Q1 2024 Tennant Co Earnings Call
Operator: Good morning. My name is Pam, and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company's first quarter 2024 earnings conference call. This call is being recorded. There will be time for Q&A at the end of the call. Please press star 1 if you would like to ask a question.
Good morning, My name is Pam and I will be your conference operator today at this time I would like to welcome everyone to Tennant company's first quarter 'twenty 'twenty four earnings conference call.
Operator: After the Q&A, please stay on the line for closing remarks from managers. If you have joined our call today via telephone and logged into the conference call presentation on your computer, please mute the audio on your computer to avoid potential quality issues during the call. Thank you for participating in Tennant Company's first quarter 2024 earnings conference call. Beginning today's meeting is Mr. Lorenzo Bassi, Vice President of Finance and Investor Relations for Tennant. Mr. Bassi, you may begin.
This call is being recorded there will be time for Q&A at the end of the call. Please press star one if you would like to ask a question. After the Q&A. Please stay on the line for closing remarks from management. If you have joined our call today via telephone and logged into the conference call presentation on your compute.
Sir please mute the audio on your computer to avoid potential quality issues during the call.
You for participating in Tennant company's first quarter 'twenty 'twenty four earnings conference call. Beginning today's meeting is Mr. Lorenzo Bassi, Vice President Finance and Investor Relations for Tennant Company. Mr. Betsy you may begin.
Lorenzo Bassi: Good morning, everyone, and welcome to Tennant Company's first quarter 2024 earnings conference call. I'm Lorenzo Bassi, Vice President of Finance and Investor Relief. Joining me on the call today are Dave Huml, Tennant's President and CEO, and Fay West, Senior Vice President and CEO. Today, we will provide an update on our 2024 first quarter. Dave will discuss our results and enterprise strategy, and Fay will discuss our finances. After our prepared remarks, we will open the call to questions.
Good morning, everyone and welcome to Tennant Company's first quarter 2024 earnings Conference call I'm, Lorenzo Bassi, Vice President Finance and Investor Relations.
Speaker Change: With me on the call today are Dave Huml, Tennant's, President and CEO, and Fay West Senior Vice President and CFO.
David W. Huml: Today, we will provide an update on our 2024 first quarter performance, Dave will discuss our results and enterprise strategy and Fay will cover our financials.
David W. Huml: After our prepared remarks, we will open the call to questions.
Lorenzo Bassi: An earnings press release and slide presentation that accompany this conference call are available on our investor relations website. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the report.
An earnings press release, and slide presentation that accompanies this conference call are available on our Investor Relations website.
Lorenzo Bassi: These risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission. We encourage you to review these documents, particularly our Safe Harbor Statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call, we will discuss non-gap measures that include or exclude certain items. Our 2024 first quarter earnings release includes comparable gap measures and a reconciliation of these non-gap measures to our gap presents. I'll now turn the call over to Dave.
David W. Huml: Before we begin please be advised that our remarks this morning, and our answers to questions may contain forward looking statements regarding the company's expectations of future performance such.
David W. Huml: Such statements are subject to risks and uncertainties and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission.
David W. Huml: We encourage you to review those documents, particularly our safe Harbor statement for a description of the risks and uncertainties that may affect our results. Additionally.
Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items. Our 2024 first quarter earnings release includes the comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results.
David W. Huml: I'll now turn the call over to Dave.
David W. Huml: Thank you, Lorenzo, and hello everyone. On the call today, I will be discussing highlights from the first quarter of 2024, our outlook for the remainder of the year, and the progress on our enterprise strategy. Building on the momentum of our record-breaking year in 2023, we delivered a strong first quarter supported by our new enterprise strategy, which we activated at the beginning of the year. Lapping a previous record high first quarter in the prior year, which also marked our first full quarter in our journey to meaningfully reduce backlog, we achieved organic net sales growth, gross margin expansion, and EBITDA growth.
David W. Huml: Thank you Lorenzo and Hello, everyone on the call today I will be discussing highlights from the first quarter of 2024, our outlook for the remainder of the year and the progress on our enterprise strategy.
David W. Huml: Building on the momentum of our record breaking year in 2023, we delivered a strong first quarter supported by our new enterprise strategy, which we activated at the beginning of the year.
Lapping our previous record high first quarter in the prior year, which also marked our first full quarter in our journey to meaningfully reduce backlog, we achieved organic net sales growth gross margin expansion and EBITDA growth.
David W. Huml: For the first quarter of 2024, net sales increased to $311 million, and adjusted EBITDA rose to $54.9 million, resulting in an adjusted EBITDA margin of 17.7%. We meaningfully reduced backlog for the fifth consecutive quarter, capturing the pricing benefits embedded within it, and expanded gross margin. Pricing Realization and Increased Sales Mix in Higher Margin Equipment and Channels drove our gross margin performance in the quarter.
For the first quarter of 2024, net sales increased to $311 million and adjusted EBITDA rose to $54 9 million.
David W. Huml: <unk> and an adjusted EBITDA margin of 17, 7%.
David W. Huml: We meaningfully reduced backlog for the fifth consecutive quarter, capturing the pricing benefits embedded within it and expanded gross margins.
David W. Huml: Pricing realization and increased sales mix and higher margin equipment and channels drove our gross margin performance in the quarter.
David W. Huml: I am pleased with the enterprise performance during the quarter in line with our expectations and setting us up to deliver on our 2024 full-year guidance. However, while we had a strong first quarter as a company, our business results varied by geography. In the Americas, we are driving strong order rates as we continue to reduce backlog, which is primarily isolated to our industrial machines. Based on a strong pipeline of opportunity within the region, including growth investments we've made to new products and go-to-market expansion, we are confident that we will continue to build on our success in the region. In EMEA, we had a challenging first quarter.
David W. Huml: I am pleased with the enterprise performance during the quarter in line with our expectations and setting us up to deliver on our 2020 for full year guidance.
David W. Huml: While we had a strong first quarter as a company our business results vary by geography.
David W. Huml: In the Americas, we are driving strong order rates as we continued to reduce backlog, which is primarily isolated to our industrial machines.
Based on our strong pipeline of opportunity within the region, including growth investments, we've made in new products and go to market expansion.
David W. Huml: <unk> that we will continue to build on our success in the region.
David W. Huml: In EMEA, we had a challenging first quarter.
David W. Huml: We continued to see a declining macroeconomic environment, and we were lapping a previous quarter with higher backlog benefits. While results are below our expectations, we believe that our market position in the EMEA region remains strong, and we expect to be able to deliver stronger results in the latter half of the year through new product launches and go-to-market investments, including our acquisition of TCS and expanded countries to sell IMOP products. In AIPAC, our performance in the quarter was impacted by the phasing of customer order time.
David W. Huml: We continue to see a declining macroeconomic environment, and we were lapping our previous quarter with higher backlog benefit.
