• Net sales of $280.2 million, representing 4.4% organic sales growth
• Strong market demand and continuing supply-chain constraints result in increased sales backlog
• Second quarter adjusted EBITDA of $30.3 million, or 10.8% of sales; adjusted diluted EPS of $0.92
• Company confirms guidance for full-year 2022 net sales of $1,125 million to $1,170 million and for full-year adjusted EBITDA of $140 million to $155 million

Tennant Company (“Tennant” or the “Company”) (NYSE: TNC), a global leader in the design, manufacture and marketing of solutions that help create a cleaner, safer and healthier world, today reported its second quarter results for 2022.

“We are pleased to report that, as a result of the many actions we have taken to overcome parts shortages and to offset inflationary pressures, we achieved sequentially higher sales and stabilized profitability,” said Dave Huml, Tennant Company’s President and Chief Executive Officer. “Overall demand for our products and services remains strong and we continue to take action to increase production output to serve our customers.”

2022 Second-Quarter Results

Consolidated net sales in the second quarter of 2022 totaled $280.2 million, a 0.4% increase as compared to consolidated net sales of $279.1 million in the second quarter of 2021. The increase was driven by:

• A net unfavorable impact from foreign currency exchange of approximately 4.0%;
• An organic sales increase of approximately 4.4%, on a constant currency basis. The organic sales increase was primarily due to the impact of higher selling prices across all regions, partially offset by volume declines resulting from continued supply-chain constraints.

Gross margin of 37.9% was 330 basis points lower in the second quarter of 2022 compared to the second quarter of 2021. The margin rate decrease was attributable to the broad effects of inflation on materials, labor and freight costs, and an unfavorable currency impact, partly offset by higher selling prices. Inflation contributed to a $2.5 million increase in the last-in, first-out inventory reserve compared to the end of the prior-year period.

Adjusted EBITDA was $30.3 million in the second quarter of 2022, compared to $35.1 million in the prior-year period. The decrease in adjusted EBITDA was primarily due to lower margins and unfavorable currency impact, partially offset by a decline in selling and administrative expenses as the Company continued to actively manage costs. Net income increased $6.8 million to $16.6 million, driven by the absence of a non-recurring expense related to extinguishment of debt in the second quarter of 2021, as well as a gain on the sale of a building in the second quarter of 2022, and partially offset by lower gross margin compared to the prior-year period.

Net income in the periods included non-comparable items. Adjusting for non-comparable items, adjusted net income was $17.0 million compared to $22.8 million in the prior-year quarter, a deterioration primarily driven by lower margins.

Organic Sales Results

Tennant groups its sales into three geographies: the Americas, which includes all of North America and Latin America; EMEA, which covers Europe, the Middle East and Africa; and APAC, which includes China, Japan, Australia and other Asian markets.

Organic net sales increased by 4.4% in the second quarter of 2022 as compared to the prior-year quarter. Overall demand remained strong, but the limited availability of certain component parts constrained the Company’s ability to meet volume demands. Regional results were as follows:

• Organic sales in the Americas increased approximately 6.5%, mainly due to higher selling prices across the region and volume increases in Latin America, partially offset by volume declines in North America.
• Organic sales in EMEA grew approximately 3.0%, primarily due to higher selling prices and growth in services and parts and consumables.
• Organic sales in APAC declined approximately 4.5%, primarily due to volume declines in China as local shutdowns related to the COVID-19 pandemic continued to impact demand. This was partially offset by increased sales in equipment and parts and consumables in Australia.

Cash Flow, Capital Allocation, and Liquidity

Net cash used in operating activities during the six months ended June 30, 2022, was $23.6 million, compared to net cash provided by operating activities of $37.8 million during the six months ended June 30, 2021. The increase in cash used was primarily driven by an increase in working capital attributable to the effects of inflation as well as an investment in inventory of scarce component parts to prepare to ramp production. The Company continues to deploy cash flow toward operational capital needs and to return capital to shareholders in line with its capital allocation priorities. Liquidity remained strong with a balance of $73.8 million in cash and cash equivalents as of the end of the second quarter, with approximately $279.1 million of unused borrowing capacity on the Company’s revolving credit facility.

2022 Business Outlook

“We are committed to targeted actions and investments aimed at improving parts availability and supply-chain stability to enable increased production output,” added Huml. “We anticipate production volumes and gross margins will improve in the second half of the year, as actions executed in the first half begin to read out in our operational results toward the end of the third quarter, and into the fourth quarter. We expect continuing macroenvironment challenges in the second half of 2022 and will focus our efforts on what we can control: supply-chain recovery to ramp production output; selling innovative new products; delivering a superior experience to benefit our customers; executing our enterprise strategy to drive permanent structural improvements into our business; and prudently managing price and cost. We believe that our focus in these areas will position us well as the supply-chain constraints abate.”

We are confirming our full-year 2022 guidance detailed below. However, we now expect net sales, net income per share and Adjusted EBITDA to be near the lower end of the range as we factor in foreign currency headwinds and evolving market conditions.

Conference Call

Tennant will host a conference call to discuss its 2022 second-quarter results today, August 9, 2022, at 10 a.m. Central Time (11 a.m. Eastern Time). The conference call and accompanying slides will be available via webcast on Tennant's investor website. To listen to the call live and view the slide presentation, go to investors.tennantco.com and click on the link at the bottom of the home page. A replay of the conference call, with slides, will be available at investors.tennantco.com.

