Executives:.

Chris Killingstad - President and Chief Executive Officer Karen Durant - VP and Controller Tom Stueve - Treasurer.

Joseph A. Maxa - Dougherty & Company LLC Jason M. Ursaner - CJS Securities, Inc. Scott Graham - Jefferies & Company Rosemarie J. Morbelli - Gabelli & Company.

Good morning. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to Tennant Company's Second Quarter 2015 Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call.

[Operator Instructions] 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. After the Q&A please stay on the line for closing remarks from management.

Thank you for participating in Tennant Company's second quarter earnings conference call. Beginning today's meeting is Mr. Tom Paulson, Senior Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin..

Thanks, Melissa. Good morning, everyone and welcome to Tennant Company's second quarter 2015 earnings conference call. I’m Tom Paulson, Senior Vice President and Chief Financial Officer of Tennant Company. With me on the call today are Chris Killingstad, Tennant's President and CEO; Karen Durant, Vice President and Controller and Tom Stueve, Treasurer.

Our agenda today is to review Tennant's performance during the 2015 second quarter, and our outlook for the year. First, Chris will brief you on our operations, and then I'll cover the financials. After that we will open up the call for your questions. This is the second time we are seeing slides to accompany this conference call.

We hope this makes it easier for you to review our results. A taped replay of this conference call along with these slides will be available on our new Investor Relations website at investors.tennantco.com for approximately three months after this call.

Now 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 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.

Our earnings release was issued this morning via Business Wire and it’s also posted on our Investor Relations website. At this point, I'll turn the call over to Chris..

Thank you, Tom, and thanks to all of you for joining us this morning. We are pleased to report another solid quarter as Tennant again executed well on our growth strategies. The company posted consolidated net sales of $215.4 million in the 2015 second quarter, up nearly 4% organically from the year ago.

This company’s gross margins rose nicely to just above 44% and our earnings totaled $0.79 per diluted share. Our second quarter results were led by robust sales to strategic accounts in our largest market of North America.

We also saw continued strong global demand for new products especially the T12 and the T17 which are our new modular rider scrubbers for the industrial market. Tom will provide a detailed picture of our performance by geography but let me share several bright spots.

We had 7.5% organic sales growth in the Americas including a return to organic growth in Brazil. Organic sales growth in Western Europe that was within our target range and approximately a 15% organic sales rise in China. Our platform to accelerate organic sales is working.

The company made progress against our organic sales growth objectives during the 2015 second quarter and first half. We remain committed to both our organic growth goal of a $1 billion in sales by 2017 as well as a 12% or above operating profit margin despite ongoing global economic uncertainty and foreign currency headwinds.

You may recall that our growth strategies are based upon three core pillars. One reaching new markets and new customers, two continuing to deliver a strong product and technology pipeline and three losing sight of the discipline we’ve established allowing improving margins and controlling expenses.

I would like to briefly touch on the key enablers of growth in these areas that are contributing to our success.

Starting with reaching new markets and customers, you’ve heard us talk about making investments ahead of growth, one of our investments has been in people in 2013 and 2014 together we added roughly 270 people primarily in sales, service and manufacturing positions.

As our financial performance show, these additions are beginning to generate terrific returns. While we slow the pace of hiring in 2015, we have continued to ramp up other growth enablers. For instance we have a number of technology based growth initiatives.

We have been focusing on the global roll out of our new customer relationship management or CRM, marketing and sales management tool. This system helps us better serve our existing customers find and target new customers, grow our business and improve the overall Tennant customer experience.

To date we have implemented our new CRM solution in North America, Europe, Middle East and Africa and Australia and we are already benefiting from the significantly improved sales analytical capabilities of the new system. By year end we expect to complete the roll out to Japan, China and other regions.

We will continue to enhance its functionality for both sales and marketing throughout the year. Additionally, we have enhanced our e-Commerce capabilities through a secure My Tennant portal which makes it easier for our customers to browse and order Tennant parts, consumables and coding and request service.

This is the first step in our efforts to build a more robust e-Commerce platform that will transform the online experience for our customers by integrating content and commerce. This is an important strategic initiative for us and we are pleased with our progress thus far.

We are also seeking new ways to add value for our customers and to attract new customers; an example is Tennant’s high risk telemetry management system. This onboard technology tracks machine productivity and maintenance needs. It helps customers with large fleets of equipment making firm decisions and reduce their overall cost.