David W. Huml: While our results are below our expectations, we believe that our market position in the EMEA region remained strong and we expect to be able to deliver stronger results in the latter half of the year through new product launches and go to market investments, including our acquisition of Tcs and expanded countries to sell <unk> products.
David W. Huml: In APAC our performance in the quarter was impacted by phasing of customer order timing.
David W. Huml: We anticipate continued demand for our products and have confidence in our full year growth targets in the region. They will provide additional context on our overall financial performance for the quarter and our full year guidance, which we are reaffirming. Our performance to start the year has given us a solid foundation to continue to execute on our enterprise strategy. Last year, we introduced the three pillars of our new enterprise strategy: growth, performance, and people.
David W. Huml: We anticipate continued demand for our products and have confidence in our full year growth targets in the region.
David W. Huml: Steve will provide additional context on our overall financial performance for the quarter and our full year guidance, which we are reaffirming.
David W. Huml: Our performance to start the year has given us a solid foundation to continue to execute on our enterprise strategy.
David W. Huml: Last year, we introduced the three pillars of our new enterprise strategy growth performance and people.
David W. Huml: We continue to resource and activate targeted initiatives across each of these pillars, and I'd like to take the opportunity to provide you with a couple of key updates. Within our growth pillar, we are leveraging product innovation to drive differentiated revenue growth. The X4 Rover is our first purpose-built autonomous floor-cleaning machine and our fourth robotic scrubber. The X4 Rover offers greater maneuverability, specifically designed for operation in smaller spaces.
We continue to resource and activate targeted initiatives across each of these pillars and I'd like to take the opportunity to provide you with a couple of key updates.
David W. Huml: Within our growth pillar, we are leveraging product innovation to drive differentiated revenue growth. The explore rover is our first purpose built autonomous floor cleaning machine and our fourth robotics Robert.
David W. Huml: The X for Rover offers greater maneuverability, specifically designed for operation in smaller spaces.
David W. Huml: Its compact size, improved obstacle detection, and enhanced mobility will result in fewer assists and deliver a step-change improvement in customer ROI. The new X4 Rover is the first machine to be powered by the next-generation BrainOS robotics platform, available exclusively on Tennant Company AMR machines. The X4 Rover offers a competitive price point for customers and includes an all-in-one AMR solution with the robot, service contract, and autonomy services bundled as a single solution sold by Tennant.
David W. Huml: Compact size improved obstacle detection and enhanced mobility will result in fewer assists and deliver a step change improvement in customer ROI.
David W. Huml: The new X for Rover is the first machine to be powered by the next generation brain OS robotics platform available exclusively on tenant company <unk> machines.
David W. Huml: The export Rover offers a competitive price point for customers and includes an all in one <unk> solution with the robot service contracts and autonomy services bundled as a signal solutions sold by tenants.
David W. Huml: This new approach simplifies the buying experience for customers and results in tenants benefiting from recurring revenue for autonomy services moving forward. Interest from our customer base has been strong, and we are evaluating options capitalized on anticipated demand. We have teams reviewing strategies to, one, increase the manufacturing capacity of the X4 rover to maximize production and delivery commitments in 2024, and two, accelerate the launch of new rover products beyond the X4. The X4Rover is an important addition to our complete suite of AMR products, complementing a lineup that has seen over 6,500 units deployed globally and has driven more than $200 million in revenue since launch. Each of our AMR products is designed to meet the unique needs of our customers, offering tailored solutions for a variety of applications.
David W. Huml: This new approach simplifies the buying experience for customers and results in tenant benefiting from recurrent revenue for autonomy services moving forward.
David W. Huml: Interest from our customer base has been strong and we are evaluating options capitalize on anticipated demand.
David W. Huml: We have teams reviewing strategies to one increase the manufacturing capacity of the export Rover to maximize production and delivery commitments in 2024 and to accelerate the launch of new Rover products beyond VX four.
David W. Huml: The export Rover is an important addition to our complete suite of EMR products complementing a lineup that is seen in over 6500 units deployed globally and has driven more than $200 million in revenue since launch each of our <unk> products are designed to meet the unique needs of our customers offer a tailored solution.
David W. Huml: For a variety of applications.
David W. Huml: Retail customers will appreciate the X4 Rover's compact design and maneuverability, while our industrial and warehouse customers benefit from the increased efficiency and larger capacity provided by our larger AMR models like the T16 and T380. We continue to see strong demand and interest in each of our AMR units, demonstrating the potential for continued growth across our full AMR portfolio. Improving customer ROI is one of the key drivers of customer adoption, and we are well positioned with our expanded AMR portfolio and deployment capabilities to deliver on customer expectations. Furthermore, within the growth pillar of our enterprise strategy, we are also focused on innovation within the small space sector. Small spaces today are largely still cleaned with labor-intensive manual cleaning.
David W. Huml: Retail customers will appreciate the explore Rovers compact design and maneuverability, while our industrial and warehouse customers benefit from the increased efficiency and larger capacity provided by our larger ahmar models like the <unk> 16 in Q3 80.
David W. Huml: We continue to see strong demand and interest in each of our <unk> units demonstrating the potential for continued growth across our full portfolio.
David W. Huml: Improving the customer ROI is one of the key drivers of customer adoption, and we are well positioned with our expanded portfolio and deployment capabilities to deliver to customer expectations.
David W. Huml: Within the growth pillar of our enterprise strategy. We are also focused on innovation within the small space segment.
David W. Huml: Small spaces today are largely still explained with labor intensive manual cleaning tools.
David W. Huml: This presents an opportunity for Tennant to help our customers solve their largest challenges with labor costs and availability by delivering mechanized solutions that greatly enhance labor productivity while delivering better cleaning performance. Today, we are excited to announce the international expansion of the IMOP family of products. Tennant-branded iMop Lite and iMop XL Plus scrubbers will now be available in Brazil, France, Portugal, and Spain.
This presents an opportunity for tended to help our customers solve their largest challenges with labor cost and availability by delivering mechanized solutions that greatly enhanced labor productivity, while delivering better cleaning performance.
David W. Huml: Today, we are excited to announce the international expansion of the <unk> family of products.
David W. Huml: Tenants branded <unk> Lite, and IHOP XL pluses scrubber products will now be available in Brazil.
David W. Huml: <unk>, Portugal and Spain.
David W. Huml: This product portfolio expansion will enable a broader range of customers an opportunity to elevate their cleaning standards. The international launch of the Tennant-branded IMOP family of products represents the next phase of Tennant Company's partnership with iTeamGlobal, a developer of innovative solutions for the small space cleaning industry. Cleaning teams worldwide have already embraced the IMOP for its efficiency, durability, and reliability.
David W. Huml: This product portfolio expansion will enable a broader range of customers an opportunity to elevate their cleaning standards.
David W. Huml: The international launch of the tenant branded IHOP family of products represents the next phase of Tennant company's partnership with <unk> Global a developer of innovative solutions for the small space cleaning industry.
Cleaning teams worldwide have already embraced the I'm up for its efficiency durability and reliability.
