Good day ladies and gentlemen and welcome to the first quarter, 2013 Tennant Company earnings conference call. My name is Regina and I’ll be your conference operator for today. At this time all participants are in listen-only mode. Later we will be conducting a question-and-answer session. (Operator Instructions) I would now like to turn the conference over to your host for today, Mr. Tom Paulson, Vice President and Chief Financial Officer for Tennant Company. Please go ahead.

Thanks Regina. Good morning everyone and welcome to Tennant Company’s, first quarter 2013 earnings conference call. I’m Tom Paulson, Vice President and Chief Financial Officer of Tennant Company. With me on the call today are Chris Killingstad, Tennant’s President and CEO; Pat O’Neill, our Treasurer; and Karen Durant, our Vice President and Controller. Our agenda today is to review Tennant’s performance during the 2013 first 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’ll open up the call for your questions. 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 or future performance. Such statements are subject to risks and uncertainties, and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today’s news release and the documents we file with the Securities and Exchange Commission. We encourage you to review those documents, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call we will discuss non-GAAP measures that include or exclude special or nonrecurring items. For each non-GAAP measure, we also provide the most directly comparable GAAP measure. There were special non-GAAP items in the 2013 first quarter. Our 2013 first quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results, as well as a reconciliation of full-year 2012 non-GAAP diluted earnings per share to our 2012 GAAP diluted earnings per share. Our earnings release was issued this morning via business wire and is also posted on the Investors section of our website at tennantco.com. 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. As you saw in today’s earnings release, our sales in the first quarter were lower than we expected. Our first quarter is traditionally our slowest and most unpredictable quarter. I will provide more details about sales levels in a moment, but I also want to note several bright spots. Despite lower sales volume our gross margin came in within our target range of 43% to 44%. We had improved S&A leverage in the first quarter, reflecting our ongoing focus on cost containment company wide. We generated positive cash flow from operations in the first quarter, which is the quarter that is typically cash flow negative, and despite lower sales volume our earnings per share came in very close to our expectations. Now let me discuss the sales picture. While sales in January and February came in as anticipated, March sales were a bit below our expectations. This was primarily due to a slower than anticipated transition to new products, and sluggish sales of city cleaning equipment, chiefly to municipalities in all of our geographies. Regarding the new products, as you’ll recall, Tennant is in the process of launching the largest new product pipeline in the history of our company. The transition to new products is always complex. During the first quarter we sold out of certain older models faster than we anticipated, instead of over the course of a few quarters as planned. We also encountered supply chain issues that delayed some new product launches. These timing issues led to unfilled demand, as we didn’t have enough products in our inventory to fill the gap. With the benefit of hindsight, we would have started producing the new models sooner. That said, we are very pleased with…

Thanks Chris. In my comments today all references to earnings per share are on a fully diluted basis. In reviewing our 2013 first quarter results, I think it will be helpful to put them in context. As we recovered from the recession throughout 2010 and the first half of 2011, Tennant had achieved on average, organic sales growth of about 13% in each of those six quarters. We estimated at the beginning of the 2011 third quarter that we were back to pre-recession sales levels, and we anticipated organic revenue growth going forward would return to our normal traditional range of mid to high single digits, as we lap those very high growth quarters. That was the case in the second half of 2011 with organic sales growth of approximately 6.5%. Organic sales growth for the 2012 full year was approximately 0%, with organic growth in the Americas of about 3.1% being offset by organic declines in EMEA and the Asia-Pacific region of approximately 6.3% and 4.2% respectively. EMEA sales in 2012 were again adversely impacted by the macro-economic conditions in Europe. The mature markets in Asia-Pacific were also impacted in 2012 by weaker economic conditions. China achieved organic sales growth in 2012 of about 5%. Now for the first quarter ended March 31, 2013, Tennant reported net sales of $168.1 million compared to $173.7 million in the prior year quarter. Sales declined approximately 2.2%, excluding the unfavorable foreign currency exchange impact of approximately 1%. Despite the lower sales volume, operating profit margin as adjusted improved 20 basis points to 5%, compared to 4.8% in the prior year quarter. First quarter 2013 net earnings as adjusted were $5.5 million or $0.29 per share as adjusted. These numbers exclude the European restructuring charge of $1.4 million pre-tax or $0.05 per share,…

(Operator Instructions). And gentlemen, your first question today comes from the line of Joe Maxa with Dougherty & Company. Joe Maxa - Dougherty & Co.: Thank you. Good morning.

