Tennant Company Reports 2017 Fourth Quarter and Full Year Results

Net sales of $279 million in the fourth quarter, up approximately
32 percent; Organic sales rose 2.1 percent. Full year net sales eclipsed
$1 billion for first time

Fourth quarter loss per share of $(0.18) includes special items
totaling $0.52 per share; Adjusted EPS of $0.34; Full year GAAP EPS loss
of $(0.35) and Adjusted EPS of $1.54

Reduced debt an additional $15 million in the fourth quarter

Company provides 2018 full year net sales and earnings outlook

MINNEAPOLIS–(BUSINESS WIRE)–Tennant Company (NYSE: TNC), a world leader in designing, manufacturing
and marketing of solutions that help create a cleaner, safer, healthier
world, today reported net sales of $279.3 million and a net loss of $3.2
million, or $(0.18) per share, and adjusted net income of $6.2 million,
or $0.34 per share, for the quarter ended December 31, 2017.

The 2017 fourth quarter included special items that reduced earnings by
a total of $12.8 million, or $0.52 per share. The special items included
the pre-tax settlement costs related to the Pension Plan termination of
$6.2 million, or $0.22 per share, pre-tax restructuring costs primarily
related to initial integration of the IPC Group (IPC) business of $2.5
million, or $0.10 per share, pre-tax acquisition costs related to IPC of
$1.7 million, or $0.08 per share, and a provisional income tax charge of
$2.4 million, or $0.13 per share, to reflect the estimated impacts of
the U.S. Tax Cuts and Jobs Act of 2017. (See the Supplemental Non-GAAP
Financial Table.) Additionally, the 2017 fourth quarter results included
a pre-tax charge of $5.3 million, or $0.22 per share, from accelerated
amortization for the intangible assets related to the IPC acquisition.
The full year pre-tax impact of the IPC accelerated amortization was
$15.7 million, or $0.64 per share.

“We are pleased with the results we achieved in the fourth quarter,”
said Chris Killingstad, Tennant Company's president and chief executive
officer. “We exceeded net sales of over $1 billion for the full year and
made substantial progress with our initiatives to position the business
for future growth. Our IPC integration remains on plan, we made
significant strides in staffing our field service team to enhance our
service capabilities, we made progress stabilizing our manufacturing
operations, and we experienced encouraging sales and backlog growth
across our geographies, specifically with our strategic accounts. We
believe these and other efforts are generating meaningful momentum as we
head into 2018.”

Fourth Quarter Operating Review
The
company's 2017 fourth quarter consolidated net sales of $279.3 million
improved approximately 31.9 percent over the same period last year. This
includes a 28.0 percent increase due to acquisitions, a foreign currency
impact of 1.8 percent and a 2.1 percent increase in organic sales.
Organic growth during the period was driven by all regions, particularly
the Americas and APAC regions.

Geographically, North American sales improved 4.8 percent, up 1.8
percent organically, due to the winning of key strategic accounts. Latin
American sales rose 24.2 percent, or 1.7 percent organically, due to the
Brazilian and Mexican markets. Sales in the Europe, Middle East and
Africa (EMEA) region were up 143.4 percent, or 0.3 percent organically,
which was consistent with management’s expectations and follows a strong
2017 third quarter organic growth of 14.6 percent in this region. Sales
in the Asia Pacific (APAC) region improved 39.9 percent, up 8.4 percent
organically, reflecting stronger sales trends in China, Japan and
Australia.

Tennant's gross margin in the 2017 fourth quarter was 41.4 percent, and
the as-adjusted gross margin was 40.9 percent compared to 44.2 percent
in the prior-year quarter. Gross margin performance in the quarter was
impacted by field service truck productivity levels, the mix of IPC and
strategic accounts, certain manufacturing inefficiencies, and raw
material cost inflation. Although these items dampened gross margin, the
company made progress throughout the quarter and is committed to driving
further gross margin expansion.

Research and development (R&D) expense for the 2017 fourth quarter
totaled $7.8 million, or 2.8 percent of sales, versus $10.0 million, or
4.7 percent of sales, a year ago, due to timing of project spend across
quarters within the year. The company continues to invest in developing
a robust pipeline of innovative new products and technologies, and
remains committed to annual R&D investment in the range of 3 percent to
4 percent of sales.

Selling and administrative (S&A) expense in the 2017 fourth quarter was
$98.3 million, or 35.2 percent of sales, which includes accelerated
amortization related to IPC of $5.3 million and non-operational costs of
$10.8 million. These items negatively impacted the S&A expense as a
percent of sales by 5.8 percentage points. Tennant continues to balance
disciplined spending control with investments in key growth initiatives.
Tennant’s prior-year quarter S&A was $60.9 million, or 28.8 percent of
sales.