This is a very attractive proposition. Taking a look at the second pillar of our growth strategy, which is new product development. We are excited about this steady launch cadence of Tennant’s new core equipment offerings and the continued progress on sustainable cleaning solutions from our Orbio Technologies Group.

As you know Innovative products and technologies are a significant driver of Tennant’s revenue. Sales of new product introduced within the past three years totaled 15% of equipment revenue for the 2015 first half. During the first half we completed most of our planned new product launches for the year.

We launched 33 new products and product variance and will introduce three additional products in the second half. This is on top of 55 new products launched from 2012 to 2014.

In the 2015 second quarter we introduced the T300 Walk-Behind Scrubber adding to our broad portfolio of commercial four Scrubbers in one of the largest unit categories in the floor cleaning industry. Customers can choose from multiple machine configurations to optimize cleaning performance across virtually any hard surface conditions.

The T300 is the first Scrubber equipped with our next generation of sustainable cleaning technology, easy water NanoClean. The name NanoClean refers to the creation of nano scale bubbles that are an important part of the cleaning mechanism.

Like the original easy water, our next generation easy water NanoClean technology electrically converts water into an innovative cleaning solution that cleans effectively, saves money, and reduces environmental impact compared to daily floor cleaning chemicals.

This convert water is created by an onboard e-cell that generates millions of Microscopic bubbles, nano bubbles per milliliter of solutions. The new Easy Water NanoClean technology will soon be available on our full line of commercial scrubbers.

And while we are very excited about the next generation of Easy Water, I should know that are originally easy water technology is still winning awards. Easy water was recently honored with the 2015 distributor choice award by the readers of sanitary maintenance magazine.

We are also very pleased with the early positive customer response to our new Orbio OS3 technology. Through the process of water electrolysis which combines water, electricity and a small amount of salt, OS3 system delivers onsite generation of an anti-microbial solution, as well as an effective multi surface cleaner.

That needs US EPA regulatory guide lines for disinfection and sanitization; it is easy to operate affordable and compact. The OS3 was chosen as a 2015 money saving product by Buildings magazine. We believe the OS3 has great potential for growth.

The third pillar of our growth strategy involves being disciplined and controlling expenses and improving margins. Here we also continue to make strides. In our ongoing efforts to lower costs and increase margin we have completed a number of process improvement projects collectively called campaign the cash initiative.

Standardized and simplify our global processes in the areas of pricing, invoicing, collections, and machine configuration. In particular, the machine configuration project redefined our global product hierarch to provide many benefits relating to how we can figure and build machines.

Consistent product structure and terminology across our entire value chain from new product setup, material control to customer order entry enables a level of data integrity that gives us far more visibility to the product configurations preferred by our customers and the profitability of product options.

This effort is foundational to many important growth initiatives including the development of the more robust ecommerce platform I mentioned a moment ago.

These efforts and others across the business are also helping us build a scalable business model, reduce costs, make it easier for our customers worldwide to do business with Tennant, and grow revenue. Those are just a few examples of the work we’ve done to position us for continued success.

We are encouraged by Tennant’s performance against our growth agenda in the 2015 first half. On top of our success in 2014. As I’ve noted, we have made critical investments in sales, marketing, and distribution to increase our global market share.

These investments are paying off and we continue to expect to deliver organic sales gains in the mid to high single digit range in 2015. The main drivers of our growth strategy will continue to include strong and sustained new product growth in our core business and in the Orbio technologies group.

Significant sales gains in emerging markets, growth in Europe, ongoing focus on strategic accounts and an enhanced go to market strategy designed to meaningfully expand Tennant’s global market coverage and customer base.

While we anticipate that global economic uncertainty and foreign currency volatility will unfavorably impact sales and earnings in 2015. We are committed to controlling what we can control. Our focus remains on creating value to new product introductions and expanding our global sales and marketing initiatives to increase our market share.

While concurrently running a more efficient business to raise productivity. We anticipate this will lead to double-digit organic operating profit growth in 2015.

Before I turn it over to Tom to review the financials, I would like to say that we also are delighted Tennant Company was named to the Forbes 2015 list of the 100 Most Trustworthy Midcap Companies In America.

