Tennant Company
11/04/2025 | Press release | Distributed by Public on 11/04/2025 11:49
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company's results of operations, as well as liquidity and capital resources for the quarters ended September 30, 2025 and 2024. The MD&A should be read in conjunction with the Company's consolidated financial statements and notes included in Item 1 of this Quarterly Report. Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including financial measures that are not defined under generally accepted accounting principles (GAAP) in the U.S. Net sales excluding foreign currency translation (i.e., organic sales) is not a measure of financial performance under GAAP; however, the Company believes it is useful in understanding its financial results and provides comparable measures for understanding the operating results of the Company between different periods.
Overview
Tennant Company is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions. Our products are used in many types of environments, including retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.
Macroeconomic Events
As a company with a global presence, we are subject to risks and uncertainties caused by significant events with macroeconomic impacts, including, but not limitedto, persistent geopolitical tensions, elevated interest rates, monetary policy changes, and foreign currency fluctuations.
The global business environment remains volatile and is currently being shaped by ongoing uncertainties, including evolving trade policy dynamics. These trade dynamics are also contributing to competitive shifts within the market. Previously implemented U.S. tariffs and related actions have begun to increase input costs, disrupt supply chains, and affect customer demand as end users absorb higher costs. Ongoing policy changes and retaliatory measures continue to pressure manufacturing costs and pricing, which in turn, are influencing product demand. We are actively monitoring these developments and adapting our operations in response to the changing environment.
Demand trends across our key markets remain mixed. In China, while some targeted stimulus measures have been introduced, the overall economic recovery remains uneven, with market saturation continuing to impact product sales and intensify pricing competition. In other regions like Mexico, elevated interest rates and persistent inflationary pressures are contributing to continued economic uncertainty, leading to delayed capital expenditure decisions and a sustained preference for rental solutions. In Europe, softening economic growth combined with heightened competitive pressures have tempered demand for our products.
To manage these challenges, we are focused on cost control, operational improvements, and diversifying sourcing. We are taking proactive pricing actions alongside supply chain initiatives to mitigate the impact of tariffs and other inflationary pressures. While some margin pressure may persist as the full benefits of our cost-out and pricing initiatives are phased in, we anticipate a gradual improvement in margin rates. At the same time, we are adapting our product and service offerings to meet evolving customer needs, and continuing to invest in innovation to support long-term demand, while maintaining disciplined spending across the organization.
As described in Part I, Item 1A - Risk Factors in the annual report on Form 10-K for the fiscal year ended December 31, 2024, we may encounter financial difficulties if the United States or other global economies experience an additional or continued long-term economic downturn as our product sales are sensitive to declines in capital spending by our customers. Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our
future results of operations, financial position, or cash flows. Changes in foreign currency may also adversely impact our new sales, earnings, and financial condition. We are actively monitoring the global macroeconomic environment, including geopolitical conflict, the potential impact of global supply chain constraints on material inflation, and change in demand for our products.
Outlook
Slower global growth and the uncertain effects of higher tariffs on our international and domestic trade are forcing us to aggressively manage our margins. Our core strategy involves market-based pricing actions and targeted supply chain initiatives, including supplier negotiations, dual sourcing, and logistics shifts, which are critical to mitigating tariff-related cost inflation and other input cost pressures. While near-term results may reflect timing mismatches between the realization of price increases, tariff impacts, and cost-out initiatives, which could pressure margins, our disciplined execution across pricing and cost management remains essential to sustaining profitability and driving long-term margin expansion.
