Executive Summary / Key Takeaways

• Tennant Company is executing an enterprise strategy focused on growth, performance, and people, driving strong underlying order momentum despite near-term top-line headwinds from lapping a significant 2024 backlog reduction.
• Autonomous Mobile Robots (AMR) are a key growth driver, with strong sales momentum, new product launches (X4/X6 ROVR), a strategic partnership with Brain Corp, and innovative models like Clean 360 positioning Tennant to exceed $100 million in annual AMR revenue by 2027.
• While Q1 2025 net sales declined 6.8% year-over-year due to volume decreases (primarily from the backlog comparison) and unfavorable FX, underlying order rates increased 13%, marking the fourth consecutive quarter of near or above double-digit order growth.
• The company reaffirmed its 2025 guidance, forecasting net sales of $1.210 billion to $1.250 billion (organic decline of -1% to -4%) and adjusted EBITDA of $196 million to $209 million (margin 16.2% to 16.7%), anticipating gross margin expansion and $10 million in annual restructuring savings to offset inflation and fund investments.
• Macroeconomic uncertainty, geopolitical tensions, and tariffs (estimated $40 million impact on 2025 COGS, largely expected to be mitigated) pose risks, but strong liquidity ($79.5 million cash, $434.3 million unused credit) and a disciplined capital allocation strategy provide flexibility for strategic investments and M&A.

Tennant Company, founded in 1870 as a woodworking business, has evolved into a global leader in designing, manufacturing, and marketing solutions for nonresidential surface maintenance. From its roots in Minneapolis, the company has built a reputation for innovation, quality, and a robust direct sales and service network, complemented by a strong distributor network worldwide. Today, Tennant operates within the broader industrial cleaning and maintenance sector, a market driven by the fundamental need for cleanliness, hygiene, and increasingly, operational efficiency and labor cost management.

The company's strategic direction is guided by its enterprise strategy, centered on three pillars: growth, performance, and people. This strategy aims to drive long-term revenue growth of 3% to 5% annually and expand adjusted EBITDA margin by 50 to 100 basis points per year. A critical component of this strategy is a commitment to innovation, supported by significant investment in research and development, which reached a record $43.8 million, or 3.5% of revenue, in 2024. This R&D focus is specifically targeted to contribute 1% to 2% of annual growth through new products.

Within the competitive landscape, Tennant operates alongside several global players. Direct competitors include large, diversified companies like Ecolab Inc. (ECL) and Sealed Air Corporation (SEE) (through its Diversey brand), as well as more specialized equipment providers like The Middleby Corporation (MIDD) in certain overlapping industrial segments. Indirect competition comes from alternative cleaning methods and emerging technology providers. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Tennant holds an estimated 5-10% aggregate market share in its primary markets.

Tennant's competitive positioning is bolstered by its technological differentiation and a strong go-to-market model. The company has a legacy of innovation in sustainable cleaning technologies, such as detergent-free systems, which offer tangible benefits like reduced water usage and chemical costs for customers. While specific quantitative figures on the efficiency gains of all technologies were not detailed, the strategic intent is clear: provide solutions that lower the total cost of ownership and align with growing customer demand for sustainability.

A particularly significant area of technological leadership and competitive advantage for Tennant is Autonomous Mobile Robots (AMR). Recognizing the global megatrends of labor shortages and rising labor costs, Tennant has invested heavily in automating floor cleaning. The company's AMR portfolio, which includes models like the T7 AMR, T380 AMR, T16 AMR, X4 ROVR, and X6 ROVR, is designed to address these challenges directly. The strategic partnership with Brain Corp, initiated in February 2024, provides exclusive access to their advanced Gen3 BrainOS robotics platform, enhancing navigation capabilities and offering Tennant a share in recurring revenue from software subscriptions.

