Thomas Paulson - Senior Vice President and Chief Financial Officer Chris Killingstad - President and Chief Executive Officer Karen Durant - Vice President and Controller Thomas Stueve - Treasurer.

Bhupender Bohra - Jefferies Joe Maxa - Dougherty.

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's third quarter earnings conference call. There will be time for Q&A at the end of the call.

[Operator Instructions] Thank you for participating in Tennant Company's third 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, Stephanie. Good morning, everyone, and welcome to Tennant Company's third 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 third quarter and our outlook for the full year. First, Chris will brief you on our operations, and then I'll cover the financials.

After that we'll open up the call for your questions. We are using 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 Investor Relations website at investors.tennantco.com for approximately three months after this call.

Now, before we begin, please be advised, 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.

Additionally, on this conference call we will discuss non-GAAP measures that include or exclude special or non-recurring items. For each non-GAAP measures, we'll also provide the most directly comparable GAAP measure. There were special non-GAAP items in the third quarter 2015.

Our 2015 third quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results for the third quarter and the first nine months of 2015. Our earnings release was issued this morning via Business Wire and is also posted on our Investor Relations website. At this point, I'll turn the call over to Chris..

strong and sustain new product growth in our core business and in the Orbio Technologies Group; significant sales gains in emerging markets; a return to 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.

We continue to be encouraged by our performance and our investments in people, technology, products and market coverage are paying off. Let me slide a few examples. One of our key investments has been selectively building our workforce. In 2013 and 2014 together, we added roughly 270 people primarily in sales, service and manufacturing positions.

As our financial performance shows, these additions are beginning to generate returns for us. Moreover, we have a number of technology-based initiatives. I'll start with the global rollout of our new Customer Relationship Management or CRM, marketing and sales management tool.

This system helps us identify new customers, grow our business and improve the overall Tennant customer experience. Already, we have implemented our new CRM solution in North America, EMEA and Australia, and we are benefiting from its improved sales analytical capabilities.

We expect to complete the global rollout to Japan, China and other regions by early next year. E-commerce continues to grow as an important sales platform and customer interface for Tennant. Today we estimate that more than 70% of our customers start their buying journey online, and increasingly they are purchasing parts and consumables this way.

Our progress in building a more robust platform is on track and our secure My Tennant portal is the first step in this effort. It is generating more inquiries and sales for us in a cost-effective manner. E-commerce is a growing trend in other industries, and we expect this evolution to occur in the cleaning industry as well.

In a few years, we anticipate being able to report e-commerce as another revenue channel along with our existing direct distribution and strategic account channels. Taking a look now at the contributions from new products.

Sales of new products introduced within the past three years have risen to 19% of equipment revenue for the 2015 first nine months. Year-to-date, in 2015, Tennant has introduced 33 new products and product variants. That's on top of 55 new products launched from 2012 to 2014. Just after the 2015 third quarter end, we introduced the IRIS Asset Manager.

This onboard technology tracks machine productivity and maintenance needs. It helps customers with large fleet of equipment, making form decisions and reduce their overall cost to clean, which is a very attractive proposition and a fast emerging trend. Customer demand it and it's another way that we add value.

The IRIS Asset Manger is currently available on 19 Tennant commercial and industrial cleaning machines in nine countries around the world. We are excited about Tennant's new core equipment products and technologies as well as our sustainable cleaning solutions.

We initially launched our next-generation ec-water NanoClean on the new T300 Walk Behind Scrubber. And now offer it on our T7 Micro Rider Scrubber too. This technology will soon be available on our full line of commercial scrubbers. The name NanoClean refers to the creation of nanoscale bubbles that are an important part of the cleaning mechanism.

Next-generation ec-water NanoClean technology electrically converts water into an innovative solution that offers the same benefits as the original, but cleans better, cleans more soils and is effective in more applications. In addition, the new Orbio os3 continues to receive positive responses from customers across a variety of industries.

