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TC

TENNANT CO (TNC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net sales rose 5.6% to $328.9M with organic growth of 6.3%, driven by volume in the Americas and EMEA; APAC declined 19% organically .
  • GAAP diluted EPS fell to $0.35 (down 78.7% YoY) primarily due to non-operational costs (legal contingency, ERP, restructuring); adjusted diluted EPS was $1.52 and adjusted EBITDA increased 14.2% to $47.4M with margin up 110 bps to 14.4% .
  • Initial 2025 guidance: net sales $1.210B–$1.250B (organic decline 1%–4%), GAAP EPS $3.80–$4.30, adjusted EPS $5.70–$6.20, adjusted EBITDA $196M–$209M, adjusted EBITDA margin 16.2%–16.7%—management expects margin expansion despite revenue headwinds from backlog normalization and FX .
  • Strategic catalysts: AMR momentum ($75M 2024 AMR sales) and launch of X6 ROVR (Q2 2025 shipping) to expand into large-format commercial and mid/low-end industrial use cases; new 2.0M-share repurchase authorization provides capital allocation flexibility .

What Went Well and What Went Wrong

  • What Went Well

    • Adjusted profitability and leverage improved: Q4 adjusted EBITDA rose to $47.4M and margin expanded 110 bps; adjusted S&A ratio improved 250 bps YoY to 27.4% on cost discipline .
    • Americas and EMEA executed: Q4 organic growth +10% (Americas) and +4% (EMEA) on volume and price; EMEA saw a market rebound with double-digit Spain growth and TCS acquisition contribution .
    • AMR strategy inflecting: $75M AMR sales in 2024; X6 ROVR announced (autonomous charging, ~3x X4 capacity) with Q2 2025 ship—management targets >$100M annual AMR revenue by 2027 .

  • What Went Wrong

    • APAC headwinds: Q4 organic sales down 19% (full-year -9.5%) on China saturation and Australia demand moderation; pricing pressure compressing margins in mid-tier products .
    • Gross margin pressure sequentially: Q4 gross margin 41.3% (down 70 bps YoY) on materials inflation and elevated freight; management expects 2025 expansion via cost-outs and pricing .
    • Non-operational costs hit EPS: Legal contingency ($10.3M in S&A; $13.5M add-back) tied to ec‑H2O IP verdict, ERP ($4.8M Q4), restructuring ($7.6M Q4) drove GAAP EPS decline .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$311.4 $315.8 $328.9
GAAP Diluted EPS ($)$1.64 $1.09 $0.35
Adjusted Diluted EPS ($)$1.92 $1.39 $1.52
Adjusted EBITDA ($USD Millions)$41.5 $47.9 $47.4
Adjusted EBITDA Margin (%)13.3% 15.2% 14.4%
Operating Income ($USD Millions, GAAP)$24.5 $30.6 $7.6
Operating Margin (%)7.9% 9.7% 2.3%
Gross Margin (%)42.0% 42.4% 41.3%
S&A as % of Sales (Adjusted)29.9% 28.1% 27.4%

Geographical Net Sales (Q4)

RegionQ4 2023 ($M)Q4 2024 ($M)YoY Change
Americas$208.1 $226.4 +8.8%
EMEA$80.3 $83.9 +4.5%
APAC$23.0 $18.6 -19.1%
Total$311.4 $328.9 +5.6%

Quarterly Cash Flow KPIs

MetricQ2 2024Q3 2024Q4 2024
Cash from Operations ($M)$18.6 $30.7 $37.5
Free Cash Flow ($M)$14.4 $26.4 $28.1

Estimates vs Actuals (Q4 2024)

MetricActualConsensus
Revenue ($M)$328.9 Unavailable – S&P Global data could not be retrieved (daily limit exceeded)
GAAP Diluted EPS ($)$0.35 Unavailable – S&P Global data could not be retrieved (daily limit exceeded)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($B)FY 2025—$1.210–$1.250 New
Organic Net Sales Growth (%)FY 2025—-1% to -4% New
GAAP EPS ($)FY 2025—$3.80–$4.30 New
Adjusted EPS ($)FY 2025—$5.70–$6.20 (excl. ERP & amort.) New
Adjusted EBITDA ($M)FY 2025—$196–$209 New
Adjusted EBITDA Margin (%)FY 2025—16.2%–16.7% New
Capex ($M)FY 2025—~$20 New
Adjusted Effective Tax Rate (%)FY 2025—23%–27% New
Dividend per share ($)Q1 2025$0.280 prior rate (historical trend)$0.295 declared for Mar 14, 2025 Raised vs 2024 run-rate
Net Sales ($B)FY 2024$1.280–$1.305 (Q2 update) ; Reaffirmed in Q3 Actual $1.2867 Met midpoint