The X4 ROVR, launched in mid-2024, is Tennant's first purpose-built autonomous machine and serves as a scalable platform. This platform approach enabled the rapid development and launch of the larger X6 ROVR in April 2025, just one year later. The X6 ROVR offers superior cleaning performance, improved maneuverability, and nearly three times the cleaning capacity of the X4, targeting larger commercial and light-industrial spaces. To accelerate AMR adoption further, particularly by addressing the upfront capital cost barrier, Tennant introduced the Clean 360 program in Q1 2025. This autonomous subscription model, initially available for the T16AMR, bundles the machine, software subscription, and a full-service maintenance contract with a 90% uptime guarantee into a single monthly price, providing customers with predictable costs and guaranteed productivity.

This focus on AMR is yielding results. AMR sales grew 30% in Q1 2025 compared to Q1 2024 and accounted for approximately 5% of enterprise-level net sales. With strong sales momentum and the launch of the X6 ROVR and Clean 360, Tennant is targeting AMR revenue to exceed $100 million annually by 2027, a goal that requires outpacing overall market growth and solidifying its leadership in this disruptive technology space.

Beyond AMR, Tennant is also expanding its offerings in the small space segment and through product line extensions. The i-mop family of products saw international expansion in 2024, with further reach into 30 additional countries planned for 2025. Product line extensions, leveraging platforms from acquired businesses, include the T291 small walk-behind scrubber launched in North America in September 2024, targeting smaller store formats and tight spaces. These initiatives contribute to the new product growth target of 150 to 200 basis points annually.

Recent financial performance reflects both the strategic momentum and specific near-term dynamics. In Q1 2025, consolidated net sales totaled $290.0 million, a 6.8% decrease compared to $311.0 million in Q1 2024. This decline was primarily driven by a 5.0% organic sales decrease and a 2.1% unfavorable foreign currency impact. The organic decline was largely attributable to volume decreases across geographies, particularly in North America, which was lapping a significant $50 million benefit from backlog reduction in the prior-year period. Q1 2025 gross profit margin was 41.4%, down 280 basis points from 44.2% in Q1 2024. This margin contraction was attributed to a shift in product and channel mix (less high-margin industrial backlog sales, more strategic customer sales with favorable pricing) and ongoing inflation. Selling and administrative expense increased slightly to $90.7 million, impacted by costs related to strategic investments like ERP modernization and restructuring, though partially offset by lower discretionary spending.

Despite the Q1 2025 top-line decline, underlying business momentum remains strong. Order rates increased 13% year-over-year in Q1 2025, marking the fourth consecutive quarter of near or above double-digit order growth. The book-to-bill ratio was above 1. This robust order generation is a direct result of the investments and execution of the enterprise growth strategy.

Looking at full-year 2024 performance provides important context. Net sales reached $1.287 billion, with organic growth of 3.2%, primarily driven by price realization (exceeding the 50-100 basis point target) and positive volume trends in the second half. Adjusted EBITDA rose to $208.8 million, with margin expanding to 16.2%, benefiting from operating leverage. The company successfully reduced its backlog by $125 million in 2024, exiting the year with normalized levels and market-competitive lead times. While this backlog reduction pulled forward sales, creating a headwind for 2025 comparisons, it positions future revenue to align more closely with incoming orders.

Operationally, Tennant is focused on driving efficiency through its performance pillar. A major ERP modernization project is underway, with the design and build phases completed in 2024 and staggered go-live launches planned throughout 2025. This significant investment aims to standardize global processes, enhance decision-making with better data, and unlock $10 million to $15 million in annual efficiency savings upon completion. Strategic restructuring actions, including a global workforce realignment in 2024, are expected to generate approximately $10 million in annual savings starting in 2025, which will be reinvested in strategic growth initiatives and help offset inflationary pressures.

