Good morning. My name is Sheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's 2021 Fourth Quarter and Full Year Earnings Conference Call. Thank you for participating in Tennant Company's 2021 Fourth Quarter and Full Year Earnings Conference Call. Beginning today's meeting is Ms. Fay West, Senior Vice President and Chief Financial Officer for Tennant Company. Ms. West, you may begin.

Good morning, everyone, and welcome to Tennant Company's Fourth Quarter and Full Year 2021 Earnings Conference Call. I am Fay West, Senior Vice President and CFO. Joining me on the call today is Dave Huml, Tennant's President and CEO. Today, we will update you regarding our fourth quarter and full year performance and our guidance for 2022. Dave will brief you on our operations and enterprise strategy, and I will cover the financials. After our prepared remarks, we will open the call to questions. Please note that a slide presentation accompanies this conference call and is available on our Investor Relations website at investors.tennantco.com. Before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we file with the Securities and Exchange Commission. We encourage you to review those documents, particularly our safe harbor statement for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call, we will discuss non-GAAP measures that include or exclude certain items. Our 2021 fourth quarter earnings release includes the comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results. Our earnings release was issued this morning via Business Wire and is also posted on our Investor Relations website at investors.tennantco.com. I'll now turn the call over to Dave.

Thanks, Fay, and thank you, everyone, for joining us today. As we look back on 2021, the way in which global teams responded to an extremely challenging operating environment, which included unexpected and prolonged global supply disruptions, inflation, and labor constraints, allowed Tennant to deliver record earnings performance. While we expect macroeconomic headwinds to persist throughout the year, our 2021 performance demonstrates our ability to execute in this environment and positions us to deliver on our full year target for 2022. We are encouraged by current demand trends. Tennant's strong full year performance was driven by prepandemic levels of order rates across our global markets. In 2021, our sales grew by 9.1% on an organic basis, which excludes the effects of foreign currency exchange and divestitures. Our comprehensive and innovative product and solution-oriented offerings are resonating with customers, and we expect this demand environment to continue for the foreseeable future. While we face ongoing industry-wide supply chain disruptions and inflation, our 2021 results were in line with our revised guidance, and we delivered adjusted EBITDA of $140.2 million and a 100 basis point improvement in adjusted EBITDA margin. Moreover, our record open order position and strength in 2021 have provided momentum into 2022. Supported by current demand trends, our commitment to innovation and our disciplined focus on cost reductions and manufacturing efficiencies, we remain confident in our ability to drive long-term sustainable growth and operational efficiency to generate value for our shareholders. We generated cash flow from operations of close to $70 million, and after investing $19 million in capital expenditures, we returned over 60% of net cash to our shareholders in 2021 through dividends and share repurchases. In 2021, we increased our quarterly dividend by 9%, marking the 50th consecutive year that Tennant has increased its annual cash dividend. For full year 2022, we anticipate organic net sales growth between 4.5% and 8.5% and adjusted EBITDA between $145 million and $160 million, although we expect some margin compression in 2022. Fay will go into more detail later in the call. We continue to take steps to maximize our output worldwide and to safeguard the customer experience. To minimize the impact of higher freight costs and supply disruptions, we are prioritizing local-for-local and region-for-region manufacturing and sourcing in order to manufacture our products closer to our customers. Also, our supply chain team has undertaken significant countermeasures to mitigate interruptions and expand capacity in the future. Some of these actions include increased supplier purchase commitments and safety stock inventory, extended visibility of production forecasts, expanded fuel sourcing supply options, and deeper integration into our suppliers' supply chain design. Our efforts extend beyond short-term mitigation and include the lasting improvements we continue to make as part of our enterprise growth strategy. Much of our success in 2021 would not have been possible without the foundational improvements made in prior periods and the focus this strategy creates for our organization. As you may recall, this strategy is based on three pillars: to win where we have a competitive advantage, to reduce complexity and build scalable processes, and to innovate for profitable growth. The first pillar, win where we have a competitive advantage, began in 2020 with critically important foundational work. In 2021, it led to the profitable sale of our Coatings business, as well as the expansion of successful value capture programs in specific geographies, resulting in targeted areas of margin expansion. Turning to the second pillar, reduce complexity and build scalable processes. The pandemic-related challenges over the last two years have compelled us to accelerate this initiative, particularly for our local-for-local programs. Our localization efforts align to our long-term strategy and help us to mitigate the current transportation challenges. At the same time, it has led to new supplier relationships and enabled dual-source opportunities that minimize production bottlenecks. Additionally, we have multiple line move and production capacity shift projects underway to optimize our operations. Our engineering teams have launched new value engineering projects that yield tactical and strategic benefits, ranging from cost mitigation to reduction in SKUs. The implementation of our enterprise strategy is a continuous process, particularly with respect to the third pillar, innovate for profitable growth. This means leveraging innovation to unlock value for our customers and for Tennant. A great example is Tennant's new Inventory Scan, the first add-on for our robotic floor scrubbers that provides multipurpose autonomous solutions specifically for retailers. Inventory Scan is an integrated solution that enables Tennant's floor scrubbers to autonomously scan on-shelf inventory and to collect data in real time to enhance inventory management and operations. In addition to the near-term opportunity of partnering with value customers, Inventory Scan also represents an exciting move for Tennant Company into an attractive adjacency. We remain laser-focused on winning new customers and serving our existing customers as they grow and expand. For instance, we have recently expanded our partnership with Sunbelt Rentals, the premier rental equipment company in North America. Sunbelt Rentals offers a highly diversified product mix, including general construction equipment, industrial tools, power generation, and, of course, floor scrubbers and sweepers, which we have provided to Sunbelt for more than 15 years. Tennant has been Sunbelt Rentals' exclusive strategic provider of floor care equipment, and we will now support their network of dedicated floor care centers, which will serve as one-stop shops for their customers in need of cleaning solutions. Sunbelt Rentals is a valued strategic partner, and the relationship has been mutually beneficial, particularly with respect to lead generation. In short, we remain committed to providing our customers with high-quality products and exceptional service as we execute on our enterprise strategy, and we will continue to take decisive and appropriate actions to maintain our customer experience while pursuing our growth objectives. With that, I will turn the call over to Fay for a discussion of our financials.