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2024)Current Period (Q4 2024)Trend
AMR/RoboticsX4 ROVR launch; capacity doubled; AMR ~5% of YTD sales; >8,700 units deployed; Brain Gen3 exclusivity $75M AMR 2024 sales; X6 ROVR announced with autonomous charging; target >$100M AMR by 2027 Accelerating product roadmap and adoption
Supply Chain/FreightElevated freight costs cited in Q3; planning mitigations Q4 gross margin pressured by materials inflation and elevated freight; expect pricing/cost outs to offset inflation in 2025 Near-term headwind; mitigation actions ongoing
Tariffs/Macro/FXFX headwinds in Brazil; macro sluggishness in EMEA; China overproduction FX headwind baked into 2025 net sales (-2%); China exposure <10% of COGS; mitigation levers listed Manageable but requires active mitigation
Regional TrendsQ2/Q3: Americas strength; EMEA soft but improving; APAC weak (China/Australia) Q4: Americas +10% organic; EMEA +4% organic; APAC -19% organic; EMEA rebound in equipment Americas momentum; APAC remains a drag
ERP ModernizationDesign/build phase; $37M 2024 spend; staggered go-lives in 2025; expected $10–$15M annual savings 2025 spend ~$50M, more expensed as go-live progresses; user testing underway; staged go-lives in H2 2025 On track; near-term opex headwind; medium-term efficiency tailwind
Legal/RegulatoryNone priorIP verdict: $9.8M damages + $4.7M interest; $10.3M legal contingency in Q4; exploring appeals One-off legal charge; no product impact

Management Commentary

  • “We achieved record results in 2024 with strong organic sales growth and margin expansion aligned with our long-range targets.”
  • “We anticipate a stable demand environment outside of APAC… backlog reduction will result in a decrease in organic sales on a constant currency basis between 1% to 4%… we will deliver year-over-year margin expansion.”
  • “In 2024, we had AMR equipment sales of $75 million… We are now targeting AMR revenue to exceed $100 million in annual net sales by 2027.”
  • “The X6 ROVR features an optional autonomous charging station… nearly 3x the cleaning capacity of the X4 ROVR… first units shipping in the second quarter of 2025.”
  • “We expect to save about $10 million annually [from restructuring] beginning in 2025.”

Q&A Highlights

  • Margin durability in a declining revenue environment: Management expects ~30 bps gross margin expansion in 2025 via cost-outs, productivity, and pricing, with most EBITDA expansion from gross margin rather than S&A .
  • Share repurchase strategy: New 2.0M-share authorization has no time limit; historically offsets dilution but can be opportunistic; flexibility could lift EPS depending on deployment .
  • APAC outlook: No recovery embedded for China/Australia; pivot to advantaged verticals/products; any recovery would be upside to guidance .
  • ERP 2025 phasing: ~$50M total costs, more expensed as go-live; evenly spread; staged regional go-lives in H2 2025; anticipated $10–$15M annual savings post-completion .
  • Tariffs exposure: China-sourced COGS exposure ~<$50M; ~$20M direct imports; mitigation via supplier negotiation, local-for-local sourcing, redesign, and pricing .

Estimates Context

  • S&P Global consensus estimates for Q4 2024 EPS and revenue were unavailable at time of query due to provider daily limit; therefore, we cannot quantify beats/misses versus Street consensus for this quarter. Management provided 2025 guidance ranges and qualitative context around order growth and margin trajectory . Where estimates are required, use S&P Global consensus when accessible; here, consensus was unavailable.

Key Takeaways for Investors

  • Q4 execution was solid on sales and adjusted profitability; the GAAP EPS decline is tied to identifiable non-operational items (legal contingency, ERP, restructuring) rather than core demand—monitor potential reversal on appeal and normalization of ERP costs through 2025 .
  • 2025 setup: Expect top-line pressure from backlog normalization and FX, but margin expansion via pricing and cost actions; focus on gross margin drivers as the primary lever for EBITDA growth in a lower revenue year .
  • AMR is a structural growth vector: $75M 2024 sales and platform expansion (X6 ROVR) with Gen3 BrainOS exclusivity; watch for Q2 2025 X6 shipments and incremental ARR from navigation software subscriptions .
  • Regional mix matters: Americas/EMEA momentum offsets APAC weakness; any stabilization in APAC would be upside to guidance—track China/Australia indicators and pricing/mix resilience .
  • Cash and balance sheet provide flexibility: $99.8M cash and $449.3M revolver capacity; net leverage 0.48x—supports opportunistic buybacks and M&A aligned with core/connected autonomy strategy .
  • ERP modernization is a near-term investment, medium-term margin/cash catalyst: ~$50M 2025 spend with staged go-lives; target $10–$15M annual savings—watch implementation milestones to gauge timing of benefit realization .
  • Dividends/shareholder returns continue: Dividend at $0.295 and expanded repurchase authorization underscore capital return commitment while preserving M&A firepower .