Results
The following table compares the results of operations for the three and nine months ended September 30, 2025 and 2024, respectively (in millions, except per share data and percentages):
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2025 | % | 2024 | % | 2025 | % | 2024 | % | ||||||||||||||||||||||||||||||||||||||||
| Net sales | $ | 303.3 | 100.0 | $ | 315.8 | 100.0 | $ | 911.9 | 100.0 | $ | 957.8 | 100.0 | |||||||||||||||||||||||||||||||||||
| Cost of sales | 173.9 | 57.3 | 182.0 | 57.6 | 528.4 | 57.9 | 543.8 | 56.8 | |||||||||||||||||||||||||||||||||||||||
| Gross profit | 129.4 | 42.7 | 133.8 | 42.4 | 383.5 | 42.1 | 414.0 | 43.2 | |||||||||||||||||||||||||||||||||||||||
| Selling and administrative expense | 96.6 | 31.8 | 92.7 | 29.4 | 281.0 | 30.8 | 275.5 | 28.8 | |||||||||||||||||||||||||||||||||||||||
| Research and development expense | 10.5 | 3.5 | 10.5 | 3.3 | 30.0 | 3.3 | 31.8 | 3.3 | |||||||||||||||||||||||||||||||||||||||
| Operating income | 22.3 | 7.4 | 30.6 | 9.7 | 72.5 | 8.0 | 106.7 | 11.1 | |||||||||||||||||||||||||||||||||||||||
| Interest expense, net | (2.4) | (0.8) | (2.7) | (0.9) | (6.9) | (0.8) | (7.5) | (0.8) | |||||||||||||||||||||||||||||||||||||||
| Net foreign currency transaction (loss) gain | - | - | (0.4) | (0.1) | (1.0) | (0.1) | 0.1 | - | |||||||||||||||||||||||||||||||||||||||
| Other (expense) income, net | (0.5) | (0.2) | - | - | (0.7) | (0.1) | 0.2 | - | |||||||||||||||||||||||||||||||||||||||
| Income before income taxes | 19.4 | 6.4 | 27.5 | 8.7 | 63.9 | 7.0 | 99.5 | 10.4 | |||||||||||||||||||||||||||||||||||||||
| Income tax expense | 4.5 | 1.5 | 6.7 | 2.1 | 15.7 | 1.7 | 22.4 | 2.3 | |||||||||||||||||||||||||||||||||||||||
| Net income | $ | 14.9 | 4.9 | $ | 20.8 | 6.6 | $ | 48.2 | 5.3 | $ | 77.1 | 8.0 | |||||||||||||||||||||||||||||||||||
| Net income per share - diluted | $ | 0.80 | $ | 1.09 | $ | 2.57 | $ | 4.03 | |||||||||||||||||||||||||||||||||||||||
Net Sales
Consolidated net sales for the third quarter of 2025 totaled $303.3 million, a 4.0% decrease as compared to consolidated net sales of $315.8 million in the third quarter of 2024. The components of the consolidated net sales change were as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| 2025 vs. 2024 | |||||||||||
| Price | 2.8% | 1.5% | |||||||||
| Volume | (8.2)% | (6.4)% | |||||||||
| Organic decline | (5.4)% | (4.9)% | |||||||||
| Acquisitions | -% | 0.1% | |||||||||
| Foreign currency | 1.4% | -% | |||||||||
| Total | (4.0)% | (4.8)% | |||||||||
The 4.0% decrease in consolidated net sales in the third quarter of 2025 as compared to the same period in 2024 was driven by:
•Organic sales decline of 5.4% primarily due to volume declines in North America, which lapped a significant backlog-reduction benefit in the prior-year period, partly offset by price realization; and
•A net favorable impact from foreign currency exchange of approximately 1.4% primarily due to the strengthening of the Euro relative to the U.S. dollar.
The 4.8% decrease in consolidated net sales in the first nine months of 2025 as compared to the same period in 2024 was driven by:
•Organic sales decline of 4.9% primarily due to volume declines across all geographies, particularly in North America, which lapped a significant backlog-reduction benefit in the prior-year period, partly offset by price realization; and
•Acquisition-related growth of 0.1% driven by TCS.
