TNC - NYSE

Good morning. My name is Devon and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company’s First Quarter 2023 Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call. [Operator Instructions] Thank you for participating in Tennant Company’s first quarter 2023 earnings conference call. Beginning today’s call is Mr. Lorenzo Bassi, Vice President of Finance for Tennant Company. Mr. Bassi, you may begin your conference.

Good morning, everyone and welcome to Tennant Company’s first quarter 2023 earnings conference call. I’m Lorenzo Bassi, Vice President of Finance. Joining me on the call today are Dave Huml, Tennant’s President and CEO; and Fay West, Senior Vice President and CFO. Today, we will provide you with an update on our 2023 first quarter performance. Dave will provide you an update on our operations and enterprise strategy, and Fay will cover our financials. After our prepared remarks, we will open the call to questions. Please note the slide presentation accompanies this conference call and is available on our Investor Relations website at investors.tennantco.com. 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 statement. These risks and uncertainties are described in today’s news really, and the documents we filed 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 2023 first quarter earnings release includes the comparable GAAP measures and a reconciliation of those non-GAAP measures to our GAAP results. Our earnings release was issued this morning by a Business Wire and is also posted on our Investor Relations website at investors.tennantco.com. I will now turn the call over to Dave.

Thanks Lorenzo and hello everyone. Thank you for joining the call today. Tennant had a very strong first quarter with an all time record for sales and balanced growth across all geographic regions and product categories, along with service and parts and consumables. Overall, we achieved organic year-over-year growth of 21%. Our sales growth was driven by both pricing and volume. 11% of our sales growth was driven by backlog reduction, and the remainder was attributed to growth in our base business. We saw good price realization in Q1, while volume benefited from improved parts availability, which boosted our manufacturing output. The actions we took in 2022 with respect to our supply chain are reading through. We remain cautiously optimistic that supply will continue to stabilize, which would enable increased and more predictable output. Price realization and moderating inflation led to an expansion of our gross margin which is now back to pre-pandemic levels and demonstrates Tennant’s ability to perform when we are able to secure the parts we need to operate productively and efficiently. Adjusted EBITDA for Q1 was nearly $48 million or 15.7% of revenue. Our top-line and gross margin expansion allowed us to create strong operating leverage as we continue to be disciplined in managing our costs and we converted 100% of our Q1 net income to free cash flow. Demand for Tennant products continued to be robust in Q1 as total income in Q1 order demand exceeded our initial expectations and was in-line with our full-year guidance. Our open order position of $298 million is still significantly above historic levels and backlog is especially strong in industrial North America. Even so, Q1 was the first quarter of meaningful backlog reduction since Q2 of 2021 and we believe represents an important turning point in our efforts to mitigate persistent supply chain challenges and meet strong customer demand. As Fay will discuss, we are reaffirming our full-year guidance and although macroeconomic uncertainty remains, Q1 demonstrated that we already and able to capitalize on any improvement in the supply chain environment. As such, we are monitoring order patterns closely and reacting accordingly. At the same time, our R&D and product management teams continue to work to enhance our current product portfolio. For example, in our small spaces category, our new i-mop light delivers the cleaning performance of a mechanized scrubber with the mobility of a flat mop. This makes it ideal for all kinds of small, cluttered or difficult to navigate spaces, like public restrooms, stadium bleachers and staff break rooms. The i-mop XL Plus includes more advanced features, and is designed for slightly larger spaces like dining areas, meeting rooms, locker rooms, lobbies, and other common areas. At the top of the range, the i-mop XXL Plus matches the capabilities of a full size walk behind scrubber with enhanced maneuverability to clean around obstacles and irregular layouts. We continue to leverage the product platforms of our Gaomei and IPC brands, and we introduced two new additions to our Ride-On scrubber portfolio. The T681 and the T981, these models have the right combination of size, features and maneuverability for budget minded customers who want a simple, but effective machine, but do not want to sacrifice quality or dependability. In addition to executing on our enterprise strategy initiatives, we formalized our commitment to a renewed and refreshed sustainability strategy. Specifically, we have set a goal of achieving net zero greenhouse gas emissions across Scopes 1, 2 and 3 by the year 2040 and has submitted a letter of commitment to the Science Based Targets Initiative or SBTI for validation. To reach net zero, we plan to make deep emissions cuts across our operations and value chain. We will partner with customers to increase the energy efficiency of our portfolio and we will seek to source 100% of our electricity from renewable sources globally by 2030. We also are striving to electrify 100% of both our product offerings, and our global vehicle fleet by 2040. Furthermore, we will collaborate with technology partners to drive innovation and development to lead the industry toward a cleaner future. Tennant is an industry leader with a reputation for innovation, and I’m confident that we can affect change on a global scale. By embedding sustainable thinking into how we work, we will continue to deliver solutions that can help our customers solve their biggest cleaning challenges, while addressing their own sustainability targets. Working within our own business and with our stakeholders, we will help people thrive and contribute to a healthier planet. With that I will turn the call over to Fay for a discussion of our financials.