This is the second consecutive year that Tennant has made the Forbes list of Most Trustworthy Companies and we have grown from the small cap category in 2014 to the midcap category in 2015. I want to congratulate everyone at Tennant for their part and this honor.

We take great pride in conducting our business with the highest ethical standards and a philosophy of stewardship. We appreciate this recognition by Forbes. Now I will ask Tom to take you through Tennant’s second quarter financial results.

Tom?.

Thanks Chris. In my comments today, all references to earnings per share are on a fully diluted basis. Also pleased to note as I go through the results, I will generally not comment on year-to-date financials as those are detailed on the earning release.

For the second quarter ended June 30, 2015, Tennant reported net sales of $215.4 million compared to $219.1 million in the prior year quarter. Excluding an unfavorable foreign currency exchange impact of about 5.5%, organic sales grew approximately 3.8% in the 2015 second quarter.

As you may recall, organic sales in the 2014 second quarter grew approximately 8.9% excluding a favorable foreign currency exchange impact of about 0.5%. So we were lapping a very robust prior year quarter. On a reported basis, the 2014 second quarter is still all time record for sales in any quarter.

However, it is worth nothing that on a constant currency basis on 2015 second quarter would have been a record sales in any quarter for sales in any quarter. For the 2015 first half, organic sales rose approximately 5% excluding an unfavorable foreign currency exchange impact of about 5.5%.

For the 2014, full-year organic sales rose approximately 10.3% excluding an unfavorable foreign currency exchange impact of about 1%. We continue to be encouraged by the solid level of organic sales growth. Second quarter 2015 net earnings were $14.8 million or $0.79 per share.

In the year-ago quarter, Tennant reported net earnings of $15.5 million, or $0.83 per share. As anticipated, foreign currency exchange headwinds unfavorably impacted our 2015 second quarter financial results. I will provide more information about this in just a few minutes. Turning now to a more detailed review of the 2015 second quarter.

Our sales are categorized into three geographic regions which are the Americas, which encompasses all of North America and Latin America; EMEA which covers Europe, the Middle East and Africa; and lastly Asia-Pacific which includes China and other Asian markets, Japan and Australia.

As Chris noted in the Americas, 2015 second quarter organic sales increased approximately 7.5% excluding about 2.5% of unfavorable foreign currency impact. Record sales for the second quarter in North America were once again fueled by strong sales to strategic accounts including sales of new products.

In the 2015, second quarter, Latin America organic sales declined approximately 3% however organic sales growth specifically in Brazil was about 8% despite the continued economic headwinds. This is an important emerging market for us and we remain confident about the long-term growth prospects there.

In EMEA, our organic sales in the 2015 second quarter decreased approximately 1.7%, excluding an unfavorable foreign currency impact of about 16.5%.

Organic sales growth in Western Europe was within our target range but was more than offset by lower sales of outdoor equipment in the city cleaning business as they lapped a very robust prior year quarter.

We also saw lower sales to our master distributor in the Central Eastern Europe, Middle East and Africa markets due to the timing of some large deals and the challenging environment in Russia. One of the highlights of the organic sales growth in Western Europe was the improved performance in France which is one of the largest markets in Europe.

Over the past year, we have been implementing strategies in France to adjust our direct versus distribution selling efforts to enhance our go to market approach in order to increase sales, improve profitability and achieve higher customer satisfaction.

We have upgraded the talent of our French team, increased our focus on strategic accounts and we are optimizing and growing our distributor network. EMEA, organic sales for the 2014 full-year grew approximately 4.4%, excluding a favorable foreign currency impact of about 1%.

We do anticipate EMEA organic sales growth for the 2015 full-year will be positive. In Tennant's Asia-Pacific region, organic sales in the 2015 second quarter excluding an unfavorable foreign currency impact of about 8% decreased approximately 8.1% compared to a robust double-digit organic sales growth of nearly 19% in the prior year quarter.

As Chris mentioned organic sales in China rose approximately 15% all this was not enough to offset the slower economies primarily in Australia compared to the prior year quarter.

APAC organic sales for the 2014 full-year rose approximately 12.8% excluding an unfavorable foreign currency impact of about 4% and organic sales in China grew approximately 15% for the 2014 full year. We are expecting positive organic sales growth in APAC for the 2015 full year.

