Tennant Company

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 potentially quality issues during the call. Thank you for participating in Tenant Company's 2023 Third Quarter Urgence Conference Call. Beginning today's meeting is Mr. Lorenzo Bassi, Vice President, Finance and Investor Relations for Tenant Company. Mr. Bassi, you may begin.

Good morning, everyone, and welcome to Tenant Company's third quarter 2023 earnings conference call. I'm Lorenzo Bassi, Vice President, Finance and Investor Relations. Joining me on the call today are Dave Hummel, Tenant's President and CEO, and Fay West, Senior Vice President and CFO. Today, we will provide you with an update on our third quarter performance. Dave will provide you an update on our operations and enterprise strategy, and Fay will cover our financials. After our prepared remarks, we will open the call to questions. An earnings press release and slide presentations that accompany this conference call are available on our Investors Relations website. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the 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 2023 third quarter earnings release and presentations include the comparable GAAP measure and a reconciliation of these non-GAAP measures to our GAAP results. I'll now turn the call over to Dave.

Thank you, Lorenzo, and hello, everyone. On the call today, I will be discussing highlights from the third quarter, our outlook for the remainder of 2023, our performance against our current enterprise strategy targets, and the framework and transition to our new planned enterprise growth strategy. I'm very pleased to report our strong Q3 results, which built on the momentum we generated in the first half of the year. This was the fourth consecutive quarter our global team delivered strong organic net sales and adjusted EBITDA growth above our expectations. Our performance puts us on pace to deliver a record-setting year. I could not be prouder of the teams who have worked diligently to execute our enterprise strategy, manage the supply chain crisis, and serve tenants customers around the world. In the third quarter, we achieved net sales of $304.7 million. bolstered by organic sales growth of 13.9%. Orders have remained resilient and we've reduced backlog meaningfully for the third consecutive quarter. We continue to reduce lead times and deliver the exceptional products and services our customers expect from tenants. Backlog levels have returned to normal in nearly all product lines except for those industrial products that are exclusively produced out of our Minneapolis plants. We expanded gross margins to 43.3% and delivered adjusted EBITDA of $45.9 million. Our price realization efforts along with a moderating inflation environment drove our strong operating performance. Additionally, we converted over 100% of net income to free cash flow as we continue to make improvements in working capital. This enables us to focus on making strategic investments and return capital to shareholders through dividends and share repurchases. Based on our performance during the quarter and outlook for the fourth quarter, we are increasing our full year 2023 net sales guidance to between $1.23 billion to $1.25 billion and adjusted EBITDA guidance to between $190 million and $200 million. Both of these establish record highs for the company. We expect that order rates will remain resilient and that parts availability and inflation will remain at current levels, allowing us to deliver exceptional results for 2023. Faye will talk about our new guidance in more detail as she discusses our financials. Over the last several years, we have provided regular updates on tenants' enterprise strategy. Developed in 2019, this strategy focused on driving structural improvements into our business to deliver expanded profitability. Its three pillars are one, winning where we have a competitive advantage, two, reducing complexity and building scalable processes, and three, innovating for profitable growth. These pillars were designed to drive shareholder value and increase adjusted EBITDA margins to 15% by 2024. I am happy to announce that based on our anticipated full year results, we believe we will meet each of our key financial targets by the end of 2023. We targeted annual net sales organic growth rate of 2 to 3% net of divestitures. We expect to deliver an organic growth rate of approximately 3%. We targeted annual adjusted EBITDA growth rate of 6 to 10%. We expect to deliver 9%. We targeted annual adjusted EBITDA margin improvement of 50 to 100 basis points. and we expect to deliver on average approximately 75 basis points of adjusted EBITDA expansion per year, achieving an adjusted EBITDA margin of greater than 15%. All of this was achieved a year ahead of schedule amidst the global pandemic and unprecedented global supply chain disruptions. It is a compelling demonstration of the strength of our global team as well as our organizational agility. As we successfully conclude our prior enterprise strategy, We have been planning the next chapter for our company, a pivot to growth. Over the last four years, we have built new execution capabilities and rigor and have implemented structural changes that provide a solid foundation for Tenant. We intend to leverage this foundation as we move forward. The long-term prospects for Tenant Company are very bright, and our new growth-focused enterprise strategy, which we will launch in 2024, is centered on strategic pillars for growth, performance, and people. Our growth pillar will target differentiated sales growth in the mid single digits and above market growth rates. We will expand profit margins and maintain operating efficiency through pricing discipline, prudent expense management, and investments in productivity. Our performance pillar will elevate how our business is run in order to optimize cost structure, accelerate decision making, deliver an improved customer experience, and embed our sustainability ambitions into our enterprise strategy. We will achieve this by standardizing and optimizing global processes informed by our customer value proposition, investing to modernize and consolidate our existing ERP systems to a best-in-class SAP cloud-based solution. Over the next two years, this initiative will build a digital infrastructure for Tenant that will scale as we grow, driving incremental operating efficiency and resulting in incremental cost savings. and accelerating our sustainability progress by embedding our thriving people, healthy planet framework across our enterprise to deliver results for our customers, employees, and other stakeholders. Our performance goals can only be met if our organization attracts and retains talented people who can drive change and help deliver our exceptional products and services to our customers. Our people pillar will achieve this by investing in our employee value proposition so that we can deliver a clear, consistent, and compelling promise to employees and prospects about reasons to work at tenant company and accelerating our DE&I roadmap and representation ambitions to create an inclusive environment in which all of our employees can thrive. Through our growth strategy, we will proactively supplement organic growth with strategic acquisitions that enhance shareholder value. Based on our financial strength, compelling value proposition, and extendable and winning business model, we believe we are well positioned to drive growth through acquisitions. Tenant has a solid position in an attractive and growing core market with 13% share of an $8.5 billion addressable cleaning market. Our first area of focus will be to grow the core through bolt-on acquisitions closing product gaps and strengthening our channel position in attractive geographies. We will also look to leverage our strengths, capabilities, and unique assets to explore attractive adjacencies and expand into non-cleaning mobile equipment. We will focus primarily on mobile equipment companies that have similar supply chain and manufacturing characteristics, similar end markets or channels, and potential cross-selling opportunities with the legacy tenant footprint. Our ideal targets will provide opportunities to extend autonomy and leverage our service infrastructure and expertise. Lastly, we will focus on the connected autonomy technology stack by identifying products and services we want to either develop internally, source on the open market, or acquire directly. Our disciplined M&A process will focus on those opportunities that provide the right strategic value, operational fit, and financial return. We are shifting our M&A approach from reactive to proactive and are resourcing our organization accordingly. With that, I will turn the call over to Faye for a discussion of our financials.