Earnings Call Transcript - TNC Q1 2021

Operator, Operator

Good morning. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company's 2021 First Quarter Earnings Conference call. This call is being recorded. Thank you for participating in Tennant Company's 2021 First Quarter Earnings Conference Call. Beginning today's meeting is Mr. William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations for Tennant Company. Mr. Prate, you may begin.

William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations

Thank you, Rebecca. Good morning, everyone, and welcome to Tennant Company's first quarter 2021 earnings conference call. I'm William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations. Joining me today are Dave Huml, Tennant's President and CEO; and Fay West, our Senior Vice President and CFO. On today's call, we will update you regarding our first quarter performance and guidance for 2021. Dave will brief you on our operations and enterprise strategy, and Fay will cover the financials. After their remarks, we will open the call to questions. Please note a slide presentation accompanies this conference call and is available on our Investor Relations website. 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 first 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 and is also posted on our Investor Relations website. I'll now turn the call over to Dave.

Dave Huml, President and CEO

Thanks, William, and thank you, everyone, for joining us. We hope that you and your loved ones are continuing to stay safe. Today, we are pleased to report a strong first quarter, one that exceeded our expectations due to increased customer demand and highlighted by the organic revenue growth we achieved in all regions. We were able to meet that demand, thanks to the operational improvements we made in the past year and the way we have navigated the pandemic to date. Specifically, we've remained committed to resourcing and investing in our enterprise strategy, while staying focused on serving our customers. This approach preserved our ability to ramp up quickly as global markets began showing signs of recovery. I am especially proud of the way our team worked to overcome the unprecedented operational challenges of the past year. Also, our prudent expense management and ongoing commitment to our long-term strategy continues to yield solid bottom line results. While the pandemic will continue to pose market uncertainty, the Q1 growth and strong order demand are certainly encouraging and give us optimism that the positive overall sales trends we saw in the second half of last year represented the beginning of a market recovery, which we have taken into account in raising our full year guidance. Our strong Q1 was not a simple or inevitable result. It required significant effort from everyone at Tennant. For example, in the past year, our operations and supply chain teams have faced significant challenges from commodity inflation, transportation-related issues, parts shortages and supply-based disruptions. But they have worked tirelessly to mitigate the impact of these challenges while also driving aggressive cost-reduction programs and delivering productivity leverage that allowed us to offset what could have been a much larger financial impact. 2020 was not the year any of us planned for, but it did not stop us from implementing the long term strategy we unveiled at the end of 2019. Key improvements to our operating model include value engineering, plant optimization, improved discounting and adjusting our go-to-market approach in specific regions. At the same time, we strive to win where we have competitive advantage, and the recent sale of our coatings business is an example of redirecting resources toward more strategic and profitable activities. All of these actions have combined to yield an expansion in gross margins that is now beginning to read out. In 2020, we also maintained investments and resourcing across a broad number of initiatives, including product development, operations and simplifying our product offering, all of which were designed to better meet the needs of our customers. As a result, we're now well positioned with a full portfolio of new products, including our autonomous cleaning solutions to launch into a recovering market. Initial customer feedback regarding the launches of our T16AMR, industrial robotic floor scrubber, new standard product offerings and new commercial mid-tier offerings have been positive. While we have not yet reached pre-pandemic sales levels across all regions, we remain optimistic for the year ahead. Going forward, we will continue to execute against our enterprise strategy and will serve our customers with an aim of maintaining our industry leadership in quality, service and innovation. Regarding the future of industrial and commercial cleaning, one of the questions we hear most often is how the pandemic has impacted our customers. Certainly, the importance of cleaning has been elevated with the new desires to turn cleaning from something invisible to a visible and tangible benefit for their customers and employees. At the same time, labor challenges have grown all the more acute, which places greater emphasis on the importance of technology and the products and services we offer. The pandemic has accelerated market trends and taught us new ways of working, which we believe will ultimately be beneficial for Tennant and the cleaning industry. We think the long-term benefits are less about COVID and more about how we continue to be a trusted partner for our customers in meeting their needs. Lastly, I'd like to say a word about our leadership transition. The first quarter saw a number of senior level changes, including Rusty Zay's promotion to Chief Commercial Officer; Kristin Stokes' promotion to General Counsel; and Barb Balinski's promotion to Senior Vice President of Innovation and Technology. And most recently, we welcomed Fay West as our new CFO. Fay is an accomplished finance executive. She is the former Senior Vice President and CFO of SunCoke Energy and has held numerous positions, including leadership positions at United Airlines, PepsiAmericas and GATX Corporation. As CEO, I am thrilled to be working with such a talented group of executives. Collectively, their managerial expertise, industry knowledge and appreciation of Tennant's legacy and corporate culture will ensure a seamless transition as we continue to execute on the enterprise strategy that everyone at the company has worked so hard to put in place. With that, I will turn the call over to Fay for a discussion of our financials. Fay, welcome aboard.