Tennant's financial health remains strong, providing a solid foundation for executing its strategy. As of March 31, 2025, the company held $79.5 million in cash and cash equivalents and had approximately $434.3 million of unused borrowing capacity on its $650 million revolving credit facility (refinanced in August 2024). Net leverage stood at a low 0.66x adjusted EBITDA, well below the targeted range of 1x to 2x, offering significant flexibility for strategic M&A opportunities. While net cash used in operating activities in Q1 2025 ($0.4 million) reflected ERP project spend ($12.4 million) and working capital consumption, the company targets 100% conversion of net income to free cash flow for the full year 2025, excluding ERP costs. Capital allocation priorities include reinvesting in the business (Capex, R&D, ERP), returning capital to shareholders (dividends – marking 53 consecutive years of increases, and share repurchases, supported by a new 2 million share authorization in February 2025), and funding strategic acquisitions.

The outlook for 2025 reflects a blend of underlying strength and external challenges. Tennant reaffirmed its full-year guidance, forecasting net sales of $1.210 billion to $1.250 billion. This includes an anticipated organic sales decline of -1% to -4%, primarily due to the year-over-year headwind from the $125 million backlog reduction in 2024. Despite this, management forecasts order demand growth in the range of 3.5% to 7%, driven by the execution of its growth strategies. The guidance also incorporates an estimated negative 2% foreign currency headwind. Adjusted EBITDA is projected in the range of $196 million to $209 million, translating to an adjusted EBITDA margin of 16.2% to 16.7%. This profitability outlook assumes gross margin expansion driven by pricing and cost initiatives offsetting inflation (2%-3% assumption) and benefits from restructuring savings. Capital expenditures are expected to be approximately $20 million, and the adjusted effective tax rate is guided between 23% and 27%.

Key risks to the outlook include ongoing macroeconomic uncertainty, geopolitical tensions, and evolving global trade dynamics. The company estimates the impact of currently enacted tariffs on 2025 cost of goods sold to be approximately $40 million (around 5% of total COGS). While mitigation strategies (supply chain actions, market-based pricing) are being implemented and are expected to offset most of this impact, the rapidly changing tariff landscape introduces significant uncertainty. Demand sensitivity in certain regions, such as China (facing market saturation and intensified price competition) and Australia/Mexico (seeing deferred purchases/rental reliance), also poses challenges. The ERP implementation, while on track, carries inherent risks of business disruption that the company is actively working to mitigate.

Against its competitors, Tennant's strategic focus on innovation, particularly in AMR and sustainable technologies, provides a differentiated offering. While larger rivals like ECL may have greater scale and R&D budgets, Tennant's purpose-built AMR products, exclusive access to Brain Corp's Gen3 platform, and innovative models like Clean 360 position it strongly in a high-growth segment. Its direct sales and service network offers a competitive advantage in customer relationships and service delivery compared to companies relying more heavily on distribution. However, vulnerabilities remain, including potential exposure to supply chain disruptions and the need to continuously invest to maintain its technological edge against well-funded competitors. The strategic shift in APAC to focus on higher-margin industrial products in China, where there are fewer competitors and Tennant is product-advantaged, demonstrates an agile response to intense price competition in the mid-tier segment.

Conclusion

Tennant Company is navigating a complex global environment marked by macroeconomic uncertainty and specific regional challenges, yet its underlying business appears robust, driven by the disciplined execution of its enterprise strategy. While the top-line guidance for 2025 reflects the temporary headwind from lapping a significant backlog reduction, strong incoming order growth signals healthy underlying demand generation. The company's strategic investments in innovative products, particularly its expanding AMR portfolio and differentiated service offerings, are positioning it for long-term growth in key market segments driven by secular trends like labor automation.

With a strong balance sheet, ample liquidity, and a clear capital allocation strategy, Tennant is well-equipped to fund its strategic initiatives, including the ERP modernization and potential value-accretive M&A. The ability to effectively mitigate tariff impacts and manage ongoing inflationary pressures will be critical to achieving margin targets. For investors, the story is one of a company leveraging its historical strengths and technological leadership to capitalize on future opportunities, with the near-term sales outlook masked by a unique prior-year dynamic, making the underlying order trends and strategic execution key indicators to monitor.