Thank you, Dave, and hello everyone. As Dave noted, we reported a very strong first quarter net income of $24.3 million was up $14 million from the prior year period. Improved operating performance was driven by higher price realization and volume increases in all geographies, particularly the Americas and was partly offset by higher variable operating costs, interest costs and income taxes. Net interest expense increased to $3.7 million in Q1 up from $300,000 in the prior year period. The increase was due to higher debt level coupled with rising interest rates on our variable interest rate debt. Adjusted income tax expense of $7.7 million increased $3.3 million over the prior year period, largely driven by an improvement to operating performance. The first quarter adjusted effective tax rate of 24.5% is in-line with full-year expectations. First quarter adjusted earnings per diluted share, which excludes amortization and restructuring charges nearly doubled to $1.45 per share from $0.73 per share in the prior year period. For the first quarter of 2023, Tennant reported net sales of $305.8 million, compared to $258.1 million in Q1 last year. This represented organic growth of 21%, with roughly half the growth attributed to pricing and the other half driven by volume. Our backlog went from $326 million at the end of 2022 to $298 million at the end of the first quarter as better parts availability and the increased predictability of our production output allowed us to better fulfill customer orders. Foreign currency translation unfavorably impacted sales by 2.5%. Tennant groups it sales into three 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 Australia, China, Japan, and other Asian markets. In Q1, all three geographic regions achieved year-over-year sales growth. Sales in the Americas grew 27.5% to $204.4 million, or 27.9% on an organic basis, while FX had a net unfavorable impact of approximately 0.4%. This significant year-over-year growth and our largest region was driven equally by price realization and volume increases across all product categories. Our North American production plants were able to obtain constrained parts and increased production to meet order demand and address elevated backlog levels. Sales in EMEA increased 4.3% over the prior year to $82.1 million, or 10.6% on an organic basis. Broad based growth across all product categories led by floor care equipment, and across all direct geographies, especially in the UK and Iberia drove this year-over-year increased. Sales in the Asia Pacific region increased 1.4% over the prior year to 19.4 million or 7% on an organic basis. This was driven by growth across all product categories, particularly equipment and across our direct geographies, especially Australia, China and India. China’s improved performance was directly impacted by the lifting of COVID related restrictions early in the first quarter. Turning to adjusted EBITDA, adjusted EBITDA for Q1 was $47.9 million, an increase of $20 million or 72% versus the prior year period. Adjusted EBITDA was 15.7% of sales, an increase of 490 basis points versus the prior year. Our sales growth driven by both volume and price was the most significant driver of EBITDA growth. EBITDA margin was also driven by an expansion of gross margin and by operating leverage created by top-line growth. Gross profit margin improved 270 basis points to 41% in the first quarter compared to Q1 of last year. Continuing what has been a positive trend, gross profit margin improved 140 basis points sequentially from the fourth quarter of 2022. The increases were driven by pricing realization which offset the impact of multi-year inflation on materials and labor. Selling and administrative expense was $81.7 million for the first quarter of 2023, an increase of $5.1 million compared to a year-ago. The increase was driven primarily by higher variable costs associated with increased operating performance, such as warranty costs and other employee costs. As a percentage of net sales, S&A expense for the first quarter decreased 300 basis points to 26.7% from 29.7% in Q1 of last year, driven by both leverage attributable to our top-line, and gross margin growth, as well as our cost containment initiatives. We are pleased with our first quarter performance, but at the same time, we remain cautious and continue to monitor order patterns and supplier performance closely to anticipate any moderating signals that would require swift action. As the year progresses, we will evaluate further investments to support our business. Overall, we believe our Q1 results have established a strong foundation for achieving our 2023 full-year guidance. Turning now to capital deployment. In Q1, net cash provided by operating activities was approximately $31.1 million, compared to $10.1 million in the year-ago period. The increase was the result of improved operating performance coupled with moderating investments in working capital. Capital expenditures of approximately $7 million were in-line with our expectations and are on pace to meet our full-year guidance. In Q1, we continue to return capital to our shareholders with dividend payments of $4.9 million, and the repurchase of approximately 74,000 shares of our common stock for $5 million. These actions are aligned with our capital allocation priorities. Tennant’s liquidity remains strong with a balance of $91.4 million of cash and cash equivalents at the end of the first quarter and approximately $242.3 million of unused borrowing capacity on the Company’s revolving credit facility. At the midpoint of our full-year adjusted EBITDA that guidance range, our net leverage was 1.38 times lower than our stated goal of 1.5 to 2.5 times. Turning to guidance, we reaffirm our guidance as detailed on the slide, including net sales of $1.115 billion to $1.155 billion, reflecting organic sales growth of 3% to 7% and adjusted EBITDA of $140 million to $160 million. Overall, we see continued strength and the demand for tenant products and we remain cautiously optimistic about the improved stability of our supply chain despite the uncertainty of global economic conditions. Moreover, our strong first quarter gives us confidence regarding our full-year 2023 guidance, which is in-line with our long range financial commitment. With that, I will turn the call back to Dave.