Hi Joe.

Hi Joe. Joe Maxa - Dougherty & Co.: I wanted to go back to the shortfall in Q1. You talked about of course the older models shipping faster than expected, but I wanted to talk more about the supply chain. Do you see supply chain shortages? I wanted to talk a little bit more about that. Has that been corrected, and does this indicate you’ll see these orders in Q2 or was that lost orders?

We don’t expect that we lost any business Joe. It’s really just a timing issue. We think that the issues will be totally behind us as we get closer to the end of the second quarter, so we’ll likely not make it all up in Q2, but we do have things firmly in hand and believe the issues are for the most part behind us now. We still have some catch-up to do on a couple of the products, but we don’t think it will impact the full year. It certainly impacted Q1. Joe Maxa - Dougherty & Co.: Was the supply chain issue on your new products?

Yes. Joe Maxa - Dougherty & Co.: Okay, okay.

Joe Maxa - Dougherty & Co.: Okay. And how much benefit will we see in OpEx due to the restructuring in Europe?

It will be on a full year basis. It will be in the vicinity of $1.3 million to $1.5 million a year. For the full year this year it will be somewhere in the vicinity of $1 million or so, roughly. Joe Maxa - Dougherty & Co.: I see, okay. And did you have also any type of cost of goods or was that just strictly your sales.

It was all severance and support, so it was not an outplace of spending, nothing in cost of goods sold. Joe Maxa - Dougherty & Co.: Okay. So as we look forward I understand and thank you for the help on your expectations on revenue for first half versus second half. Why do you see the difference moving back to, let’s say, a stronger Q4 versus Q2 that you’ve seen in the last two years?

Part of that is, we believe over time we will move our way back to Q4 being the biggest quarter of the year; that hasn’t been the case for a while. But more important than that right now, we are lapping a couple of weaker quarters in Q3 and Q4 last year and that really does matter and it is part of the reason why we believe we have more confidence in our ability to grow organically in the back half of the year.

Plus the new product sales momentum grows over the course of the year, right? I mean Q2 will be better than Q1, Q3 better than Q2, and Q4 better than all the first three quarters. That’s our expectation. Joe Maxa - Dougherty & Co.: Right, it makes sense. All right thanks, I’ll jump back.

Welcome Joe.

Your next question is from the line of Scott Graham with Jefferies. Scott Graham – Jefferies: Hey, good morning.

Good morning Scott. Scott Graham – Jefferies: So, I was just wondering about – you’ve apparently seen a little bit of an improvement in the orders for the new products, and I assume that your terminology, your phrasing in the press release and here today is also pointing toward the supply chain issues having been partially, if not more than that, resolved. Are those fair statements so far?

Yes. No, as Tom said before, all these orders are in hand. They’re just going to ship a little later than we initially anticipated. We’re not going to lose any business. And yes, we have resolved the supply chain issues, and it’s going to take two, three months to try to get back up to speed and catch up with the unfulfilled demand, but we’re not going to lose any business. It’s all going to fall in this year. Scott Graham – Jefferies: Okay. Would you say though Chris, that – or let me just try to ask this question and maybe you can frame it for me, what it means, that it appears that the older product sales did well enough where you actually had stock-outs in the quarter. Does that mean anything for the way the customers are looking at the new product sales in your view, the new product?

We don’t believe so. I mean, I think we’re generally very good at the transition between old products and new products. You have to make your best estimate and have supply on-hand. And if we could go back and do it again, we probably would have had more of the old product on hand or we would have produced the new products earlier; that’s all in hindsight. On a go-forward basis, we firmly believe that the full year won’t be impacted. Scott Graham – Jefferies: Okay, good, good. With respect to your balance sheet liquidity, just wondering what your thoughts were for the rest of the year? Are we going to see a little bit more share repurchasing activity to kind of make sure that we stay in the range of guidance for EPS?

