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    TNC
    Earnings call· Jun 2026(Q2 FY26)

    TENNANT Q2 FY26 earnings call TNC

    Aug 6, 2026 Source

    Executive summary

    Tennant Company Q2 FY26 — Strong Demand Offset by ERP and Margin Pressures

    Tennant Company reported strong underlying demand and significant robotics growth in Q2 FY26, with orders and backlog building. However, profitability fell short of expectations due to ERP optimization delays, supply chain constraints, and competitive pressures in EMEA, leading to a lowered full-year adjusted EBITDA outlook despite a raised net sales outlook. The company is actively addressing these execution challenges while maintaining confidence in its long-term strategic direction.

    Highlights

    4

    • Orders totaled $339 million, up 6.6% year-over-year, despite lapping the strongest order quarter of the prior year.

    • Robotics sales were approximately $31 million in the quarter, growing 37% year-over-year.

    • Backlog increased to $127 million, up $18 million from the end of Q1 and up $50 million since year-end.

    • Latin America delivered outstanding organic sales growth of 21%.

    Concerns

    5

    • Adjusted EBITDA was $35.3 million (10.9% margin) compared to $51.0 million (16.0% margin) in the prior year period.

    • Gross margin was 39.5%, down 260 basis points from the prior year period, primarily due to ERP inefficiencies and EMEA competitive pressures.

    • Adjusted diluted EPS was $0.83 for the quarter compared to $1.49 in the prior year period.

    • ERP optimization progress was slower than expected, leading to elevated operating costs and production disruptions in North America.

    • Full-year adjusted EBITDA outlook was lowered to $155 million-$170 million from $175 million-$190 million.

    Guidance & targets

    12
    CategoryTargetConfidence
    Full-year 2026 Net Sales
    $1.27 billion to $1.31 billion
    high materiality
    High
    Full-year 2026 Organic Sales Growth
    3.5% to 7%
    high materiality
    High
    Full-year 2026 Adjusted EBITDA
    $155 million to $170 million
    high materiality
    High
    Full-year 2026 Adjusted EBITDA Margin
    12.2% and 13.0%
    high materiality
    High
    Full-year 2026 GAAP Diluted EPS
    $2.15 to $2.80
    medium materiality
    High
    Full-year 2026 Adjusted Diluted EPS
    $3.80 to $4.45
    high materiality
    High
    Full-year 2026 Robotics Revenue
    $130 million and $145 million
    high materiality
    High
    Robotics Revenue Target
    $250 million
    high materiality
    High
    Q3 FY26 Gross Margin
    comparable to the second quarter, roughly at 39.5%
    medium materiality
    Medium
    Q4 FY26 Gross Margin
    roughly around 41%
    medium materiality
    Medium
    ERP Recovery in North America
    first half of 2027
    high materiality
    Medium
    EMEA ERP Deployment
    deferred beyond 2026
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Americas
    Organic sales growth.
    		—1.4%——
    North America
    Organic sales decline, offset by robust pricing realization and impacted by lower volumes due to part shortages and production constraints.
    		—-0.2%——
    Latin America
    Outstanding organic sales growth, driven by strategic accounts, equipment-as-a-service momentum, and strong commercial execution in Brazil and Mexico.
    		—21%——
    EMEA
    Organic sales decline, reflecting lower equipment volumes, market softness, and impacts from the Middle East conflict. Central and Eastern Europe delivered double-digit growth.
    		—-2.8%——
    APAC
    Organic sales decline, driven by lower equipment volumes, cautious operating environment, weakening business sentiment, and elevated distributor inventory. Partially offset by price realization and volume growth in India.
    		—-10.6%——

    Operational metrics

    29
    Net Sales
    $324 millionup 1.7% year-over-year
    Q2 FY26

    In line with expectations.

    Organic Sales Growth
    -0.5%
    Q2 FY26

    Excludes effects of currency and acquisitions.

    Foreign Currency Contribution to Sales Growth
    1.6%
    Q2 FY26

    Contribution to total sales growth.