The os3 delivers onsite generation of an effective multi-surface cleaner and antimicrobial solution that needs U.S. EPA regulatory guidelines for disinfection and sanitization. It is easy to operate, affordable and compact. Customer satisfaction is high for those who have already adopted this disruptive technology.

We believe the OS3 has great potential for growth. We also remained disciplined in controlling expenses and improving margins. You've heard me mentioned our campaign to cash initiative. We have completed the five-year investment in this program, which aims to lower costs and increase margins by standardizing and simplifying our processes.

With today's global economic uncertainty and a volatile currency environment, it's more important than ever that we focus on controlling what we can control and that is what campaign to cash is all about. These are just a few examples of the work we have done to position for continued success.

We are encouraged by Tennant's performance against our growth agenda in the 2015 first nine months, on top of our strong performance in 2014. As I have noted, we have made critical investments in sales, marketing and distribution to increase our global market share.

These investments are bearing fruit and we expect to deliver organic sales gains in the mid-single digit range for the 2015 full year. While we have seen global economic uncertainty and foreign currency negatively impact sales and earnings in 2015, we remain committed to profitable growth.

We are creating value to our new product introductions and expanding our global sales and marketing initiatives to increase our global 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 as adjusted.

We continue to be excited about Tennant's future. Now, I will ask Tom to take you through Tennant's third quarter financial results.

Tom?.

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 that range of unfavorable 5% to 6% with a $12 million to $14 million negative effect on operating profits; 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're not allowed to include its favorable impact in the 2015 tax rate we record until it is enacted.

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

Stephanie?.

[Operator Instructions] Your first question comes from the line of Bhupender Bohra from Jefferies..

A good quarter actually, and I just wanted to check on the guidance here. So you lowered sales at the midpoint by like $15 million.

Can you talk about the assumptions at the upper-end and the lower-end?.

Yes, I mean, we certainly -- first and foremost, I would say that, we hope are being conservative. And given the volatility that we're seeing, we felt that was the prudent thing to do.

What we would say is we would certainly hope and anticipate we will be closer to the higher-end of our range and our assumptions are that we will continue to see volatility in some markets. We certainly are not seeing the growth that we would anticipate. And although it's better than many, in Brazil, also China is growing a little bit slower.

We do continue to expect some concern in parts of Europe. But I'd also say that we do believe that Western Europe continues to provide some optimism, as we look forward. North America continues to be extremely strong.

And the one caveat I would say is that we've really had a particular strength in some large transactions in the first part of the year in North America. We're going to not have that every quarter and our current anticipation is we don't see any big deal coming through in the fourth quarter.

We don't feel that's going to have any impact on future periods, but we do feel that it will have somewhat of a negative impact on our ability to grow in North America, although we'll still see substantial growth in that market..

Just a follow-on on the fourth quarter trends, if you want to just give us a sense of how your fourth quarter month-by-month seasonally goes along, like is it October?.

Our business really for the last four months of the year, it tends to get pretty darn strong. And what I would say is that October is shaping up the way it needs to shape up. So there is nothing unusual positive or negative. It's really transpiring how we would expect it to be into deliver against expectation.

We do know that the quarters made -- it really matters in what happen to November and December. October gets the quarter started. We do see the year typically ends with momentum and that certainly what we anticipate is going to happen based on our channel checks..

And the last question on pricing.

Can you just talk about pricing, how was it in the third quarter and especially on the strategic account side?.

I can't comment specific to strategic accounts, but what I can say is we continue to be pleased with the pricing benefits that we're getting. We have got another percent of pricing benefit in Q3. We'd say that on a year-to-date, we're right around that 1% benefit. And we don't anticipate any change to that in Q4.

And we think that's an appropriate level of pricing benefit in a low inflationary environment. And we're happy with that performance..

Your next question comes from Joe Maxa with Dougherty..

I missed the first part, so I apologize, if this has been asked.

But regarding the Green Machines, how is that impacting your fourth quarter guidance?.

