Q1 2025 Tennant Co Earnings Call

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Greg: Good morning, my name is Greg and I will be your conference operator today.

Good morning, My name is Greg and I will be your conference operator today at this time I would like to welcome everyone to Tennant Company's first quarter 2025 earnings conference call.

Greg: At this time, I would like to welcome everyone to Tennant Company's first quarter 2025 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. 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 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 2025 earnings conference call.

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 computer. Please mute the audio on your computer to avoid potential quality issues during the call.

Lorenzo Bassi: Thank you for participating in Tennant company's first quarter 2025 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: Beginning today's meeting is Mr. Lorenzo Bassi, Vice President, Finance and Investor Relations for Tennant. Mr. Bassi, you may begin. Good morning, everyone and welcome to Tennant Company's first quarter 2025 earnings conference. I'm Lorenzo Bassi, Vice President, Finance and Investor Relations.

Speaker Change: Good morning, everyone and welcome to Tennant Company's first quarter 2025 earnings conference call.

Lorenzo Bassi: Im Lorenzo <unk>, Vice President Finance and Investor Relations.

Lorenzo Bassi: Joining me on the call today are Dave Huml, President and CEO, and Fay West, Senior Vice President Today, we will review our first quarter performance for 2020.

Lorenzo Bassi: Joining me on the call today are Dave Huml, President and CEO, and Fay West Senior Vice President and CFO.

Lorenzo Bassi: Today, We will review our first quarter performance for 2025.

Lorenzo Bassi: Dave will discuss our result and enterprise strategy and Fay will cover our After our prepared remarks, we will open the call. Our earnings press release and live presentation that accompany this conference call are available on our investor release.

Lorenzo Bassi: Dave will discuss our results in enterprise strategy, and Fay will cover our financials.

Lorenzo Bassi: After our prepared remarks, we will open the call to questions.

Lorenzo Bassi: Our earnings press release, and slide presentation that accompany this conference call are available on our Investor Relations website.

Lorenzo Bassi: 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 Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained. These risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission.

Lorenzo Bassi: 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.

Lorenzo Bassi: Such statements are subject to risks and uncertainties and our actual results may differ materially from those contained in the statements.

Lorenzo Bassi: These risks and uncertainties are described in today's news release and the documents, we filed with the Securities and Exchange Commission.

Lorenzo Bassi: We encourage you to review those documents, particularly our Safe Harbor Statement for a description of the risks and uncertainties that may affect Additionally, on this conference call, we will discuss non gap measures that include or exclude certain Our 2025 first quarter earnings release and presentation include the comparable gap measures and a reconciliation of these non-gap measures to our gap I'll now turn the call over to Dave.

Lorenzo Bassi: 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.

Lorenzo Bassi: Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items. Our 2025 first quarter earnings release and presentation include the comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results.

Dave Huml: I'll now turn the call over to Dave.

Dave Huml: Thank you, Lorenzo.

Dave Huml: Thank you Lorenzo and Hello, everyone on today's call I will be discussing highlights from the first quarter of 2025, the progress on our enterprise strategy and our outlook for the remainder of the year.

Dave Huml: And hello, everyone. On today's call, I will be discussing highlights from the first quarter 2025, the progress on our enterprise strategy, and our outlook for the remainder of the year. Our first quarter results reflect a return to typical seasonal patterns and product mix, lapping a previous record high first quarter in the prior year, which benefited from a $50 million backlog reduction concentrated in higher margin industrial products that are sold through direct channels. We delivered net sales of $290 million, representing an organic decline of 5%, and adjusted EBITDA of $41 million, or 14.1% of sales. Despite the challenging comparison, underlying business performance remains strong.

Dave Huml: Our first quarter results reflect a return to typical seasonal patterns and product mix lapping our previous record high first quarter in the prior year, which benefited from a $50 million backlog reduction concentrated in higher margin industrial products that are sold through direct channels.

We delivered net sales of $290 million, representing an organic decline of 5% and adjusted EBITDA of $41 million or 14, 1% of sales.

Dave Huml: Despite the challenging comparison underlying business performance remains strong at the enterprise level order rates increased 13% well above our long term targets. This quarter marks the fourth consecutive quarter of near or above double digit order growth our book to bill rates in the quarter was above one and we maintained at normal.

Dave Huml: At the enterprise level, order rates increased 13%, well above our long term target. This quarter marks the fourth consecutive quarter of near or above double digit order growth. Our book to bill rate in the quarter was above one and we maintained normal backlog level. While tariffs and economic uncertainty are top of mind for our customers, demand for our products remains stable and we continue to see strong momentum in our incoming order rate. As a reminder, we are forecasting to grow our orders in the range of 3.5 to 7% for 2025. However, it is important to highlight that strong order growth will not directly translate into equivalent organic sales growth.

Dave Huml: Backlog levels.

Dave Huml: While tariffs and economic uncertainty are top of mind for our customers demand for our products remains stable and we continue to see strong momentum in our incoming order rates.

Dave Huml: As a reminder, we are forecasting to grow our orders in the range of three 5% to 7% for 2025. However, it is important to highlight that strong order growth will not directly translate into equivalent organic sales growth.

Dave Huml: This is primarily due to the $125 million backlog reduction that took place last year, which disproportionately impacted the first half of the year, most notably with a $50 million headwind in the first quarter alone. As a result, this makes quarter-over-quarter optics challenging. Looking at the regional highlights for the year, in the Americas, organic net sales declined 6.9%, reflecting the impact of the prior year backlog benefit. When looking at the underlying business performance, order rates were up 20% compared to the prior year period. Our enterprise strategy initiatives, specifically products like the X4 Rover, helped drive incremental growth in the region.

Dave Huml: This was primarily due to the $125 million backlog reduction that took place last year, which disproportionately impacted the first half of the year, most notably with a $50 million headwind in the first quarter alone.

Dave Huml: As a result, this makes quarter over quarter optics challenging.

Dave Huml: Looking at the regional highlights for the year in the Americas organic net sales declined six 9%, reflecting the impact of the prior year backlog benefit.

Dave Huml: We're looking at the underlying business performance order rates were up 20% compared to the prior year period.

Dave Huml: Our enterprise strategy initiatives, specifically products like the explore rover helped to drive incremental growth in the region.

Dave Huml: Overcoming currency related headwinds in Brazil, our strategic investments in the Americas continue to deliver order rates that are outpacing market growth, reinforcing our confidence that our strong leadership position is growing. In EMEA, we grew 2% on a constant currency basis. EMEA results were positively impacted by our previously announced acquisition in Eastern Europe, which drove 140 basis points of growth in the region. Organic growth across the rest of the region contributed 60 basis points of growth driven primarily by price realization. While we had organic growth across all product categories, we saw mixed results by country. GoToMarket initiatives in the UK, Spain and Italy continue to read out positively, which was partially offset by sluggish demand in France and Germany.

Dave Huml: Overcoming currency related headwinds in Brazil, our strategic investments in the Americas continue to deliver order rates that are outpacing market growth reinforcing our confidence that our strong leadership position is growing.

Dave Huml: In EMEA, we grew 2% on a constant currency basis EMEA results were positively impacted by our previously announced acquisition in Eastern Europe, which drove 140 basis points of growth in the region Org.

Dave Huml: Organic growth across the rest of the region contributed 60 basis points of growth driven primarily by price realization.

Dave Huml: While we had organic growth across all product categories, we saw mixed results by country.

Dave Huml: Go to market initiatives in the UK, Spain, and Italy continued to readout positively, which was partially offset by sluggish demand in France and Germany.

Dave Huml: Turning now to AIPAC, business performance in AIPAC was impacted by continuing market challenges and demand decline in China. Australia is also showing some signals of slower demand and we expect a challenging market dynamic in AIPAC for the remainder of the year. Our commitment to disciplined execution of our enterprise strategy yielded positive results in the quarter. The strategy is centered on growing through pricing discipline, launching innovative new products, and investing in go to market opportunities. We continue to resource, invest, and execute targeted initiatives across each of these pillars.

Dave Huml: Turning now to our APAC business performance in APAC was impacted by continuing market challenges and demand has declined in China.

Australia is also showing some signals of slower demand and we expect a challenging market dynamic in APAC for the remainder of the year.

