Tennant Q2 2026 Earnings Call: Complete Transcript

Tennant (NYSE: TNC ) held its second-quarter earnings conference call on Thursday. Below is the complete transcript from the call. APIs provide real-time access to earnings call transcripts and financial data. Visit to learn more.

7% year over year, with strong demand but margin improvements falling short of expectations due to cost challenges. The company's robotics division delivered strong performance, with a 37% year-over-year sales increase, and is expected to continue accelerating in the second half. Profitability was impacted by higher than expected operating expenses and ERP-related inefficiencies, leading to a lowered full-year adjusted EBITDA outlook. Strategic initiatives include a focus on robotics, with significant investments in product innovation and market expansion, aiming for a revenue target of $250 million by 2028.

Tennant is addressing ERP system challenges, with a focus on optimization and improved supply chain performance, and expects gradual improvement in margins by the fourth quarter. Full Transcript Samantha, Operator Hello everyone. Good morning. My name is Samantha and I will be your conference operator today.

At this time, I would like to welcome everyone to Tennant Company's 2026 second quarter earnings conference call. This call is being recorded. There will be time for Q&A at the end of the call. Please press star 1 if you would like to ask a question.

After the Q&A, please stay on the line for closing remarks from management. If you have joined our call today via telephone and logged into the conference call presentation on your computer, please mute the audio on your computer to avoid potential quality issues during the call. Thank you for participating in Tennant Company's 2026 second quarter earnings conference call. Beginning today's meeting is Mr.

Lorenzo Bassi, Vice President, Finance and Investor Relations for Tennant Company. Mr. Bassi, you may begin. Lorenzo Bassi, Vice President, Finance and Investor Relations Good morning everyone and welcome to Tennant Company's second quarter 2026 earnings conference call.

I'm Lorenzo Bassi, Vice President, Finance and Investor Relations. Joining me on the call today are Dave Huml, President and CEO, Dave West, Senior Vice President and CFO, and Pat Shotler, Senior Vice President, Tennant Robotics. Today we will review our second quarter performance for 2026. Dave will discuss our results and enterprise strategy.

Pat will provide an update on our robotics business and the TNC Robotics venture and Faye will cover our financials. After our prepared remarks, we will open the call to questions. Our earnings press release and slide presentation that accompany this conference call are 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 2026 second quarter earnings release and presentation include the comparable GAAP measures and our reconciliations of these non-GAAP measures to our GAAP results. I'll now turn the call over to Dave. Dave Huml, President & CEO Thank you, Lorenzo, and good morning everyone. Thank you for joining our Q2 2026 earnings call.

I'd characterize our second quarter performance as one of strong underlying demand coupled with gross margin and adjusted EBITDA that improved sequentially from the first quarter; however, those margin improvements fell short of our expectations. The quarter reflected demand strength and continued progress against our long-term growth strategy, particularly in robotics, while also highlighting execution and cost challenges that we are actively addressing. Demand for our products and solutions remained strong throughout the quarter. Net sales were in line with expectations.

Orders strengthened as the quarter progressed. Backlog continued to build and our robotics business delivered another outstanding quarter. These indicators reinforce our confidence in the fundamental health of the business, our strategic direction and the durability of our growth initiatives. The demand trends strengthened throughout the quarter.

6% year over year, despite lapping the strongest order quarter of the prior year. June orders increased 11% year over year, representing our second strongest order month of the year. Order growth was broad-based across most regions, led by North America Industrial Machines and Robotics. Double-digit industrial growth was supported by select rental partners expanding their fleet to meet data center construction demand.

4% versus prior year. Backlog increased in the quarter to $127 million, up $18 million from the end of the first quarter and up $50 million since year end. Taken together, these provide growth momentum for the second half of the year. 7% year over year and in line with our expectations.

Parts shortages in North America limited our ability to fully ramp production output and convert demand into shipments, resulting in higher backlog levels as we exited the quarter. Importantly, this was a fulfillment challenge rather than a demand challenge. Our robotics business continued to perform exceptionally well. AMR sales, inclusive of equipment and autonomy service fees, were approximately $31 million in the quarter, growing 37% year over year.