We don’t buy back shares to manage our share count and we buy back shares on the basis of the economics, underlying economics making sense as we look forward to how we believe the business will perform and assume that that’s justified to buy back our shares. So the actual levels of shares outstanding, we don’t manage to that. It doesn’t drive our decisions. Scott Graham – Jefferies: Okay. And I guess the last question is, and maybe its kind of two questions and one always seem to be from the sell side. The slowdown in the March month, you seem to point to a lot of your government business, municipal business, but obviously it was also the new product issue, I get that. I’m just wondering (a) on a global basis, can you give us a feel for what your global city cleaning business as a percent of sales looks like? And then additionally, was there anything else in March that contributed to a slower than planned month?

There are a couple of different pieces. The municipality side of the business is completely city cleaning. I mean it’s not that we don’t sell other products in the municipalities, but the impact versus the prior year was completely city cleaning and demand was quite weak. To give you a perspective on size of that business, roughly globally last year was about 6% of our equipment revenue. We obviously have some aftermarket business too, but it’s a relatively small business, but the size of the shortfalls was painful in the quarter. And as I look at it, I wouldn’t say that March was a slowdown. It typically as Chris commented, Q1 is a tough quarter to predict, but you make the quarter in March and January and February were in line, and March did not meet expectations. But a big part of that was new product related that we just weren’t able to get the new products out the door and meet the demand that we have. Scott Graham – Jefferies: Had you not had that supply chain issue, could you have made it?

Well there’s two, three big pieces really; it’s three big pieces. One, we were down year-on-year in city cleaning; it’s worse than we thought. Demand is obviously a tad bit softer than we’ve seen, and then the other big piece was the miss of our new products. Scott Graham – Jefferies: Okay, thanks a lot.

You’re welcome.

Your next question is from the line of Jason Ursaner with CJS Securities.

Good morning. I have a couple of questions focused on the sales growth in the quarter and the full year revenue forecast; just a follow-up on the municipal piece. The difficult comparable period in Q1, there were specific additional shipments last year or just that the current rate of municipal spending in that business is just sort of down year-to-year and you’d expect it to remain challenging as an ongoing…

It was really both. If you look at the prior year, we had particularly large pieces of business in Europe and in China, were the two big pieces, and not only did those orders, none of them repeated themselves, so we didn’t have any large pieces of business, but then on top of that we also saw demand weakening. There’s definitive constraints in the way municipalities are spending their money, particularly large deferrable items like capital equipment.

Okay, and Europe specifically, excluding the municipal piece you mentioned, strengthening sales in several key countries, I think you said France and the U.K. I’m just wondering if you could maybe provide any more clarity in terms of the growth rates there and how that compared to the overall growth in the core euro zone, either with or without the municipal piece?

Yes. Well, the thing is we actually are pretty positive on Europe outside of the city cleaning business right now. I mean, we made a lot of changes. We strengthened the management team; we’ve right sized the sales and service organization; we reorganized them, so they’re now going after the biggest opportunities; we now have a strategic account organization and approach in Europe that duplicates what we’ve done in North America very, very successfully and then you have the new products coming out too. So we think we are really well positioned in our traditional core business in Western Europe. And France and the U.K. are our two largest markets and they did grow. I don’t think we’ve specified exactly how much each one of them grew, but they did. The other piece is we formed this master franchise agreement for Central and Eastern Europe, Middle East and Africa and over the last six months they have quarter-by-quarter kind of met or exceeded our expectation, and we’re extremely bullish about what that management team is going to be able to do in that part of the business going forward. So the city cleaning business is the one we have to work with. We’re fighting an extremely tough business environment. So short-term we don’t see that that’s going to turn around any time soon, but the rest of the business I think is starting to grow off a much firmer foundation than it has for a long time and profitability is improving.

Okay great. And in China, the business there showed very strong growth, ex-city cleaning. And I think you mentioned that that region should continue to perform strongly throughout the year. Just wondering, can you remind me roughly what percentage China represents of the overall APAC segment?

For competitive reasons we haven’t given our precise numbers in China. What we can say is Australia remains our largest revenue geography and China is roughly the second largest piece of the business within that part of the world.

Okay. I appreciate it. I’ll jump back in the queue. Thanks.