Dave Huml: Our commitment to disciplined execution of our enterprise strategy yielded positive results in the quarter. The strategy is centered on growing through pricing discipline launching innovative new products and investing in go to market opportunities.

Dave Huml: We continue to resource invest and execute targeted initiatives across each of these pillars I.

Dave Huml: I'd like to take the opportunity to provide you with several key updates. During the first quarter, we saw favorable pricing growth within EMEA and Latin America. In North America, while our published pricing increases are taking hold, we drove large sales to key strategic customers within the retail channel in the period, and as such, pricing was impacted during the period. We anticipate a shift toward a more favorable mix going forward with stronger price growth during the remainder of 2025. We are on pace to capture approximately 50 to 100 basis points of annual price growth as part of our long term goal.

Dave Huml: I'd like to take the opportunity to provide you with several key updates.

Dave Huml: During the first quarter, we saw favorable pricing growth within EMEA, and Latin America, and North America, while our published pricing increases are taking hold we drove large sales to key strategic customers within the retail channel in the period and as such pricing was impacted during the period.

Dave Huml: We anticipate a shift toward a more favorable mix going forward with stronger price growth. During the remainder of 2025, we are on pace to capture approximately 50 to 100 basis points of annual price growth as part of our long term goals.

Dave Huml: We continue to invest in targeted areas to improve our channel reach and capacity. During the first quarter, we saw positive results from the go-to-market initiatives we activated in 2024. For example, in North America, our increased service capacity drove service revenue growth during the quarter. Additionally, go-to-market initiatives in EMEA, specifically, investments in direct selling in the UK and expanding distribution coverage in Italy, continue to deliver growth in the region. At an enterprise level, we target approximately 100 basis points of annual growth from go to market investments as part of our long term goals. And we are on pace to achieve that in New product development is another important focus area in our growth pillar as we drive innovation in AMR, small space and product line extensibility.

Dave Huml: We continue to invest in targeted areas to improve our channel reach and capacity during the first quarter. We saw positive results from the go to market initiatives. We activated in 2024 for example in North America, Our increased service capacity drove service revenue growth during the quarter.

Dave Huml: Additionally, go to market initiatives in EMEA, specifically investments in direct selling in the UK and expanding distribution coverage in Italy continued to deliver growth in the region.

Dave Huml: At an enterprise level, we target approximately 100 basis points of annual growth from go to market investments as part of our long term goals and we are on pace to achieve that in 2025, new product development is another important focus area in our growth pillar as we drive innovation in AMR small space and product line extensions.

Dave Huml: Our first quarter results were bolstered by sales of the X4 rover and the expansions of our product line extension portfolio last year. At an enterprise level, we are on pace to achieve our long term target of adding 150 to 200 basis points of growth per year. Looking specifically at our AMR performance. During the quarter AMR sales grew 30% over the first quarter of 2024. We continue to be proud of our progress and believe there is significant upside to capture by driving robotics adoption globally. Our growing AMR portfolio accounted for approximately 5% of net sales at the enterprise level during the first quarter of 2025.

Dave Huml: Our first quarter results were bolstered by sales of the export Rover and the expansions of our product line extension portfolio last year.

Dave Huml: At an enterprise level, we are on pace to achieve our long term target of adding 150 to 200 basis points of growth per year.

Dave Huml: Looking specifically at our <unk> performance during the quarter Ams sales grew 30% over the first quarter of 2024, we continue to be proud of our progress and believe there is significant upside to capture by driving robotics adoption globally.

Dave Huml: Our growing <unk> portfolio accounted for approximately 5% of net sales at the enterprise level during the first quarter of 2025.

Dave Huml: As we begin to realize the full-year benefit of X4 Rover in 2025, our current momentum puts us in line with achieving our AMR revenue target of $100 million in annual net sales by 2027. We're also excited about the growth opportunities surrounding the X6 rover launch in the second quarter of 2025. Building on the early success of the X4 rover and our accelerated product roadmap, the larger X6 rover offers superior cleaning performance, improved maneuverability, and nearly three times the cleaning capacity of the X4 rover. We believe that reducing adoption barriers is key to accelerating AMR growth.

Dave Huml: As we begin to realize the full year benefit of X for Rover in 2025, our current momentum puts us in line with achieving our revenue target of $100 million in annual net sales by 2027.

Dave Huml: We're also excited about the growth opportunities surrounding the X six Rover launch in the second quarter of 2025.

Dave Huml: Building on the early success of the <unk> for Rover, and our accelerated product roadmap. The larger X six Rover offers superior cleaning performance improved maneuverability and nearly three times the cleaning capacity of the explore rover.

Dave Huml: We believe that reducing adoption barriers is key to accelerating <unk> growth today, one of the challenges our customers face is the initial cost of AOR machines.

Dave Huml: Today, one of the challenges our customers face is the initial cost of AMR machines. To help tackle this, we are proudly introducing the CLEAN 360 program, a new approach that pairs our industry-leading AMR technology with our well-known service expertise. Clean 360 offers customers access to our AMR solutions through an autonomous subscription model that includes the AMR machine, navigation software subscription, and a full-service maintenance contract with a 90% uptime guarantee, all bundled into a single monthly price. This flexible program is designed to make AMR adoption more accessible, lowering upfront investment with more predictable cost of ownership, guaranteeing uptime productivity, and delivering a predictable customer ROI.

Dave Huml: To help tackle this we're probably introducing the clean 360 program a new approach that pairs, our industry, leading <unk> technology with our well known service expertise.

Clean 360 offers customers access to our <unk> solutions through an autonomous subscription model that includes the ALR machine navigation software subscription and a full service maintenance contract with a 90% uptime guarantee all bundled into a single monthly price.

Dave Huml: This flexible program is designed to make <unk> adoption more accessible lowering upfront investment with more predictable cost of ownership guaranteed uptime productivity and delivering a predictable customer ROI.

Dave Huml: By providing customers another option, we expect Clean360 will help drive wider adoption, expand our customer base, increase our market share in the rapidly growing AMR Now shifting to guidance for the remainder of the year, I wanted to share some thoughts on the recent developments surrounding global tariffs and the ongoing trade war, which have certainly contributed to economic uncertainty as we move through 2025. Despite these macroeconomic challenges, I'm pleased to report that our first quarter results have remained strong, and to date, other than the few countries previously mentioned, we haven't observed any significant signs of weakening demand across our operations.

Dave Huml: By providing customers another option, we expect to clean 360 will help drive wider adoption expand our customer base and increase our market share in the rapidly growing EMR space.

Dave Huml: Now shifting to guidance for the remainder of the year I wanted to share some thoughts on the recent developments surrounding global tariffs and the ongoing trade war, which have certainly contributed to economic uncertainty as we move through 2025.

Dave Huml: Despite these macroeconomic challenges I am pleased to report that our first quarter results have remained strong and to date other than the few countries. Previously mentioned, we haven't observed any significant signs of weakening demand across our operations.

Dave Huml: However, it's important to acknowledge that the economic uncertainty is likely to persist with tariffs and the trade war continuing to play a crucial role. In light of this, we've established a cross-functional global team that is diligently assessing the impact of existing tariffs and implementing various mitigation strategies. While tariffs are likely to change going forward, we put a structure in place that is agile. Our focus for the tariff currently in place is on offsetting costs through supply chain actions, pricing initiatives, and other measures. By leveraging the capabilities we've built during the previous supply chain crisis and aligning with our long term manufacturing and sourcing strategies, we are capable of navigating these challenges effectively.

Dave Huml: However, it's important to acknowledge that the economic uncertainty is likely to persist with tariffs and the trade war continuing to play a crucial role.

Dave Huml: In light of this we have established a cross functional global team that is diligently assessing the impact of existing tariffs and implementing various mitigation strategies.

Dave Huml: While tariffs are likely to change going forward, we put a structure in place that is agile.

Dave Huml: Our focus for the tariffs currently in place is an offsetting costs through supply chain actions pricing initiatives and other measures.

Dave Huml: By leveraging the capabilities, we've built during the previous supply chain crisis, and aligning with our long term manufacturing and sourcing strategies. We are capable of navigating these challenges effectively.