This momentum reinforces our confidence in our robotics strategy and in the opportunity ahead. I'm excited to have Pat Shotler join the call today, and in a few minutes he'll provide more detail on our second quarter robotics performance and our outlook for the remainder of the year. Profitability was below our expectations. While order demand was stronger than forecasted and revenue largely as anticipated, our earnings performance fell short of expectations.

Approximately half of the variance to our internal EBITDA expectations came from gross margin performance, while the other half came from higher than expected operating expenses. Looking first at gross margin, the most significant pressure came from EMEA, where a more competitive market environment squeezed us from both sides. Increased discounting held back price realization at the same time that costs moved higher, including freight and material costs associated with the conflict in the Middle East, and lower volumes added manufacturing deleverage on top of that.

In North America, we experienced the longer-than-anticipated tail of ERP optimization costs as we progressed through the phase following stabilization of the system. Strong price realization in the region partially offset these costs, but the pace of improvement was slower than we anticipated. Lower volumes in APAC, where demand softened across most markets, were a further headwind in the quarter. On operating expenses, SG&A was above plan.

The primary drivers were the delayed realization of productivity and efficiency gains associated with our ERP implementation and broad inflationary pressure across the cost base, including higher travel, fuel and vehicle costs supporting our global sales and service organization. Together with continued investment in R&D, these pressures offset the operating leverage we expected to realize during the quarter. Importantly, these drivers are understood and we are taking decisive actions to improve performance. In EMEA, we are implementing pricing and reinforcing discount discipline, improving commercial execution and taking actions to reduce costs across the business.

We expect pricing to normalize in the second half as a result, although cost pressures and softer volumes will continue to weigh on the region. In North America, we continue to focus on supply chain recovery, increasing production output and capturing the efficiency gains associated with our ERP optimization efforts. We expect North America to be a source of improvement in the second half, supported by pricing and by higher volume as we convert backlog and better serve customer demand.

Given our first half performance and our current expectations for the remainder of the year, we are raising our full-year net sales outlook and lowering our full-year adjusted EBITDA outlook. Next, I'll provide an update on our ERP optimization efforts. Then Pat will discuss the continued momentum in our AMR business and TNC Robotics venture before Faye walks through our financial results, updated guidance and outlook for the balance of the year. Let me provide an update on our ERP optimization efforts.

The stabilization we achieved in the first quarter has held. Core workflows including order management, production scheduling and fulfillment remain stable and continue to operate at scale. Most importantly, we are serving customers, shipping product and successfully running the business on our new platform. That foundation remains firmly in place.

As we shared on our last call, our focus this quarter shifted from stabilization to optimization. While we've made progress, the pace of that progress has been slower than we expected. The productivity gains and cost improvements we anticipated during the second quarter did not materialize as quickly as planned, and that impacted both our operating efficiency and profitability. The underlying drivers are well understood.

In North America, we continue to experience elevated operating costs including overtime, labor inefficiencies, overhead deleverage and premium freight. In addition, master data and planning challenges contributed to material and component shortages, resulting in production disruptions, rework activity and additional expedited freight costs. Finally, some of the remaining manual processes are taking longer to fully eliminate than we anticipated earlier in the year. While we're not satisfied with that pace of improvement, I want to emphasize that these are execution issues, not structural issues with the system itself.

We have clear visibility to the drivers and a focused plan to address them. We have dedicated resources across the organization to improve system performance, eliminate remaining inefficiencies, and capture the productivity benefits we expected from the implementation. While progress is occurring more gradually than we initially anticipated, we continue to move in the right direction. This experience has also informed our outlook as we look to the second half of the year.

Our assumptions now include continued ERP-related costs, albeit at lower levels than we experienced in the first half. We believe this is the right way to plan the business and reflects a more measured view of the recovery trajectory. Finally, the EMEA phases of our ERP implementation remain deferred beyond 2026. That decision allows us to keep our resources and management attention focused on completing the North American optimization work and ensuring we capture the long-term benefits of this investment.

We will provide updates on timing and expected costs as our EMEA plans are developed. The important takeaway is that the foundation is stable, the challenges are understood and we are making progress every quarter. We remain confident that this investment will deliver the operational scalability, efficiency and customer experience improvements we originally envisioned. At the same time, we continue to make meaningful progress advancing our long-term growth strategy, particularly in robotics and autonomous solutions.