David W. Huml: This technology brings together advanced mechanized cleaning with the unmatched responsive expertise of Tennant's service and support to help our customers deliver more efficient and effective cleaning performance. Also, within our growth pillar is our M&A strategy, which prioritizes opportunities that provide Tennant with the right strategic value, operational fit, and financial return. Aligned with our M&A strategy, our previously discussed minority equity stake in BrainCorp has allowed us to unlock the commercial advantages we articulated with the X4 rover launch, including exclusivity and annual recurring revenue participation.
David W. Huml: This technology brings together advanced mechanized cleaning with the unmatched responsive expertise of tenant service and support help our customers deliver more efficient and effective cleaning performance.
David W. Huml: Also within our growth pillar is our M&A strategy, which prioritizes opportunities that provide tenant with the right strategic value operational fit and financial return.
Aligned with our M&A strategy, our previously discussed minority equity stake in brain Corp has allowed us to unlock the commercial advantages, we articulated with the X for Rover launched including exclusivity and annual recurring revenue participation.
David W. Huml: In addition to the investment in BRAIN, we also announced our acquisition of TCS, Tennant Company's longstanding distributor based in Austria and with branches serving countries in Central and Eastern Europe, Africa, and the Middle East. The acquisition of TCS gives us direct access to an established customer base in the EMEA region, allowing us to deepen and extend our customer relationships in these higher growth markets. The acquisition aligns with our M&A priorities, enhancing our ability to defend and grow our cleaning core by strengthening our channel, and is expected to be accretive to our EBITDA already in 2020. As a longtime distributor of Tennant products, PCS has experienced teams in these countries who have cultivated a strong customer base that knows and appreciates Tennant innovation and quality.
David W. Huml: In addition to the investments in brain, we also announced our acquisition of Tcs Tennant company's long standing distributor based in Austria, and with branches serving countries in central and Eastern Europe Africa, and the Middle East.
David W. Huml: The acquisition of Tcs gives us direct access to an established customer base in the EMEA region, allowing us to deepen and extend our customer relationships in these higher growth markets.
David W. Huml: The acquisition aligns with our M&A priorities enhancing our ability to defend and grow our cleaning core by strengthening our channel position and is expected to be accretive to our EBITDA already in 2024.
David W. Huml: As a long time distributor of Tennant products Tcs has experienced teams in these countries, who have cultivated a strong customer base that knows and appreciates tenant innovation and quality.
David W. Huml: Having a direct presence and a broader footprint in these high-growth geographies is one of our key enablers of market share growth and strengthens our ability to deploy new products like AMR in this region. We look forward to growing in this region by building on the strong foundation the TCS team has already built. We are already hard at work on integration and working with the local teams to realize the full benefits of our acquisition.
David W. Huml: Having a direct presence and broader footprint in these high growth geographies is one of our key enablers of market share growth and strengthens our ability to deploy new products like <unk> in this region.
David W. Huml: We look forward to growing in this region by building on our strong foundation. The Tcs team is already built.
David W. Huml: We are already hard at work on integration and working with the local teams to realize the full benefits of our acquisition.
David W. Huml: Our successful execution on our M&A strategy is due to our financial strength and disciplined capital allocation strategy. In 2023, we prudently managed our balance sheet and converted over 100% of net income to free cash, ending the year with over $115 million in cash, as we continue to generate strong cash flow and maintain a strong balance. We are well positioned to take action on our target opportunities aligned with our M&A strategy. We are excited about the opportunity to share more details with you about our new enterprise strategy and invite you to attend our upcoming Investor Day on May 13th.
David W. Huml: Our successful execution on our M&A strategy is due to our financial strength and disciplined capital allocation strategy.
David W. Huml: In 2023, we prudently managed our balance sheet and converted over 100% of net income to free cash flow ending the year with over $115 million of cash.
David W. Huml: As we continue to generate strong cash flow and maintain a strong balance sheet, we are well positioned to take action on our target opportunities aligned with our M&A strategy.
David W. Huml: We are excited about the opportunity to share more details with you about our new enterprise strategy and invite you to attend our upcoming Investor day on May 13th.
David W. Huml: This event will be held at the New York Stock Exchange and will include presentations about our unique product portfolio and aftermarket strategy that sets us apart from the competition. Operating in an expanding market underpinned by global megatrends and backed by a strong balance sheet, we are excited to have the opportunity to share our vision for continued growth and innovation in mechanized and sustainable To register for the event, please visit our investor website.
David W. Huml: Event will be held at the New York Stock Exchange and will include presentations about our unique product portfolio and aftermarket strategy that sets us apart from the competition.
David W. Huml: Operating in an expanding market underpinned by global Megatrends and backed by a strong balance sheet. We are excited to have the opportunity to share our vision for continued growth and innovation and mechanized and sustainable cleaning.
To register for the event, please visit our Investor webpage.
David W. Huml: We encourage you to attend the event in person to meet with additional members of our management team and view our innovative new products, including the X4 rover. With that, I will turn the call over to Fay for a discussion of our financial... Thank you, Dave. And good morning, everyone.
We encourage you to attend the event in person to meet with additional members of our management team and view, our innovative new products, including the <unk> for Rover.
David W. Huml: With that I will turn the call over to pay for a discussion of our financials.
Fay West: In the first quarter of 2024, Tennant delivered GAP net income of $28.4 million, an increase of 16.9% over the prior year period. Strong net income performance in the quarter was driven by higher net sales and a significant improvement in gross margin from higher price realization and favorable product and channel mix. Operating expenses were higher in the current year due to ERP implementation costs and transaction costs associated with our investment in BrainCorp and the acquisition of TCS.
Pay: Thank you, Dave and good morning, everyone in the first quarter of 2024 tenant delivered GAAP net income of $28 $4 million an increase.
Pay: Kris at 16, 9% over the prior year period.
Pay: Strong net income performance in the quarter was driven by higher net sales.
Pay: And a significant improvement in gross margin from higher price realization and favorable product and channel mix.
Pay: Operating expenses were higher in the current year due to ERP implementation costs and transaction costs associated with our investment in brain Corp, and the acquisition of Tcs.
Fay West: We continue to make progress on our ERP implementation journey. The project is on track, and this year, we will focus on the design and build phase of the implementation with a phased go-live approach beginning in early 2025. Looking beyond operating income, interest expense in the first quarter was $1.4 million lower than the prior year period, driven mostly by lower debt balances as we meaningfully reduced debt during 2023. Our average interest rate, net of hedging, for the first quarter of 2024 was 3.94 percent compared to 4.29 percent in the prior year quarter.
Pay: We continue to make progress on our ERP implementation journey.
Pay: The project is on track and this year, we will focus on the design and build phase of the implementation with a phased go live approach beginning in early 2025.
Pay: Looking beyond operating income interest expense in the first quarter was $1 $4 million lower than the prior year period, driven mostly by lower debt balances as we meaningfully reduced debt during 2023.