Dave Huml: When we model out these mitigating strategies alongside the strong order demand forecasted, we believe we are positioned to deliver full year results within our 2025 guidance. However, should the situation deviate from current assumptions, our results could be adversely impacted. We remain committed to executing on our enterprise strategy while we navigate the economic uncertainty and the impact of tariffs on our business. The investments we have made are reading out in the current year, illustrated by our strong double-digit order growth. We believe we will see continued order growth from these initiatives and will continue to help drive our long-term revenue target.

Dave Huml: When we model out these mitigating strategy is alongside the strong order demand forecasted. We believe we are positioned to deliver full year results within our 2025 guidance range. However, should the situation deviate from current assumptions our results could be adversely impacted.

Dave Huml: We remain committed to executing on our enterprise strategy, while we navigate the economic uncertainty and the impact of tariffs on our business the.

Dave Huml: The investments we have made are reading out in the current year illustrated by our strong double digit order growth.

Dave Huml: We believe we will see continued order growth from these initiatives and will continue to help drive our long term revenue targets.

Fay West: With that, I'll turn the call over to Fay for a discussion of our finance. Thank you, Dave. And good morning, everyone. In the first quarter of 2025, Tennant delivered gap net income of $13.1 million, compared to $28.4 million in the prior year. Net income for the quarter was impacted by lower net sales, primarily driven by volume declines across all geographies, particularly in North America, which was lapping a prior year with a significant backlog reduction benefit. This backlog was concentrated in higher margin industrial equipment through direct sales channels, which impacted gross margin performance. Also impacting net income performance were increased costs associated with our ERP project and restructuring related charges.

Speaker Change: With that I'll turn the call over to <unk> for a discussion of our financials.

Speaker Change: Thank you, Dave and good morning, everyone in the first quarter of 2025 tenant delivered GAAP net income of $13 1 million compared.

Speaker Change: Compared to $28 4 million in the prior year period.

Speaker Change: Net income for the quarter was impacted by lower net sales, primarily driven by volume declines across all geographies, particularly in North America, which was lapping a prior year with a significant backlog reduction benefit.

Speaker Change: This backlog with concentrated in higher margin industrial equipment through direct sales channel, which impacted gross margin performance.

Speaker Change: Also impacting net income performance were increased costs associated with our ERP project and restructuring related charges.

Fay West: These non-GAAP charges totaled $7.5 million during the quarter. Beyond operating income, our effective tax rate was 23.8% in the first quarter of 2025, compared to 19.1% in the prior year. The rate increase was driven by a prior year discrete tax benefit associated with stock option exercises. It did not reoccur in the first quarter of 2025. income tax expense was $2.6 million lower compared to the first quarter of 2024, primarily due to lower net income performance. Adjusting net income for the non-GAAP ERP costs and restructuring related charges adjusted EPS for the first quarter of 2025 was $1.12 per diluted share compared to $1.81 per diluted share in the prior year period.

Speaker Change: These non-GAAP charges totaled $7 $5 million during the quarter.

Speaker Change: Beyond operating income our effective tax rate was 23, 8% in the first quarter of 2025 compared to 19, 1% in the prior year.

Speaker Change: Rate increase was driven by a prior year discrete tax benefit associated with stock option exercises that did not reoccur in the first quarter of 2025.

Speaker Change: Income tax expense was $2 $6 million lower compared to the first quarter of 2024, primarily due to lower net income performance.

Speaker Change: Adjusting net income for the non-GAAP ERP cost and restructuring related charges adjusted EPS for the first quarter of 2025 was $1 12 per diluted share compared to $1 81 per diluted share in the prior year period.

Fay West: Looking a little more closely at our quarterly results, for the first quarter of 2025, consolidated net sales totaled $290 million, reflecting a 6.8% decrease from the $311 million reported in the first quarter of 2024. Changes in foreign currency exchange rates had a negative impact of 2.1%, primarily affecting our operations in Brazil and to a lesser extent in EMEA. Our prior year acquisition contributed 0.3% of growth during the quarter. on a constant currency basis, organic sales decreased 5% primarily attributable to volume decrease. Comparisons between periods were impacted by the significant backlog reduction benefit that we experienced in the prior year, which on a comparative basis, drove a decrease in volume.

Speaker Change: Looking a little more closely at our quarterly results.

Speaker Change: For the first quarter of 2025 consolidated net sales totaled $290 million.

Speaker Change: Selecting a six 8% decrease from the $311 million reported in the first quarter of 2024.

Changes in foreign currency exchange rates had a negative impact of two 1% primarily affecting our operations in Brazil and to a lesser extent in EMEA.

Speaker Change: Our prior year acquisition contributed 3% of growth during the quarter.

Speaker Change: On a constant currency basis organic sales decreased 5% primarily attributable to volume decreases.

Speaker Change: Comparisons between periods were impacted by the significant backlog reduction benefit that we experienced in the prior year, which on a comparative basis drove a decrease in volume however.

Fay West: However, on a consolidated basis, our underlying order activity has shown impressive growth with a double digit increase in the current period. This is a clear indication of the strong demand we are seeing and our ability to capture new opportunities in the market.

Speaker Change: However, on a consolidated basis, our underlying order activity has shown impressive growth with a double digit increase in the current period. This is a clear indication of the strong demand, we are seeing and our ability to capture new opportunities in the market.

Fay West: As a reminder, we group our net sales into the following categories, equipment, parts and consumables, and service and other. In the first quarter, we experienced declines in all product categories. Organic declines in equipment sales and parts and consumable sales were further exacerbated by an unfavorable foreign exchange impact. Overall equipment sales declined 9% and parts and consumables declined 4.7%. Although we observed organic growth in service and other, this was more than offset by the unfavorable foreign exchange impact, resulting in an overall decrease of 1.4% for the period. Shifting to regional performance, organic sales in the Americas decreased 6.9% compared to the same period last year.

Speaker Change: As a reminder, we group our net sales into the following categories equipment parts and consumables and service and other in the first quarter, we experienced declines in all product categories Orgs.

Speaker Change: Organic declines in equipment sales and parts and consumable sales were further exacerbated by an unfavorable foreign exchange impact.

Speaker Change: Overall equipment sales declined 9% and parts and consumables declined four 7%.

Speaker Change: Although we observed organic growth in service and other this was more than offset by the unfavorable foreign exchange impact, resulting in an overall decrease of one 4% for the period.

Speaker Change: Shifting to regional performance organic sales in the Americas decreased six 9% compared to the same period last year. The decline in net sales. This period was primarily driven by lower sales of industrial equipment as we lap a significant contribution from the backlog in the first quarter of 2024.

Fay West: The decline in net sales this period was primarily driven by lower sales of industrial equipment, as we lap a significant contribution from the backlog in the first quarter of 2020. This was partially offset by volume growth in commercial equipment and service. The growth in commercial equipment was driven by large sales to key strategic customers within the retail Outside the Americas, organic sales grew 0.6% in EMEA due to pricing increases across all product categories, partially offset by small volume declines in industrial equipment. Organic sales decreased 7.5% in APAC, primarily due to both volume and price declines in China and Australia.

Speaker Change: This was partially offset by volume growth and commercial equipment and service.

Speaker Change: The growth in commercial equipment was driven by large sales to key strategic customers within the retail channel.

Speaker Change: Outside the Americas organic sales grew 6% in EMEA due to pricing increases across all product categories, partially offset by small volume declines in industrial equipment.

Speaker Change: Organic sales decreased seven 5% and APAC, primarily due to both volume and price declines in China and Australia.

Fay West: Gross margin was 41.4% in the first quarter, a 280 basis point decrease compared to the prior year quarter. This decrease was primarily driven by shifts in our product and customer mix, as well as ongoing inflation. From a product perspective, last year's gross margin performance benefited from a larger concentration of higher margin industrial products sold through DirectChamp. Customer mix in the current period was more heavily skewed towards strategic customers, which contributed to lower margin performance. These top-tier strategic customers have more favorable pricing terms due to the volume that they generate, and as such, pricing in the region was impacted during the period.

Speaker Change: Gross margin was 41, 4% in the first quarter, a 280 basis point decrease compared to the prior year quarter.

Speaker Change: This decrease was primarily driven by shifts in our product and customer mix as well as ongoing inflation.

Speaker Change: From a product perspective last year's gross margin performance benefited from a larger concentration of higher margin industrial products sold through direct channels.

