Tennant Company

And 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 fourth quarter and full year 2024 earnings conference call. I'm Lorenzo Bassi, Vice President, Finance and Investor Relations. Joining me on the call today are Dave Hummel, President and CEO, and Faye West, Senior Vice President and CFO. Today, we will review our fourth quarter and full year performance, as well as our initial guidance for 2025. 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. Our earnings press release and slide presentation that accompany 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 those documents, particularly our safe harbor statement, for a full 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 fourth quarter and full year earnings release and presentation include the comparable GAAP measures and the reconciliations 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 today's call, I will be discussing highlights from the fourth quarter and full year 2024, the progress on our enterprise strategy, and our outlook for 2025. I am pleased to report our strong fitness to a successful 2024. Our team's commitment to executing our enterprise strategy initiatives drove results aligned with our long-term targets, achieving new highs for the company in net sales, adjusted EBITDA, and EBITDA margins. For the full year, net sales reached $1.287 billion, while our adjusted EBITDA rose to $208.8 million, and our adjusted EBITDA margin expanded to 16.2%. Our full year organic growth rate of 3.2% was driven primarily by price growth across each of our regions, and the second half of 2024 also showed positive volume trends. In the fourth quarter, our team achieved volume growth of over 5%, concluding the year with robust momentum following three consecutive quarters of nearly double digit order growth. Looking at the full year, our orders increased 6.4% over 2023, well above our long-term targets. In 2024, teams across the company worked diligently to meet our customers' needs, successfully reducing our backlog by $125 million and closing the year with normalized levels and market competitive lead times. With backlog levels now stabilized going forward, incoming orders will more closely align with revenue. Regional highlights for the year varied. In the Americas, order rates during the year were up high single digits compared to the prior year period. This was driven by our enterprise strategy initiatives. specifically within our new products like the X4 Rover, which contributed to our record $75 million in AMR equipment sales in 2024. In contrast, we experienced lower than anticipated demand for our industrial equipment, specifically in the rental channel driven by extended fleet replacement cycles. This sluggish industrial demand enabled us to draw down backlog as previously stated. Overcoming currency-related headwinds in Brazil, our strategic investments in the Americas continue to deliver order rates, outpacing market growth, reinforcing our confidence that our strong leadership position is growing. In EMEA, despite strong execution of growth strategies, continued market demand softness during the first three quarters was compounded by lapping a previous year with higher backlog reduction benefits. In the fourth quarter, we saw signs of market rebound and we drove revenue growth across all product categories within the region, led by double digit growth in Spain. Additionally, in Eastern Europe, our first quarter acquisition of TCS continues to perform very well. This business drove 2.6% inorganic growth for the region during the year, and we are excited about the opportunity it provides in this attractive region. Turning now to APAC. Continuing the trend from previous quarters, business performance on APAC was impacted by stark demand declines in China and government induced overproduction, which is creating price and margin pressure in the mid-tier commercial product categories. Australia is also showing signals of slower demand. Customers are either delaying equipment orders or shifting to rental units, reflecting their growing uncertainty in their economic outlook. These macro market driven challenges more than offset the positive impacts from our growth strategies in the region, and we have pivoted our approach to focus on more favorable areas in this market environment. Looking at 2024 as a whole, our aim in 2024 was to grow top line revenue and expand bottom line margins through pricing discipline, launching innovative new products, improving our channel reach and capacity, and reducing backlog to normal levels. Our results give us confidence that we are on the right path to carry this positive momentum into 2025 and beyond. I'd like to point out several key accomplishments the team made on these fronts. First, our 2024 results were primarily driven by price growth across each of our regions. At an enterprise level, we target approximately 50 to 100 basis points of annual price impact. In 2024, we exceeded our target, delivering over 200 basis points. Each region contributed to this performance, and the backlog reduction also contributed materially to price realization in the year. Second, we activated multiple go-to-market initiatives in 2024 aligned with our enterprise growth strategy. In North America, we increased our service capacity, which helped drive an increase in service revenue year over year. Additionally, go-to-market initiatives drove growth in the UK, and investments in expanding our distribution network in Italy resulted in strong organic growth. Many of our go-to-market initiatives delivered year-over-year growth, but that impact was overshadowed by the previously communicated declines within the North America rental channel and China. Lastly, we drove successful product innovations in three key