Tennant Company

Good morning. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tenant Company's 2018 Fourth Quarter and Full Year 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 Tenant Company's 2018 Fourth Quarter and Full Year Earnings Conference Call. Beginning today's meeting is Mr. William Pratt, Director of Global Financial Planning and Analysis and Investor Relations for Tenant Company. Mr. Pratt, you may begin.

Thank you, Tiffany. Good morning, everyone, and welcome to Tenant Company's fourth quarter 2018 earnings conference call. I'm William Prate, Director of Global Financial Planning and Analysis and Investor Relations. Joining me today are Chris Killingstad, Tenant's President and CEO, Keith Woodward, Senior Vice President and CFO, Tom Stueve, Vice President and Treasurer, Andy Sabula, Vice President of Finance and Corporate Controller, and Mary Talbot, Senior Vice President and General Counsel. Today we will review our ongoing progress against our core strategies, our performance during the recent fourth quarter, 2018 full-year results, and our outlook for 2019. Chris will first brief you on our operations, and Keith will cover the financials. After our remarks, we will open the call for questions. We are using slides to accompany this conference call. These slides, along with a replay of today's call, will be available on our Investor Relations website at investors.tenantco.com until March 21, 2019. 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 risk 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 file with the Securities and Exchange Commission. 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, on this conference call, We will discuss non-GAAP measures that include or exclude certain items. For each non-GAAP measure, we also provide the most directly comparable GAAP measure. There were non-GAAP items in both the 2018 and 2017 fourth quarters. Our 2018 fourth quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results. Our earnings release was issued this morning via Business Wire and is also posted on our Investor Relations website. Now I will turn the call over to Chris.

Thank you, William, and thanks to all of you for joining us. But before I begin, I first want to welcome two very important additions to our leadership team who are joining us for their first tenant earnings conference call. First, Mary Talbot. Mary joined us at the end of January as our new general counsel. She brings the tenant more than two decades of experience as a trusted legal and business advisor to boards of directors and multi-billion dollar global companies such as General Cable Corporation, Macy's, E.W. Scripps Company and Scripps Networks Interactive Inc. And second, Keith Woodward. Keith joined us at the beginning of December as our CFO. Keith brings more than 30 years of finance and corporate leadership experience to Tenant The last 26 years with General Mills. Both Mary and Keith are bringing fresh perspectives to our leadership team and challenging our organization to think differently as we move forward. We are grateful to have them as part of the tenant team. Before I speak to our fourth quarter results, I wanted to reflect on our full year performance. Our full year 2018 results illustrate a strong top line growth. Disciplined expense management and improved financial strength, areas we deem critical to delivering shareholder value. Specifically, our full year results reflect net sales of over $1.1 billion, organic growth across all geographies, which is the first time since 2014, strong improvements in our cash flow, improved S&A leverage, and adjusted EBITDA growth of 19% and expansion of 70 basis points compared to last year, 2017. While we are certainly affected by headwinds in the form of tariffs, raw material price inflation, higher freight costs, and tight labor markets, our ability to execute on our core strategies is creating a stronger tenant. I believe 2018 created strong momentum for the company. and we are well positioned for profitable growth in 2019 and beyond. Now, shifting to tenants' fourth quarter results. On a consolidated basis, net sales rose 2.1% or 4.3% organically. It's important to note that our 2018 fourth quarter was the sixth consecutive quarter of organic growth. In the Americas, organic sales were up 5.7%. reflecting strength in both North America and Latin America regions. In the EMEA region, our organic sales expanded 4.3%. Our continued growth in the EMEA region demonstrates the multi-channel and dual-brand strength that we are building as an organization, while at the same time continuing to make progress integrating IPC. I am proud of our ability to unify the tenant and IPC teams while preserving the stability and growth profile of our business in the region. Our integration efforts to date have played a significant role in our regional success here. Now looking at Asia Pacific, organic sales were down 3.4%. As Keith will address, this primarily reflects an unusually difficult year-over-year sales comparison. Continuing with our revenue diversification strategy, in early January of 2019, we closed on the acquisition of Gaomei Cleaning Equipment Company in China. Gaomei manufactures a broad spectrum of cleaning machines and equipment, including single disc scrubbing machines, vacuum cleaners, carpet extractors, blowers, high pressure washers, and sweepers. Importantly, Gaume is also recognized for the strength of its innovation, which compliments tenants own historical leadership in this area. Like IPC, Gaume is an excellent example of our efforts to expand both our mid-tier product platform and geographic reach in critical markets. Technological leadership is also a central focus at Tenant. And among our various areas of innovation, we are particularly pleased with the recent commercialization of our T7 autonomous cleaning machines. As we have previously mentioned, we set a goal to commercialize this technology in the fourth quarter, and we achieved that goal. We now have autonomous T7s deployed across all geographies. They are operating in high traffic environments such as large retail centers and major airports. And the response to these deployments has thus far been highly positive. Naturally, we are very encouraged by this early adoption, the impact these units can have on our customer experience, and the promising role we believe they will play in helping us achieve our financial objectives. The autonomous T7 represents just one example of our ongoing commitment to industry-leading technology and innovative solution across our product portfolios in order to help address our customers' biggest cleaning issues. Turning now to gross margin and expense management, both of which are areas of intense emphasis at Tenant and where we are committed to improving. In terms of gross margins, like many industrial companies, tenant continues to be impacted by raw material inflation, tight labor markets, which impact productivity, higher freight costs, and the ongoing impact of tariffs. These have combined to meaningfully reduce gross margins by 110 basis points in the fourth quarter. In order to offset these challenges, we continue to explore different initiatives to reduce costs and David Zay. These are important levers as we seek to offset challenges and grow profitability. Moving to expense management. During the fourth quarter we improved our expense leverage while still investing in areas critical to our growth. While we are pleased with our progress in the fourth quarter, and Full Year 2018, it's important to note that this will continue to be a critical area of focus in 2019 and beyond. Our ability to balance and prioritize investments is another important aspect of improving our profitability. Now, I'll ask Keith to take you through Tendon's fourth quarter and full year financial results. Keith.