Tennant Company (NYSE:TNC) Q4 2022 Earnings Call Transcript

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Dave Huml: Yes. So on this topic of order €“ and I apologize, you brought up Equipment as a Service in the prior question. From an order cancellation perspective, we have not seen any material order cancellations. It’s kind of the rare exception. I attribute that to the fact that we’re booking orders and the customer has full knowledge of our lead times. So they are fully aware of how long they are going to have to wait to get the product. So it’s not like it’s a fade-in switch situation where they believe one thing and then they are surprised. So we’re seeing very few cancellations. I’m sure there is some percentage of our order bookings that are buy ahead of price increases as well as trying to get in queue for future demand.

Time will tell how much of that is kind of pull forward in demand versus real in-period demand. But I’m sure that dynamic exists. From a sell-down perspective, there are some instances where we just couldn’t get a Tennant branded product in the lead time the customer needed. And so luckily, we had the IPC or the Gaomei branded mid-tier products to slot in and satisfy the customer. I would say that was again, that was an exception rather than a rule. So we haven’t seen the market sort of trading down because of economic pressure or inflation pressure on their business. We’ve largely seen it hold is a mix that we would expect from a Tennant brand versus kind of other branded products in our portfolio. And Equipment as a Service is a really compelling value proposition for some customers €“ we’ve been very successful with it in specific targeted geographies.

And It provides a lower entry point, for example, for a building service contractor and they can link their operating expense to the cleaning contract revenue and be more in control of their profitability by assigning not only the title of the asset, but also the responsibility for keeping it running from a service perspective over to Tennants. We’re learning a lot in those geographies about which customers find it most compelling as a business model or as a value proposition. And then as importantly, because the burden, the risk shifts to us to make sure that, that’s a profitable venture, we’re learning a lot about how to set ourselves up from a service perspective and an aftermarket support perspective to make sure that, that’s a very compelling proposition for us from a profitability perspective.

So I would say we’re learning a lot. We’re modeling to make sure that we’re very pleased with not only the market share gain, but also the profitability profile. And we’re optimistic. I think Equipment as a Service in some targeted applications, targeted geographies that could make a lot of sense both for Tennant and for our customers.

Tim Moore: Great. Thanks for that color and detail, and that’s it for my questions.

Dave Huml: Thanks, Tim.

Operator: There are no further questions at this time. I would now like to turn the call back over to management for closing remarks.

Dave Huml: Thank you all for your participation today, and thank you for your continued interest in Tennant Company. This concludes our earnings call. Have a great day.

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