Tennant’s gross margin for the 2015 second quarter was 44.1% compared to 43.5% in the prior year quarter. Several factors led to the 60 basis point increase in gross margins including improved operating efficiencies in our direct service organization and our manufacturing operations and also a greater mix of higher margin business.

In addition, foreign currency headwinds, unfavorable impact of gross margin by approximately 80 basis points.

As mentioned in the last few quarters we are proactively addressing our supply chain challenges stemming from higher production volume and new products in order to increase manufacturing productivity and further improve our gross margin performance.

We made continued progress during the 2015 first quarter and improved more than we anticipated in the second quarter. This was due in part to several large orders from strategic account customers that allowed us to optimize production schedules. We still anticipate achieving approximately a 43% gross margin for the 2015 full year.

Research and development expense in the 2015 second quarter totaled $8.4 million or 3.9% of sales compared to $7.7 million or 3.5% of sales in the prior year quarter. We continue to invest in both our core business, and Orbio, which is focused on advancing a suite of sustainable water-based cleaning technologies.

Selling and administrative expense in the 2015 second quarter totaled $64 million or 29.7% of sales, which was in line with our expectations as we continue to invest in our sales growth although at a slower pace. This compares to S&A in the second quarter of last year of $64.5 million or 29.4% of sales.

Our 2015 second quarter operating profit totaled $22.6 million or 10.5% of sales, compared to the year earlier operating profit of $23.1 million or 10.6% of sales.

We have routinely discussed the impact of foreign currency exchange on our sales but now with a significant change in foreign currency exchange rates in the last few quarters, we believe it’s helpful that we provide additional information.

As many of you know, in a global company such as Tennant, isolating the impact of foreign currency exchange is complicated.

We have calculated an estimated an constant currency income statement which assumes no change in exchange rates from the prior year, in so doing will enable to compare that to our actual financial results to isolate the estimated impact of foreign currency exchange.

Here is a recap of the estimated foreign currency exchange impact on our 2015 second quarter financial results. Unfavorable impact to sales of approximately 5.5% or about $12 million, unfavorable impact to gross margin of 80 basis points using a constant currency, our gross margin would have been about 44.9% compared to 44.1% as reported.

Unfavorable impact operating profit of approximately $3.4 million, using a constant currency in our operating margin would have been about 11.4% compared to 10.5% as reported and unfavorable impact earnings per share of approximately $0.13, using the constant currency our earnings per share would have been about $0.92 compared to $0.79 as reported.

This unfavorable impact coming primarily from the strength of the US dollar during the 2015 sec6ond quarter was approximately what we had anticipated.

Despite external circumstances beyond our control, we remain committed to our goal of a 12% or a higher operating profit margin by successfully executing our strategic priorities and assuming the global economy improves.

As we work towards this target, we are keenly focused on driving organic revenue growth in the mid-to-high single digits, holding in fixed cost essentially flat in our manufacturing areas as volume rises, striving for zero net inflation at the gross profit line, and standardizing and simplifying business globally to continue to improve the scalability of our business model while minimizing any increases for operating expenses.

We continue to successfully execute our tax strategies. Tennant's overall affected tax rate for the 2015 first half was 32.1%; the base tax rate was 31.9% which excludes routine discrete tax items. Note that we were not able to include any benefit in the 2015 first for the federal R&D tax credit as this is not yet been reenacted for 2015.

Turning now to the balance sheet, again, this continues to be very strong. Net receivables at the end of the 2015 second quarter were $15.1 million versus $158.3 million a year earlier. Quarterly average accounts receivable days outstanding were 62 days for the second quarter compared to 64 days in the prior year quarter.

Tennant's inventories at the end of the 2015 second quarter were $86.5 million versus $79 million a year earlier. Quarterly average FIFO days inventory on hand were 89 days for the 2015 second quarter compared to the 79 days in the year ago quarter. We have increased our inventories to support higher sales levels and many new product launches.

Capital expenditures of $7.6 million in the 2015 first half report $0.2 million higher than $7.4 million in the prior year with planned investments in information technology process improvement projects, tooling related to new product development and manufacturing equipment.

Tennant's cash from operations was $6.6 million in the 2015 first half compared to $10.5 million 2014 first half. Cash and cash equivalents are strong totaling $67.6 million up $5 million from $62.6 million a year ago. Total debt of $24.6 million declined $3.6 million from $28.2 million a year ago.

