Tennant Company

Good morning. My name is Pam and I will be your conference operator today. At this time, I would like to welcome everyone to Tenants' Company's first quarter 2024 earnings conference call. This call is being recorded. There will be time for Q&A at the end of the call. Please press star 1 if you would like to ask a question. 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 first quarter 2024 earnings 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 first quarter 2024 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 Faye West, Senior Vice President and CFO. Today, we will provide an update on our 2024 first quarter performance. Dave will discuss our results and enterprise strategy, and Faye will cover our financials. After our prepared remarks, we will open the call to questions. An earnings press release and slide presentation that accompanies this conference call are available on our investor relations website. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the 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 these documents, particularly our safe harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items. Our 2024 first quarter earnings release includes the comparable gap measures and a reconciliation of these non-gap measures to our gap 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 first quarter of 2024, our outlook for the remainder of the year, and the progress on our enterprise strategy. Building on the momentum of our record-breaking year in 2023, we delivered a strong first quarter supported by our new enterprise strategy, which we activated at the beginning of the year. Lapping a previous record-high first quarter in the prior year, which also marked our first full quarter in our journey to meaningfully reduce backlog, we achieved organic net sales growth, gross margin expansion, and EBITDA growth. For the first quarter of 2024, net sales increased to $311 million and adjusted EBITDA rose to $54.9 million, resulting in an adjusted EBITDA margin of 17.7%. We meaningfully reduced backlog for the fifth consecutive quarter, capturing the pricing benefits embedded within it and expanded gross margins. Pricing realization and increased sales mix in higher margin equipment and channels drove our gross margin performance in the quarter. I am pleased with the enterprise performance during the quarter in line with our expectations and setting us up to deliver on our 2024 full year guidance. While we had a strong first quarter as a company, our business results varied by geography. In the Americas, we are driving strong order rates as we continue to reduce backlog, which is primarily isolated to our industrial machines. Based on a strong pipeline of opportunity within the region, including growth investments we've made in new products and go-to-market expansion, we are confident that we will continue to build on our success in the region. In EMEA, we had a challenging first quarter. We continued to see a declining macroeconomic environment, and we were lapping a previous quarter with higher backlog benefits. While results are below our expectations, we believe that our market position in the EMEA region remains strong and we expect to be able to deliver stronger results in the latter half of the year through new product launches and go-to-market investments, including our acquisition of TCS and expanded countries to sell IMOP products. In APAC, our performance in the quarter was impacted by phasing of customer order timing. We anticipate continued demand for our products and have confidence in our full-year growth targets in the region. They will provide additional context on our overall financial performance for the quarter and our full year guidance, which we are reaffirming. Our performance to start the year has given us a solid foundation to continue to execute on our enterprise strategy. Last year, we introduced the three pillars of our new enterprise strategy, growth, performance, and people. We continue to resource and activate targeted initiatives across each of these pillars, And I'd like to take the opportunity to provide you with a couple of key updates. Within our growth pillar, we are leveraging product innovation to drive differentiated revenue growth. The X4 Rover is our first purpose-built autonomous floor cleaning machine and our fourth robotic scrubber. The X4 Rover offers greater maneuverability, specifically designed for operation in smaller spaces. Its compact size, improved obstacle detection, and enhanced mobility will result in fewer assists and deliver a step change improvement in customer roi the new x4 rover is the first machine to be powered by the next generation brain os robotics platform available exclusively on tenant company amr machines the x4 rover offers a competitive price point for customers and includes an all-in-one amr solution with the robot, service contract, and autonomy services bundled as a single solution sold by tenant. This new approach simplifies the buying experience for customers and results in tenants benefiting from recurring revenue for autonomy services moving forward. Interest from our customer base has been strong, and we are evaluating options to capitalize on anticipated demand. We have teams reviewing strategies to, one, increase the manufacturing capacity of the X4 rover to maximize production and delivery