The following table sets forth the net sales by geographic area for the three and nine months ended September 30, 2025 and 2024 (in millions, except percentages):
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2025 | 2024 | % Change | 2025 | 2024 | % Change | ||||||||||||||||||||||||||||||
| Americas | $ | 203.6 | $ | 218.7 | (6.9) | % | $ | 614.4 | $ | 662.1 | (7.2) | % | |||||||||||||||||||||||
| Europe, Middle East and Africa | 80.5 | 76.3 | 5.5 | % | 241.2 | 234.6 | 2.8 | % | |||||||||||||||||||||||||||
| Asia Pacific | 19.2 | 20.8 | (7.7) | % | 56.3 | 61.1 | (7.9) | % | |||||||||||||||||||||||||||
| Total | $ | 303.3 | $ | 315.8 | (4.0) | % | $ | 911.9 | $ | 957.8 | (4.8) | % | |||||||||||||||||||||||
Americas
Americas net sales were $203.6 million for the third quarter of 2025, a decrease of 6.9% from the third quarter of 2024 driven by:
•Organic sales decline of 7.0% primarily due to volume declines in North America, a result of lapping a significant backlog-reduction benefit in the prior-year period, and the emerging trend of softening customer sentiment. This was partially offset by price realization; and
•A net favorable impact from foreign currency exchange of approximately 0.1%.
Americas net sales were $614.4 million for the first nine months of 2025, a decrease of 7.2% from the first nine months of 2024 driven by:
•Organic sales decline of 6.4% driven by volume declines, particularly in North America industrial equipment, which lapped a significant backlog-reduction benefit in the prior-year period, partly offset by price realization and volume increases in commercial equipment; and
•A net unfavorable impact from foreign currency exchange of approximately 0.8%.
Europe, Middle East and Africa ("EMEA")
EMEA net sales were $80.5 million for the third quarter of 2025, an increase of 5.5% from the third quarter of 2024 driven by:
•A net favorable impact from foreign currency exchange of approximately 5.9%; partly offset by
•Organic sales decline of 0.4% primarily due to mixed regional performance with volume declines in certain markets, partly offset by volume increases in the UK and southern Europe, and price realization.
EMEA net sales were $241.2 million for the first nine months of 2025, an increase of 2.8% from the first nine months of 2024 driven by:
•A net favorable impact from foreign currency exchange of approximately 2.8%;
•Acquisition-related growth of 0.4% due to TCS; partly offset by
•Organic sales decline of 0.4% primarily due to mixed regional performance with volume declines in certain markets, partly offset by volume increases in the UK, and price realization.
Asia Pacific ("APAC")
APAC net sales were $19.2 million for the third quarter of 2025, a decrease of 7.7% from the third quarter of 2024 driven by:
•Organic sales decline of 6.4% driven primarily by decreased commercial equipment volume in China and industrial equipment volume in South Korea; and
•A net unfavorable impact from foreign currency exchange of approximately 1.3%.
APAC net sales were $56.3 million for the first nine months of 2025, a decrease of 7.9% from the first nine months of 2024 driven by:
•Organic sales decline of 6.3% driven primarily by decreased commercial equipment volume in China and industrial equipment volume in South Korea; and
•A net unfavorable impact from foreign currency exchange of approximately 1.6%.
Gross Profit
Gross profit margin of 42.7% was 30 basis points higher in the third quarter of 2025 compared to the third quarter of 2024. The margin rate improved primarily due to strong price realization driven by strategic pricing actions, supplemented by additional tariff-related pricing adjustments. This was partially offset by lower productivity.
Gross profit margin of 42.1% was 110 basis points lower in the first nine months of 2025 compared to the first nine months of 2024. The margin rate decrease was primarily attributed to a shift in product and customer mix as well as ongoing inflation and lower productivity. This was partly offset by price realization. The prior-year periods include benefits from a significant reduction in the backlog, largely consisting of higher-margin industrial products sold through direct channels.
Operating Expense
Selling and Administrative Expense
Selling and administrative expense ("S&A expense") was $96.6 million for the third quarter of 2025, an increase of $3.9 million compared to the third quarter of 2024. As a percentage of net sales, S&A expense for the third quarter of 2025 increased 240 basis points to 31.8% from 29.4% in the third quarter of 2024. The increase in S&A expense was primarily driven by $6.7 million associated with our strategic investments, $5.3 million of legal contingency costs related to an intellectual property dispute, and $1.3 million in restructuring charges. The increase was partially offset by cost savings realized through lower variable compensation and reduced payroll expense following the restructuring actions executed at the end of the prior year.