Speaker Change: Customer mix in the current period was more heavily skewed towards strategic customers, which contributed to lower margin performance.

Speaker Change: These top tier strategic customers have more favorable pricing terms due to the volume that they generate and as such pricing in the region was impacted during the period.

Fay West: S&A expense totaled $90.7 million in the first quarter of 2025, a $0.8 million increase compared to the first quarter of 2024. The increase was primarily driven by ERP costs and restructuring related charges and was partially upset by lower compensation expense and discretionary spending. When excluding non-GAAP costs, adjusted S&A expense in the quarter totaled $83.2 million, a $2.7 million decrease compared to the first quarter of 2024. Adjusted S&A expense as a percent of net sales increased to 28.7% compared to 27.6% in the prior year period. This 110 basis point de-leverage was primarily driven by lower sales performance, partially offset by strong cost.

Speaker Change: SG&A expense totaled $90 7 million in the first quarter of 2025, $8 $8 million increase compared to the first quarter of 2024. The increase was primarily driven by ERP cost and restructuring related charges and was partially offset by lower compensation expense and discretionary spending when.

Speaker Change: <unk> non-GAAP costs adjusted SG&A expense in the quarter totaled $83 2 million, a $2 $7 million decrease compared to the first quarter of 2024.

Speaker Change: Adjusted SG&A expense as a percent of net sales increased to 28, 7% compared to 27, 6% in the prior year period.

Speaker Change: This 110 basis point deleverage was primarily driven by lower sales performance, partially offset by strong cost management.

Fay West: Adjusted EBITDA for the first quarter of 2025 was $41 million compared to $54.9 million in the first quarter of 2024. Adjusted EBITDA margin for the first quarter of 2025 was 14.1% of net sales down 360 basis points compared to the 17.7% in the prior year period. Turning now to capital deployment, net cash used by operating activities was $0.4 million during the first quarter of 2025, a $3.3 million decrease compared to the prior year period, primarily driven by ERP costs and working capital investments. Free cash flow for the period was negative $7.4 million, which included investments in the ERP of $12.4 million.

Speaker Change: Adjusted EBITDA for the first quarter of 2025 was $41 million compared to $54 9 million in the first quarter of 2024.

Speaker Change: Adjusted EBITDA margin for the first quarter of 2025 was 14, 1% of net sales down 360 basis points compared to the 17, 7% in the prior year period.

Speaker Change: Turning now to capital deployment net cash used by operating activities was <unk> $4 million during the first quarter of 2025, a $3 $3 million decrease compared to the prior year period, primarily driven by ERP costs and working capital investment.

Speaker Change: Free cash flow for the period was negative $7 4 million, which included investments in the ERP of $12 4 million.

Fay West: When excluding these non-operational cash flows, we converted 28% of net income to free cash flow during the quarter. The first quarter tends to be the lightest free cash flow period, and we expect to meet our 2025 target of converting 100% of net income to free cash.

Speaker Change: When excluding these non operational cash flow, we converted 28% of net income to free cash flow during the quarter.

Speaker Change: The first quarter tends to be the lightest free cash flow period, and we expect to meet our 2025 target of converting 100% of net income to free cash flow.

Fay West: The company continues to deploy cash flow towards operational capital needs and to return capital to shareholders in line with its capital allocation priorities. During the first quarter, the company invested $7 million in capital expenditures and returned $25.8 million to shareholders through share repurchases and dip . Tennant's liquidity remains strong with a cash and cash equivalents balance of approximately $80 million at the end of the first quarter and approximately $434 million of unused borrowing capacity on the company's revolving credit facility. The company continues to effectively manage debt and maintains a strong balance. Our net leverage was 0.66 times adjusted EBITDA, providing the company with increased flexibility and capability to fund growth through M&A and create value for our shareholders.

Speaker Change: The company continued to deploy cash flow towards operational capital needs and to return capital to shareholders in line with its capital allocation priority.

Speaker Change: During the first quarter, the company invested $7 million in capital expenditures and returned $25 $8 million to.

Speaker Change: <unk> through share repurchases and dividends.

Speaker Change: Tenant's liquidity remains strong with a cash and cash equivalents balance of approximately $80 million at the end of the first quarter and approximately $434 million of unused borrowing capacity on the company's revolving credit facility.

Speaker Change: The company continues to effectively manage debt and maintains a strong balance sheet.

Speaker Change: Our net leverage was <unk> 66 times adjusted EBITDA, providing the company with increased flexibility and capability to fund growth through M&A and create value for our shareholders.

Fay West: moving to 2025 guidance. As Dave mentioned, recent discussions surrounding global tariffs have intensified and the escalating trade war has created economic uncertainty moving forward. This economic uncertainty has led to a higher risk profile today compared to our fourth quarter earnings call. Based on the current tariffs in place, we estimate an impact of approximately $40 million for the full year 2025, representing around 5% of our total cost of goods sold. To offset these estimated costs, we've implemented a range of mitigation strategies, including supply chain actions, market-based pricing, and other operational levers. On the supply chain front, our strategies include supplier negotiations, dual sourcing leverage, and shifting logistic flows to avoid expensive pass-through costs.

Speaker Change: Moving to 2025 guidance.

Speaker Change: As Dave mentioned recent discussion surrounding global tariffs have intensified and the escalating trade war has created economic uncertainties moving forward.

Speaker Change: This economic uncertainty has led to a higher risk profile today compared to our fourth quarter earnings call.

Speaker Change: Just on the current tariffs in place we estimate an impact of approximately $40 million for the full year 2025, representing around 5% of our total cost of goods sold.

Speaker Change: To offset these estimated cost we've implemented a range of mitigation strategies, including supply chain actions market based pricing and other operational levers on.

Speaker Change: On the supply chain front, our strategies include supplier negotiations dual sourcing leverage and shifting logistic flows to avoid expensive pass through costs.

Fay West: In parallel, we are managing costs at the operating margin level to preserve profitability and remain focused on disciplined prudent spending as we navigate the tariff impact and macroeconomic uncertainty. Our mitigation actions continue to evolve, and based on what we know today, we anticipate we will be able to offset most of these tariff costs. With these efforts in place, we continue to believe we are on track to deliver full year results within our 2025 guidance.

Speaker Change: In parallel we are managing costs at the operating margin level to preserve profitability and remain focused on disciplined prudent spending as we navigate the tariff impact and macroeconomic uncertainty.

Speaker Change: Our mitigation actions continue to evolve and based on what we know today, we anticipate we will be able to offset most of these tariff costs with these efforts in place. We continue to believe we are on track to deliver full year results within our 2025 guidance range.

Fay West: For 2025, Tennant reaffirms the following guidance. Net sales of $1,210,000,000 to $1,250,000,000 reflecting organic sales decline of negative one to negative four percent. Gap EPS of $3.80 to $4.30 per diluted share. Adjusted EPS of $5.70 to $6.20 per diluted share, which excludes ERP costs and amortization adjusted EBITDA in the range of $196 million to $209 million. adjusted EVA dub margin in the range of 16.2% to 16.7%. Capital Expenditures of approximately $20 million, and an adjusted effective tax rate of approximately 23% to 27%, which excludes an adjustment for amortization expense.

Speaker Change: For 2025 tenant reaffirms the following guidance.

Speaker Change: Net sales of $1 $210 million to $1 billion and $250 million.

Speaker Change: Reflecting organic sales decline of negative one to negative 4%.

Speaker Change: GAAP EPS of $3 80 to $4 30 per diluted share.

Adjusted EPS of $5 70 to $6 20 per diluted share, which excludes ERP costs and amortization expense.

Speaker Change: Adjusted EBITDA in the range of $196 million to $209 million.

Speaker Change: Adjusted EBITDA margin in the range of 16, 2% to 16, 7%.

Speaker Change: Capital expenditures of approximately $20 million and an adjusted effective tax rate of approximately 23% to 27%, which excludes an adjustment for amortization expense with that I will turn it back to Dave. Thank you in summary, I am very proud of our global team as we continue to grow order rates.

Dave Huml: With that, I will turn it back. Thank you, Fay. In summary, I am very proud of the global team as we continue to grow order rates while navigating macroeconomic uncertainty.

Speaker Change: While navigating macroeconomic uncertainty.