Thank you, Dave. Fourth quarter net income was $7.9 million, up $5.2 million from the prior year. SG&A was lower in Q4 2021, due in part to strong cost containment efforts as well as the absence of nonrecurring strategic investments made in the prior year. Additionally, current year results benefited from lower interest expense due to the refinancing of debt. For the full year, we delivered record net income of $64.9 million compared to $33.7 million in the year-ago period. Strong sales, coupled with solid operating performance and lower interest expense, contributed to the year-over-year increase. Fourth quarter adjusted earnings per diluted share was $0.71 compared to $0.48 per diluted share in the prior year period. Full year 2021 adjusted earnings per diluted share was $4.39 compared to $2.91 in 2020, an increase of $1.48 per diluted share. Adjusted earnings per share numbers exclude amortization and restructuring charges as well as the gain on sale from the Coatings business and debt extinguishment costs. For the full year 2021, Tennant reported net sales of $1.09 billion compared to $1 billion for 2020, up 9.1% on an organic sales basis. Foreign currency was a favorable driver year-over-year and comparisons between periods were also impacted by the sale of the Coatings business in the first quarter of 2021. The increase in net sales was primarily driven by strong demand in our end market and in part by increased price realization. All regions demonstrated positive organic growth on a year-over-year basis. Moreover, growth was fairly consistent throughout the year, which is a testament to the efforts of our global team in addressing record demand in the wake of significant supply chain disruptions. As you may know, Tennant grouped its sales into three geographies: the Americas, which includes all of North America and Latin America; EMEA, which covers Europe, the Middle East, and Africa; and Asia Pacific, which includes China, Japan, Australia, and other Asian markets. For the full year 2021, sales in the Americas grew 4.3% year-over-year or 7.4% organically. Growth drivers include service, parts, and consumables, as well as strong industrial sales in North America. At the same time, strong organic growth in Latin America was driven by industrial sales in Brazil and the sale of IPC branded products in Mexico. Sales in EMEA grew 19.3% year-over-year or 14.2% organically, with demand and order backlog strengthening throughout the year. Results reflected growth across all countries and product categories. Sales in Asia Pacific increased 9.6% year-over-year or 5.6% on an organic basis. Strong demand in Australia and Korea more than offset the decline in China, which was impacted by supply chain disruptions and labor constraints. Looking at adjusted EBITDA, adjusted EBITDA for the full year 2021 was $140.2 million or 12.9% of sales compared to $119.4 million or 11.9% of sales in 2020. We are pleased with our ability to convert a 9.1% organic sales increase to a 100 basis point improvement in our adjusted EBITDA margin, especially in a year where we experienced such inflationary headwinds in material, manufacturing, and freight costs. These headwinds contributed to a year-over-year 90 basis point decrease in adjusted gross margin to 40.2% in 2021. Adjusted S&A expenses were 29.2% of net sales compared to 30.9% in the year-ago period. The year-over-year improvement in leverage was a result of continued cost-saving actions and lapping the previously mentioned strategic investments in the year-ago period. Overall, we are pleased with our full year adjusted EBITDA performance, which was the result of our ability to capture volume, deliver on net price realization, and manage expenses. Turning now to our fourth quarter performance. For the fourth quarter of 2021, Tennant reported net sales of $276.4 million, up 4.5% year-over-year on an organic basis. While we were encouraged to see price realization ramp up and read-through in the fourth quarter, the impact was somewhat muted given our existing backlog. Foreign currency impacts from the strengthening U.S. dollar and the sale of the Coatings business were unfavorable drivers year-over-year. In the fourth quarter, sales in the Americas grew 1.3% year-over-year or 4.9% organically despite widespread supply chain challenges and labor constraints. Growth drivers included service parts and consumables and strong industrial sales in North America. At the same time, strong organic growth in Latin America was driven by industrial sales in Brazil and the sales of IPC branded products in Mexico. Sales in EMEA were up 3.9% year-over-year or 