S&A expense was $281.0 million for the first nine months of 2025, an increase of $5.5 million compared to the first nine months of 2024. As a percentage of net sales, S&A expense for the first nine months of 2025 increased 200 basis points to 30.8% from 28.8% in the first nine months of 2024. The increase in S&A expense was primarily driven by $19.4 million related to our strategic investments, $5.7 million of legal contingency costs related to an intellectual property dispute, a bad debt charge of $2.5 million, and $2.5 million restructuring-related charges. This was partially offset by lower variable compensation expense.
Research and Development Expense
Research and development expense ("R&D expense") was $10.5 million, or 3.5% of net sales, for the third quarter of 2025, with R&D expense as a percentage of net sales increasing 20 basis points compared to the third quarter of 2024. R&D expense was $30.0 million, or 3.3% of net sales, for the first nine months of 2025, with R&D expense as a percentage of net sales flat to the first nine months of 2024.
We continue to invest in developing innovative products and technologies at levels necessary to propel our technology and innovative leadership position and drive growth.
Total Other Expense, Net
Interest Expense, Net
Interest expense, net was $2.4 million in the third quarter of 2025 compared to $2.7 million in the third quarter of 2024. The following table compares the debt levels, average interest rate, interest income and interest expense for the three and nine months ended September 30, 2025 and 2024, respectively (in millions, except percentages):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Weighted Average Outstanding Borrowings | $ | 220.6 | $ | 213.6 | $ | 213.1 | $ | 213.9 | |||||||||||||||
| Average interest rate | 5.7 | % | 6.5 | % | 5.7 | % | 6.5 | % | |||||||||||||||
| Interest expense | 3.1 | 3.6 | 9.3 | 10.4 | |||||||||||||||||||
| Interest income | (0.7) | (0.9) | (2.4) | (2.9) | |||||||||||||||||||
| Interest expense, net | $ | 2.4 | $ | 2.7 | $ | 6.9 | $ | 7.5 | |||||||||||||||
Our debt portfolio as of September 30, 2025 was comprised of debt predominately in U.S. dollars. The Company manages its floating rate debt exposure using fixed rate interest rate swaps to reduce the Company's risk of the possibility of increased interest costs. The Company has an aggregate $120.0 million notional amount of interest rate swaps that exchange a variable rate of interest for a fixed rate of interest of 4.076% over the term of the agreements.
Net Foreign Currency Transaction Loss
Net foreign currency transaction loss decreased by $0.4 million compared to the third quarter of 2024. Net foreign currency translation loss was $1.0 million in the first nine months of 2025 compared to a gain of $0.1 million in the first nine months of 2024. The unfavorable impact in both periods was primarily due to the strengthening of the Euro relative to the U.S. dollar.
Gain on Sale
We recognized a gain on sale of a building of $0.4 million in the third quarter of 2025. The gain was recorded in other (expense) income, net on our consolidated statements of income.
Income Taxes
The effective tax rate for the third quarter of 2025 was 23.2% compared to 24.4% for the third quarter of 2024. The decrease was primarily due to the recognition of discrete tax benefits from additional research credits recognized in the third quarter of 2025.
The effective tax rate for the first nine months of 2025 was 24.6% compared to 22.5% for the first nine months of 2024. The increase was primarily due to a decrease in discrete tax benefits associated with share-based compensation recognized in the first nine months of 2024.
In general, it is our practice and intention to permanently reinvest the earnings of our foreign subsidiaries and repatriate earnings only when the tax impact is zero or immaterial. No deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of our foreign investments to the U.S.