(Operator Instructions). You have a follow-up question from the line of Scott Graham with Jefferies. Scott Graham – Jefferies: Hi, so I did have two other questions. I just wanted to get back in the queue for fairness. If I look at the Americas number, organic up 2.6%, and you indicate that Latin America was up broadly and seemingly strongly and I know it’s not a big piece of – I know North America is larger, but where were the weak spots in North America by product line, if you wouldn’t mind sharing that with us?

Well I mean, both go by product line, kind of go by channel, right. Because we look at our business, we have direct distribution and strategic accounts and what we said is that the strategic account business remains robust and I think most of the growth was in the strategic account business. I think we saw lower growth in both distribution and our kind of down the street direct business in the first quarter. The industrial equipment generally, and our strategic accounts business in particular will continue to be drivers of growth in the North America business going forward. Scott Graham – Jefferies: Okay. On the other, the rest of the world piece, you had a comparison a year ago of down size. So whereas in China you had a big load in on sales of I think you said city cleaner. That was the problem for this quarter. But next quarter you have an even easier compare. So I’m wondering, and I know it’s only 10% of sales, believe me, but would you be able to say that that business, that segment of your business should see some pretty good growth in the second quarter?

I didn’t catch all that Scott. You’re talking APAC specifically? Scott Graham – Jefferies: That’s correct.

Yes, we would. I mean definitely, we still did have a relatively large piece of business in city cleaning in the first month of the quarter last year, but it was just in the month of April. So our comparables in general in Asia-Pacific are easier in Q2 than they were in Q1. So yes, we should have the ability to grow on a reported basis more readily than we did in Q1. I would also remind exactly what you said, it’s roughly 10% of our overall business. Scott Graham – Jefferies: Right, not important enough to have even spent that much time of, but still.

That’s not true. It’s very important to us. I mean (Cross Talk)… Scott Graham – Jefferies: Well I mean, it’s long-term strategic. But I mean for the second quarter, it will be a modest contributor, but not more than that I suspect.

Agreed. Scott Graham – Jefferies: Okay, so in EMEA, I was just curious. Now we’ve had a string of organic declines here, and I guess kind of where I’m going with this is, that’s a tough set of markets right now; I think we all understand that. Is there anything sales wise? I mean I know that you’ve got – you’re happier with your organization than you have been in a while, but is there anything sales wise, new product wise that maybe says that we’re kind of getting close to a bottom in that market?

Well, as you said, if you take out the city cleaning business, our core business in Western Europe is actually doing pretty well and is going to rebound, and we’ve just reorganized our strategic account efforts and they are starting to pay dividends. We had a pretty good first quarter in strategic accounts in Europe and that was really nice to see. The new products are just starting to launch. Remember, in Europe, they kind of launch a little bit later than they do in North America. We start in North America, so they’re just starting to go into the market. So we think that we could see organic growth in our key businesses in Western Europe outside of city cleaning in 2013. Scott Graham – Jefferies: Interesting, okay. Hey, thanks a lot.

Our pleasure.

Your next question is from the line of Kevin Sonnett with RK Capital.

Thanks. Hi gentlemen.

Hi Kevin.

Hey Kevin.

So just to kind of frame expectations in the nearer term, understanding that the focus is much more on the full year, given the macro weakness or kind of getting away from the issues related to the new product transition, which make a lot of sense, and I think you’ve articulated well. Is it at least fair to think about, given the pressures we’re seeing overall in the end markets, to think about the lower end of the full year range and you gave some really good color on the breakdown of the first half, second half, so if we use that 48% and back out Q1. For Q2, in terms of getting a milepost as to how we’re tracking through the year, for Q2, we’re thinking something like sales may be down a couple percent relative to last year or if things go well maybe flattish with last year?

Yes, I would say flattish would be a more relative way to think about it. It could potentially be slightly down. I mean no doubt about that and a part of that is we really want to send a clear message that we are far more comfortable with our ability to grow relative to Q3 and Q4 and for the full year and we gave a very broad revenue range and a very broad profit range, basically because that’s how broad the range could be. And I mean, I wouldn’t place a lot of bets on our ability to over deliver the revenue side or go towards the higher end, but we believe that the range of outcomes could very well be between the $750 million to $770 million or we would’ve toned down the range.