Our debt-to-capital ratio was 8.1% at the end of the 2015 first half versus 9.5% a year ago. Regarding other aspects of our capital structure, Tennant is currently paying a quarterly dividend of $0.20 per share. We paid cash dividends of $7.3 million in the 2015 first half.

Reflecting our commitment to shareholder return we are proud to say that Tennant has increased the annual cash dividend payout for 43 consecutive years. During the 2015 first half, we purchased 220,120 shares of Tennant's stock at an average price of $64.64 per share for a total cash outlay of $14.2 million.

We recently announced our Board of Directors authorized a new share repurchase program up to one million shares of Tennant common stock. This new authorization reflects the Board’s confidence in our business and the strengthen of our capital position. As of June 30, 2015, we had approximately 1.2 million shares remaining under our repurchase program.

Moving now to our outlook. Based on our year-to-date results and expectations of performance for the remainder of year, we are reaffirming our earnings guidance for the 2015 full-year and lowering the high end of our sales guidance by 10 million.

We now estimate 2015 full-year net sales in the range of $825 million to $845 million, up 0.4% to 2.8%percent, or approximately 5% to 9% organically assuming an unfavorable foreign currency impact on sales in the range of 4% to 6%. Previously we had anticipated 2015 full-year net sales in the range of $825 million to $855 million.

It’s important to note that we’ve lowered the high end of our sales guidance range to reflect the first half actual results. We are still anticipating a strong second half with the particularly strong fourth quarter. We continue to estimate 2015 full-year earnings in the range of $2.40 to $2.70 per share.

Foreign currency exchange headwinds in 2015 are estimated to reduce operating profit in the range of $10 million to $12 million or approximately $0.37 to $0.44 per share. However, we do anticipate organic operating profit growth in 2015.

The estimated higher effective tax rate in 2015 of approximately 31% compared to 27.2% in 2014 is anticipated to negatively impact earnings per share by about $0.14.

The foreign currency exchange headwinds coupled with a higher effective tax rate is anticipated to negatively impact 2015 earnings in the range of $0.51 to $0.58 per share or approximately 19% to 22%. For the 2014 full-year earnings per share totaled $2.70 on net sales of $822 million.

As we anticipated the foreign currency volatility has disrupted the historical pattern of our quarterly results. We now estimate the foreign currency exchange headwind in the third quarter of 2015 will be similar to the impact we experienced in the second quarter of 2015.

We continue, consider and analyze the number of opportunities to proactively mitigate the foreign currency exchange headwinds that include increasing selling prices in the affected local markets, evaluating the potential to expand the scope of our hedging strategies and exploring the feasibility of producing and shipping products from locations with a more favorable foreign currency exchange carrying.

Our 2015 annual financial outlook includes the following expectations. Economic strength in North America, modest improvement in Europe and growth in emerging markets. Increased foreign currency impact on sales for the full-year in the range of an unfavorable 4% to 6% with a $10 million to $12 million negative effect on operating profit.

Gross margin performance of approximately 43%. Research and development expense of approximately 4% of sales, capital expenditures in the range of $25 million to $28 million, and an effective tax rate of approximately 31% including the anticipated enactment of the 2015 Federal R&D tax credit.

Note that our 2015 effective tax rate target does anticipate a 2015 benefit for the Federal R&D tax credit. However, that is not yet been reenacted for 2015. And we are not allowed to include its favorable impact in the 2015 tax rate we record until it’s enacted.

Tennant’s operations are performing well and our objective is to continue to build our business for sustained success. Now we would like to open up the call to any questions. Thanks, Melissa..

[Operator Instructions] Your first question comes from Joe Maxa with Dougherty & Company. Your line is open..

Thank you..

Thanks Joe..

Good morning.

Couple of questions that stick out for me is the gross margin target of 43%, it seems like you very strong Q2, that appear to be a big conservative, you have perhaps Q2 FX have an impact but continuing to Q3 a little bit not as bad in Q4, is there more to it why we expecting it to maybe be 43% for the rest of the year roughly?.

Couple of things, Joe I mean one is we would openly acknowledge we hope we are being a bit conservative and I would also say that well we are proud and pleased with the performance in Q2, we are still at 43.2% on a actual basis to the first six months.

So based on the trend of one quarter, we are choosing to be a bit conservative and we certainly hope that down there some upside in that forecast for the full year..