7.4% organically with demand and order backlog continuing to strengthen. Tennant achieved growth across all product categories and markets, except for France, which was more heavily impacted by supply constraints. Sales in APAC declined 7.5% or 7.2% on an organic basis. The decline was attributed in part to supply chain disruptions and labor constraints in China, with new pandemic-related shutdowns in the region, the impact of which was partially offset by strong demand in Korea and Australia. Turning to adjusted EBITDA, adjusted EBITDA for the fourth quarter of 2021 was $28.4 million or 10.3% of sales compared to $25.4 million or 9.3% of sales in 2020. We were able to achieve a 100 basis point improvement in our adjusted EBITDA margin. Parts availability and inflationary pressures were particularly acute in the quarter as adjusted gross margin declined by 460 basis points from the prior year period to 36.7%. During the fourth quarter, our adjusted S&A expenses were 28.1% of net sales compared to 33.9% in the year-ago period. Drivers for the quarter were consistent with those of the full year. Turning to capital deployment. In 2021, we generated operating cash flow of approximately $69 million, which reflects strong operating performance and incremental investments in working capital, specifically inventory. The cash flow generation allowed us to make good progress on our capital allocation initiatives. CapEx of approximately $90 million in 2021 was lower than guidance as capital investment activity was impacted by supply chain constraints and has shifted slightly into 2022. As we discussed in our previous conference call, we refinanced our debt, which both extended our maturity profile and lowered our cost of debt. The interest rate savings resulting from the debt refinancing are in excess of $12 million on an annual basis. Additionally, we reduced debt outstanding by approximately $44 million. We ended the quarter with net leverage of 1x adjusted EBITDA, which is lower than our stated goal of 1.5 to 2.5x. We also returned capital to our shareholders in 2021 by paying approximately $17.5 million in annual dividends and by repurchasing approximately 197,000 shares of our common stock for $15 million under our existing share repurchase authorization. In total, we ended 2021 with a cash balance of approximately $124 million and strong liquidity of approximately $403 million, setting the stage for continued progress against our capital allocation priorities. We continue to be disciplined in our capital allocation strategy, which is first to fund operations and investments for growth, appropriately manage leverage, pursue strategic and accretive M&A, and then to return excess free cash flow over time to shareholders through dividends and share repurchases. Switching gears, I would now like to talk about our guidance expectations for 2022. As Dave mentioned, our guidance for the full year 2022 reflects what continues to be an uncertain operating environment with macro-level happenings that are likely to persist for much of the year. We anticipate that supply chain constraints such as component availability will continue to impact our ability to produce and deliver products to meet increased demand levels, and we expect that we will continue to operate with record-level backlog throughout 2022. We will take necessary actions like local-for-local and region-for-region manufacturing and sourcing to help maximize output and address and offset inflationary pressures. We announced further price increases in the first quarter of 2022 and will continue to monitor the competitive end market backdrop. We anticipate our quarterly sales cadence will be driven more by our ability to produce than by our demand pattern. We also expect that gross margins will improve sequentially throughout 2022. In terms of profitability, we expect increased price realization, cost-out initiatives, and strong expense management to drive sequential adjusted EBITDA improvement throughout the year. For 2022, Tennant provides the following guidance: net sales of $1.125 billion to $1.17 billion, reflecting organic sales growth of 4.5% to 8.5%. Full year reported GAAP earnings in the range of $3.90 to $4.50 per diluted share. Adjusted EPS of $4.40 to $5 per diluted share, which excludes certain non-operational items and amortization expense. Adjusted EBITDA of $145 million to $160 million. Capital expenditures of $25 million to $30 million. And an adjusted effective tax rate of 20% to 25%, which excludes the amortization expense adjustments. Overall, our 2022 guidance is in line with our long-range financial commitment.