Fay West, Senior Vice President and CFO

Thank you, Dave. Hello, everyone. I'm excited to be here, particularly at this point in Tennant's journey, and I look forward to the opportunities we have ahead. For the first quarter of 2021, Tennant reported net sales of $263.3 million, up 4.4% year-over-year, which included a favorable foreign currency effect of 3% and a divestiture impact of negative 1.7%. Organic sales, which exclude the impact of currency and divestitures, increased 3.1%. Tennant group sales into 3 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. In the first quarter, sales in the Americas declined 3%, reflecting the divestiture of the coatings business earlier this year, which impacted results by negative 2.6%, along with a foreign currency effect of negative 0.8%. Organically, the region grew 0.4%, reflecting the limited impact that the pandemic had on the prior year period as well as solid growth in the direct and distribution channels in North America, along with growth in Brazil. Sales for strategic accounts were down from the prior year period due to the lapping of some large orders in Q1 of last year. Sales in the EMEA region increased 12.4% or 2.3% organically, driven by performance in France, Italy and Germany and also benefited from a foreign currency effect of 10.1%. However, pandemic-related restrictions did continue to have an impact in some markets, particularly in the United Kingdom, Central and Eastern Europe, the Middle East and Africa. Sales in the Asia Pacific region rose 40.6%, with a foreign currency effect of positive 8.8%. On an organic basis, sales in the region rose 31.8%. Tennant recorded organic growth across all APAC countries, product categories and channels as the region rebounded strongly from the pandemic related slowdown of last year. Turning to margins. Gross margin in the first quarter of 2021 was 43% compared to 40.8% in the prior year period. Adjusted gross margin was 43% compared to 41.5% in Q1 of last year. This increase was attributed to increased productivity, product mix and actions related to the company's enterprise strategy, including pricing and cost reduction initiatives. This more than offset commodity and freight cost pressures we experienced in the quarter. As far as expenses, during the first quarter, our adjusted S&A expenses were 30.2% of net sales compared to 31.8% in the year ago period. In addition to careful expense management, this improvement included some temporary savings related to the suspension of most business travel and in-person trade shows and customer events. Net income increased to $25.7 million or $1.37 per diluted share compared to $5.2 million or $0.28 per diluted share in the year ago period. Adjusted EPS, which excluded nonoperational items and amortization expense, was $1.17 per share compared to $0.57 per share in the year ago period. Adjusted results in the quarter excluded the gain on sale from the divestiture of the coatings business. Adjusted EBITDA in the first quarter of 2021 increased to $40.7 million or 15.5% of sales compared to $26.1 million or 10.4% of sales in the first quarter of 2020. As for our tax rate in the first quarter, Tennant had an adjusted effective tax rate, excluding the amortization expense adjustment of 21.4% compared to 20.5% in the year ago period, which increased primarily due to the mix in full year taxable earnings by country and a decrease in certain discrete tax benefit items. Turning to cash flow and balance sheet items. Tennant generated $18.4 million in cash flow from operations in the first quarter of 2021, mainly due to strong business performance. As of March 31, 2021, the company had $175.2 million in cash and cash equivalents. In April, after the close of the first quarter, the company restructured its credit agreement to optimize its debt structure. This restructure allows for enhanced flexibility with minimal covenants and no prepayment penalties, while also reducing future interest expense by approximately $1 million per month. Lastly, turning to guidance. As Dave mentioned, our raised guidance reflects our optimism regarding the pace of a continued and broad economic recovery and in Tennant's ability to implement its long term growth strategy. As included in today's earnings announcement, our guidance for full year 2021 is as follows. Net sales of $1.09 billion to $1.11 billion, with organic sales rising 9% to 11%. GAAP EPS of $3.45 to $3.85 per share. Adjusted EPS of $4.10 to $4.50 per share, which excludes certain nonoperational items and amortization expense. Adjusted EBITDA in the range of $140 million to $150 million, capital expenditures of $20 million to $25 million and an adjusted effective tax rate of approximately 20%, which excludes the amortization expense adjustment. With that, we will open the call to questions.