Okay. That’s helpful.

Also wanted to mention the particularly strong fourth quarter is that based on some visibility you have with these new products or maybe just give us a little more color of the particular strength you’re looking for?.

A couple of things, number one is as history would tell you Q3 is just always a bit of a tougher quarter and it is affected by summer vacations in Europe and summer vacations in the U.S., so it’s just the quarter is early, the month of September is quite important, good news is we are off to a solid start in Q3, so it’s in line with our expectations, but the impact in Q4 as we do have a little bit better visibility, the other thing is that we will see the full effect of our new product efforts are really beginning to kick in, we have now just finished rolling out virtually all the new products.

We won’t get as much uptick in Q3 but that uptick should be in full force as we finish out the year in Q4..

Okay.

And in the Asia-Pacific region where you had 8% decline in growth organically?.

Yes..

Give us a little more color on what is happening there, I mean perhaps it was some unusually strong Q2 last year but is there anything else that we should be looking at or why you are expecting to see growth for the full year?.

Yes couple of things, one is we are not pleased with the performance asked straightforward about that, I mean we’re always disappointed in our most important growth territory that we need to see consistent organic growth quarter in and quarter out, what I would say is the one of the biggest effects was the uncertainty in the Australian economy, we also did have a very important order that deferred into the back half of the year that bodes well for the back half of the year.

It’s a pretty substantial order that will see shipments in Australia across Q3 and Q4.

The other piece of that, China really finished the quarter strong and it just wasn’t enough to offset some of the negativity but the pipeline is really building in China and we are quite bullish on what we are going to see the balance of the year in that key growth territory..

Great. That’s it for me, thanks..

Great, thanks Joe..

Thanks Joe..

Your next question comes from Jason Ursaner with CJS Securities. Your line is open..

Good morning. Congratulations on a great quarter..

Thanks Jason..

Thanks Jason..

Similar to Joe the thing that really jumped out was the gross margin in the quarter which was just very strong especially considering that you had to overcome some headwinds growth in strategic accounts which usually from a mix perspective doesn’t help and then also obviously with the currency, so we are just wondering maybe you could walk through some of the puts and takes that led to expansion of gross margin in the quarter, the new products, modularization strategy and the inefficiencies that have hit a couple of quarters ago, just maybe an update on some of those?.

Yes a couple of things, one is which we had started to see incredibly solid performance out of our service organization from an efficiency standpoint particularly in North America and really driving some favorability versus the prior year and that is continuing, we believe that that is continuously achievable, we look forward, we did have a little bit better performance in our factories which we have seen improvement in Q1, we continue to see a bit better improvement that we had anticipated in Q2.

And what I would also say is that we’ve seen relatively low inflation, I mean it is from a material cost standpoint and our resourcing efforts on the cost of goods sold side and on the indirect side continue to be a very favorable and we continue to see nice solid benefits and we’re holding on to our benefits from the prior period and then we also got half percent of pricing and so I would say that and everything went our way in the quarter not to say that we can’t do it again but we don’t want to count on that kind of a quarter, quarter in and quarter out and then really while we would admit that strategic accounts it does put pressure on gross margins, we do see efficiencies in the selling efforts and in the quarter, we had better visibility than normal for some really large orders from several of our big strategic accounts and that really did drive the efficiency and consistency in our flow through in the factory.

So lots of things went right like I commented earlier hopeful of being conservative for balance of the year..

And Jason one other thing on that, as you know North America is our biggest business with our highest margins and it was a big slice of our overall sales bigger than normal slice of our overall sales which influences our gross margin and we are hoping to return to more normal split between North America, EMEA and APAC in the second, in the third and fourth quarter which is also why we are being a little bit more conservative on our gross margin projections going forward..

Understood? And the MyTennant portal, how are you thinking about the eventual evolution for that to move maybe beyond parts and service and eventually have more of a full scale equipment online retail experience, is that something you see it transforming into overtime, is it something customers would be ready to use at this point and what are the channel difficulties doing that?.

Building a robust ecommerce platform is one of our strategic priority. So this is really just phase one taking, what we already have and upgrading it.

And today what we know is that 70% plus of our customers start their buying journey online and increasing they are buying parts of their needs online starting with parts in consumables, some of our codings products.