Thank you, Fay. To sum up, I am very proud of the global Tennant team's dedication and agility that delivered record earnings in 2021. And we are prepared to build on that success as we deliver another strong year in 2022. With that, we will open the call to questions. Operator, please go ahead.

The first question is from Chris Moore of CJS Securities.

Maybe we could start with the revenue guidance, 4.5% to 8.5% organic growth. Can you just kind of give your sense from where you're sitting today in terms of how that breaks down between volume and price, and is the higher end of that more kind of price driven?

So Chris, when we consider guidance and the growth we expect in 2022, both price and volume will have an impact. I would note that it is more influenced by price than volume, although the difference is not significant.

Got you. If you get closer to the 8.5%, will that be more driven by price rather than volume at the higher end of the guidance?

Yes, it will be both, right? I think it's going to be both. I think you're going to see volume increase on the higher end and price contributing to that. But at the midpoint of the range, I think it's fair to say it's majority price, but it's pretty close with volume contribution.

Yes, Chris, I would just add, our pricing is being dictated to us by the inflation we're taking on. And so we're compelled to move on price commensurate with what we're seeing and forecasting from an inflation perspective. Our demand for our product remains robust, and we have a significant backlog available to us to monetize over the coming year to the extent we can, given the supply chain constraints. So we've guided appropriately given what we can see today with the mix of a modest volume increase as well as the pricing we've announced and want to manage it as we move through the year.

Got it. That's helpful. So on a quarterly basis, Fay mentioned that our production capabilities will drive performance rather than the usual Tennant trends. Regarding the second half, I understand you indicated that EBITDA margins will improve. From a revenue perspective, should we anticipate sequential growth in revenue, and what level of visibility do you have at this point?

So what we're planning for is we anticipate seeing growth in revenue sequentially throughout the year, Q1 through Q4. We also think that we'll see margin improvement Q1 through Q4 from a gross margin perspective and also EBITDA margin improvement in Q1 through Q4. So it's straight down the P&L, Chris, sales, gross margin, and EBITDA.

Yes, Chris, I would just add that we have to plan on a quarterly basis. Generally speaking, we believe the second half will be stronger for us than the first half. While we look at each quarter individually as we progress, that is our overall outlook, although we don't have better data points regarding what the supply chain recovery looks like globally.

Understood. That makes sense. Regarding the Russia-Ukraine situation, can you identify any specific impact on Tennant at this point?

Yes, it's a remarkable time to be living in, and it's shocking to witness the events that have unfolded despite earlier warnings. Our thoughts are with the people in Ukraine as they navigate the challenges facing their lives and country. Although we don't have any direct assets or employees in the impacted areas, we do work with channel partners in those regions who represent Tennant. We are reaching out to check on their well-being and to assess the business implications. While we lack a direct presence compared to others in the affected areas, we anticipate some ripple effects on the broader economy that we will need to address.

I suspect energy costs will likely rise as a result of that. You may also experience further disruptions in freight and supply chain, but it is still too early to tell.

I have one last question. Regarding mergers and acquisitions, which are definitely part of your capital allocation strategy, are you currently spending much time exploring opportunities? How would you describe the pipeline?

We are continuously looking for ways to grow Tennant and deliver value to our shareholders, which includes mergers and acquisitions. We are actively developing our pipeline and will assess opportunities that align with our goals and benefit both our shareholders and Tennant.

Yes, Chris, I would like to add that our top priority in capital allocation is to protect our core business and fund its growth while recovering from supply chain issues. Given the current macro environment, we see significant opportunities to reinvest in the business in ways that align with our long-term strategy and address short-term challenges, such as localizing production and automating factories to deal with labor constraints. As Fay mentioned, we are open-minded and looking for the best value creation opportunities across all areas. However, protecting our core remains our primary focus.

Your next question is from Steve Ferazani of Sidoti.

I appreciate the information shared during the call. I would like to revisit the top-line guidance, which remains considerably better than the long-term growth expectation of 2% to 3%. Pricing plays a role in this. However, considering how the year concluded and the existing geopolitical risks, I'm trying to consolidate this into a coherent understanding of the guidance. Given these risks, can you provide insights on your backlog or what feedback you're receiving from customers? How do you achieve that number, and is it genuinely backed by pricing?