Operator, Operator

Operator, please go ahead.

Mike Shlisky, Analyst with Colliers Securities

Can you hear me okay?

Dave Huml, President and CEO

Yes, we can hear you, Mike.

Mike Shlisky, Analyst with Colliers Securities

And Fay, welcome aboard. I kind of wanted to touch on the question we've been asking for really a whole year. Now you've kind of provided an answer to it in your prepared comments, Dave. That we're seeing a larger focus on being visible about your cleanliness in a commercial space. And I'm just kind of curious, have you given any thought as to whether that makes your organic growth outlook beyond 2021, which is a pandemic bounce back. But is your longer-term growth outlook more than just a few percent? Does it kind of double it perhaps even over the maybe 3 to 5-year range here?

Dave Huml, President and CEO

Thank you, Mike. We've considered this, and I have to say it's still too early to draw conclusions from the current market signals and project them over the long term for our business. Therefore, we're sticking to our long-range plan for the time being. The point you mentioned is significant. Our customers are beginning to view cleanliness differently in their spaces. Previously, they aimed to keep cleaning processes hidden from employees and customers, making it mostly invisible. Now, there seems to be a shift, with customers recognizing the value of visible floor cleaning as a sign of a safe environment for both employees and customers. The long-term impact on the industry, our applications, our customers, and our business is still unclear. However, we do believe it will be neutral to positive for us. Our customers will likely be able to use our equipment during more hours, leading to cleaner spaces overall. We'll need to wait for further developments, but early indicators are certainly looking positive for us.

Mike Shlisky, Analyst with Colliers Securities

I kind of want to go up there and perhaps unpack that a bit. I'm starting to see ways that commercial spaces can get a certification of a certain level of cleanliness, I guess, from an outside entity. In some cases, it's a sponsored entity, for example, in barbershops, people that make the barber cleaning, the scissor fluids have created a barber shop cleanliness certification course. And some of the bigger spaces, are you seeing floor care being an important part of some of the wider certification efforts out there?

Dave Huml, President and CEO

Yes. Mike, I've noticed similar initiatives where some companies or agencies are providing certifications for cleanliness standards. We believe this has always been lacking in our industry, which we refer to as the proof of clean. I want to emphasize the role that Tennant can play with our technology, as we can genuinely assure our customers that the floor scrubber has been utilized, when it was used, and for how long. In the case of AMR, we can confirm whether it covered the entire floor area. From a proof of clean perspective, we think we can provide our customers with evidence that the equipment was used to clean their floors, which they can then share with their stakeholders as they see fit.

Mike Shlisky, Analyst with Colliers Securities

And then I also wanted to touch on the cash balance on the balance sheet. You're at $175 million or so here. I mean you've had higher in the past in various points in time, but not by much. And you've got a really strong, it appears to be, free cash outlook for the rest of this year. I'm kind of curious you can maybe outline some of your M&A outlook or some other areas of capitalization that we should be thinking about over the next 12 months.

Fay West, Senior Vice President and CFO

You are correct. The current cash balance is around $175 million, and we have a strong liquidity profile for Tennant. We will continually assess opportunities that improve shareholder experience and look for ways to return value to shareholders. In terms of capital allocation, we are focused on maintaining appropriate leverage while returning capital to shareholders through dividends. Would you like to add anything?

Dave Huml, President and CEO

Yes, I will just add. We don't specifically comment on forward-looking M&A activity. I'll just assure you that this team is committed to putting our cash to work to return a positive return for our shareholders. Thanks Mike.

Operator, Operator

Your next question comes from the line of Chris Moore with CJS Securities.

Chris Moore, Analyst with CJS Securities

I have a quick follow-up regarding cash flow. There was strong cash flow in the first quarter. Considering the expected revenue growth, I assume there will be an increased need for working capital. Could you share your thoughts on what cash flow looked like in 2021?

