Tennant Company (TNC) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals several concerning factors: a significant decline in adjusted EBITDA and gross margin, decreased cash flow, and ERP-related challenges. Although there is optimism for future margin improvement and robotics growth, the Q&A highlights unrecoverable sales impacts and potential permanent customer loss due to ERP issues. While share repurchases and dividend increases are positive, the overall sentiment is negative due to financial underperformance and operational uncertainties. Given the company's small market cap, the stock is likely to experience a negative reaction in the short term.
Key Financial Performance
Orders Reduced by approximately $15 million year-over-year due to challenges in parts, consumables, and equipment demand caused by ERP system issues.
Net Sales Decreased by $30 million year-over-year, with half of the shortfall due to lower order intake and the other half due to backlog activity.
Gross Margin Pressured by $13.5 million from sales shortfall and $8.5 million from operational inefficiencies, higher labor and freight costs, and deleverage.
Adjusted EBITDA Reduced by $22 million year-over-year due to ERP implementation challenges.
ERP Project Costs Since 2023, approximately $98 million invested, with 2025 spending broadly in line with plan but requiring additional stabilization resources in Q4.
GAAP Net Income (Q4 2025) Reported a net loss of $4.4 million compared to $6.6 million net income in Q4 2024, primarily due to ERP-related disruptions.
Full Year GAAP Net Income (2025) Decreased to $43.8 million from $83.7 million in 2024, driven by a 6.5% decrease in net sales and gross margin contraction.
Adjusted EPS (Q4 2025) Decreased to $0.48 per diluted share from $1.52 per diluted share in Q4 2024, reflecting ERP-related disruptions.
Adjusted EPS (Full Year 2025) Decreased to $4.57 per diluted share from $6.57 in 2024, reflecting lower sales and margin pressures.
Consolidated Net Sales (Q4 2025) Totaled $291.6 million, an 11.3% decrease year-over-year, primarily due to ERP implementation issues and softer demand in the Americas.
Consolidated Net Sales (Full Year 2025) Decreased by 6.5% to $1,203.5 billion from $1,286.7 billion in 2024, driven by lower North American volumes and ERP transition impacts.
Adjusted EBITDA (Full Year 2025) Decreased by $41.4 million year-over-year to $167.4 million, primarily due to decreased operating performance in Q4.
Gross Margin (Full Year 2025) Decreased by 250 basis points to 40.2%, driven by lower volume, unfavorable mix, and ERP-related challenges.
Cash Flow from Operations (2025) Decreased to $65 million from $89.7 million in 2024, due to lower operating performance, increased ERP expenditures, and higher working capital consumption.
Free Cash Flow (2025) Delivered $43.3 million, including $59.1 million ERP investment, with a 157% conversion of net income to free cash flow excluding ERP-related cash flows.
Share Repurchases (2025) Repurchased approximately 1.1 million shares for $88 million, reducing outstanding shares by about 6%.
Dividends (2025) Paid $21.9 million in dividends, marking the company's 54th consecutive annual dividend increase.
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Operating Highlights
Launch of new products: Tennant launched 4 major new products in 2025, contributing to innovation and growth.
Robotics portfolio: The robotics portfolio delivered approximately $85 million in AMR sales, including recurring autonomy fees.
Dedicated TNC Robotics group: A new organization was launched to accelerate the adoption and scaling of autonomous robotic cleaning solutions, aiming for $250 million in AMR revenue by 2028.
Global market performance: EMEA grew 5.1% year-over-year, supported by price realization and steady commercial execution. APAC showed improved performance late in the year, with growth in Australia and India offsetting softer demand in East Asia.
ERP system implementation: The North America ERP go-live in November 2025 caused severe operational disruptions, including a 3-week inability to process orders and ship products, leading to a $30 million impact on net sales and $22 million reduction in adjusted EBITDA.
Operational recovery: Efforts are underway to stabilize the ERP system, with improvements expected by Q1 2026 and efficiency gains into Q2.
Capital allocation: Tennant repurchased 1.1 million shares for $88 million and increased dividends for the 54th consecutive year, reflecting disciplined capital allocation.
Strategic focus on robotics: The formation of the TNC Robotics group aligns with enterprise growth pillars, focusing on accelerating autonomous product development and commercialization.
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Risk or Challenges
ERP System Implementation: The North America go-live of the new ERP system caused severe system functionality issues, disrupting order entry, production sequencing, and shipping. This led to a three-week loss of machine order entry and parts shipping capability, resulting in operational inefficiencies, increased costs, and customer dissatisfaction.