So Steve, thank you for the question. I think we ended the year with really strong organic growth, 9% organic growth from a consolidated perspective and growth across all regions. So very, very good. And we also ended the year with a pretty significant backlog with 3x to 5x what normal ranges. What that does for us is it gives us insight into what demand will look like in 2022, and we feel demand will be strong in 2022. Therefore, when we compiled our guidance of top line growth, there's an element of it that's demand and there's an element of it that's price. They're fairly equally weighted in 2022. But we feel that the demand is strong, and it really is supported by the backlog that we see and the conversations that we're having with our customers.

This translates into cash flow in 2022. And so just a modest increase in CapEx. I'm trying to think about how you're thinking about working capital and how we might be looking at cash flow in '22.

We made a significant investment in working capital at the end of the year, mainly in inventory, to build up safety stock and ensure we could meet the increasing demand. This investment will likely unwind in 2022 as the year progresses. While we did not provide specific guidance on free cash flow, it is expected to be higher than what we achieved in 2021 for two reasons: we anticipate an increase in EBITDA, with the midpoint suggesting about a $15 million rise, and we expect a return to normal in terms of working capital, including a decrease in inventory and other items. Overall, you can expect an increase in free cash flow for 2022 due to these factors.

Can you provide some insight into how the Autonomous market has been developing over the last few months and your outlook for 2022, especially since we haven't seen many larger contract wins?

Yes. In our discussions about Autonomous Mobile Robots, we have observed market developments aligning with our expectations. We secured a significant customer early in the launch of our Autonomous portfolio, which is an exciting development. Landing Walmart as a flagship customer generated substantial volume for us this year. However, we recognize that Walmart is unique, and its approach to adopting new technologies differs from that of other customers. Walmart's strong financial standing allows for a different investment strategy in technology, making this win noteworthy right from the start. It enhanced our deployment methodologies and bolstered our confidence in applying this technology in real-world settings, showcasing its potential for delivering compelling ROI for customers. Since this initial win, we've noted a high level of interest in the Autonomous market across various sectors. Customers are increasingly intrigued by the ROI potential, particularly driven by labor shortages, as they seek solutions for cleaning tasks that are difficult to staff. As they progress towards purchasing, many prefer to initially pilot in select stores and locations to validate the concept before committing to widespread deployment, which is a sensible approach given the significant capital expenditure involved. We've seen various piloting programs across different sectors, along with hybrid strategies in which customers deploy robotic equipment alongside traditional Tennant machines. For instance, they might use robots in high-traffic locations while reserving manual machines for others. This reflects a typical technology adoption curve. We anticipate a notable increase in our AMR sales compared to 2021 and are forecasting growth for 2022. Our teams are actively engaging with customers interested in AMR, guiding them from initial interest through education and into trial phases, allowing them to understand and realize their ROI before scaling up. However, this process has faced some challenges due to the pandemic and supply chain issues, which have occasionally delayed our ability to deliver products to customers swiftly. Nevertheless, we remain optimistic about the AMR opportunity within the marketplace. If there's potential to disrupt this industry, we aim to be at the forefront of that change, integrating AMR into our broader product lineup in the mechanized cleaning sector. Additionally, I'm excited about the launch of our Inventory Scan, which addresses a fundamental issue for our retail customers: ensuring that the right products are available at the right place and price, thus preventing lost sales. Currently, retailers rely on manual solutions, which can lead to human error and delays, especially as they face the same labor shortages as other sectors. Our solution allows customers to enhance their ROI not only from cleaning efficiencies but also from improved data capture related to sales, thereby justifying their investment in robotics. We also recognize that retailers prefer not to have multiple robotic systems operating within their stores. They typically desire a standardized platform that enables efficient training, reliable performance, and consistent maintenance, which fosters confidence in the solution's longevity. Our initial success with Inventory Scan indicates that customers choose Tennant for our quality, deployment expertise, and aftermarket support, ensuring that their machines operate effectively and contribute to their ROI. From Tennant’s perspective, this launch represents an incremental, profitable opportunity and opens avenues for mobile data capture, allowing us to become a preferred solution in retail environments. This innovation illustrates our ability to remain agile and responsive to customer needs, even in challenging circumstances like a pandemic and supply chain disruptions. It’s a testament to our commitment to innovation and underscores our dedication to solving real-world problems for our customers.

Since there are no further questions at this time, I would like to turn the call over to management for closing remarks.

Thank you. Before we close, please note that we will be posting to Tennant's IR website the second in our series of quarterly videos that offer a deeper look into our business and growth strategy. You can be notified of each new video by signing up for email alerts at investors.tennantco.com. This concludes our call. Stay safe, and have a nice day.

This concludes today's conference call. Thank you for your participation. You may now disconnect.