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Tennant(TNC) - 2023 Q4 - Earnings Call Transcript
TNCTennant(TNC)2024-02-22 21:47
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Financial Data and Key Metrics Changes - For the full year 2023, net sales reached 1.243billion,withadjustedEBITDArisingto1.243 billion, with adjusted EBITDA rising to 192.9 million, resulting in an EBITDA margin of 15.5% [8][19][57] - GAAP net income for Q4 2023 was 31million,a30.331 million, a 30.3% increase year-over-year, while adjusted net income was 36.2 million, up from 27.2millionintheprioryear[19][57]−AdjustedEPSforQ42023increased31.527.2 million in the prior year [19][57] - Adjusted EPS for Q4 2023 increased 31.5% to 1.92 per diluted share compared to the prior year [19] Business Line Data and Key Metrics Changes - Equipment sales grew by 9.6% in Q4 2023, leading the growth in product categories [59] - For the full year, net sales in the Americas were 840.3million,a19840.3 million, a 19% increase, driven by strong equipment sales in North America [45] - Adjusted gross margin for the full year 2023 increased to 42.5%, a 390 basis point improvement compared to 2022 [47] Market Data and Key Metrics Changes - Organic sales in the Americas increased 7.3% year-over-year, while organic sales in EMEA declined 0.6% due to volume declines [42] - Organic sales in APAC increased 9.6%, driven by price realization in Australia and volume increases in China [42] - The company ended 2023 with approximately 186 million of backlog, a reduction of 28millionfromtheendofQ3[41]CompanyStrategyandDevelopmentDirection−Thenewenterprisestrategyfor2024−2026focusesonthreepillars:growth,performance,andpeople[31]−ThecompanyplanstolaunchtheX4ROVR,apurpose−builtAutonomousMobileRobot,inQ22024[32]−TheinvestmentinBrainCorpaimstoenhancethedevelopmentandadoptionofnext−generationrobotsinthefloorcleaningindustry[33][34]Management′sCommentsonOperatingEnvironmentandFutureOutlook−Managementexpressedoptimismfor2024,expectingnetsalesgrowthof228 million from the end of Q3 [41] Company Strategy and Development Direction - The new enterprise strategy for 2024-2026 focuses on three pillars: growth, performance, and people [31] - The company plans to launch the X4 ROVR, a purpose-built Autonomous Mobile Robot, in Q2 2024 [32] - The investment in Brain Corp aims to enhance the development and adoption of next-generation robots in the floor cleaning industry [33][34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism for 2024, expecting net sales growth of 2% to 4% with price and volume contributing equally [66] - The company anticipates reducing backlog by 80 million to 100millionin2024,whilemonitoringglobalorderratesclosely[51]−Managementhighlightedtheimportanceofmaintainingastrongbalancesheetanddisciplinedcapitalallocationstrategy[49][70]OtherImportantInformation−ThecompanyachievedarecordGAAPnetincomeof100 million in 2024, while monitoring global order rates closely [51] - Management highlighted the importance of maintaining a strong balance sheet and disciplined capital allocation strategy [49][70] Other Important Information - The company achieved a record GAAP net income of 109.5 million for the full year 2023, a 65.2% increase from the prior year [57] - Adjusted EBITDA margin for 2023 was 15.5%, benefiting from operating leverage created by sales growth [62] - The company plans to invest approximately $75 million in ERP modernization through 2025 [16] Q&A Session Summary Question: What is the outlook for orders and seasonality? - Management noted that orders have remained resilient and expects a significant return to normal seasonality in 2024 [77] Question: Can you elaborate on the bundling strategy with Brain Corp? - The bundling strategy aims to offer a comprehensive solution that includes equipment and software, enhancing customer value [83][84] Question: How is the company addressing the equipment-as-a-service model? - Management is exploring the potential of the equipment-as-a-service model, particularly for smaller and medium-sized customers [112][126] Question: What are the expectations for gross margin improvement in 2024? - Management anticipates gross margin improvement in 2024, supported by strategic pricing and cost management initiatives [118] Question: What is the company's approach to capital allocation and M&A? - The company is focused on strategic M&A opportunities and has activated discussions with potential partners [120]