Pay: Our average interest rate net of hedging for the first quarter of 2024 was 394% compared to $4 two 9% in the prior year quarter.
Fay West: Income tax expense in the quarter was $1 million lower than the prior year period, and the effective tax rate was 19.1% in the first quarter of 2024 compared to 24.1% in the prior year period. The decrease in income tax expense was driven by a discrete tax benefit associated with employee stock option exercises.
Income tax expense in the quarter was $1 million lower than the prior year period and the effective tax rate was 19, 1% in the first quarter of 2024 compared to 24, 1% in the prior year period. The decrease in income tax expense was driven by a discrete tax benefit.
Pay: Associated with employee stock option exercises.
Fay West: We anticipate that our full-year effective tax rate will be within the guided range of 22 to 27 percent. Excluding ERP implementation costs and transaction-related costs, adjusted net income in the first quarter of 2024 was $34.7 million compared to $27.1 million in the prior year period, a 28% increase. Adjusted EPS for the first quarter of 2024 increased 24.8% to $1.81 per diluted share compared to the prior year period. Looking a little more closely at our quarterly results.
Pay: We anticipate that our full year effective tax rate will be within the guided range of 22% to 27%.
Pay: Excluding ERP implementation costs and transaction related costs.
Pay: Adjusted net income in the first quarter of 2024 was $34 7 million compared.
Compared to $27 1 million in the prior year period, a 28% increase.
Pay: Adjusted EPS for the first quarter of 2024 increased 24, 8% to $1 81 per diluted share compared to the prior year period.
Pay: Looking a little more closely at our quarterly results.
Fay West: For the first quarter of 2024, consolidated net sales totaled $311 million, a 1.7% increase compared to $305.8 million in the first quarter of 2020. On a constant currency basis, organic sales increased 0.9%, driven primarily by price realization and product and channel mix.
Pay: For the first quarter of 2020 for consolidated net sales totaled $311 million, a one 7% increase compared to $305 8 million in the first quarter of 2023.
Pay: On a constant currency basis organic sales increased <unk> nine.
Pay: 9%, driven primarily by price realization and product and channel mix.
Fay West: Volumes in the current period were impacted by a volume decline in EMEA and a change in product mix, specifically a shift from smaller commercial equipment to larger industrial equipment. Backlog shift in the quarter was largely concentrated in our large industrial equipment, which generally has a higher average selling price per unit. As a quick reminder, we group our net sales into the following categories: equipment, parts, and consumables, and service and other. We experienced growth in both equipment and service product categories in the first quarter of 2024 as compared to the prior year period.
Pay: Volumes in the current period were impacted by a volume decline in EMEA and a change in product mix, specifically a shift for smaller commercial equipment two larger industrial equipment.
Backlog shipped in the quarter was largely concentrated in our large industrial equipment, which generally have a higher average selling price per unit.
Fay West: Equipment net sales grew 1.8 percent and service grew 10 percent. Parts and consumables declined 3.8%, primarily driven by volume decreases in North America and EMAIA. Tennant also groups its sales into three regions. The Americas region includes all of North America and Latin America.
Pay: As a quick reminder, we group our net sales into the following categories.
Pay: Equipment parts, and consumables and service and other we experienced growth in both equipment and service product categories in the first quarter of 2024 as compared to the prior year period equipment net sales grew one 8%.
Pay: And service grew 10%.
Pay: Parts and consumables declined three 8%, primarily driven by volume decreases in North America and EMEA.
Fay West: EMEA covers Europe, the Middle East, and Africa, while Asia-Pacific includes Australia, China, Japan, and other Asian markets. Organic sales in the Americas increased 5.1% compared to the prior year period. The increase in the Americas was driven primarily by price realization and favorable product and channel mix across the region. This was partially offset by unit volume decreases in North America, specifically in our commercial application machines, which had a higher backlog benefit in the prior year period. Organic sales declined 9.2% in EMEA due to volume declines in both equipment sales and parts and consumables, partially offset by price realization in all product categories.
Pay: Tenant also group sales into three regions. The Americas includes all of North America, and Latin America EMEA covers Europe, the Middle East and Africa, and Asia Pacific includes Australia, China, Japan, and other Asian market.
Fay West: EMEA volumes, particularly in France and Germany, were impacted by weaker-than-expected market conditions. Organic sales decreased 1.1% in APAC, primarily due to volume declines in Australia and China, partly offset by price growth in Australia. Adjusted EBITDA for the first quarter of 2024 was $54.9 million, or 17.7% of sales, up compared to $47.9 million, or 15.7% of sales in the first quarter of 2023. Growth margin increased to 44.2% in the first quarter, a 320 basis point improvement from the prior year period, which contributed an incremental $16 million to adjusted EBITDA.
Pay: <unk> sales in the Americas increased five 1% compared to the prior year period.
Pay: Increase in the Americas was driven primarily by price realization and favorable product and channel mix across the region. This was partially offset by unit volume decreases in North America, specifically in our commercial application machine, which had a higher backlog benefit in the prior year period.
Pay: Organic sales declined nine 2% in EMEA due to volume declines in both equipment sales and parts and consumables, partially offset by price realization in all product categories.
Pay: EMEA volumes, particularly in France, and Germany were impacted by weaker than expected market conditions.
Pay: Organic sales decreased one, 1% and APAC, primarily due to volume declines in Australia, and China, partly offset by price growth in Australia.
Adjusted EBITDA for the first quarter 2024 was $54 9 million or.
Pay: Or 17, 7% of sales up compared to $47 9 million.
Pay: Or 15, 7% of sales in the first quarter of 2023.
Gross margin increased to 44, 2% in the first quarter, a 320 basis point improvement from the prior year period, which contributed an incremental $16 million to adjusted EBITDA. The.
Fay West: The improvement in growth margin was attributable to price increases as well as product mix, as we saw a higher level of direct sales in industrial equipment, which has a higher profit margin profile. Adjusted S&A expense in the quarter totaled $85.9 million, a $4.2 million increase compared to the first quarter of 2023.
Pay: The improvement in gross margin was attributable to price increases as well as product mix as we saw higher level of direct sales in industrial equipment, which have a higher profit margin profile.
Adjusted SG&A expense in the quarter totaled $85 9 million, a $4 2 million increase compared to the first quarter of 2023.
Fay West: Adjusted S&A expense as a percent of net sales was 27.6%, compared to 26.7% in the first quarter of 2020. The increase was driven, in part, by incremental compensation expense on headcount increases related to the company's enterprise strategy. Turning now to Capital Deployment, net cash provided by operating activities was $2.9 million in the first quarter of 2024, compared to $31.1 million in the year-ago period.
Pay: Adjusted SG&A expense as a percent of net sales was 27, 6% compared to 26, 7% in the first quarter of 2023.
Pay: The increase was driven in part by incremental compensation expense on head count increases related to the company's enterprise strategy.
Pay: Turning now to capital deployment.