Dave Huml: We believe that through consistent execution of our enterprise growth strategy, along with disciplined cost management, we are positioned to achieve our 2025 If you wish to learn more about our company and the direction we are heading, we are participating in two upcoming investor conferences, including the Oppenheimer Annual Industrial Growth Conference on May the 5th, and the Wells Fargo Industrial and Materials Conference on June 10.

Speaker Change: We believe that through consistent execution of our enterprise growth strategy, along with disciplined cost management, we are positioned to achieve our 2025 guidance.

Speaker Change: If you wish to learn more about our company and the direction. We are heading we are participating in two upcoming investor conferences, including the Oppenheimer annual industrial growth conference on May the fifth and the Wells Fargo Industrial and materials Conference on June 10.

Greg: With that, we will open the call to questions. Operator, please go ahead. Thank you so much.

Speaker Change: With that we will open the call to questions. Operator. Please go ahead.

Speaker Change: Thank you so much and at this time I would like to remind everyone in order to ask a question again press Star then the number one on your telephone keypad. Once again star one and we will pause just a moment to compile the Q&A roster.

Greg: And at this time, I would like to remind everyone in order to ask a question again, press star than the number one on your telephone keypad once again, star one. And we will pause just a moment to compile the q&a roster.

Steve Ferazani: And it looks like our first question today comes from the line of Steve Farazani from Sudoti.

Speaker Change: And it looks like our first question today comes from the line of Steve <unk> from Sidoti Steve. Please go ahead.

Steve Ferazani: Steve, please go ahead. Morning, Dave. Morning, Fay. Appreciate all the detail on the call. A lot of it was extremely helpful.

Speaker Change: Good morning, Dave Good morning, So I appreciate all the detail on the call a lot of it was extremely helpful.

Steve Ferazani: Dave, I got to ask about the margin guidance. You know, your EBITDA margins declined sequentially for three straight quarters. I know Fay touched on some of the reasons for the mix this quarter.

Speaker Change: Dave I got to ask about the margin guidance.

Speaker Change: Your EBITDA margins declined sequentially for three straight quarters, I know <unk> touched on some of the reason for the mix this quarter, but to hit that margin guidance in this environment for this year do you need you need probably more than 200 basis points improvement over the average next three quarters.

Dave Huml: But to hit that margin guidance in this environment for this year, you need probably more than 200 basis points improvement over the average next three quarters compared to what you've reported in the previous three quarters. And I don't see what's in your order book in fairness. But given the inflationary pressures, and it sounds like you're doing some things to offset it. So if you can, it just looks like a challenge.

Speaker Change: Compared to what you've reported in the previous three quarters.

Speaker Change: I don't see what's in your order books in fairness, but given the inflationary pressures and it sounds like you're doing some things to offset it.

It just looks like a challenge can you walk us through.

Dave Huml: Can you walk us through how you get to the confidence level to get there in the next three quarters on right because your revenue was about 24% of the midpoint of sales. So it's not through throughput. Like just how do you get Thanks for the question, Steve. I appreciate it. And it's a, it certainly is a challenging environment to manage.

Speaker Change: How you get to the confidence level to get there in the next three quarters.

Speaker Change: Because your revenue was about 24% at the midpoint of sales. So it's not through throughput, but just how do you get there.

Steve: Thanks for the question Steve I appreciate it.

Steve: It certainly is a challenging environment to manage them. So let me let me give you the high level context for how we arrived at our bottom line EBITDA guidance.

Dave Huml: And so let me let me give you the high level context for how we arrived at our bottom line EBITDA guidance. And then we can dive into, I think much of the story is around our first quarter experience. And so, you know, Fay touched on in her remarks, I touched on as well, when you look at the margin mix, from a customer perspective, in Q1, there were two components of the margin decline. One was the known challenge to overcome the backlog headwind from the $50 million worth of industrial equipment that we shipped in Q1 of 2024.

Steve: Guidance and then we can dive into I think much of the story.

Steve: Around our first quarter experience and so you'll pay touched on in her remarks, I touched on as well when you look at the margin mix.

Steve: From a customer perspective in Q1, there were two components of the margin decline one was the known chat.

Steve: Challenge to overcome the backlog headwind from the $50 billion worth of industrial equipment that we shipped in Q1 of 2024 and this is a question that we've had from analysts throughout the year. This outsized margin impact and benefit in the 2024 baseline from shipping high margin industrial products, how do we think about that as we head now into 2020.

Dave Huml: And this was a question that we've had from analysts throughout the year, this outsized margin impact and benefit in the 2024 baseline from shipping high margin industrial products. How do we think about that as we head now into 2025? And, and so we planned for that, that margin in our, in our operating plan, and then certainly in our full year guidance as well. So the correct course for that is that the $125 million worth of backlog reduction benefit we got in 2024 was populated in the first quarter. It was 50 million in the first quarter.

Steve: And so we planned for that that margin.

Steve: <unk> on our operating plan and then certainly in our full year guidance as well so you've got the correct course for that is that.

The $125 million worth of backlog reduction benefit we got in 2024 was.

Steve: Populated in the first quarter it was $50 million in the first quarter and so the lapping the hurdle becomes much easier.

Dave Huml: And so the lapping of the hurdle becomes much easier as we move to Q2, Q3, and Q4 of 2025. In addition to that, we expect that the mix will return to more normalized mix, particularly from a customer perspective. And I think we touched on in the script, but in Q1, we were fortunate to ship some large strategic customers, as well as some big project wins. And I'm talking about people like Walmart, Morrison, Home Depot, TJ Maxx. These are Carrefour. These are the world's top retailers. And we're fortunate to have won business with these customers. We are always shipping key customers.

Steve: Q4 of 2025.

Steve: In addition to that we expect that the mix will return to more normalized mix, particularly from a customer perspective, and I think we touched on in the script, but in Q1, we were fortunate to ship some large strategic customers as well as some big project wins and I'm talking about people like Walmart Morrison home depot.

Steve: T. J Maxx. These are car for these are the world's top retailers and we're fortunate to have won business with the customers. We are always shipping key customers. We just had a concentration of key customer shipments in Q1 that adversely affected our margins. So you had this impact of the year over year backlog reduction.

Dave Huml: We just had a concentration of key customer shipments in Q1 that adversely affected our margins. So you had this impact of the year-over-year backlog reduction benefit from industrial mix, now to a more normalized mix. In addition to that, we shipped an abnormally high amount of strategic account customers at lower margins. So that kind of explains the first quarter experience. I would note, though, that our first quarter margins were sequentially in line with Q4. And so although they were a bit lower than we had anticipated because of this strategic account mix issue, they're kind of in line with how we exited the year.

Steve: Benefit from industrial mix now to a more normalized mix. In addition to that we shipped.

Steve: Normally high amount of strategic account customers.

Steve: At lower margins.

Steve: Kind of explains the first quarter experience.

Steve: I would note, though that our first quarter margins were sequentially in line with Q4, and so although they were a bit lower than we had anticipated because of this strategic account.

Steve: Mix issue that kind of in line with the with how we exited the year. Your question specifically is how do we get back to guidance range for EBITDA margins on the full year and Thats a combination of both gross margin and how we manage our SG&A as we move through the rest of the year.

Dave Huml: Your question specifically is, how do we get back to guidance range for EBITDA margins on the full year? And that's a combination of both growth margin and how we manage our S&A as we move through the rest of the year. We can't answer the growth margin question without getting into the tariff discussion.

Steve: We can't answer the gross margin question without getting into the tariff discussions so with your permission maybe I'll give you a bit of a glimpse into how we're thinking about tariffs from a broader perspective.

Dave Huml: So with your permission, maybe I'll give you a bit of a glimpse into how we're thinking about tariffs from a broader perspective. Absolutely, please do. And I think it'll answer the question you had. Why are we confident that we can deliver on full year EBITDA margins? Is that fair, Steve? Yes, yeah, absolutely.

Steve: Please too and I think it will answer it will answer the question. The question you had why are we confident that we can deliver on full year EBITDA margin is that fair Steve.

Steve: Yes, yes, absolutely.