Thank you, Fay. In summary, I’m very proud of the global team and our ability to take advantage of the opportunities presented to us. This was a great start to the year and sets us up to deliver on our full-year guidance. With that, we will open the call to questions. Operator, please go ahead.

Thank you. [Operator Instructions] We will take our first question from Chris Moore with CJS Securities. Your line is open.

Good morning guys. great quarter, thanks for taking a few questions. Backlog of 298 million, how would you characterize the pricing of your backlog? Steel prices have gone up sharply year-to-date. Just curious kind of how you look at that current pricing?

Great question, Chris. And it is one that we have had to out of out of necessity get much more granular and trying to analyze how price will flow through our backlog. In aggregate you can think about a quarter or a quarter of a half delay between a price increase and realizing it out into our P&L. Obviously, as we stated in the script, not all backlog is equal where our backlog is more heavily weighted in North America, and more heavily weighted around our industrial products globally. So you can think about it in aggregate. The other dynamic that makes it difficult to predict how price will flow through backlog is that we are not operating on a pure FIFO basis, we are allocating based on customer demand, customer needs and trying to satisfy as many customers as possible as we work to reduce the backlog. I think the positive point is that we have very strong price realization. And so as the orders flow through backlog at different rates, depending on the product category, or the region, our realization is holding up very well and you see that in the numbers that we just posted for Q1. If you break down that the 21% organic growth, about 11% of that growth came from backlog reduction, 10%, from what I would say I would call base business growth, and an equally split, that split between price and volume. So thinking about price realization, as an impact on our business, we are getting stronger price realization is rolling through our backlog on an uneven basis. But we are certainly benefiting. As we look out into the future, to the extent we can reduce backlog we expect to continue to benefit from the prices will be published on the marketplace.

Got it, very helpful. So Q4 orders resumed growth after a slower Q3 which followed I think seven quarters of growth. You indicated that Q1 orders exceeded your expectations. Did they grow sequentially or year-over-year?

Yes, orders were up versus our plan, but we had calendarized the year to ramp and I think we talked about this on last call. We had calendarized as the year to ramp from Q1 to Q4. So while we beat our Q1 plan, our orders were actually just in-line if you just straight line what we need for orders to deliver full-year guidance that we are in-line with what we need on a full-year basis. So we were off a bit on the calendarzation. They were up and in-line with guidance and on the trend that we established coming out of Q4.