Pay: Net cash provided by operating activities was $2 9 million in the first quarter 2024, compared to $31 $1 million in the year ago period. The decrease in operating cash flow was due to increased variable compensation payout related to the strong operating performance in the.
Fay West: The decrease in operating cash flow was due to increased variable compensation payouts related to the strong operating performance in the prior year, as well as ERP implementation costs, resulting in a roughly flat free cash flow, excluding non-GAAP costs. Free cash flow was $7.1 million for the first quarter of 2024. The first quarter tends to be the lightest free cash flow period, and we expect to meet our 2024 target of converting 100% of net income into free cash flow.
Pay: Prior year as well as ERP implementation costs, resulting in a roughly flat free cash flow excluding.
Pay: Excluding non-GAAP cost.
Pay: Free cash flow was $7 1 million for the first quarter of 2020 form.
Pay: The first quarter tends to be the lightest free cash flow period.
Pay: And we expect to meet our 2024 target of converting 100% of net income to free cash flow.
Fay West: Our strong financial position exiting 2023 provided us with significant flexibility to execute on our M&A strategy, deploying $32.1 million towards an investment in BrainCorp and $25.5 million to acquire TCS. In addition to M&A, the company continues to prioritize cash flow towards operational needs, investing $3 million in capital expenditures during the quarter. The company also returned $6.4 million of capital to shareholders through dividends and opportunistic share repurchases during the quarter. Tennant's liquidity remains strong, with a balance of $88.8 million in cash and cash equivalents at the end of the first quarter of 2024 and $321.8 million of unused borrowing capacity on the company's revolving credit facility.
Pay: Our strong financial position exiting 2023 provided a significant flexibility to execute on our M&A strategy deploying $32 $1 million towards an investment in brain Corp, and $25 5 million to acquire Tcs.
Pay: In addition to M&A the company continued to prioritize cash flow towards operational needs investing $3 million in capital expenditures during the quarter.
The company also returned $6 $4 million of capital to shareholders through dividends and opportunistic share repurchases during the quarter.
Pay: Tenant's liquidity remains strong with a balance of $88 $8 million in cash and cash equivalents at the end of the first quarter of 2024, and $321 8 million of unused borrowing capacity on the company's revolving credit facility.
Fay West: The company continues to effectively manage debt and maintain a strong balance. Our net leverage was 1.05 times adjusted EBITDA, within our targeted range. Moving to 2024 guidance. Overall, demand remains resilient, and we continue to reduce backlog, but we expect to end the year at a higher than normal backlog level. We are monitoring global order rates very closely and anticipate year-over-year growth in all of our geographies. We will remain disciplined and prudent in our spending, focusing our investments in areas that position us for future growth and increased operating efficiency.
Pay: The company continues to effectively manage debt and maintain a strong balance sheet. Our net leverage was one five times adjusted EBITDA within our targeted range.
Pay: Moving to 2024 guidance overall demand remains resilient and we continue to reduce backlog, but expect to end the year at a higher than normal backlog level. We are monitoring global order rates very closely and anticipate year over year growth in all of our geographies.
Pay: We will remain disciplined and prudent in our spending focusing our investments in areas that position us for future growth and increased operating efficiencies.
Fay West: For 2024, Tennant reaffirms the following guidance: net sales of $1,270,000,000 to $1,295,000,000, reflecting organic sales growth of 2-4%. Adjusted EPS of $6.05 to $6.65 per diluted share, which excludes certain non-operating items and amortization expenses, adjusted EBITDA in the range of $198 million to $213 million, adjusted EBITDA margin in the range of 15.6% to 16.4%, capital expenditures of $20 to $25 million, and an adjusted effective tax rate of 22 to 27 percent, which excludes an adjustment for amortization expense. With that, I will turn Thank you, Fay.
For 2024 tenant reaffirms the following guidance.
Pay: Net sales of $1 $270 million to $1 billion and $295 million, reflecting organic sales growth of 2% to 4%.
Pay: Adjusted EPS of $6 five to $6 65 per diluted share, which excludes certain nonoperational items and amortization expense.
Pay: Adjusted EBITDA in the range of $198 million to $213 million.
Pay: Adjusted EBITDA margin in the range of 15, 6% to 16, 4%.
Pay: Capital expenditures of $20 million to $25 million.
Pay: And an adjusted effective tax rate of 22% to 27%, which excludes an adjustment for amortization expense with that I will turn it back to Dave.
David W. Huml: In summary, I am very proud of the global team and our ability to continue our growth trajectory as we are lapping a strong prior year. The investments we are making and innovative products we are delivering to our customers position us well to deliver on our full year guidance. We have a few upcoming events if you wish to learn more about our company and the direction we're heading. In addition to hosting our Investor Day on May 13th at the New York Stock Exchange, we will also be participating in E.F. Hutton's annual global conference in New York on May 15th.
David W. Huml: Thank you Fay.
David W. Huml: In summary, I am very proud of the global team and our ability to continue our growth trajectory as we are lapping a strong prior year.
David W. Huml: The investments, we are making and innovative products, we are delivering to our customers positions us well to deliver on our full year guidance.
David W. Huml: We have a few upcoming events if you wish to learn more about our company and the direction we're headed.
David W. Huml: In addition to hosting our Investor day on May 13th at the New York Stock Exchange. We will also be participating in Es Hutton's annual Global Conference in New York on May 15th.
David W. Huml: With that, we will open the call to questions. Operator, please go ahead. Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad. Then, raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask a question and are listening via a loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
David W. Huml: With that we will open the call to questions. Operator. Please go ahead.
Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and we would like to ask a question. Please press star one on your telephone keypad to Asia head and joined the team.
Speaker Change: I would like to withdraw your question simply press Star one again.
Speaker Change: Called upon to ask a question in our listening via loud speaker on your device. Please pick up the handset and ensure that your phone is not on mute.
Speaker Change: Asking your question.
Operator: Again, press star 1 to join the queue, and your first question comes from the line of Stephen Ferazani of Sidoti. Please go ahead. Morning, Dave. Morning, Fay. Appreciate all the detail on the call. Sounds like a lot of stuff is moving in the right direction for you right now. Q1 EPS was clearly well ahead of, it might have been, or might have matched your expectations.
Speaker Change: Again press star one to join the queue and your first question comes from the line of Steve <unk> of Sidoti. Please go ahead.
Steve: Good morning, Dave Good morning, So I appreciate all the detail on the call. It sounds like a lot of stuff is moving in the right traction for you right now.
Steve: Q1, EPS was clearly well ahead of it might've been.
Stephen Michael Ferazani: It was well, well ahead of ours. I feel like, and this is, I feel like this could turn into a repeat of the Q1 conference call discussion. I'm a little bit surprised you're not moving guidance here. Q1's not typically your very strongest quarter.
Steve: Matched your expectations it was well well ahead of ours.
Steve: I feel like and this is I feel like this could turn into a repeat of the Q1 conference call discussion I'm.
Steve: Im a little bit surprised youre not moving guidance here Q1 is not typically youre very strongest quarter guidance sort of implies it is but your sales growth guidance implies you have better sales growth in the next three quarters.