    Acquisition Contribution to Sales Growth
    0.6%
    Q2 FY26

    Contribution to total sales growth.

    Equipment Sales Growth
    -1.6%
    Q2 FY26

    Declined as pricing and AMR momentum were offset by lower volumes due to softer demand in EMEA/APAC and shipment constraints in North America.

    Parts and Consumables Sales Growth
    -2%
    Q2 FY26

    Declined despite pricing realization, reflecting North America parts availability constraints.

    Service and Other Sales Growth
    19.2%
    Q2 FY26

    Supported by pricing realization and strong growth in recurring revenue streams, including autonomy subscription revenue.

    Autonomy Subscription Revenue Growth
    more than doubledyear-over-year
    Q2 FY26

    Due in part to changes in revenue recognition associated with a new enterprise license agreement with Brain Corp.

    Gross Margin
    39.5%down 260 basis points from prior year period, up 140 basis points sequentially from Q1
    Q2 FY26

    Impacted by ERP-related inefficiencies in North America and competitive pressures, lower volumes, and cost inflation in EMEA.

    Adjusted S&A Expense
    $94.3 millioncompared to $86.9 million in prior year period
    Q2 FY26

    Increase driven by higher software subscription/license fees, unfavorable FX, robotics investment, acquisition costs, and inflationary cost growth.

    R&D Expense
    $12.5 millioncompared to $9.8 million in prior year period
    Q2 FY26

    Reflects deliberate investment in TNC Robotics, including engineering resources and new product initiatives.

    Adjusted EBITDA
    $35.3 millioncompared to $51.0 million in prior year period
    Q2 FY26

    Decline due to lower operating performance, gross margin pressures, and higher S&A/R&D investment.

    GAAP Net Income
    $7.6 millioncompared to $20.2 million in prior year period
    Q2 FY26

    Primarily driven by cost inflation, ERP inefficiencies, and higher S&A/R&D investment.

    Interest Expense Net
    $4.3 millioncompared to $2.2 million in prior year period
    Q2 FY26

    Primarily driven by higher average debt balances from increased borrowings in Q4 2025 and Q1 2026.

    Reported Effective Tax Rate
    26.3%
    Q2 FY26

    Consistent with full year guidance range of 24% to 29%.

    Adjusted Effective Tax Rate
    25.7%
    Q2 FY26

    Consistent with full year guidance range of 24% to 29%.

    Adjusted Diluted EPS
    $0.83compared to $1.49 in prior year period
    Q2 FY26

    Decline reflected lower operating performance and higher interest expense.

    Cash and Cash Equivalents
    $76.9 million
    end of Q2 FY26

    Balance at quarter-end.

    Unused Borrowing Capacity
    approximately $289 million
    end of Q2 FY26

    Available capacity.

    Net Leverage Ratio
    2x
    trailing 12 months

    Within target range of 1x to 2x, though at the upper end. Expected to remain near current levels in the near term.

    Capital Returned to Shareholders
    $71.3 million
    year-to-date

    Total amount returned.

    Robotics Revenue
    $31 milliongrowing 37% year-over-year
    Q2 FY26

    Inclusive of equipment and autonomy service fees.

    Robotics Revenue
    $58 millionup 56% year-over-year
    H1 FY26

    Growth primarily driven by North America and European geographies, with strength in building service contractors, retail, and industrial verticals.

    Robots Deployed
    more than 13,000
    cumulative

    Across a wide range of industries, applications, and geographies over 8 years.

    Dedicated Robotics Employees
    approximately 120
    current

    Investment in dedicated robotics talent and capability.

    Dedicated Robotics Commercial Team Members
    more than 40
    current

    Specialized expertise for selling, deploying, and supporting robotic solutions.

    Total Sales Representatives
    more than 500
    current

    Global sales force.

    Total Service Technicians
    more than 1,000
    current

    Global service network.

    Savers/Value Village Robot Deployment
    250
    recent

    Selected to deploy cleaning robots across their retail network after a successful small-scale pilot program.

