Aaron Reed

Aaron Reed asked about the impact of falling AMR costs on Tennant's margins relative to traditional units, whether new competitors are exerting pricing pressure in the AMR market, and how to interpret the Q1 2026 outlook within the broader 2026 guidance for mid-single-digit growth and EBITDA margin expansion.

Answer

President and CEO Dave Huml explained that falling AMR costs are primarily due to broader technology adoption (LiDAR, cameras) rather than Tennant's volume leverage, enabling more competitive pricing and better customer ROI, with a focus on gaining unit share. He confirmed pricing pressure from new, robotics-only competitors, which is a key driver for the TNC Robotics venture to ensure competitive offerings. SVP and CFO Fay West described 2026 as a 'tale of two halves,' with Q1 sales and margins impacted by a physical inventory shutdown and ramp-up, followed by gradual improvement in Q2 and significant recovery in the second half as the ERP system stabilizes.

Aaron Reed asked about the impact of falling AMR costs on Tennant Company's robotics margins compared to traditional units and whether the company is experiencing pricing pressure from new robotics-only competitors. He also sought clarification on the expected performance in the first quarter of 2026, given the full-year guidance for mid-single-digit growth and EBITDA margin expansion.

Answer

President and CEO Dave Huml explained that falling component costs for robotics enable more competitive pricing and better ROI for customers, emphasizing the objective to gain unit share. He acknowledged pricing pressure from upstart, robotics-only competitors, which influenced the decision to establish the TNC robotics venture to act more entrepreneurially and maintain a commandable premium. SVP and CFO Fay West outlined that Q1 2026 will be significantly impacted by a two-week shutdown for physical inventory, affecting sales and margins, with a slow ramp-up in Q2 and significant improvement expected in the second half of the year as the system stabilizes and efficiencies increase.

Aaron Reed of Northcoast Research Partners LLC asked for clarification on AMR sales as a percentage of revenue, the market reception of the new 'equipment as a service' leasing program, the apparent weakness in industrial sales versus the strong order pipeline, order-to-revenue lead times, and future pricing plans considering potential semiconductor tariffs.

Answer

CEO David Huml clarified that AMR sales constituted 6% of total enterprise revenue, not just North America, and are up nearly 20% year-to-date. He noted the new 'Clean 360' leasing program has seen positive early adoption with orders booked and a strong pipeline. Mr. Huml explained that reported industrial sales appear weak due to lapping a significant prior-year backlog reduction, but underlying order activity and the opportunity pipeline remain strong. He also detailed that lead times vary from days for commercial products to several months for large industrial machines. Regarding pricing, he confirmed the company has already acted to offset tariffs but remains prepared to make further adjustments if necessary.

Aaron Reed asked if the business's performance could be characterized as 'lumpy' and inquired about the new Clean 360 program, specifically its origin and potential to accelerate AMR adoption.

Answer

President and CEO Dave Huml clarified that while the business has normal seasonality, recent 'lumpiness' was due to working down a large post-pandemic backlog and winning significant orders from major accounts. Regarding the Clean 360 program, Huml explained it was developed both internally to drive growth and in response to customer feedback about the high upfront cost of AMR machines. He stated the program, which bundles the machine, software, and service into a monthly subscription with an uptime guarantee, is designed to lower adoption barriers and could potentially accelerate AMR sales growth beyond current targets.

Aaron Reed sought details on the geographic deployment of Tennant's five AMR products, inquired about a rumored manufacturing facility in the Netherlands, and asked for an update on the ERP implementation timeline, milestones, and expected benefits.

Answer

CEO David Huml confirmed the five-product AMR portfolio is deployed across 25 countries, roughly mirroring the company's geographic sales mix, and denied the existence of a new Netherlands facility. He outlined the ERP project is on track for staged go-lives in H2 2025. CFO Fay West reiterated the project is expected to yield $10M to $15M in annual run-rate savings upon completion.

Aaron Reed of Northcoast Research Partners LLC asked for clarification on the $6 million EBITDA contribution from the tank line over 2026-2027 and its timing. He also inquired about the potential impact of Class I rail carrier mergers and the possibility of increased demand for coal cars due to rising energy needs.

Answer

CEO Nicholas Randall clarified the $6 million EBITDA impact is spread over two years (2026-2027) and the program is scheduled to start in the back half of 2026. Regarding mergers, Randall stated it's too early to tell the specific impact but believes anything that improves railroad productivity is good for the industry. On coal cars, he noted the immediate opportunity is in extending the life of existing assets through maintenance and repairs via their aftermarket business, rather than new builds.

Aaron Reed from Northcoast Research Partners LLC sought clarification on the projected $6 million EBITDA contribution from the tank car line for 2026-2027 and its timing. He also asked about the potential impact of recent Class I rail carrier mergers and whether a resurgence in coal could drive demand for new or repaired hopper cars.

Answer

CEO Nicholas Randall confirmed the $6 million EBITDA gain from the tank car program is expected over the two-year period of 2026 and 2027, with the related contract starting mid-2026. Regarding industry mergers, Randall stated it is too early for specifics but believes improvements in the rail industry ultimately benefit builders. On the topic of coal, he noted that while inquiries for extending the life of existing coal cars are increasing, which benefits the aftermarket and conversion business, it is too early to predict a new build cycle for that car type.

Aaron Reed from Northcoast Research Partners LLC sought clarification on the projected $6 million EBITDA from the tank car line over 2026-2027. He also asked about the potential business impact from recent Class 1 rail carrier mergers and whether a resurgence in coal could drive demand for new or repaired hopper cars.

Answer

President, CEO & Director Nicholas Randall confirmed the $6 million EBITDA contribution is expected over two years from a specific contract starting mid-2026. Regarding rail mergers, he stated that while it's early, industry productivity improvements are generally positive for builders. On the topic of coal cars, Randall acknowledged increased inquiries for life-extension services, benefiting the aftermarket business, and suggested conversions are more likely than new builds in the near term given the existing fleet.

Aaron Reed of Northcoast Research asked for more color on the types and margin profiles of new orders. He also inquired about the timeline for the first tank car production and sought to clarify if the potential activation of a fifth production line was a preemptive move or based on current order needs.

Answer

CEO Nicholas Randall reiterated that new orders were a healthy mix across their portfolio, with improved margins benefiting from the absence of low-margin box cars. He clarified three distinct initiatives: a potential fifth general production line, a tank car retrofit program starting shipments in H1 2026, and a future new tank car program for deliveries post-2026. He confirmed the current 2025 guidance does not rely on activating the fifth line; it would only be commissioned if demand exceeded current capacity.

Aaron Reed asked about any remaining pockets of inflationary pressure and whether the 'waiting for the election' sentiment from customers is a legitimate reason for delayed spending or an excuse. He also inquired about the potential timing for pent-up demand to translate into revenue.

Answer

CFO David Wells described the current environment as one of 'slow, steady inflation,' which is manageable and generally positive for distributors, with no major pockets of concern. President and CEO Neil Schrimsher suggested the election is more of a talking point than a fundamental driver. He believes general project deferrals have occurred and that a release of this pent-up demand could begin after November and into early 2025, which corresponds to the company's third fiscal quarter.