Stephen Michael Ferazani: Your guidance sort of implies it is, but your sales growth guidance implies you have better sales growth in the next three quarters. Your gross margin for three out of four quarters has been 43% or higher. Seems like you're setting a new baseline there.
Steve: Gross margins three out of four quarters have been 43% or higher it seems like you are setting a new baseline there unless there's a lot of discretionary spend thats coming back at.
Stephen Michael Ferazani: Unless there's a lot of discretionary spend that's coming back, at minimum, you're at the high rate, high area of guidance based on the numbers you're putting out there, unless I'm missing something. Hi Steve.
Had minimum youre at the high rate look.
Speaker Change: Hi area of guidance based on the numbers, you're putting out there unless I'm missing something.
David W. Huml: Thanks for the question and commentary. We would share your optimism about the start of the year. We think it's a really strong performance for the company coming off a record 2023. And so we share your optimism for the future. Having said that, a lot of our strategies are hitting, and we feel confident in our ability to reaffirm guidance. We've learned from the past that one quarter does not make a year.
Speaker Change: Hi, Steve Thanks for thanks for the question and commentary we would share your optimism on the start to the year. We think it's a really strong performance for the company coming off a record 2023, and so we share your optimism for the future having said that.
Speaker Change: We've got a lot of our strategies are hitting and we feel confident in our ability to reaffirm guidance.
David W. Huml: And so as we came to the first quarter, the impact of the strategies that we funded and activated around the world is moving us in a positive direction but still landing our forecast within our guidance range. And so we felt it was appropriate to reaffirm guidance, but we share your takeaway that we're optimistic from the start we delivered in Q1. And our outlook for 2024 is on the positive side. So what changes, given that you maintain that sales growth guidance? And I know this margin was even higher than we've seen. What is your expectation? I mean, you've done 43% for three out of four quarters.
Speaker Change: Learn from the past that one quarter does not make a year and so as we came through the first quarter.
Speaker Change: The impact of the strategies that we funded and.
Activated around the world are moving us in a positive direction, but still landing our forecast what's in within our guidance range and so we felt it was appropriate to reaffirm guidance, but we sure you are.
Speaker Change: The takeaway that we're optimistic from the start we delivered in Q1 and our outlook for 2024 is on the positive side.
Speaker Change: So what changes given given that you're maintaining that sales growth guidance.
Speaker Change: And I know this margin was even higher than we've seen.
Stephen Michael Ferazani: Is there a reason you give back some margin in the remainder of the year? Or again, and this is what I ask, is there more discretionary spend outside of ERP implementation, which you back out anyway? I mean, what's there in the numbers that maybe we'll see in the remaining quarters that wasn't in this quarter? Yeah, really, margins are strong in the quarter, and when you unpack the margin performance, you know, we're up 320 basis points on a quarter-over-quarter basis, and we're up 220 basis points sequentially versus Q4. When you look at the underlying drivers, you know, let's talk about the inflationary environment to start. Inflation is lower year-over-year, but higher than we expected in the quarter.
Speaker Change: What is your expected I mean, you've done 43% for three out of four quarters is there a reason you give back some margin in the remainder of the year or again I ask is is there more discretionary spend outside of ERP implementation, which you back out anyway.
They're in the numbers that maybe we.
Speaker Change: Seeing some remaining quarters it wasn't in this quarter.
Speaker Change: Yes.
Speaker Change: Clearly margins are strong in the quarter and when you unpack the margin performance, we're up 320 basis points on a quarter over quarter basis, we're up to.
Speaker Change: 220 basis points sequentially versus Q4, when you look at the underlying drivers.
Speaker Change: Let's talk about the inflationary environment to start.
Speaker Change: Inflation is lower year over year, but higher than we expected in the quarter and so that dynamic well, while we have more than offset it with our actions our Washington inflation closely the four levers we pull to drive margins our price, we monitor and drive mix to the extent, we can cost out and productivity. So let me comment.
David W. Huml: And so that dynamic, while we more than offset it with our actions, we're watching inflation closely. The four levers we pull to drive margins are price, we monitor and drive mix to the extent we can, cost out, and productivity. So let me comment on the components of our action plan around gross margin expansion. From a price perspective, we feel really good about our price realization, and we're capturing the pricing that was captured in our backlog. So as we relieve backlog, we are realizing that price. However, as backlog reduction begins to reflect units that were booked closer to today's date, there will be less pricing impact.
Speaker Change: On the components of our action plan around gross margin expansion from a price perspective, we feel really good about our price realization and we're capturing the pricing that was captured in our backlog. So as we relieve backlogs we are realizing that price as backlog reduction begins to reflect units that were book.
Speaker Change: Closer to today's date, there will be less pricing impact so the pricing impact from backlog reductions begins to moderate throughout the year. That's just one component of our margin expansion in the first quarter from a mixed impact perspective again, most of our backlog reduction as is in our industrial product and that tends to be higher.
David W. Huml: So the pricing impact from backlog reduction begins to moderate throughout the year. That's just one component of our margin expansion in the first quarter. From a mixed impact perspective, again, most of our backlog reduction is in our industrial product, and that tends to be higher-margin than our commercial product. And so, while we continue to meaningfully reduce our industrial backlog, we will benefit from that component in our margins. We are aggressively taking costs out of the business.
Speaker Change: Margin than our commercial product and so while we continue to meaningfully reduce our industrial backlog, we will benefit from that component.
Speaker Change: Margins, we are aggressively taking cost out of the business, we layered in a lot of inflation like most manufacturers around the world over the last two years and our team has done a fantastic job populating a funnel of cost out opportunities prioritizing those we've resource them and going after it to realize the cost benefit in our margins.
David W. Huml: We layered in a lot of inflation, like most manufacturers around the world, over the last two years. And our team has done a fantastic job populating a funnel of cost-out opportunities, prioritizing those, resourcing them, and going after them to realize the cost-out benefit in our margins. The cost-out benefit is lumpy.
Speaker Change: Cost out benefit is lumpy some of them have a long lead time to implement and realize.
David W. Huml: Some of them have a long lead time to implement and realize, but we feel good about the funnel there. But in a given period, it can be lumpy in terms of the impact we deliver within a quarter. And lastly, productivity.
Speaker Change: We feel good about the funnel there, but in a given period that can be lumpy in terms of the impact we deliver within a quarter.
David W. Huml: Our plants are running very well, particularly our plants in Minneapolis that build our industrial product are operating at very high productivity and setting record output levels. A benefit of the investments we've made in the plant from a CAPEX perspective, resourcing ads we've made across the supply chain, as well as the benefit of backlog reduction coming through plant one. And so when you look at the components of gross margins, there's some puts and takes. But we think we have it well in hand.
Speaker Change: And lastly productivity our plants are running very well.
Speaker Change: Particularly our plants in Minneapolis. The builds are industrial products is operating at a very very high productivity and setting record output levels.