Fay West, Senior Vice President and CFO

I believe that based on our guidance, there will be some working capital requirements due to the nature of working capital flows. We expect to generate strong operating cash flow for the full year. Our capital expenditures have not changed significantly, so we anticipate strong free cash flow for the year, although it will be slightly lower than in 2020 due to variations in working capital. However, we still expect robust free cash flow for 2020.

Dave Huml, President and CEO

I think what you're seeing is really the result of the structural changes that we're implementing in our enterprise strategy. This is starting to show in 2020. It was a bit harder to notice earlier due to the subdued top line. However, I believe you are witnessing the benefits of executing our long-term strategy. I'm also very pleased to have Fay in her role now, as she will help us navigate our future strategies regarding capital allocation and cash usage.

Chris Moore, Analyst with CJS Securities

Switching to the discussion about steel, it seems that the price increases at the start of this year may have been somewhat less aggressive than typical to stimulate demand. I'm curious about your perspective on the current balance between the rapid rise in steel prices and demand. Could you elaborate on that?

Dave Huml, President and CEO

Yes, we witnessed an expansion of gross margins in Q1. In this context, I'll share some insights on our Q1 performance and our outlook moving forward, particularly regarding steel and other commodities. Additionally, I want to address supply chain issues, as they are a significant concern for our stakeholders and investors. Tennant experienced the global supply chain challenges prevalent in the first quarter of 2021. We faced commodity inflation in key areas, including steel, resin, and lead used in batteries. Transportation and freight logistics also posed challenges, including container availability and increased costs for air and ocean freight. Furthermore, we dealt with general supply issues, such as the global electronics and chip shortages, capacity constraints, and the financial stability of our suppliers. Our operations and supply chain team has performed excellently in monitoring our supply chain's health and taking decisive actions to minimize the financial impact on Tennant while shielding our customers from these challenges. I am extremely proud of their efforts and how well they have positioned us to navigate this widespread supply chain turmoil. In Q1, we mitigated the impact through enhanced productivity in our plants, leveraging our volume and benefiting from a favorable product mix. As mentioned earlier, we are executing our enterprise strategy effectively, focusing on strategic pricing and cost reduction. Although we anticipate continued supply chain challenges into 2021, we have incorporated those expectations into our full-year guidance. Once again, I am very proud of the team's actions to help Tennant address these issues in 2021.

Chris Moore, Analyst with CJS Securities

When I look at the 3.1% organic growth then, how does that break down between price and volume?

William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations

We haven't really broken that out for a while, Chris. So this is William. In terms of price, we did take pricing actions, but just knowing the market that we were coming into, it's probably not to the historical, which would have been around 1.5% net. So it's definitely lower than that. But we haven't really broken it out from that vantage point for a while. Expect growth on manufactured units and the price fell this year.

Operator, Operator

And your next question comes from the line of Steve Ferazani with Sidoti & Company.

Steve Ferazani, Analyst with Sidoti & Company

I want to follow-up a little bit on the guidance. So with $41 million in adjusted EBITDA in the quarter, it implies more than 25%, even at the high end of your guidance range. Just trying to get a sense if you're being relatively conservative, that you're concerned about costs, why this wouldn't be the low point of the year?

Fay West, Senior Vice President and CFO

Our guidance is based on our current visibility into order rates and assumes a continued trend in the macroeconomic environment and improvement. We know that we will start to compare against the most challenging month from the previous year that was affected by the pandemic. I believe our guidance is balanced at this stage. Our Q1 results exceeded our initial expectations, which is reflected in our updated guidance. We remain optimistic about the trends we are observing now, and I think our range mirrors that.

Steve Ferazani, Analyst with Sidoti & Company

I mean, based on the yes.

William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations

Steve, the only thing that I'd just add is just maybe take a step further on that. To Dave's prior points around the headwinds that we're facing in commodity pricing and freight. We've also proven that as we're improving ourselves in terms of revenue and gross margin early in the year, we will invest back into the business to drive other strategic initiatives in the back half of the year. So you'll see that on the S&A line, like you would have seen last year and in 2019. So we've embedded those items, both the things that we see positive and the headwinds that we feel on the commodity pricing, freight and the investments we'll make into our business into our guidance. So that's how we're thinking through what we've provided.