    Industry KPIs

    2
    MetricValueDetails
    Parts aftermarket business19.2%%
    Order backlog order intake by segment$339 millionUSD

    Orderbook & backlog

    2
    Orders$339 millionQ2 FY26

    up 6.6% year-over-year

    Lapped the strongest order quarter of the prior year. June orders increased 11% year-over-year. First half orders increased 8.4% versus prior year.

    Backlog$127 millionend of Q2 FY26

    up $18 million from end of Q1, up $50 million since year-end

    Backlog continued to build, providing growth momentum for the second half of the year. Higher backlog levels resulted from parts shortages limiting production output and shipment conversion.

    Product announcements

    3
    ProductTypeDetails
    X2 ROVR robotic scrubberlaunch
    X16 industrial robotic sweeperlaunch
    Clean 2.0 navigation technology featuring SelfPath AIlaunch

    Deals & partnerships

    2
    Brain CorpStrategic partnership for AI-powered autonomy in robotic cleaning solutions.since 2018

    Tennant has invested in Brain Corp, secured exclusive access to their floor care technology, and aligned organizations around an aggressive roadmap for product and technology innovation. This partnership leverages Tennant's global customer access and infrastructure with Brain Corp's industry-leading AI-powered autonomy.

    Savers and Value VillageDeployment of robotic cleaning solutions across their retail network.

    Tennant was selected to deploy 250 cleaning robots across the Savers and Value Village retail network in North America. This followed a successful small-scale pilot program, demonstrating reliable autonomous performance and strong operational support from Tennant despite challenging store layouts.

    Risks & headwinds

    7
    Gross margin pressure in EMEAQ2 FY26, expected to continue weighing on the region in H2 FY26

    Increased discounting, higher freight and material costs, lower volumes

    Mitigation: Implementing pricing and reinforcing discount discipline, improving commercial execution, taking actions to reduce costs across the business. Expect pricing to normalize in H2.

    ERP optimization costs in North AmericaQ2 FY26, continued in H2 FY26, recovery to normal in H1 2027 (delayed from H2 2026)

    Elevated operating costs, overtime, labor inefficiencies, overhead deleverage, premium freight, material and component shortages, production disruptions, rework activity, additional expedited freight costs

    Mitigation: Dedicated resources across the organization to improve system performance, eliminate inefficiencies, and capture productivity benefits. Focused plan to address drivers. Changing system integrator and new CIO to lead transformation.

    Higher S&A expensesQ2 FY26, expected to continue in H2 FY26

    Increased by $7.4 million YoY to $94.3 million (29.1% of net sales)

    Mitigation: Expected to reverse trends as ERP recovery progresses and efficiency benefits are realized.

    Higher R&D investmentQ2 FY26, expected to continue in H2 FY26

    Increased by $2.7 million YoY to $12.5 million (3.9% of net sales)

    Mitigation: Deliberate investment in TNC Robotics for engineering resources, prototype development, and new product initiatives, supporting long-term growth.

    Softer demand in APACQ2 FY26, expected to continue in H2 FY26

    Organic sales declined 10.6%, lower equipment volumes, elevated distributor inventory

    Mitigation: Partially offset by price realization and continued volume growth in India.

    Parts shortages in North AmericaQ2 FY26, bleeding into Q3 FY26

    Limited ability to fully ramp production output and convert demand into shipments, resulting in higher backlog levels

    Mitigation: Manual workaround for ERP demand signals, focused cross-functional effort on key parts/suppliers, leveraging backlog visibility to prioritize parts. Line of sight to recovery beginning mid-Q3.

    Middle East conflict cost inflationQ2 FY26, expected to continue in H2 FY26

    Higher freight and material costs

    Mitigation: Implementing pricing actions in EMEA to help offset inflation.

    What to watch in Q3 FY26

    5

    ERP Optimization Progress

    Next quarter, H1 2027
    CurrentSlower than expected, elevated costs
    TargetImproved efficiency, reduced costs, progress towards H1 2027 recovery

    Why it matters

    Directly impacts profitability and operational efficiency, crucial for realizing long-term benefits.

