Tennant Company

Good morning. My name is Rex and I will be your conference operator today. At this time, I would like to welcome everyone to the Tenant Company's 2022 Second Quarter 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 2022 Second Quarter Earnings Conference Call. Beginning today's meeting is Mr. Lorenzo Bassi, Vice President Finance for Tenant Company. Mr. Bassi, you may begin.

Good morning and welcome to Tenant Company's Second Quarter 2022 Earnings Conference Call. I'm Lorenzo Bassi, Vice President Finance. Joining me today are Dave Hummel, Tenant's President and CEO, and Faye Webb, our Senior Vice President and CFO. On today's call, we will update you regarding our second quarter performance and guidance for 2022. Dave will brief you on our operations and enterprise strategy, and Faye will cover the financials. After their remarks, we will open the call to questions. Please note, the slide presentation accompanies this conference call and is available on our investor relations website at investors.tenantcode.com. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission. We encourage you to review 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. Our 2022 second quarter earnings release includes the comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results. Our earnings release was issued this morning by a business wire, and is also posted on our investor relations website at investors.tenantco.com. I'll now turn the call over to Dave.

Thank you, Lorenzo, and thank you all for joining the call today. We are pleased with our second quarter performance, which was in line with our expectations. We continue to deliver solid results despite a challenging supply chain and evolving geopolitical environment. We see robust demand for our innovative products and services, as well as growth in many of our end markets, But supply chain challenges, and specifically parts availability, have constrained our ability to increase production. As a result, our backlog remains at record levels, and despite the many actions we have taken that have increased and will continue to increase production, we expect the backlog will remain elevated for the balance of the year. Our second quarter results benefited from increased price realization and an increased contribution from aftermarket service, parts, and consumables. We have taken several meaningful pricing actions to offset the impact of record inflation, and we anticipate that the impact of these pricing actions will provide an increasing benefit over the next two quarters. While inflationary pressures, constrained production volumes, and foreign currency headwinds have impacted second quarter margins, our adjusted EBITDA and EBITDA margins are stabilizing, and the actions we are taking to increase production provide a foundation for further improvement in the balance of the year. We are maintaining our full year EBITDA guidance range and are confident in our ability to deliver adjusted EBITDA between $140 and $155 million. We now expect, however, to be near the lower end of this range as we factor in foreign currency headwinds and evolving market conditions. Our people have demonstrated terrific agility and creativity in tackling the current operating conditions and remain focused on executing our enterprise strategy. In support of their efforts, we continue to make strategic investments to drive short-term improvement while continuing to invest in innovative products to deliver long-term growth, including AMR. We launched our AMR program in 2019, and since that time, we've expanded the product offering and have created a comprehensive robotics portfolio to meet our customers' needs across a broad array of vertical market applications. Our AMR portfolio continues to be well received by a growing number of customers. We have already sold to over 200 individual customers globally with significant repeat business and have generated over $150 million in sales during that time period. And while inflation and supply chain volatility will continue, we remain focused on what we can control, including stabilizing our supply chain to unlock production and reduce product lead times to safeguard our customer experience, and executing on pricing strategies and maintaining strict cost discipline. With respect to our first area of focus, our supply chain team undertook significant countermeasures to mitigate interruptions and expand capacity, which resulted in a sequential increase in production in the second quarter. Some of these actions include increased supplier purchase commitments, a safety stock inventory, extended visibility of production forecasts, expanded dual sourcing supply options, and continued spot-buy activity. We are making incremental investments in internal resources and software, as well as engaging with external resources to augment our global procurement capabilities. We continue to work closely with our Tier 1 suppliers, including integrating into their supply chains and directly procuring difficult-to-source Tier 2 subcomponent parts. In addition, we tasked our technology and engineering resources to design and produce equipment that reduces the reliance on constrained parts. We recently launched a walk-behind scrubber with fewer features that does not require a master control board, and it will provide customers a product option with a shorter lead time. In addition to meet customer demand and to maximize revenue, we are also optimizing our global manufacturing capacity and product platforms to increase production in EMEA and APAC. For example, we have leveraged an existing platform manufactured in Italy to launch new mid-tier tenant branded products in North America. This also provides our customers with a shorter lead time alternative. We believe these actions will result in increased production in the back half of the year, mostly in the fourth quarter. With regard to our secondary focus, pricing strategies and cost of discipline, we have successfully executed pricing increases over the last 12 months that will drive sequential improvement in net sales and gross margin over the next two quarters. We believe our significant pricing actions are sufficient to cover inflation on a full year basis and we will continue to monitor market conditions and take the necessary actions. At the same time, we are continuing our cost-out efforts and are tightly managing discretionary spending. We remain diligent in pursuing opportunities to optimize our cost structure. For instance, we are investing in solar panels to generate electricity in EMEA that will help mitigate increasing energy costs and provide increased reliability. We anticipate that this project will be completed in the fourth quarter of 2022. Investments like this also align and support our sustainability goals as outlined in our recently published 2021 sustainability report that is available on our website. Above all, we remain relentlessly focused on providing our customers with high quality products and exceptional service as we work toward increasing production and executing on our enterprise strategy. We will continue to take decisive and appropriate actions to improve our customer experience while remaining focused on delivering our business objectives. Moreover, we are confident about our outlook, given the actions we have outlined, combined with our record-level backlog, innovative product pipeline, and demonstrated commitment to price and cost discipline. With that, I'll turn the call over to Faye for a discussion of our financials.