Tennant’s 2017 fourth quarter net loss was $3.2 million, compared to net
income of $15.4 million in the 2016 fourth quarter. The 2017 fourth
quarter Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) as adjusted was $30.9 million, or 11.1 percent of sales,
compared to $26.5 million, or 12.5 percent of sales, in the year-ago
quarter. (See the Supplemental Non-GAAP Financial Table.)

During the 2017 fourth quarter, Tennant generated cash flow from
operations of $22.1 million, compared to $24.6 million in the 2016
fourth quarter. The company also repaid $15.0 million in outstanding
debt and paid $3.7 million in cash dividends to shareholders during the
fourth quarter.

2017 Full Year Results
For the
2017 full year, Tennant’s net loss was $6.2 million, or $(0.35) per
share, and, excluding special items, adjusted net earnings were $28.0
million, or $1.54 per share, on net sales of $1.0 billion, or 1.4%
organic growth. Prior-year net earnings were $46.6 million, or $2.59 per
share, on net sales of $808.6 million. (See the Supplemental Non-GAAP
Financial Table.)

Tennant’s gross margin for the 2017 full year was 40.3 percent and
adjusted gross margin was 41.0 percent, in line with the company’s
adjusted gross margin range of 41 percent to 42 percent and compared to
43.5 percent for the 2016 full year. (See the Supplemental Non-GAAP
Financial Table.)

R&D expense in 2017 was $32.0 million, or 3.2 percent of sales, versus
$34.7 million, or 4.3 percent of sales, in the prior year. S&A expense
in the 2017 full year was $345.4 million, or 34.4 percent of sales,
which, as previously mentioned, includes special items of $27.5 million
and full year accelerated amortization related to IPC of $15.7 million.
These special items negatively impacted the S&A expense as a percent of
sales by 4.3 percentage points. S&A expense for the full year 2016 was
30.7 percent of sales.

EBITDA as adjusted for 2017 was $101.6 million, or 10.1 percent of
sales, compared to $85.7 million, or 10.6 percent of sales, in 2016.
(See the Supplemental Non-GAAP Financial Table.)

Tennant maintains a strong balance sheet and generated $54.2 million in
cash from operations in 2017. Cash on the balance sheet at December 31,
2017, totaled $58.4 million versus $58.0 million in the prior year. The
company’s total debt was $376.8 million compared to $36.2 million at the
end of 2016. During 2017, Tennant increased its annual cash dividend
payout for the 46th consecutive year and paid $15.0 million in cash
dividends to shareholders. “Reflecting on 2017, while we faced
significant challenges, it was also a year of important achievement and
building for a stronger future,” Killingstad added. “We closed the
largest acquisition in our history, took steps to realign our global
workforce to support the company’s key strategic growth initiatives and
manage costs in all of our geographies, launched several new important
products, and made investments to improve our service capabilities and
manufacturing operations.”

2018 Business Outlook
Killingstad
concluded, “Looking to 2018, we are committed to realizing the
structural and operational improvements we made in 2017 and are laser
focused on maintaining our robust new product and technology pipeline,
successfully integrating IPC, expanding our global market coverage,
leveraging our cost structure to improve operating efficiency and
strengthening our financial position to generate significant returns for
shareholders.”

Tennant Company estimates 2018 full year net sales in the range of $1.07
billion to $1.10 billion, up 6.6 percent to 9.7 percent, or up
approximately 3 percent organically. Tennant expects 2018 full year
reported GAAP earnings in the range of $1.70 to $1.90 per share and on
an as-adjusted basis, which excludes $2.0 million to $3.0 million of
acquisition-related charges, in the range of $1.80 to $2.00 per share
and adjusted EBITDA between $111 million to $116 million. Due to the
anticipated higher level of R&D spending in the first quarter to support
new product launches, along with normally lower first quarter earnings
which reflect our customers’ initial slow ramp up of capital purchases,
the first quarter earnings will be lower than the remaining three
quarters. The first quarter will also include an additional quarter of
interest expense and acquisition-related amortization for IPC, causing
the earnings to be lower than the prior year. As a result, the company
anticipates that the 2018 first quarter earnings per share will be in
the range of $0.15 to $0.20 per share.

Tennant’s 2018 annual financial outlook includes the following
additional assumptions:

• Reasonable growth in all regions, especially strategic accounts in
  North America;
• Gross margin performance in the range of 41.0 percent to 42.0 percent;
• R&D expense in the range of 3.0 percent to 3.5 percent of sales;
• Capital expenditures in the range of $25 million to $30 million; and
• An effective tax rate of approximately 24 percent.

Conference Call
Tennant will
host a conference call to discuss the 2017 fourth quarter and full year
results today, February 22, 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 taped replay of the
conference call with slides will be available at investors.tennantco.com
until March 31, 2018.

