Tennant : Reports 2020 Second Quarter Results - July 30, 2020

Earnings Release Call Second Quarter 2020

Thursday, July 30, 2020

On the Call Today

Chris Killingstad	Andy Cebulla	Dave Huml
President and CEO	Interim CFO	COO

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Forward-Looking Statements &

Non-GAAP Measures

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 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 2020 second-quarter earnings release includes the comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results.

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Tennant Company

Financial Results Conference Call Second Quarter 2020

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Second Quarter 2020

• Revenue down year over year
• • Decline was significantly less in June than in April and May
  • July order patterns consistent with June
• Actions executed to manage costs and preserve cash flow
• • Combination of reduced work schedules and furlough programs
  • Pay reductions for senior executives and board of directors
  • Limited travel
  • Implemented work-from-home processes
  • Reduced non-essential discretionary and project spend
  • Adjusted management incentives
  • Participated in government programs

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Second Quarter 2020

• Actions resulted in sizable cost savings, most of which are not expected to repeat in second half of 2020
• • Do not anticipate a need for further, broad-based cost reductions
• Pandemic does not derail our efforts toward our enterprise strategy
• Enterprise strategy 3 key pillars
• • Winning where we have competitive advantage
  • Reducing complexity and building scalable processes
  • Innovate for profitable growth

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Tennant Company

Financial Results Conference Call Second Quarter 2020

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Enterprise Strategy Actions Implemented

• Continue to fund and resource our strategic efforts
• Actions we've completed in 2019 and 2020
• • Improved our strategic pricing and exited margin-diluting products
  • Established standard configurations
  • Leveraging 80/20 methodology to focus on our best customers and improve pricing
  • Restructured our Japan go-to-market strategy to a wholly indirect channel
  • Begun consolidation of Tennant China and Gaomei manufacturing footprint
  • Launched new products to support our customers' needs
  • Developing an expanded AMR offering

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Financial Review

Financial Results Conference Call Second Quarter 2020

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Second Quarter 2020 - Sales | Adjusted EPS

Q2 '20 Organic Decline of -27.2%

		Q2 '20			Q2 '19			CHANGE
SALES		$214.0 M		$299.7 M	-28.6%
EPS Adjusted*	$0.96		$1.35		-28.9%

• Organic sales by month vs. PY
• • April: -31.6%
  • May: -38.5%
  • June: -12.4%
• July order rates consistent with June

* See the Supplemental Non-GAAP Financial Table within Q2'20 Earnings Release for details.

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Second Quarter 2020 - Geographies

Americas

• Sales decline 28.1%, or -27.0% organically
• Declines in North and Latin America
• Still experiencing strong AMR demand

EMEA

• Sales decline 32.3%, or -30.2% organically
• Broad economic impact due to pandemic and customer shutdowns
• Italy plants closed for 8 days in April

APAC

• Sales decline 21.8%, or -20.1% organically
• Primarily China due to slower recovery in export-dependent businesses
• Declines also in Japan and Southeast Asia

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Second Quarter 2020 - Sales | Adjusted Gross Margin

		Q2 '20			Q2 '19			CHANGE
Sales		$214.0 M		$299.7 M	-28.6%
Gross Margin (% of sales) Adjusted*	42.3%		41.4%			+90 bps

• Business Categories - Service and Parts and Consumables less impacted
• • Equipment down 33%
  • Parts and Consumables down 22%
  • Service down 17%
• Gross margins driven by pricings, cost-out initiatives and actions taken due to pandemic
• • Actions: furloughs, reduced work hours and benefits from government programs

* See the Supplemental Non-GAAP Financial Table within Q2'20 Earnings Release for details.

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Second Quarter 2020 - Sales | Adjusted S&A Expense

		Q2 '20			Q2 '19			CHANGE
Sales		$214.0 M		$299.7 M	-28.6%
S&A Expense (% of sales) Adjusted*	28.6%		29.0%			-40 bps

• Reflects cost-containment efforts
• • Furloughs and pay reductions
  • Benefits from government programs
  • Adjustments to management incentives

* See the Supplemental Non-GAAP Financial Table within Q2'20 Earnings Release for details.

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Second Quarter 2020 - Adjusted EBITDA

		Q2 '20			Q2 '19			CHANGE
Adjusted EBITDA*		$35.3 M		$41.8 M	-15.6%
Adjusted EBITDA Margin*	16.5%		13.9%			+260 bps

• EBITDA decline due to lower sales, but rate improved due to cost-savings actions
• • Furloughs and reduced work schedules
  • Benefits from government programs
  • Adjustments to management incentives
  • Other discretionary spending reductions that we implemented in the quarter
• Estimate approximately $15 million of the savings will not repeat in future quarters

* See the Supplemental Non-GAAP Financial Table within Q2'20 Earnings Release for details.

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Second Quarter 2020 - Other Financial Metrics & 2020 Guidance

• Adjusted Effective Tax rate of 20.4%
• Cash from operations generation of $39.8 million
• • Repaid $125 million of precautionary borrowing
  • As of June 30: $99.3 million in cash and cash equivalents and $157 million in undrawn funds on revolver
• 2020 Guidance
• • Previously withdrew the full-year guidance we had provided on February 20, 2020
  • We still cannot predict the total impact of the pandemic
  • Committed to maintain sufficient liquidity and preserve our ability to ramp up quickly as markets recover

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Questions?

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Tennant Company

Financial Results Conference Call Second Quarter 2020

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Appendix

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Enterprise Strategy -

Global Positioning Strategy (GPS)

Win where we have a	Reduce complexity & build	Innovate for profitable
competitive advantage	scalable processes	growth

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Win where we have a competitive advantage

Focus investments & resources

where we can create the most value

Focus Areas

1

2

3

Simplifying the	Strengthening	Optimizing
product portfolio	local advantage	go-to-market

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Reduce complexity & build scalable processes

Simplify and standardize to gain

efficiency and leverage

Focus Areas

1

2

3

Leveraging Our	Advancing Our	Capturing
Platform	Supply Chain -	Operating Model
Product Design	Local for Local	Efficiencies

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Innovate for profitable growth

Thinking Differently to Maximize Value for Customers and Tennant

Customer-	New	Unlocking
Driven	Innovation	Value for
Insights	Approach	Customers
		and Tennant

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Capitalizing on the Strategy: 2024 Growth Targets

2-3%		6-10%		50-100 BPS
Organic		EBITDA		EBITDA
Sales		Growth		Leverage
Annually		Annually		Annually

Consistent and predictable results to drive total shareholder return

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