Goy it. So the adjusted EBITDA range is still 140 to 160? You have a quarter plus of data. How would you compare your kind of Q1 expectations a few months ago, versus what you actually put up for the 47/9?

Yes, as I said, we calendarized our year to start out quite modestly. Your call that we began some recovery from a parts shortage perspective in Q4, a bit above our expectations, that trend from a parts of shortage availability to build little projects continued into Q1. And so Q1, I would say exceeded our plan expectations. But Q1 is really in-line with the kind of quarters we need to deliver to achieve our full-year guidance. So, we are pleased with the quarter. When you look at what is underneath the performance. The fact that that we had strong orders the fact that we had growth in our base business, this was our first quarter of meaningful backlog reduction taking backlog down by 28 million, which I think is important proof point to show that when we get parts we can not only serve the base business growth, but also reduced backlog and get those customers product that they’ve been waiting for. It is really a direct result of all the actions and investments the team has taken over the last throughout 2022. And we have detailed those in a lot of detail as we move through the prior releases. I think the other important point about Q1, Chris is that it demonstrates when we are able to get parts that we can monetize the backlog, and deliver. So one of the questions we have been posed with in the past is given all the focus on parts shortages, if you start to get parts, do you have the labor in the production capacity to react quickly and turn it into revenue and work the backlog down? I think Q1 demonstrates that we are ready and complex quickly.

Got it. Very helpful, I will leave it there. Thanks guys.

Thanks Chris

Thank you.

And next, we will go to Steve Ferazani with Sidoti. Your line is open.

Good morning everyone. I’m going to have to sort of follow-up the previous questions in terms of guidance. Obviously, you significantly exceeded what we were thinking. You said, you didn’t exceed internal expectations, you said order rate was pretty much in-line with what you were thinking. What is holding you back from it, raising guidance, or at least narrowing it to the upper end?

Yes great question Steve. Just to clarify order rates were above what we had planned for, but in-line with what we need to deliver full-year guidance. So listen to having such a strong first quarter, it is logical to ask yourself, how to approach guidance, and having over performed on virtually every metric across the P&L. It is a mathematically logical question and actually, it is one we have thoughtfully considered in preparation for release. So let me give you a few of the points that we thought about, as we held and reaffirmed our current guidance. Listen, the Q1 results give us an increased confidence in full-year guidance. And so it is a positive, and we are feeling good about the guidance range that is out there. When you look at Q1, we are really only through one quarter of the year and so we still have three quarters to deliver. If there is anything I have learned, and we have learned from the last three years is that the environment can change very rapidly within a year. And so continuing to monitor signals from the marketplace, both demand signals and sort of outlook from key customers is a really important component that we take into consideration. People are still reasonably optimistic for the year, but there is certainly reasons for uncertainty when you think about the macro environment we are operating in. The other factor we thought about was the parts availability that we have struggled against, for really, you could just say the last seven quarters, eight quarters. We began a more positive trend from a parts availability perspective, really, in the last 100-days, it started in earnest kind of end of Q4 and we saw some improvement in parts availability that fueled our Q1 performance and results. But we are still managing parts shortages, we cannot get all the parts that we want and the quantity we want. And not all suppliers are delivering predictably. And so while we are encouraged by a 100-day pattern, we are not confident enough to extrapolate that to a full-year’s worth experience. And we are still working to try to improve the parts availability, so that we can ramp production. The next point I would make is relative to orders and backlog and I mentioned this in the script. Our backlog is heavily weighted in North America and our backlog is heavily weighted on industrial product so we have pretty good coverage from the backlog in terms of delivering on guidance in those categories and in that geography. In the rest of the product categories and the rest of the regions of the world, where incoming order demands matters, because if we don’t get the incoming order, we won’t have the revenue to ship and deliver on the full-year guidance. So we are monitoring order patterns very closely. Well, orders were strong and first quarter. There is seasonality in our business and I would point to North America our largest business unit and I think we have talked about this in the past. There is Q2 seasonality, particularly driven by the education vertical, where schools as they close for the school year, they tend to buy their equipment fleets renew their equipment fleets, and they do most of their restorative floor cleaning over the summer while students aren’t there to prepare for the fall. We need to see that Q2 seasonality materialize to bolster our commercial border rates so that we can fill that part of the, that part of the funnel and deliver on full-year guidance. And lastly, when we thought about the uncertainty that was in place, when we laid the plan for the year, kind of end of 2022, when we look across the macro environment, I wouldn’t say it is gotten any worse, but it certainly hasn’t gotten materially better. Interest rates are at an all time high, people are uncertain about potential for looming recession, the Ukraine war continues on. So the macro environment, we don’t see more certainty. And having said that, I wouldn’t want anyone to infer that are not raising guidance was somehow linked to something we saw on the horizon. We don’t see anything negative looming, we are just exercising, I would say a degree of prudent caution as we move into the year to make sure that we can continue to build on our predictability by delivering on the guidance that we communicate.