Eventually we see moving to our non-configured products that are kind of just, we make the stock and pretty simple and so they could buy it online.

The machine configuration project that we did talk about will give us the opportunity not today but in the future to also have customers go online configure products that are more complex and buy them that way.

But you look at all the trends, in every other industry the online portion of sales continues to increase and there is no reason that evolution should occur within the cleaning industry as well.

So we are still in the early stages of putting this together, putting a lot of effort, time and money against it, and our hope is within three years we will be able to report ecommerce as another new significant channel to go along with direct distributions strategic accounts..

Appreciate you guys taking my questions. Thanks..

Thanks, Jason..

Your next question comes from Scott Graham with Jefferies. Your line is open..

Hi, good morning. Nice quarter to you guys..

Thanks, Scott.

Thanks, Scott.

Yes.

I was just wondering if you could kind of maybe, couple questions, the order rates kind of as the quarter progressed in North America just directionally how did that work out?.

North America has been pretty solid through the entire quarter. So it was what I would say as we tend to always have a bit of increased strength in the back half but I would say that one of the marks of the North America business is bank consistency across the quarter, which is also helpful.

And so I would say nothing real unusual in the North America side, I mean, we did see improvement in both Asia Pacific, EMEA, as we finished out the quarter and appear to be on track to expectations as we are entering our Q3.

And we do enter the quarter with a meaningful open order position which is always a great way to start out the quarter, it’s not a terrific leading indicator but we always prefer to enter a quarter with an open order position that’s substantial and at least somewhat above the prior year and that’s where we are at as we start out Q3..

All right. The other question I had was that was obviously the balance sheet is just at a point where we are so flush with liquidity that it is kind of make it wonder as this, are you kind of setting up and I apologize I didn’t catch the entire call. But I thought I heard you mention something about share repurchases when I did jump on a second time.

Are you looking at anything more on accelerated basis for share repurchases in the second half?.

Yes. We’ll continue to be aggressive, Scott. I mean we’ve had really in our fourth year of fairly substantial buybacks; we did get the additional authorization of a million shares, just like we’ve done in the past because we are pretty well depleted and we wanted to be positioned, where we can really take advantage of what’s going on in the market.

So I can’t commit that we’re going to see a major acceleration but we are in the market and we’re buying shares and we think it’s the right thing to be done with our excess cash and we’re economically based as we buy and we look at to the future and we think we are at today that had some good way to be using our money and it’s a nice way to return value to our shareholders..

Understood. Thank you.

The last question I had is that we continue to hear companies as they report way in that the North American industrial climate has softened really in the last six months to that I guess I would kind of say [indiscernible] but it’s some situation where you guys I’m kind of juxtaposing that versus your expectations of over the fourth quarter, your second half being maybe a little bit more fourth quarter oriented and I’m just wondering what are you looking at to kind of get there, are you contemplating what is obviously been you guys have done great with the incremental sales from new products but outside of new products we are seeing businesses slow down a little bit.

So I’m just wondering how you get to maybe a little bit of a better fourth quarter because you said especially the fourth quarter on the sales, what have you contemplated within the North American climate to kind of get there?.

We would say is maybe we had a contrarian viewpoint but our business in all the patterns remain extremely strong in North America they are very consistent and clearly new products matter a lot and the quality of the additional new product introductions mattered, the other piece that I would like to emphasize though is we have dramatically increased our market coverage as we have invested not only across the last three years but we will continue to make some investments and we haven’t even seen the full benefit of that yet.

I mean it takes a while for new sales and service people to get it to the full levels of optimization and the other piece that we would proudly say is we would proudly say is we are taking share in the market in North America and that is allowing us to outstrip others but great news is we’re not seeing a slowdown and but we’re paying attention, we look at the economic indicators but right now we are paying more attention to what our sales folks are saying and they keep delivering what they say they are going to.

So we will watch on that real closely..

All right. I actually did have one other question and thank you.

And I won’t take 30, 40 seconds to ask it? Very simply the SG&A rate up 30 basis points year-over-year on a reported basis of course, Tom did you see what that number was on a year-over-year basis ex-currency on the sales line?.

You know there is a little bit of a pick-up [indiscernible] but not enough it is worth pointing, I mean if you restate revenue in your restrained S&A for currency differences really a modest differential.