Dave Huml: So, taking a step back and thinking about tariffs in general, and I've got to caveat all of my remarks, this is a rapidly changing environment that is introducing significant uncertainty in our outlook and in our projections. And I'll issue one caveat statement so I don't have to say it over and over with every piece of data I provide you, but this is an abnormally high level of uncertainty for us, for our business, for the macro environment, and when we talk to our customers as well. And so, you know, while we are feeling very confident about our order rates and delivering 13% quarter order rates in the first quarter, we have to acknowledge the uncertainty that is in our operating environment, as well as the significant uncertainty and the assumptions we have to make in the next three quarters when we talk about our projection for the year.

Steve: So taking a step back and thinking about the tariffs in general and I've got to caveat all of my remarks. This is a rapidly changing environment that is introducing significant uncertainty.

Steve: In our outlook and our projections and all issue one caveat statements. So I'll have to say it over and over with every piece of data I provide you, but this is an abnormally high level of uncertainty for us for our business for the macro environment and when we talk to our customers as well and so while we are feeling very confident about our order rates are delivered.

Steve: 13% quarter over quarter order rates in the first quarter, we have to acknowledge the uncertainty that is in our operating environment as well as the significant uncertainty in the assumptions we have to make in the next three quarters. When we talk about our projections for the year.

Dave Huml: As we think about the tariffs, we're working hard to react to what we know. And so all these comments relate to the tariffs that are in place as of today. So I'm talking about the 145% tariff the U.S. has placed on goods imported from China, as well as steel and aluminum tariffs, China tariffs on U.S. imports, and the rest of the world, reciprocal tariffs as well. The big impact for Tennant from a tariff perspective is the U.S. tariffs on China imports. We disclosed in prior quarters that our spend in China is around $50 million annually.

Steve: As we think about the tariffs, we're working hard to react to what we know and so all of these comments relates to the tariffs that are in place as of today, So I'm talking about the 145%.

Steve: Tariff U S has placed on goods imported from China as well as steel aluminum tariffs, China tariffs on U S imports than the rest of the world reciprocal tariffs as well the big impact for tenant from a from a tariff perspective is the U S tariffs on China imports, we disclosed in prior quarters that our spend.

Steve: In China is around $50 million annually, that's made up of $20 million worth of direct imports of about $30 million of what we call a derivative.

Dave Huml: That's made up of $20 million worth of direct imports and about $30 million of what we call derivative purchases, whether it's piece parts or product coming from China through a supplier to us. We expect to see the tariffs impact the price on those commodities. When we model out the tariffs that are in place, again, the tariffs that are in place today, we model out a full year 2025 impact of our $40 million on the cause line, which directly impacts margins, obviously. There are a lot of unknowns and assumptions. Obviously, if the tariff landscape changes, one of our offsets is pricing.

Steve: Purchases, whether its piece parts or product coming.

Steve: From China through a supplier to us when we expect to see the tariffs impact of price on those those commodities.

Steve: When we model out the tariffs that are in place again, the tariffs that are in place today, we model out our full year 2025 impact of our $40 million on the Cogs line, which directly impacts margins obviously there.

Steve: There are a lot of unknowns are assumptions, obviously, if the tariff landscape changes.

Steve: One of our offsets is pricing. So this pricing impact demand. There's a lot of assumptions, we had to make but we get to a $40 million impact and we are taking action to offset and mitigate that $40 million impact.

Dave Huml: So this pricing impact demand, there's a lot of assumptions we had to make, but we get to a $40 million impact and we are taking action to offset and mitigate that $40 million impact. We're taking actions that are aligned with long-term strategy, so that we're not wasting any effort. Everything we do is aligned with long-term strategy, and we had planned to do anyway, so we're accelerating those efforts. But our mitigation of the $40 million is really dependent on two main levers. One is pricing actions, and the other one is sourcing actions. And roughly speaking, each of them account for about $20 million worth of the solve.

Steve: We're taking actions that are aligned with long term strategy. So that we're not wasting any any effort everything we do is aligned with long term strategy and we had planned to do anyway. So we're accelerating those efforts, but our mitigation of the $40 million is really dependent on two main levers one is pricing actions. The other one is sourcing actions and roughly speaking each of them account for about.

Steve: $20 million worth of the salt.

Dave Huml: From a pricing perspective, we have already published pricing in North America and just to dimensionalize it for you, we're putting out between seven and 10% price increases effective mid-May in our North America business. We expect that we will get good realization on that price increase and that it will not negatively impact demand. So that's our planning assumption as we look forward. From a sourcing perspective, we are in the midst of setting up the action plan to offset the $20 million remaining tariff impact. And Fay noted these involve things like negotiating with suppliers, pushing back on suppliers, resourcing to alternative suppliers.

Steve: From a pricing perspective, we have already published pricing in North America, and just to Dimensionalize. It for you.

Steve: Now between 7% and 10% price increases effective mid may and our North America business.

Steve: We expect that we will get good realization on that price increase in that and that it will not negatively impact demand.

Speaker Change: That's our planning assumption as we look forward from a sourcing perspective, we are in the midst of setting up the action plan to offset the $20 million $20 million remaining tariff impact and Fei noted these involves things like negotiating with suppliers pushing back on suppliers resourcing to alternative suppliers.

Dave Huml: We're calling it tariff reengineering, rerouting goods so they are not coming from and arriving at tariff countries to the extent possible, moving production from facility to facility, potentially insourcing over the midterm and longer term, and then also designing around where we can to avoid tariffs.

Speaker Change: We're calling a tariff reengineering rerouting goods. So they are that's coming from in arriving at the tariff countries to the extent possible moving production.

Speaker Change: From facility to facility potentially in sourcing over the midterm and longer term and then also designing around where we can to avoid tariffs. So there's a large cross functional global team working on the specific actions that we can take to offset these tariffs here in 2025 and regain the 40 million.

Dave Huml: So there's a large, cross-functional, global team working on the specific actions that we can take to offset these tariffs here in 2025 and regain the $40 million worth of COGS impact. So when you think about your question specifically, okay, you understand the impact, we've set up a team, we're taking action, you know, half of it's in price, half of it's in sourcing. I think it's important for, you know, a couple of the points I would make. When you think about our China sourcing, there is good concentration of commodities and suppliers. So it gives us confidence we can go in and work with a distinct set of commodities as well as suppliers.

Speaker Change: With a cogs impact.

Speaker Change: So when you think about your cluster specifically, okay, you understand the impact we've set up a team we're taking action.

Speaker Change: Mix and price half of it is a sourcing I think it's important for a couple of other points I would make when.

Speaker Change: When you think about our China sourcing, there's good concentration of commodities and suppliers. So it gives us confidence we can go in and work with a distinct set of commodities as well as suppliers. So just to punctuate the point.

Dave Huml: And just to punctuate the point, we're talking about a little over 100 different suppliers, but 80% of the spend is in around with about 40 suppliers, so good concentration in terms of getting in front of people and taking action and making decisions. About 60% of that China spend is consolidated or concentrated in five specific product categories. So it allows us to really focus our efforts on specific product commodities, components, as well as supply base. So it gives us a bit of confidence that we can get started and move the needle here in 2025 and offset the tariff impact.

Speaker Change: Talking about a little over 100 different suppliers, but.

Speaker Change: 80% of the spend is in around with about 40 suppliers. So good concentration in terms of getting in front of people are taking action and making decisions about 60% of that China spend is consolidated are concentrated in five specific product categories. So it allows us to really focus our efforts on specific product tomorrow.

Speaker Change: These are components as well as supply base.

Speaker Change: So it's a bit of confidence so we can get started and move the needle here in 2025 at an offset.

Speaker Change: Offset the tariff impact the other point I would make and I assume a tougher question is our competition has also moved on price.

Dave Huml: The other point I would make, and I assume will come up with this question, is our competition has also moved on price in this geography in North America, so that our price positioning is intact from a competitive perspective. And order of magnitude, they've moved at similar ranges. And so I think that those factors embolden our confidence, although it's certainly no sure thing and a lot of uncertainty in our assumptions, I think it gives us confidence that the actions we can take from a mitigation perspective will allow us to put us in position to offset the tariff impact.

Speaker Change: This geography in North America, so that our price positioning is intact from a competitive perspective and order of magnitude they've moved it similar similar ranges and so.

Speaker Change: Think that those factors.