Company Profile

Founded in 1870, Tennant Company (TNC), headquartered in Eden Prairie, Minnesota, is a world leader in the design, manufacture and marketing of solutions that help create a cleaner, safer and healthier world. Its products include equipment for maintaining surfaces in industrial, commercial and outdoor environments; detergent-free and other sustainable cleaning technologies; and cleaning tools and supplies. Tennant's global field service network is the most extensive in the industry. Tennant Company had sales of $1.09 billion in 2021 and has approximately 4,250 employees. Tennant has manufacturing operations throughout the world and sells products directly in 15 countries and through distributors in more than 100 countries. For more information, visit www.tennantco.com and www.ipcworldwide.com. The Tennant Company logo and other trademarks designated with the symbol “®” are trademarks of Tennant Company registered in the United States and/or other countries.

Forward-Looking Statements

Certain statements contained in this document are considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act. These statements do not relate to strictly historical or current facts and provide current expectations or forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. These include factors that affect all businesses operating in a global market as well as matters specific to us and the markets we serve. Particular risks and uncertainties presently facing us include: geopolitical and economic uncertainty throughout the world; uncertainty surrounding the impacts and duration of the COVID-19 pandemic; our ability to comply with global laws and regulations; our ability to adapt to customer pricing sensitivities; the competition in our business; fluctuations in the cost, quality or availability of raw materials and purchased components; our ability to adjust pricing to respond to cost pressures; unforeseen product liability claims or product quality issues; our ability to attract, retain and develop key personnel and create effective succession planning strategies; our ability to effectively develop and manage strategic planning and growth processes and the related operational plans; our ability to successfully upgrade and evolve our information technology systems; our ability to successfully protect our information technology systems from cybersecurity risks; the occurrence of a significant business interruption; our ability to maintain the health and safety of our workers; our ability to integrate acquisitions; and our ability to develop and commercialize new innovative products and services.

We caution that forward-looking statements must be considered carefully and that actual results may differ in material ways due to risks and uncertainties both known and unknown. Information about factors that could materially affect our results can be found in our 2021 Form 10-K. Shareholders, potential investors and other readers are urged to consider these factors in evaluating forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements.

We undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by law. Investors are advised to consult any further disclosures by us in our filings with the Securities and Exchange Commission and in other written statements on related subjects. It is not possible to anticipate or foresee all risk factors, and investors should not consider any list of such factors to be an exhaustive or complete list of all risks or uncertainties.

Non-GAAP Financial Measures

This news release and the related conference call include presentation of Non-GAAP measures that include or exclude special items of a nonrecurring and/or non-operational nature (hereinafter referred to as “special items”). Management believes that the Non-GAAP measures provide useful information to investors regarding the Company’s results of operations and financial condition because they permit a more meaningful comparison and understanding of Tennant Company’s operating performance for the current, past or future periods. Management uses these Non-GAAP measures to monitor and evaluate ongoing operating results and trends and to gain an understanding of the comparative operating performance of the Company.

We believe that disclosing selling and administrative (“S&A”) expense – as adjusted, S&A expense as a percent of net sales – as adjusted, operating income – as adjusted, operating margin – as adjusted, income before income taxes – as adjusted, income tax expense – as adjusted, net income – as adjusted, net income per diluted share – as adjusted, EBITDA – as adjusted, and EBITDA margin – as adjusted (collectively, the “Non-GAAP Measures”), excluding the impacts from special items, is useful to investors as a measure of operating performance. We use these as one measure to monitor and evaluate operating performance. The Non-GAAP measures are financial measures that do not reflect United States Generally Accepted Accounting Principles (GAAP). We calculate S&A expense – as adjusted, and S&A expense as a percent of net sales – as adjusted by adjusting for restructuring charges and acquisition-contingent consideration. We calculate operating income – as adjusted and operating margin – as adjusted by adjusting for restructuring charges and gain on sale of assets, restructuring charges, and acquisition-contingent considerations. We calculate income before income taxes – as adjusted by adjusting for the pre-tax effect of restructuring charges, acquisition-contingent consideration, loss on extinguishment of debt, amortization expense and gain on sale of assets. We calculate income tax expense – as adjusted by adjusting for the tax effect of restructuring charges, acquisition-contingent consideration, loss on extinguishment of debt, amortization expense and gain on sale of assets. We calculate net income – as adjusted by adjusting for the after-tax effect of restructuring charges, acquisition-contingent consideration, loss on extinguishment of debt, amortization expense and gain on sale of assets. We calculate net income per diluted share – as adjusted by adjusting for the after-tax effect of restructuring charges, acquisition-contingent consideration, loss on extinguishment of debt, amortization expense and gain on sale of assets, and dividing the result by the diluted weighted average shares outstanding. We calculate EBITDA – as adjusted by adjusting for the pre-tax effect of the restructuring charges, acquisition-contingent consideration, loss on extinguishment of debt, gain on sale of assets, interest expense, net, income tax expense, depreciation expense and amortization expense to net income including noncontrolling interest – as reported. We calculate EBITDA margin – as adjusted by dividing EBITDA – as adjusted by net sales.

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