Speaker Change: A benefit of the investments we've made in the plant from a capex.
Speaker Change: Perspective, Resourcing adds we've made across supply chain as well as the benefit of backlog reduction coming through coming through plant one and so when you look at the components of gross margin. There are some puts and takes we think we havent and well in hand, and when you look at our 44, 2% gross margin is really in the ballpark of our historical and so huge.
David W. Huml: And when you look at our 44.2% gross margin, it's really in the ballpark of our historical. And so you specifically mentioned, "Are there incremental S&A investments?" We will continue to invest to drive our growth, but it's all baked into our forward-looking guidance. And so, you know, we felt like as we came through the quarter, we understood the drivers of gross margin.
Speaker Change: Specifically mentioned are there incremental SG&A investments, we will continue to invest to drive our growth, but it's all baked into our forward looking guidance and so we felt like as we came through the quarter. We understood. The drivers of gross margin. We know what we have spent on from an M&A perspective to start the year and we leaned in heavily on growth that we can.
David W. Huml: We know what we've spent on from an S&A perspective to start the year, and we leaned heavily on growth. And we continue to expect to continue to make those investments throughout the year. Great, appreciate the detail on that, Dave. Before I turn it over, I do want to ask about the early signs on Rover. Is that now available?
You need to expect to continue to make those investments throughout the year.
Stephen Michael Ferazani: It sounded, and I may have misheard this, like you were preparing to expand production capacity for Rover. Is that, did I hear that right? And should that be a signal that early demand signs are positive? Thanks, Steve. Yeah, you did hear that right.
Speaker Change: Great I appreciate the detail on that Dave.
Speaker Change: I do want to before I turn it over I would you want to ask about.
Speaker Change: Early signs on Rover is that now available it sounded and I may have misheard. This it sounded like you were preparing to expand production capacity for Rover is that did I hear that right and then should that be a signal that.
Speaker Change: Early demand signs are positive.
David W. Huml: Early demand signs from customers are very positive. We think this can be a real game-changer for us in driving robotics adoption, and you heard right. On the strength of the customer reaction to the product, we're now fully launched in terms of communicating the specifics of the product, its performance, its features, its pricing. Based on the response from customers, we are evaluating the opportunity and the potential to increase our production output on a full-year basis.
Speaker Change: Thanks, Steve Yes, you did hear that right early demand signs from customers are very positive. We think this can be a real game changer for us in driving robotics adoption.
Speaker Change: And you heard right on the strength of the customer.
Speaker Change: Reaction to the product we're now fully launched in terms of communicating the specifics of the product is performance fees.
Speaker Change: Features the pricing on the response from customers, we are evaluating the opportunity the potential to increase our production output on a full year basis.
Speaker Change: Having said that.
David W. Huml: Having said that, the X4 Rover relies on some high-end sensing devices, like 3D LiDAR and light cameras, that have long lead times because the world is moving toward robotics and sensing. And so we thought it was prudent, given the early optimism from customers, to begin the work to understand our potential to increase our production output. And what we're trying to evaluate is how quickly we can increase production output? How much could we realize in 24 versus 2025? And have a look at the land.
Speaker Change: The export Rover relies on some.
Speaker Change: Hi, and sensing devices like <unk> and like cameras that have long lead times, because the world is moving towards robotics and sensing and so we thought it was prudent given the early optimism from customers to begin the work to understand our potential to increase our production output and what we're trying to evaluate is how quickly.
Speaker Change: And we increased our production output how much could we realized 24 versus 2025 and have a lay of the land. We are not launch towards the product yet. So we have commitments from customers and a lot of energy and excitement around it I'm really excited about it but we're not out in the market we'll launch it in the market in terms of shipping shipping production units.
David W. Huml: We are not launched with the product yet, so we have pre-commitment with customers and a lot of energy and excitement around it. I'm really excited about it, but we're not out in the market yet. We'll launch it in the market in terms of shipping production units in North America in Q2, and the remainder of the world in Q3. So this is really exciting, given the very high positive returns and customer sentiment we got from pre-launch communications and activities. That's great news. Thanks so much, Dave.
Speaker Change: In North America in Q2, and the remainder of the World and in Q3. So this is really preparing given the very high positive returns and customer sentiment, we got from prelaunch communications and activities.
Speaker Change: That's great news.
Speaker Change: So much Dave.
David W. Huml: Thanks, Steve.
Stephen Michael Ferazani: Thanks, Steve. Your next question comes from the line of Tim Moore of EF Hutton; please go ahead. Thanks, and pretty amazing work on the Gross Margin Expansion, well beyond what anybody was expecting in consensus. I just want to maybe start out with the press release on IMOP, the International Expansion Rollout timing. I mean, can you kind of maybe remind us roughly what the sales in the U.S. for the IMOP have been for the last year and how you think you can position that abroad, and if those pilots or demonstrations have already kind of started? Yeah, thanks.
Timothy M. Moore: Your next question comes from the line of team more of F. Hutton. Please go ahead.
Thanks.
F. Hutton: Pretty amazing work on the gross margin expansion will be hot beyond what anyone was expecting in consensus but.
F. Hutton: Can I just want to maybe start out with the press release on the <unk>.
F. Hutton: I'm off the international expansion rollout timing I mean.
F. Hutton: Can you kind of maybe remind us roughly what the sales in the U S for the <unk> last year end.
F. Hutton: How do you think you can position that.
F. Hutton: Abroad, and if those pile.
F. Hutton: Pilots are demonstrations are already kind of started.
David W. Huml: Thanks for the question. It gives me a chance to kind of expand a bit on how we view IMOP and, more broadly, the opportunity in small space cleaning. And so we don't break out specific product sales or specific product sales by geography, but I will tell you that our small space offering is a key component of our enterprise strategy. It's one of the three focus areas within our new product innovation lever.
Speaker Change: Yes. Thanks for the question. It gives me a chance to kind of expand a bit on how we view I'm up and more broadly the opportunity in small space cleaning and so we don't break out specific product sales or specific product sales in the geography, but I will tell you that our small space offering is a key component of our enterprise strategy is one of the.
Speaker Change: Three focus areas within our new product innovation lever.
David W. Huml: It's a very interesting product because it is material in terms of its contribution within a given geography and a given channel, etc. But as part of a small space offering, it really gives Tennant Company the opportunity to address a broader range of applications for new and existing customers. So let me expand on that, why I say new and existing. For existing customers, many of our customers have small spaces within their buildings that we're already cleaning. So from that context, it's an add-on sale. It's an opportunity to give them a solution to replace their mop and bucket for cleaning the restroom, the break area, and the food prep area.
Speaker Change: It's a very interesting product because it is.
Speaker Change: It's been just material in terms of its contribution within a given geography, and given channel etcetera, but as part of a small space offering a really gives tennant company the opportunity to address a broader space of applications for new and existing customers. So let me expand on that last day, new and existing for existing customers many of.
