Tennant Q3 Earnings Call Highlights

Tennant NYSE: TNC reported record third-quarter sales as demand growth, expanding robotics revenue and improving operational execution helped offset continued inflation, parts availability constraints and residual effects from its North American ERP implementation.

Net sales rose 6.2% year over year to $322.3 million, including 5.7% organic growth. Volume contributed 4.1 percentage points of organic growth and pricing added 1.6 percentage points. Orders increased 9.5%, led by an 18% increase in North America, while the company ended the quarter with $118 million in backlog, down $9 million from the end of the second quarter.

“Our third quarter showed clear progress,” President and CEO Dave Huml said. “Order demand continues to be robust. We are rapidly growing our robotics business. Our ERP recovery efforts are reading out, and our operational performance continues to improve.”

Regional Sales Trends and Margin Performance

Organic sales in the Americas increased 8.1%, including 8.6% growth in North America. The company cited broad-based demand across industrial and commercial portfolios, with robotics, equipment demand, service and other categories contributing to growth. Latin America posted 2.8% organic sales growth after an “exceptional” first half, according to CFO Fay West.

EMEA organic sales rose 2.3%, its strongest quarter of the year, as pricing turned positive and most European markets generated higher volume. However, regional orders declined 9% after softening in August. Huml said Tennant is focused on rebuilding its opportunity funnel while maintaining pricing discipline and expects sequential improvement in EMEA orders in the fourth quarter.

APAC organic sales fell 4.8%, though the decline improved from the second quarter. Orders in the region increased 7%, but Tennant said soft demand in China, Australia and portions of Southeast Asia continued to keep distributor inventories elevated and delay deal conversions. The company is reassessing its domestic China commercial strategy.

Third-quarter gross margin was 42.3%, compared with 42.7% a year earlier, but included approximately $6 million in tariff refunds related to prior-period payments following changes in IEEPA tariff regulations. Excluding that benefit, normalized gross margin was approximately 40.4%, up from 39.5% in the second quarter and ahead of management’s prior expectations.

West said pricing realization in North America and EMEA was the principal reason normalized margin exceeded expectations. Still, year-over-year margins remained under pressure from higher freight and material costs associated with the Middle East conflict, parts shortages, production inefficiencies and ERP-related costs.

Adjusted EBITDA was $48.8 million, or 15.1% of sales, versus $49.8 million, or 16.4% of sales, a year earlier. Excluding tariff refunds, adjusted EBITDA was approximately $42.7 million, or 13.2% of sales, improving from 10.9% in the second quarter.

ERP Costs Decline as Company Shifts Toward Optimization

Tennant said its North American ERP recovery efforts continued to advance. ERP-related cost-of-sales inefficiencies fell to about $2 million in the third quarter from roughly $10 million in the first half. The company expects fourth-quarter ERP-related inefficiencies to be $2 million or less.

Huml said the remaining work is concentrated in extended warehouse management, invoicing and collections, customer master data, and the company’s longer-term support model. While prior ERP issues disrupted demand signals to suppliers and contributed to expedited freight and lost production time, he said those core issues have been corrected and Tennant is now addressing their residual effects.

“The target is not just to get back to pre-go-live efficiency and productivity,” Huml said. “It’s to capture the full efficiency we envisioned when we made the investment.”

The company also said it will not proceed with its planned ERP deployment in EMEA. Instead, it intends to pursue smaller system, data-quality and continuous-improvement projects in the region while concentrating resources on optimizing the North American platform.

Robotics Revenue Rises 71% as Product Portfolio Expands

Robotics revenue increased 71% to $37 million during the quarter, accelerating from 37% growth in the second quarter. Year-to-date robotics revenue reached $95.3 million, exceeding Tennant’s full-year 2025 robotics revenue total.

The X4 and X6 robots led growth, including demand from new customers and existing customers transitioning from earlier-generation platforms. Tennant reaffirmed its expectation for 2026 robotics revenue of $130 million to $145 million and said it remains on track toward its target of $250 million in robotics revenue by 2028.

The company also outlined a two-tier robotics strategy. Its premium X-series products use Tennant equipment and service capabilities alongside Brain Corp’s autonomy platform. Tennant and Brain Corp extended exclusivity for next-generation robotic floor care for three years, and Tennant said it is on pace to introduce 10 new products within 24 months.

During the quarter, Tennant launched the X2 ROVR and X16 SWEEP, which management said have developing order books. The X2 began shipping in the third quarter, while the X16 began shipping in the fourth quarter.

Tennant also introduced the Performance Series, aimed at customers seeking lower-cost, application-specific robotic cleaning products. Its first product, the P1 VAC, is Tennant’s first autonomous robotic vacuum and is intended for commercial soft-floor cleaning. The product launched in October and began shipping in the fourth quarter.

Guidance Reaffirmed Despite Inflation and Availability Risks

GAAP net income rose to $19.5 million, or $1.12 per diluted share, from $14.9 million, or $0.80 per diluted share, in the prior-year quarter. Adjusted diluted earnings per share declined to $1.40 from $1.46. The company cited lower ERP project costs and the absence of prior-year legal contingency costs as contributors to the increase in GAAP earnings.

Tennant reaffirmed its full-year 2026 outlook:

• Net sales of $1.27 billion to $1.31 billion
• Organic sales growth of 3.5% to 7%
• Adjusted EBITDA of $155 million to $170 million
• GAAP diluted EPS of $2.15 to $2.80
• Adjusted diluted EPS of $3.80 to $4.45

At the midpoint, the outlook implies fourth-quarter sales of about $346 million and adjusted EBITDA of about $49 million, or roughly 14% of sales. Management expects roughly half of the sequential sales increase to come from backlog conversion, with the remainder supported by new orders and anticipated EMEA improvement during a seasonally stronger period.

The company said gross margins will continue to face material inflation and elevated freight costs, and identified the pace of backlog conversion and EMEA order recovery as key fourth-quarter variables. Tennant also increased its quarterly dividend 5% to $0.325 per share.

About Tennant (NYSE:TNC)

Tennant Company is a manufacturer of cleaning equipment and technologies for commercial, industrial and institutional customers. Its product portfolio includes floor scrubbers, sweepers, combination machines, carpet extractors, outdoor cleaning equipment and related vacuum systems. The company also offers cleaning solutions, replacement parts, maintenance programs and other services designed to support facility-management operations.

Tennant develops technology aimed at improving cleaning efficiency and reducing environmental impact.

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