What I would tell you is we certainly anticipate particularly on an organic basis and as we move towards the higher end of our revenue range, we will begin to see leverage on our S&A spending as we go into the back half of the year.

Our spending has slowed down, we think we will see revenue growth and we will anticipate beginning to see leverage and beginning to see year-over-year improvement particularly on an organic basis in our operating profit margins in the back part of the year..

That’s great. Thank you all..

You’re welcome..

You’re welcome..

[Operator Instructions] Your next question comes from Rosemarie Morbelli with Gabelli & Company. Your line is open..

Thank you, good morning everyone..

Good morning..

Good morning..

I was looking at your balance sheet, which we all agreed extremely strong is there particular reason behind it why you are not really leveraged at all? Are you worried about the next recession, are you keeping powder dry for acquisitions of investment.

Can you give us a feel as to what the strategy is behind that high level of cash?.

What I would say is that we have continued to be successful in generating cash and we think we are in the market appropriately buying back shares and increasing our dividend, we are looking at acquisitions, our lens in how we look at transactions hasn’t changed, we would love to find the right deal like the previous acquisition we made in Brazil of Alfa where we can instantly improve our sales or service coverage in an important growth market.

We also will continue to look at transactions on the technology side that can advance our innovative and sustainability platforms that and we are keeping ourselves in a position where we could move quickly and a deal if we did find it and we would also say even though our balance sheet is great, if you look at the level of actual cash that we have it is not out of line at all with other industrial peer groups, so as we compare ourselves we really even though our capital structure tends to be a bit better and conservative, the level of cash isn’t concerning at this point, we would love to find ways to spend and then drive value creation also and we think we are actively doing that..

That is very helpful, thank you.

And then looking at your e-Commerce platform, are you going to need to invest substantially in order to make sure that in nowhere everything is [indiscernible] RFID type of program or do you think that you won’t need that much of an investment to grow that particular side?.

What I would say Rosemarie is that we our telemetry report on machines really allows us to where customers want to do that to have a portal to keep track of where the machines are and so I will say we already have that capability, we don’t need to have another mechanism to track where machines are and to look at keep tracking the number hours being run and where they are located based on technology that we already have that is really device oriented and just like a mobile devices.

But and the e-Commerce will dictate investment but it will be metered over time as we see the marketplace change and what we would tell you is that we firmly believe that our e-Commerce investments will be generate very solid returns and it’s not just a capability for the sake of having it, it is a capability that we believe will drive meaningful incremental revenue over time..

Thomas Paulson:.

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And in addition to generating revenues, do you anticipate the margins of the revenues you are getting that platform to be higher than your other platforms?.

We would certainly like to think there could be some margin up tick but I can honestly say that is not the driving force behind it, it is really about making it easier to do business with Tennant and generating new business incrementally because it is the investment wouldn’t warrant just driving efficiency and you need to get incremental revenue to make a payback but so that is our primary reason for the effort..

Okay.

Thanks and if I may ask one question, you announced and you Senior VP of Global Operations and I do realize that it is still early in the game but I was wondering if you could share with us some of his thoughts regards potential changes on how you address the future growth versus what you are doing now?.

Well Jeff Moorefield joined us from [indiscernible] he was a significant player on the operations side, there he ran 19 plants on a global basis, he is extremely sophisticated and he has come in here and he is still in the process of evaluating what is possible but what I will tell you is that Jeff will bring some very exciting new thinking to our global operations and I think in the months and years ahead we are going to be able to look forward some meaningful improvements both in our plans and in our global supply chain.

That should help both our sales and our profitability in a meaningful way. So we are thrilled to have him on board and he is off to a great start..

Thank you..

Thank you. End of the Q&A.

As there are no further questions at this time, I would like to turn the call over to management for closing remarks..

Thanks Melissa. Our platform to accelerate organic sales is working; the new growth strategies we outlined at the beginning of 2014 are working and spurred organic sales gains in each quarter of 2014. We are encouraged by that performance against our growth agenda in the 2015 first half with organic sales growth of approximately 5%.

We remain on track to reach our organic growth goal of a $1 billion in sales by 2017. And as I noted earlier, we remain committed to the goal of a 12% or above operating profit margin. We look forward to updating you on our 2015 third quarter results in October. Thank you for your time today and for your questions and have a continued happy summer..

Ladies and gentlemen, this does conclude today’s conference call. You may now disconnect..