That is extremely helpful, very detailed. I appreciate the thoughts on that. When I think about another unpredictable area, China, started to see it reopened, but I’m guessing what you saw in Q1 could be just the start, right. How are you thinking about a fully open China what that could do in 2023, if indeed, that plays out?

Yes. So we had baked into our guidance and approving China. China did have a solid first quarter and some of the promise and hope of a reopen China that we heard. I did last time we talked, the government had taken the action, but our customers and our channel partners, were still a little cautious whether it was going to hold and it would remain in place. We have since seen real demand generated, our distributors have begun to stock up in response to that demand, and it is getting back to more normal. We posted double-digit revenue increase in China in Q1 and so we are optimistic for China and hopeful that the government will continue the status quo so that we can continue to capitalize on the loss time from the, that we lost during the shutdowns. Yes we are bullish on China, because it is, it represents a fantastic opportunity for us, not only from if you just look at the data around the market potential, China could be the single largest cleaning market on the planet in our lifetime. And so we want to make sure that we have a very firm footprint, and that we are on solid ground with our product portfolio and our channel reach and our brands, and prepare to capitalize on the cleaning mechanization as it happens and drive the mechanization. So still really bullish on China, early returns are good and we are optimistic for the near-term.

Great. And if I can get one more in just in terms of if you can provide any kind of color, and you have obviously rolled out a number of new products over the last six months, probably more so than I can remember. In terms of how that is impacting results and any kind of update on the robots?

Yes, absolutely. Tennant has a rich legacy of being the innovation leader in our marketplace and that is been punctuated in recent times. We have been aggressively expanding our - I will start with robotics, our robotics portfolio and our T7 and T3 AMRs were largely focused on retail and sort of later commercial applications. Our T16 AMR is focused on industrial applications, and actually is as we look across the portfolio, we love our position and we are excited about retail and more commercial type applications, but industrial plays to our strengths. And while it may not be the large fleet orders that you can get in retail or in a school system, industrial tends to be smaller unit volume orders. We have a unique strength in our industrial verticals, with our factory direct service organization and our factory direct sales organization. And we are really comfortable operating in that environment. We think the adoption could actually be accelerated, because it doesn’t have the public walking through those environments. Those industrial customers are more adept at investing in automation to drive their business, and inside their four walls and so they can more efficiently measure the return on the investment that they are able to achieve. So robotics did contribute to our results continues to contribute very bullish on robotics and invasive assaults are one of our customer’s biggest problems, which is their labor challenges. They can’t find labor and when they do, it is costing them more to employ labor for cleaning. The other new products you referenced, we do have a full suite of products and when you think about, we have some line extension products that we have launched. These were products, platforms that we got through acquisition of the IPC business in 2017, through the Gaomei business acquisition. And these are products that are designed to competitively compete to be competitive at different price points and different value props. We accelerated the launch of those products, as we were parts challenged on some of the legacy tenant product lines, we accelerated the launch of those other offerings and allowed us to compete at different price points. It has been very well received by the marketplace and it is great for our business. And so we will continue to deploy that strategy, it just as it allows us to serve more customers and be more competitive in more segments of the market, and serve them profitably. And the last one is our small space offering. We have launched the i-mop products, we have i-mop XL, i-mop XXL, these are fantastic products that allow our customers to clean, smaller spaces. And the great part about this product is we can sell it very efficiently, because there are small spaces in every one of the verticals we currently serve. And so while we are in and entrenched with larger equipment for their larger floor spaces within the building, we can now sell them a product for the smallest spaces and we outlined some of those on the script. So when you look across our recently launched products, we have new products for every member of our sales organization to go out and sell and something new to talk about every existing customer and new customers in the vertical markets that we focus on. So we are really well positioned as from a new product perspective to have exciting things to talk about semi customers and these are great door openers, we can get meetings with customers and demonstrate product once we are in demonstrating a new product, we can then sell the full suite of tenants solutions to those customers.