Operational Disruption: The ERP cutover disrupted operations across all three U.S. production and distribution facilities, leading to additional overtime, freight, and direct operating costs. This prolonged disruption strained production and distribution capabilities.
Customer Impact: The inability to fulfill orders and provide reliable shipment visibility during November caused significant customer dissatisfaction and strained relationships. Parts and consumables businesses were particularly affected.
Financial Impact: The ERP challenges reduced Q4 net sales by $30 million, with $15 million in lost orders and $13.5 million in gross margin impact. Adjusted EBITDA was negatively affected by $22 million, and additional ERP stabilization costs are expected to exceed initial plans by $15 million in 2026.
Future ERP Implementation Risks: The North America ERP experience has delayed the EMEA go-live, with no new timeline set. This pause reflects the need to prioritize North America recovery and mitigate risks in future implementations.
Legal Contingency: An updated legal contingency for the OWT intellectual property dispute increased damages by 30%, raising the total judgment to $20.2 million. This adds financial strain and legal uncertainty.
Tariff Costs: Higher material costs due to unmitigated tariff costs and inflationary pressures have impacted gross margins and are expected to continue affecting financial performance in 2026.
Macroeconomic and Demand Challenges: Softer industrial demand in North America and parts of East Asia, combined with inflationary pressures, have negatively impacted sales and margins.
Competitive Pressures in Robotics: The AMR market is becoming increasingly competitive, with new entrants challenging Tennant's position. This requires accelerated innovation and investment to maintain market leadership.
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Guidance & Outlook
ERP System Stabilization: The company expects to achieve system stability in North America by the end of Q1 2026, with efficiency improvements continuing into Q2. The EMEA ERP implementation timeline has been paused to prioritize North America recovery.
2026 Financial Guidance: Net sales are projected to be in the range of $1.24 billion to $1.28 billion, reflecting organic sales growth of 3% to 6.5%. Adjusted EBITDA is expected to range between $175 million and $190 million, with an adjusted EBITDA margin of 14.1% to 14.8%. Adjusted EPS is projected to be between $4.70 and $5.30 per diluted share.
Robotics and Autonomous Solutions: The company expects continued momentum in its robotics and autonomous solutions, projecting AMR revenue to reach approximately $250 million by 2028. Efforts will focus on accelerating development, commercialization, and customer adoption.
Gross Margin and Operational Efficiency: Gross margin is expected to improve gradually through 2026, supported by a return to favorable product and customer mix, cost savings initiatives, and strategic pricing actions. Operational efficiency is anticipated to normalize by mid-2026.
Capital Allocation and Investments: The company plans to continue disciplined capital allocation, including investments in robotics growth and strategic initiatives, while maintaining share repurchases and dividends. ERP-related spending in 2026 is expected to exceed $20 million.
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Shareholder Return Plan
Dividend Program: The company has committed to returning capital through dividends, including the 54th consecutive annual dividend increase in 2025. A total of $21.9 million was returned to shareholders in the form of dividends.
Share Repurchase Program: In 2025, the company repurchased approximately 1.1 million shares for $88 million, reducing outstanding shares by about 6%. This was part of a disciplined capital allocation strategy to enhance shareholder value.
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Key Q&A
Q:Would you call the ERP system stable as of the end of February or March?
A:The ERP system is stable in terms of the big 5 processes: booking orders, building, shipping, invoicing, and collecting. However, there are still remnants of stability and efficiency issues, and employees are still adapting to the new system. Compared to the first three weeks of November, the system is far more stable.
Q:Of the $30 million impact to sales in Q4, how much is unrecoverable?
A:Roughly half of the $30 million impact, or $15 million, is considered unrecoverable. This is primarily due to the loss of parts, consumables, and service sales, which are difficult to regain.
Q:What are the FY '26 objectives for the Robotics group?
A:The Robotics group aims to accelerate growth, with a target of $250 million in sales by 2028. Key objectives include accelerating the NPD roadmap, improving adoption efficiency, demonstrating ROI to customers, and generating demand. The group will focus on faster product deployment, broader market reach, and enhancing customer experience.
Q:How will gross margins progress through FY '26?
A:Gross margins in Q1 of FY '26 are expected to be comparable to Q4 of FY '25 due to physical inventory and ramp-up costs. However, sequential and year-over-year gross margin growth is anticipated, driving EBITDA margin expansion.
Q:How have AMR margins improved compared to traditional units?
A:AMR costs are falling due to broader adoption of enabling technologies like LiDAR and high-def cameras. While margins need to be monitored, the focus is on gaining unit share and offering competitive pricing. The cost reductions allow for better ROI for customers.