areas, AMR, small space, and product line extensions. Within AMR, the X4 Rover that we launched mid-2024 has received strong reception, and coupled with continued high demand for our existing AMR products, reinforces our confidence in our AMR growth strategy. Within small space, we introduced our IMAP family of products into new geographic markets, including Brazil, France, Portugal, and Spain. This international expansion drove incremental growth of IMAP products in 2024. We are pleased to announce that beginning in 2025, we have further expanded our sales reach by 30 additional countries. We see this expanded footprint as an exciting opportunity to gain share in the rapidly growing small space segment. We expanded our product line extensions portfolio with the release of the T1581 ride-on scrubber in the first quarter and the T291 small walk-behind scrubber in the third quarter of 2024. Our product line extensions have proven to be an effective growth strategy, positioning our mid- and premium-tier products to grow share and generate incremental profitable revenue. New product-driven growth in AMR, small space, and product line extensions exceeded our long-term growth target of 150 to 200 basis points per year. Built into our enterprise strategies, our commitment to adjusted EBITDA margin expansion As we drove pricing and cost out initiatives across each of our geographies in 2024, we also maintained discipline in our spending to generate operating leverage on the volume increase. This resulted in a 70 basis point improvement in adjusted EBITDA margin in line with our long-term target of 50 to 100 basis points per year. In addition to these accomplishments, we also activated our M&A framework in 2024 through our investment in BrainCorp and our acquisition of TCS, Tenant's longstanding distributor serving countries in Central and Eastern Europe, Africa, and the Middle East. These investments will contribute to our long-term target of adding $150 million of net sales growth from our M&A strategy over three years. We continue to evaluate potential M&A targets, prioritizing opportunities that provide Tenant with the right strategic value, operational fit, and financial return. Overall, our first full year of our enterprise strategy is yielding positive results, and we are excited to continue to execute on our initiatives in 2025. Given the importance of AMR to our future, I wanted to spend a few minutes discussing the acceleration of AMR. Sales momentum from our legacy AMR products has been very strong. In 2024, we had AMR equipment sales of $75 million. Customers are choosing tenant AMR machines, supporting our belief that we have a winning product portfolio, differentiated service capability, and strong value proposition in the market. We continue to see AMR as one of the fastest growing floor care segments, and we believe the investments we are making into AMR through new products put us on the path to increase customer adoption and drive long-term growth. I'm excited to announce the newest model in our AMR product portfolio, the X6 Rover. We designed the X4 Rover as a scalable platform, allowing us to bring new products to market more quickly and cost-effectively. Building on the early success of the X4 Rover and our accelerated product roadmap enabled by our strategic partnership with BrainCorp, the larger X6 Rover targets customers in retail, education, healthcare, manufacturing logistics and warehousing, and large public space vertical markets. The X6 Rover features an optional autonomous charging station, eliminating the daily need for an operator to remember to charge the machine. The new X6 Rover offers superior cleaning performance, improved maneuverability, and nearly three times the cleaning capacity of the X4 Rover. We plan to start shipping our first X6 Rover units in the second quarter of 2025. The rapid growth of AMR is driven by the global megatrends of labor shortages and rising labor costs. That is why we continue to focus and invest heavily in automating the floor cleaning process to create and capture value by solving one of our customers' most pressing floor cleaning challenges. We are now targeting AMR revenue to exceed $100 million in annual net sales by 2027. Reaching this goal requires outpacing the market growth, and solidifies our position as the industry leader in the robotics market disruption. Looking ahead to 2025, we enter the year with significant momentum in the business. Globally, outside of APAC, we are expecting a stable market environment and are forecasting to grow our order demand in the range of 3.5% to 7%, driven by pricing discipline, go-to-market investments, and new product innovations. However, it is important to note that strong order growth will not directly translate into similar organic sales growth due to the $125 million backlog headwind year over year. As a result, we anticipate negative 1 to negative 4% organic sales decline. We also anticipate significant foreign currency headwinds, which Faye will address later. We remain focused on expanding margins in 2025 and are taking decisive actions to achieve this goal. We anticipate gross margin expansion in 2025 through our proven pricing discipline and cost reduction initiatives. We have proactively optimized our organization through strategic restructuring, enhancing operational efficiency, and prudent cost management. To fund our journey, as we have streamlined S&A costs, we have intentionally reinvested these savings into strategic growth initiatives. We are committed to prioritizing investments that align with our strategic objectives and directing resources to drive growth while maintaining discipline in our spending to deliver sustained, profitable growth. With that, I will turn the call over to Faye for a discussion of our financials.