Fantastic. Thanks for all the detail there.

You bet. Thank you Steve.

Next we will go to Tim Moore with EF Hutton. Your line is open.

Thanks and congratulations on the strong sales growth and the amazing operating leverage, including your SG&A expense. Dave, thanks for clarifying your pretty conservative guidance and the factors that could alter the top end of your EBITDA organic sales growth. I just want to start out with a two part question. You explained that a lot of the volumes seem to be or at least half the volumes seem to be converging on the backlog. Was there any pull in from the June quarter that you can tell of any orders that maybe ship late March from the Americas that might have boosted a little bit more of the March quarter taking a little bit out of the June quarter?

I’m sure that happens from time-to-time but largely speaking, no. We have got our backlog, we are working down our backlog given the size of the backlog that is our focus. Those are customers that value, the Tennant value proposition have placed their order have been patiently waiting and those are the customers we are focused on serving you in addition to the base demand. Not aware of any pull-ins. I think what you mean is where we had a future order and we pulled it in or do you mean what our customer preordered because they wanted the product?

Or either. I’m just wondering if you notice any abnormal behavior of things that may be shipped out quicker towards the end of March?

No, not at all.

Good, fair enough, that is great. I just want to clarify the pricing - realization pricing, boost cadence on a quarterly basis. If I remember correctly, and please feel free to correct me on this. Some of your pricing hikes started getting more realized in September. So I’m just trying to think about, it would look like maybe the fourth quarter of this year, we will probably have the lowest pricing tailwind if that was kind of already in place. And obviously, the fourth quarter faces a harder 10% year-ago, organic sales growth comparable. So just trying to get a sense if pricing will probably start to lap in a meaningful way in the September quarter.

Yes. You can think of - listen, we price at different levels and at different times in different geographies, but with multiple price increases across 2022 I think your logic holds will begin to lap price increases as your goes down. So the year-over-year impact will start to be moderated. The only the only thing I would add Tim is obviously we are closely monitoring inflation and market opportunity and we are pricing as we need to. So, we will continue to that as if we have the need to move on price yet again, and we are getting pretty good out of that last couple of years that would change the picture in terms of what we are able to lap and deliver for price realization. I will just add and we are getting really strong realization and part of it is obviously due to operating in an inflationary environment but it is not easy. We sell kind of the world’s largest companies in each of our verticals, they are very adept at pushing back and negotiating price. And just so I think it shows the power of our brand and our value proposition, but it also shows the power of our selling organization. And the fact that they are able to go in and articulate and make a compelling case for why the price is still a good value to the customer and get it to stick.

Now that makes sense. And I didn’t want to be a little your pricing and all I know it is been very strong and not just cost inflation. It is the enhancements and features that you are adding in the value prop for the customers. I just had the question now on your impressive gross margin back to pre-pandemic levels, can you maybe give us a rough sense of the split, maybe how much of that expansion was driven by net pricing and maybe what came from - what you were kind of categorizing maybe better predictability, supply chain and components a little bit better, maybe there is less under absorption of your manufacturing facility. I’m just wondering if it is two-thirds pricing and a third, just the manufacturing efficiencies getting better, because of the supply chain.

I think pricing drives up a significant portion of the increase in gross margin year-over-year. But there is also operating efficiencies as we continue to move volume through the plant through the plants, I should say and so you are seeing kind of that ratio, almost the way that you that you laid it out. And we have also been able to cover multi-year inflation too and that is also helping us in gross margin.

Great, thanks Fay and say I’m just on free cash flow, I know you haven’t died of free cash flow and you had very strong $24 million in this quarter. Do you think that you can see maybe close to 85 million this year, I mean, do you have any sense of maybe what is going to happen to the working capital as you get through the summer or fall?