Got you. So even if we do something in Q2, like 195, certainly if we get to 200 that would put you nicely on track, but if we had a couple or few percent revenue decline versus last year, which is a tougher comp in the back half, notwithstanding other factors that could come up, we’d still be on track for getting to that full year revenue number, and if we hit the bottom end of the range for full year revenue, we should be able to hit the bottom end of the full year range for earnings.

Clearly, we’ve protected ourselves.

Okay. Okay, well thanks guys.

Yes, thanks Kevin.

Your next question is from the line of Zahid Siddique with Gabelli & Co. Zahid Siddique - Gabelli & Co.: Hi, good morning. A couple of questions; first one on the margins. For 2013, what’s your expectation for EBITDA margins, where do you think you might end and any time frame as to when you’ll achieve the 12% goal?

Yes, a couple of comments Zahid. We really shy away from giving operating margins for the full year. I would ask you guys to do your own modeling backwards from what we are providing on an EPS standpoint. I mean, we clearly believe have another year of improvement in our operating margins and that’s as much as I’m willing to go. We still believe there’s a fighting chance that we can get to that 12% by Q4. We’re not counting on it, but we’d be awfully disappointed if we don’t achieve that by the following year. So we aren’t shying away from the 12%, we’re just shying away from the timing.

We are really hitting on three of the four cylinders that determine our ability to get to 12%. I mean we are starting to get the nice S&A leverage. We’re spending R&D between 3% and 4% for the year, and we are actually exceeding our gross margin expectations of between 42% and 43%. So it all comes down to revenue, right? We’ve got a little bit of economic tailwind, and the revenues start to approach mid-single digits, that’s when we will be back on track to get to the 12% and have high confidence that we can do that. Zahid Siddique - Gabelli & Co.: Okay, and then in you’re remarks you commented on some unfilled demand which was related to the new product. So you couldn’t fill that demand because of the timing issues that you have discussed. Would you be able to quantify what you mean by the unfilled demand?

No, for several different reasons we don’t want to be specific about that. I think the key point is we don’t believe it’s affected our full year revenue. So it certainly affected Q1 and it’ll have some impact on Q2, but we believe will be completely caught up and be back on track in the back half. Zahid Siddique - Gabelli & Co.: Okay, last question on ec-H2O. I think you pointed to about 5% growth for those type of products, which is less relative to I guess in the past few years you had a much higher growth rate. What is the reason for that slowdown?

Well, I think the reason for the slowdown is because of the overall economic situation we are operating in. It’s still going to grow faster than the overall equipment portfolio. Our hope is we can beat that, but in this environment, where again in the first quarter we had organic declines, we’re being I think appropriately cautious. But the good news is we know that the adoption rate of ec-H2O over the last year has improved. It remained pretty stable in the first quarter. We saw growth in Europe with ec-H2O for the first time in a while, which I think is a really positive sign and we have now over half of our scrubber portfolio for which ec-H2O’s relevant, now being sold with ec-H2O. So there’s still opportunity there for increasing or improving adoption rates. Zahid Siddique - Gabelli & Co.: Thank you.

You’re welcome.

Your next question is from the line of Jason Ursaner with CJS Securities.

I think I had tried to withdraw the question, so thanks.

Okay, you’re welcome.

Ladies and gentlemen, this concludes the question-and-answer portion of today’s broadcast. I’d like to turn the call back over to management for any closing remarks they’d like to make.

All right, thank you Regina. We expect 2013 sales to be stronger in the back half of this year as new product sales momentum accelerates and growth continues in our global strategic accounts business and the Americas. We are pursuing growth through innovation in our core equipment business and a strong new product pipeline, which includes our upcoming launch of 25 new products in 2013, as well as advancing our water-based technologies. We remain focused on further enhancing profitability through our ongoing operational excellence, cost controls and standardized global processes. Tennant is well positioned to drive additional profitable growth when the global economy improves and demand for cleaning equipment regains momentum. Thank you for your time today and for your questions. We look forward to updating you on our 2013, second quarter results in July. Take care everybody.

Now with that ladies and gentlemen, we’d like to thank you so much for joining us today. This does conclude the presentation and you may now disconnect. Have a great day.