commitments in 2024, and two, accelerate the launch of new rover products beyond the X4. The X4 rover is an important addition to our complete suite of AMR products, complementing a lineup that has seen over 6,500 units deployed globally and has driven more than $200 million in revenue since launch. Each of our AMR products are designed to meet the unique needs of our customers, offering tailored solutions for a variety of applications. Retail customers will appreciate the X4 Rover's compact design and maneuverability, while our industrial and warehouse customers benefit from the increased efficiency and larger capacity provided by our larger AMR models like the T16 and T380. We continue to see strong demand and interest in each of our AMR units, demonstrating the potential for continued growth across our full AMR portfolio. Improving the customer ROI is one of the key drivers of customer adoption, and we are well positioned with our expanded AMR portfolio and deployment capabilities to deliver to customer expectations. Within the growth pillar of our enterprise strategy, we are also focused on innovation within the small space segment. Small spaces today are largely still cleaned with labor-intensive manual cleaning tools. This presents an opportunity for Tenant to help our customers solve their largest challenges with labor costs and availability, by delivering mechanized solutions that greatly enhance labor productivity while delivering better cleaning performance. Today, we are excited to announce the international expansion of the IMOP family of products. Tenant-branded IMOP Lite and IMOP XL Plus scrubber products will now be available in Brazil, France, Portugal, and Spain. This product portfolio expansion will enable a broader range of customers an opportunity to elevate their cleaning standards. The international launch of the Tenant branded iMOP family of products represents the next phase of Tenant Company's partnership with iTeam Global, a developer of innovative solutions for the small space cleaning industry. Cleaning teams worldwide have already embraced the iMOP for its efficiency, durability, and reliability. This technology brings together advanced mechanized cleaning with the unmatched responsive expertise of tenant service and support to help our customers deliver more efficient and effective cleaning performance. Also within our growth pillar is our M&A strategy, which prioritizes opportunities that provide tenant with the right strategic value, operational fit, and financial return. Aligned with our M&A strategy, our previously discussed minority equity stake in BrainCorp has allowed us to unlock the commercial advantages we articulated with the X4 rover launch, including exclusivity and annual recurring revenue participation. In addition to the investments in Brain, we also announced our acquisition of TCS. tenant company's longstanding distributor based in Austria and with branches serving countries in Central and Eastern Europe, Africa, and the Middle East. The acquisition of TCS gives us direct access to an established customer base in the EMEA region, allowing us to deepen and extend our customer relationships in these higher growth markets. The acquisition aligns with our M&A priorities, enhancing our ability to defend and grow our cleaning core by strengthening our channel position and is expected to be accretive to our EBITDA already in 2024. As a longtime distributor of tenant products, PCS has experienced teams in these countries who have cultivated a strong customer base that knows and appreciates tenant innovation and quality. Having a direct presence and broader footprint in these high growth geographies is one of our key enablers of market share growth and strengthens our ability to deploy new products like AMR in this region. We look forward to growing in this region by building on the strong foundation the TCS team has already built. We are already hard at work on integration and working with the local teams to realize the full benefits of our acquisition. Our successful execution on our M&A strategy is due to our financial strength and disciplined capital allocation strategy. In 2023, we prudently managed our balance sheet and converted over 100% of net income to free cash flow, ending the year with over $115 million of cash. As we continue to generate strong cash flow and maintain a strong balance sheet, we are well positioned to take action on our target opportunities aligned with our M&A strategy. We are excited about the opportunity to share more details with you about our new enterprise strategy and invite you to attend our upcoming Investor Day on May 13. This event will be held at the New York Stock Exchange and will include presentations about our unique product portfolio and aftermarket strategy that sets us apart from the competition. Operating in an expanding market underpinned by global megatrends and backed by a strong balance sheet, We are excited to have the opportunity to share our vision for continued growth and innovation in mechanized and sustainable cleaning. To register for the event, please visit our investor webpage. We encourage you to attend the event in person to meet with additional members of our management team and view our innovative new products, including the X4 Rover. With that, I will turn the call over to Faye for a discussion of our financials.