Yes, and you are right. We don’t go into free cash flow, but I think some of the components are there to consider. In fact we had we had a very strong first quarter that was driven by operations that kind of came through the operating cash flow line item. The other thing I would say is, we anticipate increased contribution from working capital in the next three quarters of the year. So I think we should start to see that contribution coming through and helping with the free cash flow perspective.

That is terrific color, I appreciate that. My last question is, can you just maybe update us on the ERP project evaluation and then maybe the timeframe around for making that decision or not?

Yes. So we are actually in the process of evaluating that right now. We anticipate that that work will largely be done over the summer and into early fall and we will likely have some additional color to provide in probably a Q3 release on the path forward.

Terrific. That was it for my questions. Thank you.

Thanks Tim.

Next, we will go to Brett Kearney with Gabelli Funds. Your line is now open.

Hi guys good morning. Congrats on the strong execution on the hard work the team has been doing over the past year plus. Curious, now that Tennant has very credible sustainability goals out there very much aligned with where some of your larger customers are going. When you think about your position, you have in autonomous, curious, anything that factors into conversations with some of your larger customers, in terms of chemical water efficiency that these machines unlock, or the data that you guys are capturing coming off the machines that is very much needed for say the larger retailers to hit their own sustainability targets. Does that factor into the conversations at this point?

You know it is a great question. It is factors in to varying degrees, depending on the customer. But I think in general, we see it increasing overtime. So it can take a number of different forms. But we think sustainability is going to be part of the conversation in the selling process for a long time to come as customers catch up. And it is one of the areas, I’m most excited about with our new sustainability strategies strategy is that we can achieve our sustainability goals by helping our customers solve their sustainability goals. Our products can play a pivotal role, not only in, for example, electrifying our product portfolio so that we can help customers eliminate internal combustion engines from their environment, which helps their emissions on site. It is that Scope 3 area of greenhouse gas emissions. But also, like you said, our we are uniquely positioned. We have our products use water, we have chemical free cleaning technologies, we have data and robotics that can potentially contribute to our customer sustainability goals, and we also participate, we reconditioned machines, which can contribute to product circularity. And so I think there is multiple potential points of value that we can add real value to our customers that also has a sustainability benefits. But it is ultimately it is helping them reach their goals and solve their problems. It is not a sideline activity around sustainability. It is really integrated into who we are as a partner and what they are trying to do or where they are trying to go with their business.

Excellent. And then with the strong growth you guys have been seeing in kind of your core industrial market. In North America, we obviously hear about some of them plants and suppliers coming back to this region. I was curious whether you are seeing as good an opportunity with some of the customers you have a strong existing position with or new customer opportunities popping up from some of this potential, call it reshoring activity.

I would say we are seeing opportunity in both. We hear a lot of talk about resource. Some customers have capacity where they are just moving some of their production back into existing footprint, others are adding footprint for existing facilities. The ground up new facilities, that has a pretty, pretty long lead time to it. So it is not that we can’t really quantify how many new starts there has been and we are a late stage purchase. If you think about procuring the land building equipment, putting in the production, equipment, staffing and then getting up and running then you would buy the property maintenance equipment, and then the cleaning equipment. So we are hopefully late stage purchase in a long cycle process from a new square footage perspective. But then the reshoring, on-shoring could be could be a trend that helps us I think having lived through the challenges posed pandemics with freights and with parts, shortages, availability, and now looking at continuing geopolitical turmoil. We see and you read the same thing as we took a lot of companies are considering being in more complete control of their own destiny, by having their production close to home or more of their production in one geography or in the geography that serves to eliminate the potential for those other disruptions. So we think that is a positive a positive trend for us, as companies had to add square footage and then obviously needs to be claimed.

Yep, very helpful. Thanks so much guys.

Thanks Brett.

[Operator Instructions] Since there are no further questions at this time, I will now turn the call back over to management for closing remarks.

Thank you before we close please note that we will be posting to Tennant’s IR website the second in our series of quarterly videos that offer a deeper look into our business and growth strategy. You can be notified of each new video by signing up for e-mail alerts at investors.tennantco.com. This concludes our earnings call. Have a nice day.