAP measures that include or
exclude 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. See the Supplemental
Non-GAAP Financial Table.


TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

(In thousands, except shares and per       Three Months Ended
share data)
                                             March 31
                                             2014             2013
Net Sales                                    $ 183,979          $ 168,092
Cost of Sales                                 107,062          95,569     
Gross Profit                                  76,917           72,523     
Gross Margin                                   41.8       %       43.1       %
Operating Expense:
Research and Development Expense               7,481              7,518
Selling and Administrative Expense            60,199           58,122     
Total Operating Expense                       67,680           65,640     
Profit from Operations                         9,237              6,883
Operating Margin                               5.0        %       4.1        %
Other Income (Expense):
Interest Income                                75                 114
Interest Expense                               (486       )       (467       )
Net Foreign Currency Transaction Losses        (208       )       (324       )
Other (Expense) Income, Net                   (31        )      6          
Total Other Expense, Net                      (650       )      (671       )
                                                                
Profit Before Income Taxes                     8,587              6,212
Income Tax Expense                            2,792            1,153      
Net Earnings                                 $ 5,795           $ 5,059      
                                                                
Net Earnings per Share:
Basic                                        $ 0.32            $ 0.28       
Diluted                                      $ 0.31            $ 0.27       
                                                                
Weighted Average Shares Outstanding:
Basic                                          18,318,260         18,343,933
Diluted                                        18,839,172         18,889,317
                                                                
Cash Dividends Declared per Common Share     $ 0.18             $ 0.18
                                                                   

                                
GEOGRAPHICAL NET SALES^(1) (Unaudited)
                                   
(In thousands)                     Three Months Ended
                                   March 31
                                   2014        2013        %
Americas                           $ 122,389     $ 113,247     8.1
Europe, Middle East and Africa       43,064        39,191      9.9
Asia Pacific                        18,526       15,654      18.3
Total                              $ 183,979     $ 168,092     9.5
^(1) Net of intercompany sales.
                                                               


TENNANT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In thousands)                March 31,      December 31,   March 31,
                                2014             2013             2013
ASSETS
Current Assets:
Cash and Cash Equivalents       $ 63,400         $ 80,984         $ 49,755
Restricted Cash                   411              393              188
Net Receivables                   143,957          140,182          130,427
Inventories                       73,838           66,906           64,126
Prepaid Expenses                  14,231           11,426           13,177
Deferred Income Taxes,            9,603            13,723           10,294
Current Portion
Other Current Assets             1,678          1,682          253      
Total Current Assets             307,118        315,296        268,220  
Property, Plant and               305,972          300,906          294,884
Equipment
Accumulated Depreciation         (222,104 )      (217,430 )      (210,437 )
Property, Plant and               83,868           83,476           84,447
Equipment, Net
Deferred Income Taxes,            2,760            2,423            10,352
Long-Term Portion
Goodwill                          19,161           18,929           19,798
Intangible Assets, Net            18,506           19,028           19,929
Other Assets                     17,056         17,154         9,503    
Total Assets                    $ 448,469       $ 456,306       $ 412,249  
                                                                  
LIABILITIES AND
SHAREHOLDERS’ EQUITY
Current Liabilities:
Short-Term Borrowings and
Current Portion of              $ 2,236          $ 3,803          $ 1,567
Long-Term Debt
Accounts Payable                  54,409           53,079           51,580
Employee Compensation and         25,300           29,756           24,999
Benefits
Income Taxes Payable              808              812              1,019
Other Current Liabilities        41,390         44,076         36,876   
Total Current Liabilities        124,143        131,526        116,041  
Long-Term Liabilities:
Long-Term Debt                    26,000           28,000           30,200
Employee-Related Benefits         24,925           25,173           25,784
Deferred Income Taxes,            2,900            2,870            3,164
Long-Term Portion
Other Liabilities                5,069          4,891          4,577    
Total Long-Term Liabilities      58,894         60,934         63,725   
Total Liabilities                183,037        192,460        179,766  
Shareholders’ Equity:
Preferred Stock                   —                —                —
Common Stock                      6,919            6,934            6,911
Additional Paid-In Capital        30,172           31,956           23,928
Retained Earnings                 252,233          249,927          233,134
Accumulated Other                (23,892  )      (24,971  )      (31,490  )
Comprehensive Loss
Total Shareholders’ Equity       265,432        263,846        232,483  
Total Liabilities and           $ 448,469       $ 456,306       $ 412,249  
Shareholders’ Equity
                                                                             