Liquidity and Capital Resources
Liquidity
Cash and cash equivalents totaled $99.4 million at September 30, 2025 compared to $99.8 million as of December 31, 2024. Wherever possible, cash management is centralized and intercompany financing is used to provide working capital to subsidiaries as needed. Our current ratio was 2.1 as of September 30, 2025 and 2.0 as of December 31, 2024. Our primary working capital, which is comprised of accounts receivable, inventories and accounts payables, was $344.6 million as of September 30, 2025 and $316.0 million as of December 31, 2024. Our debt-to-capital ratio was 27.1% as of September 30, 2025 compared to 24.3% as of December 31, 2024.
As of September 30, 2025, we had letters of credit and bank guarantees outstanding in the amount of $3.2 million, leaving approximately $409.3 million of unused borrowing capacity on our revolving facility.
Cash Flow from Operating Activities
Net cash provided by operating activities during the nine months ended September 30, 2025 was $50.8 million compared to net cash provided by operating activities of $52.2 million during the nine months ended September 30, 2024. The decrease was the result of lower operating performance, partly offset by decreased consumption of working capital.
Cash Flow from Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2025 was $18.3 million compared to net cash used in investing activities of $69.1 million during the nine months ended September 30, 2024. The decrease was primarily due to one-time cash outflows in the prior year related to a $32.1 million investment in Brain, Corp and a $25.7 million net cash outlay for the acquisition of TCS.
Cash Flow from Financing Activities
Net cash used in financing activities during the nine months ended September 30, 2025 was $36.0 million compared to net cash provided by financing activities of $8.1 million during the nine months ended September 30, 2024. The increase was driven by increased repurchases of common stock and lower proceeds from the exercise of stock options, partly offset by lower repayments of borrowings.
Newly Issued Accounting Guidance
See Note 2 to the consolidated financial statements for information on new accounting pronouncements.
In October 2023, the FASB issued ASU 2023-06Disclosure Improvements: Codification Amendmentsin Response to the SEC's Disclosure Update and Simplification Initiative, which aims to clarify or improve disclosure and presentation requirements on a variety of topics and align the requirements in the FASB accounting standard with the Securities and Exchange Commission regulations. This guidance is effective for the Company no later than June 30, 2027. We do not expect the amendments in this update to have a material impact on our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. The amendments in this ASU are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. We are currently evaluating the impact of adoption on our financial disclosures.
In November 2024, the FASB issued ASU 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Topic 220) - Disaggregation of Income Statement Expenses, which requires disaggregation of certain income statement expense captions into specified categories to be disclosed within the notes to the financial statements, but does not change the expense captions on the consolidated income statement. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to consolidated financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the consolidated financial statements. We are evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
No other new accounting pronouncements issued but not yet effective have had, or are expected to have, a material impact on our results of operations or financial position.
Cautionary Statement Relevant to Forward-Looking Information
This Quarterly Report, including "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "project," or "continue" or similar words or the negative thereof. These statements do not relate to strictly historical or current facts and provide current expectations of forecasts of future events. Any such expectations or forecasts of future events are subject to a variety of factors. Particular risks and uncertainties presently facing us include: geopolitical and economic uncertainty throughout the world; our ability to comply with global laws and regulations; changes in foreign currency exchange rates; our ability to adapt to customer pricing sensitivities; the competition in our business; fluctuations in the cost, quality or availability of raw materials and purchased components; our ability to adjust pricing to respond to cost pressures; unforeseen product liability claims or product quality issues; our ability to attract, retain and develop key personnel and create effective succession planning strategies; our ability to effectively develop and manage strategic planning and growth processes and the related operational plans; our ability to successfully upgrade and evolve our information technology systems; our ability to successfully protect our information technology systems from cybersecurity risks; complications with our new Enterprise Resource Planning ("ERP") system; the occurrence of a significant business interruption; our ability to maintain the health and safety of our workers; our ability to integrate acquisitions; our ability to develop and commercialize new innovative products and services; and risks related to our business transformation and strategic initiatives.
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. 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. Additional information about factors that could materially affect our results can be found in Part I, Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 31, 2024.
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 SEC 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.
Tennant Company published this content on November 04, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 04, 2025 at 17:49 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]