Q:Are there pricing pressures from new competitors in the robotics space?
A:Yes, there is pricing pressure, especially from upstart robotics-only competitors. These competitors are agile and focused on gaining unit volumes. Tennant is addressing this by ensuring competitive pricing and enhancing its value proposition.
Q:What is the outlook for the first part of FY '26, especially Q1?
A:Q1 will be impacted by facility shutdowns for physical inventory and ramp-up, leading to sales and margin impacts. Sales are expected to recover within the year, with significant improvement in the second half as efficiency stabilizes.
Q:Why were material ERP issues not disclosed earlier to shareholders?
A:The company was in triage mode and did not fully understand the magnitude of the challenges or the potential for recovery until the books were closed in January. The decision to disclose was made as soon as the full impact was known.
Q:Is there a risk of permanent customer loss due to ERP issues?
A:While some sales are considered permanently lost, the company has maintained communication with most customers. Efforts are being made to rebuild trust and recover lost business. The guidance reflects the anticipated recovery over a two-year period.
Q:How is the company approaching share buybacks given the current stock price?
A:The company is open to buybacks if no strategic M&A opportunities are imminent and the stock price is attractive. They aim to maintain leverage within 1x to 2x and may flex this if the stock price presents a buying opportunity.
Q:What changes have been made to the Board structure and composition?
A:Two new directors, Jim Glerum and Patrick Allen, have been added to the Board. The company has committed to moving away from a staggered Board starting in 2027. These changes were part of a constructive engagement with Vision One.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing the potential for permanent customer loss in detail, providing general assurances about customer communication and recovery efforts. Additionally, the explanation for the delayed disclosure of ERP issues lacked clarity on why the magnitude of the problem could not be estimated earlier.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
America ERP
ERP implementation
ERP modernization
ERP spending
ERP system
ERP transition
India
Relations Tennant
Results Conference
SA
SGA
Tennant Results
adoption
challenge ERP
consumables equipment
cutover date
date production
debt expense
decrease sale
development
disruption
efficiency
experience
impact
increase sale
issue
labor
live
margin pressure
partner
percentage sale
recovery
ruling
scale
stabilization
strength
support
system week
team
TNC Transcript
Tennant Company (TNC) Q4 2025 Earnings Call Transcript
Unknown2-24
The earnings call reveals several concerning factors: a significant decline in adjusted EBITDA and gross margin, decreased cash flow, and ERP-related challenges. Although there is optimism for future margin improvement and robotics growth, the Q&A highlights unrecoverable sales impacts and potential permanent customer loss due to ERP issues. While share repurchases and dividend increases are positive, the overall sentiment is negative due to financial underperformance and operational uncertainties. Given the company's small market cap, the stock is likely to experience a negative reaction in the short term.
Tennant Company (TNC) Q3 2025 Earnings Call Transcript
Unknown11-4
The earnings call reveals mixed signals: a modest increase in adjusted net income and EPS, but declines in regional sales and persistent tariff-related challenges. The Q&A highlights confidence in meeting Q4 guidance, yet acknowledges customer uncertainty and delayed purchases. Management's lack of specific future guidance raises concerns. Overall, the sentiment is neutral, with positive elements like product innovation and share repurchases balanced by macroeconomic pressures and regional sales declines.
Tennant Company (TNC) Q2 2025 Earnings Call Transcript
Unknown8-9
The earnings call summary and Q&A reveal several negative factors: declining sales and EPS, reduced gross margin, and lower EBITDA, despite a robust opportunity pipeline and strategic initiatives. The company's guidance reflects an organic sales decline, and there's uncertainty around economic conditions and potential semiconductor tariffs. Although there are positive aspects like cash flow improvement and strategic market entry, the overall sentiment leans negative due to financial declines and cautious outlook, especially for a small-cap stock with a market cap of $1.85 billion.
Tennant Company (TNC) Q1 2025 Earnings Call Transcript
Unknown5-1
The earnings call reveals several negative factors: decreased net sales, adjusted EBITDA, and GAAP net income, alongside increased ERP costs and restructuring charges. Gross margin decline and negative free cash flow further add to concerns. Although shareholder returns were positive, the Q&A indicates management's uncertainty regarding margin improvement, tariff impacts, and demand responses to price hikes. Despite some positive developments like the Clean 360 program, the overall sentiment leans negative, especially given the market cap's sensitivity to these factors.
TNC Slides
TNC Report
Frequently Asked Questions
Where does this earnings call transcript come from?
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