It really has limited impact. We're not adjusting for that. And like we said, it'd be great if we're capable of getting the transaction closed. We're not counting on that happening. We're just going to say that, we expect to bring that transaction ahead as soon as we possibly can, but the impact was really the level of the charge that we took in Q3.

We don't anticipate anything of significance in Q4..

So you don't expect much for revenue in that line in Q4, where you had about 2% annually beforehand?.

We have not made any adjustments to revenue expectations in Q4 based on transaction..

And then I was going to ask on the organic growth in EMEA, I think you said you're not expecting growth there this year.

But it looks like Asia-Pacific maybe do better than you perhaps were expecting?.

I mean, we are disciplined overall in our Asia-Pacific performance in the first half of the year. And in all honesty, other than China, began to gain some momentum in Q2. We're really pleased with the performance across the board in Q3. Our organic growth was probably in excess of 21%. We expect growth for the full year.

And we would admit China is growing a little slower than we'd like, but 15% is not bad. EMEA, we would tell you that we're pleased by what we're seeing in Western Europe. And we do anticipate modest organic growth in Q4, but there won't be enough to offset the lack of organic growth in the first part of the year.

But as we look forward, we're actually feeling overall better about Europe other than our outdoor businesses just hasn't been solid for us. And with our master distributor, they're struggling in Russia as everybody is. But there are some bright spots in Europe, as we look at the momentum that we're bringing into next year..

We expect that we can continue to grow in Western Europe in our core markets of the U.K., Germany, France, Spain and Netherlands and so forth in the range of 5% to 9%. That's what we've planned so far this year and that should continue. Well, if Eastern Europe and Russia start to pick up in 2016, Europe has potential of having a good year..

Two other questions. So last quarter you mentioned there was a large order in Asia that was expected to come-in in Q3 and/or Q4. I'm wondering the status of that order..

It did ship. It was specific to Australia. We're not at liberty to give the name, but it was a large retailer and it shipped as expected on Q3. We'll continue to get some benefits in Q4 from it. And that was why we had particular strength in Australia, even though it's still tough market economically.

But that big transaction really helped Australia as well as overall Asia-Pacific..

Just lastly on the Green Machines, have you started that process, looking for potential buyers?.

Yes. We've been at it for a while. And so we got to the point where we needed to take a restructuring charge. So we needed it to be out in the public domain at the current time, but we've been at it for a while, Joe..

Do you think next year in China you'll be able to continue to see some pretty nice organic growth, given slowdown in the economy over there?.

That's our expectation. I mean we've kind of defied what other people are seeing. So some of the trends that we're seeing in China, which is labor continues to get scarcer and wage inflation continues to happen, and people tend to move towards changes in the way that they clean, and that all bodes well for the mechanization of cleaning.

And we believe that even with slower GDP growth that we can still see solid growth. And we continue to expand. I mean, we're adding more distributors. We're expanding our direct capabilities in China, both on the sales and service side.

And that expansion and investment, it needs to drive growth, and that's certainly our expectation that it will continue..

Since there are no further questions at this time. I would like to turn the call over to management for closing remarks. End of Q&A.

All right. Thank you. We are continuing to invest in our growth agenda and remain on track to deliver gains in organic sales and adjusted operating profit margin in 2015. Organic sales through the first nine months of 2015 increased approximately 6%. We anticipate foreign currency headwinds to remain challenging throughout the remainder of the year.

We are focused on creating value through new product introductions and expanding our world-wide sales and marketing initiatives to increase Tennant's global market share, while concurrently running a more efficient business to raise productivity.

Let me reiterate that we remain committed to our organic growth goal of $1 billion in sales by 2017 and to a 12% or above operating profit margin. We are confident in our ability to execute on our strategies and we believe Tennant is well-positioned to succeed. And that is why I think the best is yet to come.

We look forward to updating you on our 2015 fourth quarter and full year results in February of 2016. Thank you for your time today and for your questions. Take care everybody..

This concludes today's conference call. You may now disconnect..