TENNANT CO Q4 FY2025 earnings call

• North America ERP go-live in first week of November 2025 had severe system functionality issues, limiting order entry, shipping, and customer service. Lost 3 full weeks of machine order entry and parts shipping capability. Incurred additional costs for overtime, freight, etc. Teams mobilized stopgap procedures but issues were more complex than anticipated.
• Planned to go-live based on testing and readiness, but North American business complexity created unique challenges. Operations disrupted across U.S. facilities, customer impact severe with unfulfilled orders and backlog.
• Financial impact: Q4 net sales reduced by ~$30 million, adjusted EBITDA decreased by ~$22 million. ERP-related spending in 2026 expected to exceed plan.
• Strategic direction remains intact. International teams had solid execution. Launched 4 major new products in 2025, robotics portfolio had ~$85 million in AMR sales. Repurchased shares and increased dividend. Launched dedicated TNC Robotics group to accelerate autonomous robotic cleaning solutions.
• Focus in 2026: restore full operating capability in North America, drive efficiency improvement, scale autonomous portfolio, continue new product introductions, and help customers adopt autonomous solutions.

In the fourth quarter of 2025, consolidated net sales totaled $291.6 million, an 11.3% decrease compared to the fourth quarter of 2024. On a constant currency basis, organic sales declined 13.9%. Americas had a 22.3% organic sales decline due to North America ERP implementation impact and volume declines in Latin America. EMEA had a 3% increase in organic sales driven by equipment volume growth. APAC had an 11% increase in organic sales. Full year 2025 consolidated net sales were $1,203.5 billion, a 6.5% decrease. Americas net sales decreased 10.9%, EMEA increased 5.1%, APAC decreased 3.5%. Service grew 4.7%, parts and consumables were modestly higher, equipment sales declined 11.6%. Adjusted EBITDA for fourth quarter 2025 was $25.6 million, full year 2025 was $167.4 million. Gross margin for fourth quarter 2025 was under pressure, full year 2025 decreased to 40.2%.

For 2026, net sales projected in range of $1.24 billion to $1.28 billion (organic growth 3% to 6.5%). Adjusted EBITDA projected in range of $175 million to $190 million (margin 14.1% - 14.8%). Adjusted EPS projected $4.70 to $5.30 per diluted share. ERP-related operational challenges expected early in 2026, with return to normalized operating rhythm by midyear. Margin performance expected to improve gradually through the year, first quarter generally aligned with Q4 2025 run rate, then progressive expansion. Guidance reflects full year impact of known tariffs, increase in S&A and R&D spending, and flowing incremental resources for robotics growth.

ERP implementation issues caused significant operational disruption, including inability to enter orders, ship products, and service customers for 3 weeks. Unforeseen complexity and scale of North American business led to longer disruption than anticipated. Customer impact with unfulfilled orders and loss of some sales. Potential permanent customer loss due to the ERP issues. Legal contingency for OWT intellectual property dispute increased damages in 2025, although not expected to affect long-term financial performance significantly. Macroeconomic uncertainties and impact of Supreme Court's tariff ruling on guidance.

Q: Is the system stable these days?

A: Dave Huml says they are stable in terms of big 5 processes like booking orders, building, shipping, invoicing and collecting, but working on remnants of stability and efficiency.

Q: What about the $30 million impact to sales in the fourth quarter?

A: Fay West says about $15 million is in backlog and the other $15 million, roughly 1/3 is parts, consumables and service which is difficult to regain.

Q: FY '26 objectives for Robotics group?

A: Dave Huml says focus on accelerating NPD road map, improving adoption efficiency, demonstrating ROI, and capturing and generating demand.

Q: How about AMR margins versus traditional units?

A: Dave Huml says costs of robotics components are coming down, but seeing pricing pressure from competitors.

Q: First part of '26 and margin progression?

A: Fay West says Q1 impacted by physical inventory shutdown, margin comparable to Q4 2025, then ramp-up in Q2 and significant improvement in second half.

Q: Decision process on not disclosing ERP issues earlier?

A: David Huml says they were in triage mode to understand magnitude and implications, didn't know impact until close.

Q: Potential for permanent customer loss?

A: David Huml says aware of lost sales, working with customers, and expects to claw back market share.

Q: Thoughts on buyback?

A: David Huml says will continue share buybacks if stock is attractive and no strategic M&A opportunity.

Q: Change to Board structure?

A: David Huml says added 2 new directors, moved towards non-staggered Board, and had constructive conversations with Vision One.