Speaker Change: Our customers have small spaces within their building that were already cleaning their large spaces. So from that context as an add on sale as an opportunity to give them a solution to replace their mop and bucket and cleaning the restroom to break area. The food prep area. So it's an add on sale that has a relatively lower cost of sales but allows.
David W. Huml: So it's an add-on sale that has a relatively lower cost of sales but allows us to grow our share of that customer's pocket. And for new customers, it's giving our selling organizations an opportunity, I call it a door opener, a reason to go in and call on customers that occupy smaller spaces and where our legacy machines have maybe been too large to accommodate cleaning in those spaces. And so, you know, there is a lot of energy and excitement around IMOP.
Speaker Change: To grow our share of that customers' pocket and for new customers is giving our selling organizations and opportunity I called a door opener Ah recently go in on call on customers that occupy smaller spaces, and where our are our legacy machines have maybe been too large to accommodate cleaning in those spaces and so.
David W. Huml: This expansion of our ability to sell the Tennant-branded IMOP product gives us the opportunity to sell it in Brazil, France, Portugal, and Spain. These will be the first countries in EMEA to have access to this product.
Speaker Change: A lot of energy and excitement around I'm up.
Speaker Change: This expansion of our ability to sell the tenant branded IMI product gives us the opportunity to sell in Brazil, France, Portugal, and Spain. This deal will be our first countries in EMEA that we have access to this product and we're really excited about it like I said not only for selling to existing customers into their small space applications, but approaching new customers.
David W. Huml: And we're really excited about it. Like I said, not only for selling to existing customers in their small space applications but for approaching new customers and new verticals. Lots of upside for it, and it has a halo effect or an ancillary effect that when you open doors to new customers to sell them a small space product, you can also introduce them to the rest of the Tennant IPC portfolio, including our product line extensions and AMR.
And new verticals.
Speaker Change: Lots of upside for it and it has a halo effect on ancillary effect of when you open doors to new customers to sell them a small space products. You can also introduce them to the rest of the the Tennant and IPC portfolio, including our product line extensions in AMR.
Timothy M. Moore: That's terrific color and it's pretty amazing the enhancement you've done in the last year and a half getting more into smaller spaces and some of the warehouses and middle-sized stuff. Maybe my next question, maybe I don't know, it might be more for Fay, you know. Fay, I was wondering if you could give us an update on the ERP modernization plan, you know, that cost range, is that still kind of in line with your budgeting?
Speaker Change: That's terrific color.
Speaker Change: Pretty amazing enhancement, you've done in the last year and a half getting more into smaller spaces.
Speaker Change: Some of the warehouses and middle sized bumps into my next question, maybe I don't know might be more for Fei.
Fei: And in fact I was wondering maybe if you can give us an update on the.
Fei: The ERP modernization plan.
Fei: With that cost range is that still kind of.
Fei: In line to your budgeting and maybe have a little bit more about how you're going to phase that out is it going to be joined by geographies.
Timothy M. Moore: And maybe a little bit more about how you're going to phase that out, is it going to be going by geography? Yeah, so we spent about seven and a half million dollars in the quarter on our year, and we highlighted that through our. We anticipated this year that we would spend about $37 million, roughly, and that's cash out. So the numbers that I'm quoting are cash, not necessarily expense or capital.
Speaker Change: Yeah. So so we think it's about $7 5 million in the quarter on on our ERP and kind of highlighted that through our material we anticipated this year.
Speaker Change: $37 million roughly on the net cash outs.
Speaker Change: So the numbers that I'm quoting are cash not necessarily.
Fay West: So we are on, you know, we're trending on target for what we thought we were going to spend here in 2020. We are in the design and build phase. Things are progressing as we've anticipated. The entire organization is engaged.
Speaker Change: So we are on.
Speaker Change: We're trending on target or what we thought we were going to spend hearing.
Speaker Change: Thank you.
Speaker Change: Alright.
Speaker Change: We are in the design and build phase things are progressing as we anticipated the entire organization is engaged and we are here and on timeline and on budget.
Fay West: And we are, we are kind of on timeline and on budget. And so we anticipate that we will have a phased rollout in 2025. And, and, and, you know, starting kind of a second quarter timeline and, and, and rolling that out through the organization through the, you know, middle of the fourth quarter. That's terrific. I appreciate that. Just one last question. You know, seasonally, it looked like working capital has been kind of a free cash flow outflow, I think, similar to kind of what you did in the first quarter of 2022 and 2021.
Speaker Change: And so we anticipate that we will have a staged rollout in 2025.
And starting kind of SEC.
Speaker Change: Second quarter timeline, and rolling out rolling that out through the organization through the middle of the fourth quarter of next year.
That's terrific I appreciate that.
Speaker Change: Just one last question I think.
Speaker Change: Seasonally it looked like working capital has been kind of a free cash flow outflow I think.
Speaker Change: Similar to kind of what you did in the first quarter of 2022 and 2021, I mean is that fair to assume that.
Fay West: I mean, is it fair to assume, you know, that that'll kind of recoup itself over the next couple of quarters and the working capital drain won't be as severe? It's really more of a March quarter. Yeah, and we should see, and I mentioned in the prepared remarks that it's typically our latest quarter in the first quarter. We did have kind of, you know, benefit payments that came out this quarter as you compare it to the prior year that were affecting our operating cash flow. We do anticipate seeing kind of incremental operating cash flow at the end of the next three quarters, and we are targeting to meet our free cash flow conversion target on a full year basis.
Speaker Change: That will kind of recoup itself over the next couple of quarters.
Speaker Change: Working capital Jamie won't be as severe as really more kind of March quarter.
Speaker Change: Yes.
Speaker Change: We should see and I mentioned in the prepared remarks that typically our latest quarter and the first quarter and we did have kind of.
Speaker Change: In benefit payments that came out this quarter as compared to prior year that were that were influencing our operating cash flow, we do anticipate in kind of incremental.
Speaker Change: Operating cash flow.
Speaker Change: And the next three quarters and we are targeting can meet our our free cash flow conversion target on it.
Speaker Change: Full year basis.
Timothy M. Moore: Terrific. That's it for my questions. Thank you. Thanks, Tim. Since there are no further questions at this time, I would like to turn the call over to management for closing remarks. Thank you. Since we have a few extra minutes, I want to take the opportunity to recognize and thank the Tennant team globally for all of their hard work and efforts to deliver a fantastic first quarter for the company. Thank you all for your participation today and your interest in Tennant Company. This concludes our earnings call. Have a great day. Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.
Terrific that's it for my questions. Thank you.
Speaker Change: Thanks, Tim.
Speaker Change: Since there are no further questions at this time I would like to turn the call over to management for closing remarks.
Speaker Change: Thank you since we have a few extra minutes I wanted to take the opportunity to recognize and thank the tennant team globally for all of their hard work and efforts to deliver on a fantastic first quarter for the company.
Speaker Change: Thank you all for your participation today and your interest in Tennant Company. This concludes our earnings call have a great day.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.