With that, I'd like to turn the call over to Pat Shotler, who will provide an update on our AMR business and the momentum we're seeing across our robotics portfolio. Pat Shatler, Head of TNC Robotics Thanks, Dave, and good morning, everyone. To begin, I'll briefly recap why we believe robotics is such a compelling opportunity for Tennant. First and foremost, robotic cleaning addresses our customers' biggest challenge, which is labor.

In commercial cleaning, labor often represents more than 80% of the total cost of cleaning. Cleaning labor is hard to find, difficult to retain, and increasingly expensive. Those trends, combined with advances in technology that have improved automation capability while lowering costs, have brought our industry to an important inflection point. Customers are no longer just experimenting with robotic cleaning; they're deploying cleaning robots at scale because it helps them reduce labor costs, reallocate employees to more complex tasks, and achieve more consistent cleaning outcomes.

We believe Tennant is uniquely positioned to help customers make that transition. We have a strong and well-recognized brand in professional floor care, deep relationships with the world's largest cleaning customers, and a global support infrastructure that is built to support commercial cleaning environments. And importantly, we've been helping customers deploy cleaning robots for more than eight years. In that time, we've deployed more than 13,000 robots across approximately 600 customers, giving us significant operating experience across a wide range of industries, applications, and geographies.

We believe robotics is positioned to become an increasingly important driver of Tennant's long-term growth and value creation. Robots command a higher value than traditional equipment, with average selling prices approximately three times higher than conventional machines. We estimate that the robotic cleaning category is growing more than five times faster than the historical floor care market, while expanding our addressable market beyond equipment and into the much larger labor spend associated with commercial cleaning. So how are we positioning Tennant to capture this opportunity?

At the start of 2026, we established the TNC Robotics venture as a dedicated organization focused on building the capabilities required to lead the transition to robotic cleaning. Recognizing the need to move with differentiated speed, Dave decided to invest in dedicated executive leadership for robotics, and I eagerly accepted that challenge to lead the robotics venture, which has allowed me to channel my passion for the growth potential of robotics and commit my full energy to aggressively growing this part of the business.

My objective with TNC Robotics is straightforward: to operate with the speed and agility of a startup while leveraging the talent, scale, customer relationships, and infrastructure of global Tennant Company. I believe that combination creates a competitive advantage that is difficult to replicate, and I'm encouraged by the early results. Since establishing the venture, we've increased our allocation of investment in dedicated robotics talent and capability. Today, approximately 120 employees are dedicated to robotics across product development, sales, marketing, customer success, operations, and support functions.

We expect to continue growing robotics investment while leveraging the scale, infrastructure, and expertise of the more than 4,000 talented employees across the broader Tennant organization. Our strategy to accelerate robotics growth is centered around three key priorities. First, we're accelerating product innovation. We're responding to customer demand and increasing our R&D investment in robotics to rapidly expand our product portfolio across new applications, increase levels of autonomy, and broaden our offering across additional value and price points.

We're committed to launching 10 new robotic products over a two-year period, and we're executing against that accelerated roadmap. 0 navigation technology featuring self-path AI. We expect to maintain an elevated pace of product introduction through 2027 and beyond. Our second strategic priority is to build a differentiated go-to-market model.

Selling robotics is different from selling traditional equipment. Success requires specialized expertise to identify automation opportunities, deploy solutions effectively, and drive customer adoption. To support that effort, we now have more than 40 commercial team members dedicated to selling, deploying, and supporting robotic solutions. This specialized commercial organization complements Tennant's broader commercial infrastructure and leverages Tennant's more than 500 sales reps and extensive global distribution network, enabling the scale and capability to guide all customers, large and small, through every stage of their automation journey.

At the same time, we're continuing to reposition the Tennant brand as a leader in robotics, in addition to being a leading floor care brand. Our third strategic priority is to build a comprehensive automation ecosystem. In robotics, success isn't measured by the machine sale alone. Success is measured by customer outcomes.

Our global service network, our customer success capabilities, and our growing data platform allow us to monitor utilization, optimize performance, and help customers achieve the ROI that they expect from automation. We believe our ability to support customers throughout the entire automation life cycle is a meaningful competitive differentiator and an important enabler of enterprise-scale adoption.