    The pace of recovery, the pace of optimization in North America and APAC is slower than we had anticipated. And so we still anticipate getting there, just on a slower timetable.

    Q&A highlights

    6

    Can you elaborate on the parts shortages impacting production and costs, and whether it's resolved or related to the ERP program?

    The parts shortage is primarily a North American issue, driven by an ERP challenge (incorrect demand signals to suppliers) and stronger-than-forecasted demand, particularly in industrial machines and robotics. A manual workaround is in place, and a systemic fix is being tested. The issue is concentrated in a few parts/suppliers, and the company has line of sight to recovery starting mid-Q3, though impacts will bleed into Q3.

    “Coming through the second quarter, we identified an issue where our system was not giving the correct demand signals to suppliers. We have been managing these incorrect signals as ad hoc situations prior to this. We identified it as a more systemic issue across the entire supply base.”

    asked by Tom Hayes · answered by David Huml

    3 min read5 chapters

    Detailed Narrative

    01

    Robotics Strategy and Growth Momentum

    Tennant's robotics business continued its strong performance, with AMR sales reaching $31 million in Q2, a 37% year-over-year increase, and $58 million for the first half, up 56%. The company aims to grow robotics revenue from $85 million in 2025 to $250 million by 2028, requiring approximately 50% annual growth. This acceleration is driven by new product launches like the X2 ROVR scrubber and X16 industrial sweeper, and a robust opportunity pipeline. The TNC Robotics venture, with 120 dedicated employees and over 40 commercial team members, focuses on accelerating product innovation, building a differentiated go-to-market model, and creating a comprehensive automation ecosystem, leveraging its partnership with Brain Corp.

    02

    ERP Optimization Challenges and Recovery Trajectory

    The stabilization of the ERP system achieved in Q1 has held, but the pace of optimization has been slower than expected, impacting operating efficiency and profitability. Elevated operating costs, labor inefficiencies, premium freight, and material shortages due to master data and planning challenges contributed to production disruptions in North America. Management emphasizes these are execution, not structural, issues. The full recovery to normal operations in North America is now anticipated in the first half of 2027, delayed from the original H2 2026 target. EMEA ERP deployment is deferred beyond 2026 to focus resources on North America.

    03

    Profitability Pressures and Mitigation Actions

    Profitability was below expectations, with gross margin at 39.5% (down 260 bps YoY) and adjusted EBITDA at 10.9% (down from 16.0% YoY). Gross margin pressure in EMEA stemmed from increased discounting, higher freight/material costs due to the Middle East conflict, and lower volumes. In North America, ERP optimization costs were the primary driver. Higher S&A and R&D expenses also contributed. The company is implementing pricing actions and discount discipline in EMEA, improving commercial execution, and focusing on supply chain recovery and ERP efficiency gains in North America. Gross margin is expected to be comparable in Q3 and improve to around 41% in Q4.

    04

    Regional Performance and Demand Trends

    Consolidated net sales grew 1.7% YoY to $324 million, with organic sales declining 0.5% due to lower volumes offsetting favorable pricing. Americas sales grew 1.4% organically, driven by strong 21% growth in Latin America, while North America was flat. EMEA declined 2.8% organically due to market softness🌐 and Middle East conflict impacts, despite double-digit growth in Central and Eastern Europe. APAC organic sales declined 10.6% due to softer economic conditions and elevated distributor inventory, partially offset by growth in India. Orders strengthened throughout the quarter, totaling $339 million, up 6.6% YoY, with June orders up 11%.

    05

    Capital Deployment and Financial Position

    Cash flow from operations returned to positive territory at approximately $5 million in Q2, an improvement from a $31 million use of cash in Q1. For the first half, operating activities used $26.2 million, reflecting lower net income and working capital impacts. Receivables remained elevated, and inventory increased due to material shortages. The company ended the quarter with $76.9 million in cash and $289 million of unused borrowing capacity. Net leverage was 2x trailing 12 months adjusted EBITDA, at the upper end of the target range. $71.3 million was returned to shareholders year-to-date through dividends and share repurchases.

    AI-generated summary of the company’s earnings call. Not investment advice.