Steve Ferazani, Analyst with Sidoti & Company

Did you notice any significant improvement in March following the call at the end of February? Has that positive trend continued?

Fay West, Senior Vice President and CFO

And really, we did actually see an uptick in the month of March. And so post our year-end call, which was in the end of February, I think we saw a really strong performance in March and continuing here into April.

Steve Ferazani, Analyst with Sidoti & Company

And last one for me is, just can you give any kind of updates on marketing and sales effort with the new industrial AMR?

Dave Huml, President and CEO

I'm excited to share that we have high customer interest in our T16AMR, which is part of our industrial robotics line. This launch allows us to target industrial vertical markets effectively. Our robotics portfolio enables us to engage a wide variety of customers across numerous verticals, making us one of the broadest in the industry. We've activated our global sales team to pursue the AMR opportunity across all geographies. An important note is that our early adopters are not only continuing to order but are also expanding their robotics programs, which gives us confidence and optimism. We are well-positioned with our AMR products, and our teams are doing an excellent job with deployments and ensuring a great customer experience, which is vital for accelerating adoption. We are optimistic about the potential and are ready to scale with customer demand for AMR worldwide.

Operator, Operator

Your next question comes from the line of Marco Rodriguez with Stonegate Capital.

Marco Rodriguez, Analyst with Stonegate Capital

I wanted to follow-up a little bit just here on the supply chain. I appreciate the commentary that you provided. It's very helpful. But in terms of just the rising inflation, can you maybe just talk a little bit about what your expectations are there? I mean, obviously, everyone's seeing prices go up, FX markets are continuing to show a lot of rise in commodity prices. How are you guys thinking about your ability to continue to pass-through these costs and raising prices perhaps?

Dave Huml, President and CEO

Yes. It's a great question. It's top of mind for us. I mentioned earlier some of the sensing we're doing in the marketplace and how proud I am of the team rallying around a specific set of actions to help us offset and mitigate the risks. I will tell you that our confidence in our ability to offset the supply chain challenges is reflected in our guidance. And so we do expect to have to manage against these headwinds for the rest of 2021. And we do expect that these will subside over time. We are prepared to manage against it in the remainder of 2021, and that's reflected in our guidance.

Marco Rodriguez, Analyst with Stonegate Capital

Can you provide any details about the supply chain constraints you're experiencing? Specifically, what are the lead times or any other information that could help us better understand the challenges you're facing?

Dave Huml, President and CEO

It's a great question, and it's quite broad. Quantifying a specific data point that would be meaningful is challenging. I've mentioned the main areas affecting us. Firstly, there's commodity inflation. Then there are transportation, freight, and logistics issues, both in terms of availability and cost. Additionally, there are general supply-related challenges. As our suppliers have resumed operations post-pandemic, they need to increase their capacity to meet the demand. You might have heard about the chip shortage; it has a ripple effect on electronics overall. Many of our parts and suppliers are experiencing capacity constraints as they work to ramp back up and predict the capacity needed for 2021. We're also monitoring the financial health of our suppliers, as some have struggled during the pandemic more than others. When we suspect a supplier might be facing difficulties, we engage with them to understand their recovery plans. If necessary, we will consider alternative suppliers to prevent any supply chain disruptions. It's tough to quantify precisely, but the team did an excellent job responding to these challenges in Q1, and while we anticipate continued difficulties throughout 2021, we've accounted for our capacity to manage and mitigate these issues in our guidance.

Marco Rodriguez, Analyst with Stonegate Capital

And last one for me here. Obviously, you guys saw some really strong growth in Asia. Just wondering how you guys are thinking about that region just kind of given the rising coronavirus cases that we see out there, driven by the new variants in that part of the world.

Dave Huml, President and CEO

Yes. Like everyone, we are monitoring various aspects of the pandemic, including vaccination efforts and case spread, as well as government restrictions aimed at managing the situation. In Asia Pacific, particularly in China, the pandemic began and that economy was impacted the most early on. Therefore, they are somewhat further along in understanding what recovery looks like. In China, the recovery is uneven and choppy rather than a straightforward path. Different governments are making efforts to manage the situation as we navigate through it. Overall, we observed an organic growth rate in Q1 across the entire APAC region, affecting every product category, geography, and channel. We believe APAC is on a path to broad-based economic recovery, which we are ready to seize upon. However, I anticipate some unevenness as we return to pre-pandemic levels, as we have witnessed in other regions. It is not a straight-line recovery.