Speaker Change: Embolden, our confidence, although it's certainly sure thing and a lot of uncertainty in our assumptions I think it gives us confidence that the the.

Speaker Change: <unk>, we can take from a mitigation perspective.

Speaker Change: <unk> will allow us to put us in position to offset the tariff impact, but I also want to highlight not only did we have a strong order book coming through the first quarter, but we are very close to our customers and we see no signals other than a few distinct countries like Mexico like China, a little bit in Australia, we see no signs or signals.

Dave Huml: And I also want to highlight, not only did we have a strong order book coming through the first quarter, but we are very close to our customers and we see no signals other than a few distinct countries like Mexico, like China, a little bit in Australia. We see no signs or signals from the business of weakening demand. Customers are moving forward with major deployments. Customers are moving forward with projects. We're having success selling in new products that we're launching. So we're watching closely and I'm asking almost on a daily basis, are any customers changing their buying behavior because of all of this tariff talk?

Speaker Change: From the business of weakening demand customers are moving forward with major deployments customers are moving forward with projects, we're having success selling into new products that we're launching so we're watching closely and I'm asking almost on a daily basis are any customers changing their buying behavior because of all of this tariff talk in it in our business. We just haven't seen the negative demand signals.

Dave Huml: And in our business, we just haven't seen the negative demand signals yet. If we were to begin to see those, we would have to adjust course and take appropriate action.

Yet.

Speaker Change: We work to begin to see those we would have to adjust course and take appropriate action, but what we don't want to do is create our own downturn by starting to pull back on growing the business when our core business and the core demand signals are strong.

Dave Huml: But what we don't want to do is create our own downturn by starting to pull back on growing the business when our core business and the core demand signals are strong.

Speaker Change: Okay.

Steve Ferazani: extremely, extremely helpful, Dave, if I could just get one follow up on that. Once you announced the price hikes, did you see it typically would see an influx in in orders and demand? Did you see that in April, once you announced it and before the hike took effect?

Speaker Change: Extremely extremely helpful. David if I could just get one follow up on that once you announced the price hikes did you see typically we'd see an influx in orders and demand did you see that in April once you announced it in before the hike took effect.

Dave Huml: Yeah, it's too early to tell because we're also returning to normal seasonality and our Q2 is typically a larger quarter force. So it's too early to tell.

Speaker Change: Yeah, it's too early to tell because we're also returning to the normal seasonality in our who is typically a larger quarter for us. So it's too early to tell anecdotally. The people. The people that are really in a position to buy ahead.

Dave Huml: Anecdotally, the people that the people that are really in a position to buy ahead, you know, to avoid a price increase are our distributors. And our distributors, you know, they have to decide if they want to put the working capital in to grow in their inventory at a lower price, if that makes sense to them. And they typically wouldn't bulk up like a year's worth of supply or anything. They might buy, you know, buy ahead by a few months.

Speaker Change: Void of price increase or distributors.

Speaker Change: And our distributors they have decided they wanted to put the working capital and to grow on their inventory at a lower price if that if that makes sense to them and they typically wouldn't bulk up like a year's worth of supply or anything that might buy buy ahead by a few months key customers. If they were if they were moving towards a purchase decision.

Dave Huml: Key customers, if they were moving towards a purchase decision, you know, in the next month, you might be able to push them over the edge if you're talking to them saying, hey, a price increase is coming. But on whole, it has not historically been a huge driver of sort of buy ahead on price.

Speaker Change: In the next month, you might be able to push them over the edge. If you were talking to him, saying, hey up price increases coming but on whole. It has not historically been a huge driver of sort of buy ahead on price, having said that mid year price increases in the 7% to 10% range of our new phenomenon for us and so we're like I said, we're staying close to customers to understand how they're thinking about tariffs I was thinking.

Dave Huml: Having said that, maybe your price increases in the 7 to 10 percent range are a new phenomenon for us. And so we're like I said, we're staying close to customers to understand how they're thinking about tariffs, how they're thinking about their own business, how they're viewing the investment partnership with tenants and what the impact is on their potential buying.

Speaker Change: Their own business, how they're viewing the investment partnership with tenants and what the impact is on their potential buying behavior.

Speaker Change: Great extremely helpful. Dave Thanks, so much I'll turn it over.

Steve Ferazani: Extremely helpful, Dave. Thanks so much.

Greg: I'll turn it over. All right, thanks.

Speaker Change: Yeah.

Steve: Alright, Thanks, Steve.

Aaron Reed: And our next question comes from the line of Aaron Reed with North Coast Research. Aaron, please go ahead. All right, thanks for taking my call. Good talking with you, Dave and Fay. So at the end of the day, you know, kind of my takeaway from this is, and I've always looked at this as a somewhat lumpy business. So this is almost just kind of par for the course, especially since you're really just reaffirming guidance. Is that a fair way of looking at it?

Speaker Change: And our next question comes from the line of Aaron Reed with Northcoast Research. Please go ahead.

Aaron Reed: Hi, Thanks for taking my call Youre talking about and Dave and say.

Speaker Change: So at the end of the day kind of my takeaway from this is and I've always liked the business is somewhat lumpy business. So this is almost just kind of par for the course, especially since you are really just reaffirming guidance is that a fair way of looking at it.

Aaron Reed: Yeah.

Dave Huml: I'm not sure what you mean by lumpy business, but let me sort of talk about what's implied in our guidance. And I'll anchor back. There's a significant amount of uncertainty and assumptions we've made in how we're going to offset the tariff impact and the demand we'll hold going forward. We expect, and we are returning to normal seasonality, and normal seasonality in our business, Aaron, I know you're new to the story, so let me just take a step back. Typically, quarters two and four are our larger quarters, and quarters one and three are our lighter quarters, both from a demand perspective.

Aaron Reed: Well I'm not exactly sure when I'm not sure what you mean by lumpy business, but let me sort of talk about what's.

Aaron Reed: What's implied in our guidance and I'll I'll anchor back there is a significant amount of uncertainty and assumptions we've made.

Aaron Reed: How we're going to offset the tariff impact and that demand will hold going forward, we expect and we are returning to normal seasonality and normal seasonality in our business there and I know I know you're newer to the story. So let me just take a step back typically quarters, two and four are our larger quarters and quarters, one and three of our lighter core.

Aaron Reed: Both of our demand perspective and.

Dave Huml: And there's multiple reasons for that, mostly driven by our vertical market exposure and buying trends and behaviors within the vertical markets we serve in each of the quarters. Our business has certainly been lumpier than normal over the past several years because we've been managing through supply chain challenges and shipping down over $300 million worth of backlog we generated through the supply chain challenges after the pandemic. So that has caused a certain amount of lumpiness. And the other, I'm using your word, lumpiness. The other thing that drives lumpiness for us within a given period, and I view this as a long-term positive, we are consistently winning, and we're very fortunate and grateful, we're consistently winning business with the world's largest accounts.

Aaron Reed: And there's multiple reasons for that mostly driven by our vertical market exposure and buying trends and behaviors within within the within the vertical markets. We serve in each of the quarters.

Aaron Reed: Our business has certainly been lumpier than normal in over the past several years, because we've been managing through supply chain challenges and shipping down over $300 million worth of backlog, we generated through the supply chain challenges. After the pandemic. So that has caused a certain amount of lumpiness in the other I'm using your word lumpiness the other thing that drives.

Aaron Reed: Lumpiness force within a given period and I view this as a long term positive.

Aaron Reed: We are consistently winning and we're very fortunate and grateful we are consistently winning.

Aaron Reed: <unk> business with the world's largest accounts and they tend to swing big Big orders in a big way. It has a material impact on our quarter, we talked about the margin impact in Q1 from our shipments of strategic accounts and Big project wins. So that's an example of kind of a positive sign for the business, but it creates lumpiness within a within a given quarter.

Dave Huml: And they tend to swing big orders in a big way and have a material impact on our quarter. We talked about the margin impact in Q1 from our shipments to strategic accounts and big project wins. That's an example of a positive sign for the business, but it creates lumpiness within a given quarter.

Aaron Reed: Okay, that makes sense. Appreciate that. And then, and like, this kind of was leading to not really one thing, but more of the seasonality to it as well.

Aaron Reed: Okay that makes sense.

Aaron Reed: Perfect and then.