Company Profile
Founded in
1870, Tennant Company (TNC), headquartered in Minneapolis, Minnesota, is
a world leader in designing, manufacturing and marketing solutions that
empower customers to achieve quality cleaning performance, significantly
reduce their environmental impact and help create a cleaner, safer,
healthier world. Its products include equipment for maintaining surfaces
in industrial, commercial and outdoor environments; detergent-free and
other sustainable cleaning technologies; cleaning tools and supplies;
and coatings for protecting, repairing and upgrading surfaces. Tennant's
global field service network is the most extensive in the industry.
Tennant Company had sales of $1.0 billion in 2017 and has approximately
4,300 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, as well as other written and oral
statements made by us from time to time, 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: our ability to effectively manage
organizational changes; our ability to attract, retain and develop key
personnel and create effective succession planning strategies; the
competition in our business; fluctuations in the cost, quality or
availability of raw materials and purchased components; our ability to
successfully upgrade and evolve our information technology systems; our
ability to develop and commercialize new innovative products and
services; our ability to integrate acquisitions, including IPC; our
ability to generate sufficient cash to satisfy our debt obligations;
geopolitical and economic uncertainty throughout the world; our ability
to successfully protect our information technology systems from cyber
security risks; the occurrence of a significant business interruption;
our ability to comply with laws and regulations; the potential
disruption of our business from actions of activist investors or others;
the relative strength of the U.S. dollar, which affects the cost of our
materials and products purchased and sold internationally; unforeseen
product liability claims or product quality issues; and our internal
control over financial reporting risks resulting from our acquisition of
IPC.

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 2016 Form 10-K
or 2017 Form 10-Qs. 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. 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 Gross Margin – as adjusted, Profit from
Operations – as adjusted, Operating Margin – as adjusted, Profit Before
Income Taxes – as adjusted, Income Tax Expense – as adjusted, Net
Earnings Attributable to Tennant Company – as adjusted, and Net Earnings
Attributable to Tennant Company per Share – as adjusted (collectively,
the “Non-GAAP Measures”), excluding the impacts from inventory fair
value adjustment, restructuring charge, acquisition costs, pension
settlement, debt financing costs write-off, and the impact of the U.S.
Tax Cuts and Jobs Act of 2017, are 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 Gross Margin – as adjusted, Profit from
Operations – as adjusted, Operating Margin – as adjusted, and Profit
Before Income Taxes – as adjusted by adding back the pre-tax effect of
the inventory fair value adjustment, restructuring charge, acquisition
costs, pension settlement, and debt financing costs write-off. We
calculate Income Tax Expense – as adjusted by adding back the tax effect
of the inventory fair value adjustment, restructuring charge,
acquisition costs, pension settlement, debt financing costs write-off,
and the impact of the U.S. Tax Cuts and Jobs Act of 2017. We calculate
Net Earnings Attributable to Tennant Company – as adjusted by adding
back the after-tax effect of the inventory fair value adjustment,
restructuring charge, acquisition costs, pension settlement, debt
financing costs write-off, and the U.S. Tax Cuts and Jobs Act of 2017.
We calculate Net Earnings Attributable to Tennant Company per Share – as
adjusted by adding back the after-tax effect of the inventory fair value
adjustment, restructuring charge, acquisition costs, pension settlement,
debt financing costs write-off, and the U.S. Tax Cuts and Jobs Act of
2017 and dividing the result by the diluted weighted average shares
outstanding.

We believe that disclosing Earnings Before Interest, Taxes, Depreciation
and Amortization (EBITDA) and EBITDA Margin, excluding the impact from
inventory fair value adjustment, restructuring charge, acquisition
costs, pension settlement, and acquisition-related currency loss (EBITDA
– as adjusted), is useful to investors as a measure of operating
performance. We use these measures to monitor and evaluate operating
performance. EBITDA – as adjusted and EBITDA Margin are financial
measures that do not reflect GAAP. We calculate EBITDA – as adjusted by
adding back the pre-tax effect of the inventory fair value adjustment,
restructuring charge, acquisition costs, pension settlement,
acquisition-related currency loss, Interest Income, Interest Expense,
Income Tax Expense, Depreciation Expense, and Amortization Expense to
Net Earnings (Loss) – as Reported. We calculate EBITDA Margin – as
adjusted by dividing EBITDA – as adjusted by Net Sales.

Investors should consider these non-GAAP financial measures in addition
to, not as a substitute for or better than, financial measures prepared
in accordance with GAAP. Reconciliations of the components of these
measures to the most directly comparable GAAP financial measures are
included in the Supplemental Non-GAAP Financial Table to this earnings
release.

Contacts

Tennant Company
Investor Contact:
Tom Paulson, 763-540-1204
Senior
Vice President and Chief Financial Officer
[email protected]
or
Media
Contact:
Kathryn Lovik, 763-540-1212
Global Communications
Director
[email protected]

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