Tennant Company — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 23, 2023. Tennant designs, manufactures, sells and services commercial and industrial floor-cleaning equipment and related products. It reports one reportable segment, with operations across the Americas, EMEA and APAC.
Financial performance
| Metric | 2022 | 2021 |
|---|---|---|
| Net sales | $1,092.2 million | $1,090.8 million |
| Gross profit / margin | $420.9 million / 38.5% | $438.0 million / 40.2% |
| Operating income / margin | $87.2 million / 8.0% | $93.7 million / 8.6% |
| Net income | $66.3 million | $64.9 million |
| Diluted EPS | $3.55 | $3.44 |
| Operating cash flow | $(25.1) million | $69.4 million |
| Capital expenditures | $25.0 million | $19.4 million |
| Cash, cash equivalents and restricted cash | $77.4 million | $123.6 million |
| Total debt | $300.3 million | $267.6 million |
Net sales were essentially flat year over year: organic sales increased approximately 4.2%, mainly from higher prices, offset by an approximately 4.0% adverse foreign-exchange impact and a small impact from the Coatings divestiture. Gross margin fell 170 basis points, primarily from materials, labor and freight inflation, partly offset by pricing and favorable mix. Net income increased despite lower operating income, while the effective tax rate rose to 16.6% from 12.5%.
Regional and product mix
- Americas sales rose 7.2% to $705.9 million; EMEA sales fell 9.1% to $301.6 million; APAC sales fell 15.8% to $84.7 million.
- Equipment sales were $664.0 million, parts and consumables $263.1 million, and service and other $165.1 million. Specialty surface coatings had no 2022 sales following the 2021 business sale.
Liquidity, debt and capital allocation
Operating cash flow turned negative, chiefly because of higher inventory and receivables, including inventory built to support expected production and extended customer payment terms. Working capital (receivables, inventories and accounts payable) rose to $332.0 million from $250.5 million. The current ratio was 2.2, versus 1.8.
At year-end, Tennant had $205.0 million drawn on its revolving facility and $95.0 million on its term loan, with approximately $242.2 million of unused revolving capacity. Debt-to-capital was 40.9%, compared with 38.1%. The credit agreement includes leverage and interest-coverage covenants. The company paid $18.9 million in dividends and repurchased $5.0 million of stock in 2022; the annual dividend increased to $1.015 per share.
Outlook, risks and unusual items
- Management gave no quantified earnings or revenue guidance in the provided filing text. It said economic conditions remained volatile, supply-chain recovery and inflation timing uncertain, and that it would manage pricing and costs while remaining agile. Management expressed confidence in long-term market growth.
- Backlog increased to approximately $326.4 million from $169.7 million, largely reflecting order growth and supply constraints; management expected elevated backlog to continue in 2023. Orders may be cancelled or postponed without penalty.
- The company cited continued component shortages, cost and wage inflation, foreign-exchange volatility, possible weaker capital spending, China-related COVID disruptions, and the effects of the Ukraine conflict and related sanctions as risks.
- 2022 included a $3.7 million pretax gain from selling a building and $4.1 million of restructuring charges. The prior year included a $9.8 million Coatings-sale gain and an $11.3 million debt-extinguishment loss.
- Goodwill was $182.0 million at year-end, including $145.8 million in EMEA. No impairment was recorded; the EMEA valuation was identified as a critical audit matter because it relies on estimates of future revenue, margins, discount rates and comparable-company multiples.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. No material pending legal proceeding was reported beyond ordinary-course litigation.
Key facts for investors to verify
- Whether supply constraints ease enough to convert the elevated backlog into shipments and revenue, and whether orders are cancelled or deferred.
- Whether pricing and cost actions recover inflation-related gross-margin pressure without materially weakening demand.
- How working-capital investment affects operating cash flow, inventory levels and available liquidity.
- Debt covenant headroom, refinancing exposure around the 2026 facility maturity, and sensitivity to interest rates and currencies.
- The assumptions supporting EMEA goodwill valuation and the company’s ability to sustain profitability amid regional demand and currency pressures.