Operator, Operator

Your next question comes from the line of Mike Shlisky with Colliers Securities.

Mike Shlisky, Analyst with Colliers Securities

I want to ask about the margin performance in the quarter. It was one of your best EBITDA margins ever. The only better quarter was last year's second quarter when you had significant furloughs and cost cuts during the peak of the pandemic. I'm curious, Fay, you mentioned there were still some tailwinds from pandemic-related reductions. Can you help us quantify how much of EBITDA in the quarter might return in future quarters?

Fay West, Senior Vice President and CFO

So a couple of things. I think the improvement that you saw in the quarter really reflects higher productivity, which we mentioned, the mix of products and a number of actions that the company has taken, including pricing actions and cost reduction initiatives. And so that was a big impact into kind of the gross margin percentage and performance through this quarter. From an S&A perspective, there was significant cost management that we saw in the first quarter, and part of that was pandemic-related, because you have onetime certain costs that just were not occurring on travel and trade shows and other costs like that. So the quarter benefited from very specific actions taken by the company as well as just kind of actions that were related to the pandemic.

Dave Huml, President and CEO

Yes. I want to emphasize that the first quarter is a significant indicator for us. Throughout 2020, we consistently talked about our capability to execute our enterprise strategy and implement structural enhancements in our business to achieve leverage with volume. We referred to this as emerging strong. We focused on getting our operations in order so that when the markets improve, we would be ready to meet demand and gain leverage from the volume. What we are demonstrating in the first quarter is our ability to deliver productivity and capitalize on volume, thereby deriving benefits from it. To me, this validates the efforts the team made in 2020, even while facing a challenging operational environment, to achieve structural improvements, and now we are starting to see the positive outcomes in the first quarter.

Mike Shlisky, Analyst with Colliers Securities

Absolutely, no. It's been a great job all along here. But there's no number you can give us as to what travel and trade show may have impacted the EBITDA by? Or was that really just not much of a material number. That full 15.5% was almost entirely due to ongoing initiatives?

William Prate, Senior Director of Global Financial Planning and Analysis and Investor Relations

Yes. I think Mike, the S&A impact of those items is maybe a couple of million dollars. But I also then wouldn't then say, if you add a couple of million dollars to our S&A Q1 numbers, that wouldn't necessarily be a good baseline for our future quarter S&A either, though. To the prior point that I made, we are continuing to make strategic investments into our business so we can continue to implement our strategic plan and get dividends in future years. So the question is really getting to, can we take Q1 and just extrapolate it out. I'd be careful there and really lean on our guidance that we've provided that accounts for the headwinds that Dave and Fay have talked about on the gross margin line and the incremental investments we want to make in the business into our guidance.

Mike Shlisky, Analyst with Colliers Securities

And perhaps the last one for me. Can you comment on the pricing environment from competitors out there? Is anybody being irrational in the current environment?

Dave Huml, President and CEO

Yes, I'll address that. Pricing in our business is challenging to evaluate since we primarily learn about it informally through customers who are reluctant to share details, as it weakens their negotiating power. Our competitors tend to act rationally, and pricing is generally reasonable in the market. However, we do notice some unusual behavior occasionally. Ultimately, we plan to maintain a rational approach to our pricing and ensure we are compensated for the value we provide. One of the key components of our enterprise strategy is to align our pricing with the market and set it strategically to guarantee we are delivering value to our customers and receiving fair compensation for it. Competitive pricing is indeed a significant aspect that we must consider, and our customers will ultimately determine whether we can command a premium when we set our prices. So far this year, we haven't observed anything abnormal, but we will keep monitoring the situation. Thank you.

Operator, Operator

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

Dave Huml, President and CEO

Thank you, again, all for joining us and for your interest in Tennant. I also want to give a special thank you to our global Tennant teams for all they have done and continue to do in meeting the challenges of the ongoing pandemic. This concludes our earnings call. Hope you have a nice day.

Operator, Operator

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