Aaron Reed: Kind of is going to not really wanted to get more of a seasonality to it as well.

Dave Huml: One thing I want to learn a little bit more about is that the Clean 360 program, and it sounds like you're leaning into that, is that something to where you are coming out with that because it's a way that you think would be an additional way to drive sales and further accelerate the AMR side of the business? Or did that come from customers really asking that? I'm kind of just figuring out, you know, where did that come from? Where's the impetus of that? And, you know, how exactly is that going to be leveraged going forward?

Aaron Reed: One thing I want to learn a little bit more about the clean 360 program.

Aaron Reed: And it sounds like you are leaning into that is that something to where you are coming out with that because it's a way that you think it would be an additional way to drive sales and further accelerate the EMR side of the business or Tibet come from customers really asking that I'm trying to figure out where does that come from where is limited to that.

Aaron Reed: How exactly is that going to be lever going forward.

Dave Huml: Yeah, thanks for the question. Excited to talk about about Clean 360. And the answer to your question is both. We we generated as a growth idea in our business model to drive accelerated adoption of robotics. And also we're listening to customers. And as we listen to customers that were interested in robotics, and maybe on the fence or contemplating a purchase, one of the challenges they brought up was, hey, you know, your AMR products are great, they have a high sticker price. And so it's a it's a significant capex, and we're going to be comfortable that we can get the return on the investment by adopting robotics once we move into it.

Aaron Reed: Yeah. Thanks for the question Im excited to talk about <unk> $360 and the answer to your question is both.

Aaron Reed: We generated as a growth IC and our business model to drive.

Aaron Reed: Accelerated adoption of robotics, and also we're listening to customers and as we listen to customers that were interested in robotics and maybe on the fence or contemplating and purchased one of the challenges I brought up was your ALR products are great. They have a high high sticker prices and so it's a significant capex and we're going to be comfortable that we can.

Dave Huml: So we're really excited about offering this all in bundle for one monthly price, with a 90% uptime guarantee, because what it says to the customers, listen, you're going to have controllable costs, one monthly low price, the monthly bundle includes the equipment, the service contract, the navigation software subscription, so you have a known cost to operate. And because of our broad service coverage and service capability, we're able to guarantee uptime, which says Mr. Customer, when you want to use the robot, we can guarantee it's going to be available to use. In other words, we can ensure you you're going to achieve your your ROI.

Aaron Reed: The return on the investment and by adopting robotics is once we move into it. So we're really excited about offering us all in bundle for one monthly price with a 90% uptime guarantee because what it says to the customer listen you're going to have controllable costs. One monthly low priced monthly bundle includes the equipment the service contract to navigate.

Aaron Reed: <unk> software subscriptions. So you have a no cost to operate and because of our broad service coverage and service capability, we're able to guarantee uptime, which says Mr. Customer when you want to use the robot if we could guarantee it's going to be available to use it in other words, we can ensure you youre going to achieve your ROI I think it's really a fantastic program. It gives.

Dave Huml: I think it's really a fantastic program. It gives our selling organization, you know, something different to talk about when a customer is interested in robotics. And if they have a little bit of sticker shock over the over the capex price, we can talk about leasing, we can talk about a clean 360 program, I think it's generating a lot of interest out. Today, it's available on a T16 AMR, which is our industrial focus, robotic scrubber, it's generating a lot of excitement with our selling organization, I think it'll be a significant part of the winning combination for AMR adoption, you know, here in North America.

Aaron Reed: Our selling organization.

Aaron Reed: Something different to talk about when it customers interested in robotics and if they have a little bit of sticker shock over the over the Capex priced we can talk about leasing we could talk about a complete 360 program I think it is generating a lot of interest.

Aaron Reed: So today its available on the <unk>, which is our industrial focus.

Aaron Reed: Robotic scrubber is generating a lot of excitement with our selling organization I think it will be a significant part of the winning combination for <unk> adoption here in north.

Dave Huml: And I guess the last question on the green 360 part of it is, you know, especially with, you know, price types coming, a lot of people, you know, going through the natural life cycle of their, you know, equipment, is there a chance that could actually like meaningfully accelerate the MR adoption, even faster than initially anticipated, you know, someone's looking at say, Hey, look, I have to buy another large machine, or I can now break this into, you know, monthly payments and actually get a better quality product or something that's going to really reduce labor, you know, is there a chance that this could accelerate the MR adoption beyond what you initially thought possible what it looked like last year?

Aaron Reed: No.

Aaron Reed: And I guess the last question on the <unk>.

Aaron Reed: 360 part of it is.

Aaron Reed: Especially with prototype coming a lot of people going through the natural lifecycle of their equipment.

Aaron Reed: Is there a chance that that could add.

Aaron Reed: We can meaningfully accelerate <unk>.

Aaron Reed: Adoption, even faster than initially anticipated some of them looking to say hey, we have to buy another large machine or I can now breakfast.

Aaron Reed: Monthly payments and actually get a better quality product or somebody else is going to really reduce labor.

Aaron Reed: There a chance that this could accelerate <unk> adoption beyond what you initially thought possible what it looked like last year.

Dave Huml: Yeah, listen, that's what we're hoping for. We signed on to achieving 100 million in revenue from AMR by 2017. It would be great to beat that by a year or two. And again, I don't think clean 360 is a silver bullet for every customer. But I think for customers that are having a challenge with the sticker price of a capital purchase, this gives them a really attractive alternative that gives them controllable costs, guaranteed uptime, and a consistent ROI on the investment. So I do think it has the potential. We'll have to see how it's adopted.

Speaker Change: Yeah listen that's what we're hoping for we signed onto to achieving $100 million in revenue from EMR by 2017 that would be great to beat that by a year or two.

Aaron Reed: Again, I don't think clean 360 is a silver bullet for every customer.

Aaron Reed: For customers that are having a challenge with the sticker price of a capital purchase.

Aaron Reed: It gives them a really attractive alternative that gives on controllable costs guaranteed uptime and a consistent ROI on the investments. So I think it's I do think it has the potential we'll have to see how it's adopted early returns are good we've already booked orders on the clean 360, offering and so we'll pace it throughout this year.

Dave Huml: Early returns are good. We've already booked orders on the clean 360 offering. And so we'll pace it throughout this year. And if it looks to be a significant mover in driving adoption, then we'll have to bake it into our forward-looking projection. But I'm really excited. I want to give kudos to the team. We have historically been an equipment company. We've built great equipment. We service the equipment really well. Now we're leaning into the business model that really helps solve one of the challenges for our customers.

Aaron Reed: It looks to be a significant mover in driving adoption and then we'll have to bake it into our forward looking projections, but I'm really excited I don't want to give kudos to the team. We have historically been an equipment company. We built great equipment, we service equipment really well now we're leaning into the business model that really solves help solve one of the challenges for our customers and so I really think the comb.

Dave Huml: And so I really think the combination of the market-leading AMR robot, along with our market-leading aftermarket service, our partnership with Brain on the navigation software side, and now unique selling propositions like clean 360, I think we've got a really attractive value prop when we stand in front of a customer, and more tools in the tool bag to go drive adoption of robotics.

Aaron Reed: The nation of the market, leading ahmar robot along with our market, leading aftermarket service our partnership with brain on the navigation software side now unique selling propositions like clean 360, I think we've got a really attractive value prop that we stand in front of a customer and more tools in the toolbox to go drive adoption.

Aaron Reed: Great, that's helpful. Thank you. All right. Thank you, Aaron.

Aaron Reed: Robotics.

Speaker Change: Great. That's helpful. Thank you.

Greg: And that does conclude our question and answer session today.

Aaron Reed: Thank you alright, thank thank you erinn.

Greg: No further questions at this time, so I would like to turn the call over to management for closing remarks. Thank you. Thank you all for your participation today on the call and your interest in Tennant Company.

Aaron Reed: And that does.

Speaker Change: Conclude our question and answer session today no further questions at this time, so I would like to turn the call over to management for closing remarks.

Greg: This concludes our earnings call. Have a great day. Thank you for joining, folks.

Speaker Change: Thank you and thank you all for your participation today on the call and your interest in Tennant Company. This concludes our earnings call have a great day.

Greg: You may now disconnect.

Speaker Change: Thank you for joining folks you may now disconnect.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.