TENNANT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)                                    Three Months Ended
                                                    March 31
                                                    2014          2013
OPERATING ACTIVITIES
Net Earnings                                        $ 5,795         $ 5,059
Adjustments to reconcile Net Earnings to Net
Cash (Used by) Provided by Operating
Activities:
Depreciation                                          4,427           4,492
Amortization                                          611             644
Deferred Income Taxes                                 3,874           1,537
Share-Based Compensation Expense                      1,540           1,707
Allowance for Doubtful Accounts and Returns           429             313
Other, Net                                            (9      )       5
Changes in Operating Assets and Liabilities:
Receivables                                           (4,123  )       5,939
Inventories                                           (7,292  )       (7,097 )
Accounts Payable                                      1,648           5,816
Employee Compensation and Benefits                    (4,707  )       (8,736 )
Other Current Liabilities                             (3,370  )       (469   )
Income Taxes                                          (2,310  )       (1,847 )
Other Assets and Liabilities                         (426    )      (100   )
Net Cash (Used by) Provided by Operating              (3,913  )       7,263
Activities
                                                                    
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment            (3,511  )       (4,017 )
Proceeds from Disposals of Property, Plant and        40              39
Equipment
Proceeds from Sale of Business                        —               699
Increase in Restricted Cash                          (2      )      —      
Net Cash Used for Investing Activities                (3,473  )       (3,279 )
                                                                    
FINANCING ACTIVITIES
Payments of Short-Term Debt                           (1,500  )       —
Payments of Long-Term Debt                            (2,006  )       (428   )
Purchases of Common Stock                             (3,556  )       (7,515 )
Proceeds from Issuances of Common Stock               226             2,795
Tax Benefit on Stock Plans                            169             708
Dividends Paid                                       (3,490  )      (3,314 )
Net Cash Used for Financing Activities                (10,157 )       (7,754 )
                                                                    
Effect of Exchange Rate Changes on Cash and          (41     )      (415   )
Cash Equivalents
                                                                    
Net Decrease in Cash and Cash Equivalents             (17,584 )       (4,185 )
                                                                    
Cash and Cash Equivalents at Beginning of Year        80,984          53,940
                                                                   
Cash and Cash Equivalents at End of Year            $ 63,400       $ 49,755 
                                                                    


TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE

(In thousands, except per share data)            Three Months Ended
                                                   March 31
                                                   2014          2013
                                                                   
Net Sales                                        $ 183,979    $ 168,092 
                                                                   
Cost of Sales                                       107,062       95,569  
Gross Profit - as reported                          76,917        72,523  
Gross Margin                                         41.8    %       43.1    %
                                                                   
Operating Expense:
Research and Development Expense                     7,481           7,518
Selling and Administrative Expense                  60,199        58,122  
Total Operating Expense                             67,680        65,640  
                                                                   
Profit from Operations - as reported               $ 9,237         $ 6,883
Operating Margin - as reported                       5.0     %       4.1     %
Adjustments:
Restructuring Charge                                —             1,440   
Profit from Operations - as adjusted               $ 9,237        $ 8,323   
Operating Margin - as adjusted                    5.0     %    5.0     %
                                                                   
Other Income (Expense):
Interest Income                                      75              114
Interest Expense                                     (486    )       (467    )
Net Foreign Currency Transaction Losses              (208    )       (324    )
Other (Expense) Income, Net                         (31     )      6       
Total Other Expense, Net                             (650    )       (671    )
                                                                   
Profit Before Income Taxes - as reported           $ 8,587         $ 6,212
Adjustments:
Restructuring Charge                                —             1,440   
Profit Before Income Taxes - as adjusted         $ 8,587      $ 7,652   
                                                                   
Income Tax Expense - as reported                   $ 2,792         $ 1,153
Adjustments:
Restructuring Charge                                 —               417
Discrete Tax Item Related to 2012 R&D Tax           —             582     
Credit
Income Tax Expense - as adjusted                 $ 2,792      $ 2,152   
                                                                   


TENNANT COMPANY
SUPPLEMENTAL NON-GAAP FINANCIAL TABLE

(In thousands, except per share data)               Three Months Ended
                                                       March 31
                                                       2014      2013
                                                                   
Net Earnings - as reported                             $ 5,795     $ 5,059 
Adjustments:
Restructuring Charge                                     —           1,023
Discrete Tax Item Related to 2012 R&D Tax Credit        —          (582  )
Net Earnings - as adjusted                             $ 5,795     $ 5,500 
                                                            
Net Earnings per Share - as reported:
Basic                                                  $ 0.32      $ 0.28  
Diluted                                                $ 0.31      $ 0.27  
Adjustments:
Restructuring Charge                                     —           0.05
Discrete Tax Item Related to 2012 R&D Tax Credit        —          (0.03 )
                                                                   
Diluted Net Earnings per Share - as adjusted           $ 0.31      $ 0.29  
                                                                
                                                                   
                                                                   Full
                                                                   Year
                                                                   2013
                                                                   
Diluted Earnings per Share - as reported                           $ 2.14  
Adjustments:
Restructuring Charges                                                0.15
Discrete Tax Item Related to 2012 R&D Tax Credit                    (0.03 )
                                                                   
Diluted Earnings per Share - as adjusted                           $ 2.26  
                                                                           

Contact:

Tennant Company
Investor Contact:
Tom Paulson, 763-540-1204
Senior Vice President and Chief Financial Officer
or
Media Contact:
Kathryn Lovik, 763-540-1212
Director, Communications
 
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