Good morning, and thank you for participating in Tennant Company’s First Quarter 2012 Earnings Conference Call. This call is being recorded. If you do not wish to participate you may disconnect at this time. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Beginning today’s meeting is Tom Paulson, Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin.

Thanks, Martina. Good morning everyone and welcome to Tennant Company’s first quarter 2012 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 2012 first quarter and our outlook for the remainder of 2012. First Chris will brief you on our operations then I will cover the financials. After that we will 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 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 Securities and Exchange Commission. We encourage you to review those documents particularly our Safe Harbor statements 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 measure we will also provide the most directly comparable GAAP measure. Our 2012 first quarter earnings release include the reconciliation of full-year 2011 non-GAAP diluted earnings per share to our 2011 GAAP diluted earnings per share. There was no special non-GAAP items in the 2012 first quarter or the 2011 first quarter. Our earnings release was issued this morning via Business Wire and is also posted on the investor section of our website at tennantco.com. At this point I will turn the call over to Chris.

Thank you, Tom, and thanks to all of you for joining us this morning. Today I’d like to review Tennant’s first quarter financial performance and operating highlights. While the first quarter is seasonally our weakest, Tennant’s 2012 first quarter sales came in lower than anticipated. This was primarily due to order timing resulting in higher-than-normal order backlog entering the second quarter. Based on the growing momentum of our strategic account orders and the strength of our overall business in the Americas we are forecasting a good second quarter and a strong second half. Our strategies are working and we expect 2012 full-year results to be within our previously provided guidance range for both sales and earnings per share. Tom will further discuss the confirmation of our annual guidance in a few minutes. Looking at the details of our 2012 first quarter results, there are a couple of important factors to keep in mind. We were lapping a record first quarter last year, when sales grew 15% or about 13.5% organically, and we did manage to slightly beat that. As we stated last quarter, Tennant is now back to prerecession seasonal sales patterns and growth rates, which translates into higher sales and earnings in the back half of the year. Our revenue guidance for the 2012 full-year calls for mid to high single-digit growth consistent with our historical growth rates. In the 2012 first quarter, net sales of $173.7 million grew nearly 2% organically versus the prior year quarter. Contributing to the results were higher sales of industrial rider scrubbers equipped with our sustainable ec-H2O technology. Also performing well were our Green Machines 500ze city cleaning sweepers which are powered by environmentally friendly lithium ion batteries with 0 carbon emissions. In addition to the impact on first quarter sales due to…

Thanks, Chris. In my comments today all references to earnings per share are on a fully-diluted basis. Throughout 2010 and the first half of 2011, Tennant had achieved on average organic sales growth of about 13% in each of those 6 quarters. We estimated at the beginning of the 2011 third quarter that we were back to prerecession sales levels and we anticipated organic revenue growth going forward would be back in our traditional range of mid to high single-digits. This was the case with organic revenue growth of approximately 7.4% in the 2011 third quarter and 5.7% in the 2011 fourth quarter. As Chris noted the organic sales growth of approximately 1.6% in the 2012 first quarter was lower than anticipated primarily due to order timing as well as the impact on the increased tightening of credit in Europe. We are maintaining our guidance and still expect 2012 full-year sales to be within our previously provided range of between $790 million and $805 million. For the first quarter ended March 31, 2012, Tennant reported net earnings of $5.3 million or $0.28 per share and first quarter net sales of $173.7 million. In the year ago quarter, Tennant reported net earnings of $5.9 million or $0.30 per share and net sales of $172.6 million. Turning now to a more detailed review of the 2012 first quarter. Our sales are categorized into 3 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. In the Americas we reported 2012 first quarter organic sales growth of approximately 3.5% excluding about 0.5% of unfavorable foreign currency impact. The growth in the Americas was driven by…

[Operator Instructions] Your first question comes from the line of Joe Maxa from Dougherty & Company.

I just want little more color on your outlook for the year, obviously second half been stronger than first half, you laid out what you were doing to achieve that. Can you give us a little more on the seasonality, typically prerecession, Q2 has been a bit stronger than Q3, is we should expect especially given first half of Q1?

Yes, that would be fair way to think about it. Kind of broadly, how I think Joe, if I take you back to how we talked about the seasonality at the last call in February, we talked about a mix of about roughly 48% of our revenue coming in the first half and 52% coming in the back half. And we did comment at that time that it could even more skewed meaning we could have less than 48% in the front half. And that’s kind of how things are playing out for us in the year, but we do believe that Q2 will be higher than Q3, and we would certainly continue to believe that Q4 will be if not our highest quarter of the year, one of the highest quarter of the year.

And then are you looking for -- with some concerns in Europe currently, are you looking for North America to become a stronger piece of the total revenue?

Both North America and Latin America are quite robust at the current time and that’s really what gives us the confidence in how we feel the second quarter is going to play out in the back half of the year. And the Asia Pacific is -- we feel that business is going to be solid for the balance of year also.

And talk about gross margins, I mean that’s a pretty good indication with stronger gross margin on a little bit lower revenue prior to the price increase. So should we be looking for gross margins above this 43%, can you maintain that for the year?

It could play out that way. I would suggest that we shouldn’t count on it. we like to take a conservative posture on gross margins, but if you work your way through it with the modest inflation that we have seen, to-date inflation in the first quarter our materials was some more slightly under 2%, we did get about 2% of pricing, we believe there will be some level of inflation the balance of the year. At a minimum we believe it will be at the high end of our range and there is a possibility that we could have a quarter or so that’s outside of that range.

And lastly I’ll just ask on this the competitor noise, have you seen any impact, are you hearing anything out of the channel, what are they telling you?

It’s noise, it's obviously a pain for us to have to deal with it, it takes a lot of time and attention and a few dollars to fight it. But I think in the marketplace our customers as we have always said, they are relatively sophisticated. Many of them are cleaning professionals, they do this for a living. They test ec-H2O side by side with their current cleaning solutions before they buy. And they are convinced it works and as I mentioned a few minutes ago, we sold over 30,000 scrubbers equipped with ec-H2O to-date. And we’ve maintained it's in our guidance a 15% to 20% growth in ec-H2O sales for 2012.

One last thing, on the Orbio 5000 can you give us any color on demand is that as strong as ever. Have you seen any difference? Are you shipping more shipping less than last couple of quarters?

All we’re saying, Joe, at this point is that, the rollout’s on track and it's meeting our expectation. In the current competitive environment we have absolutely no interest in divulging more information about our new technology and products than we absolutely have to. I think you can understand that.

I think we can comment that demand is increasing, we are shipping more units, but we don’t want to be more specific than that.

Your next question comes from the line of Arnold Ursaner from CJS Securities.

This is Andrew Gadlin in for Arnie. Couple of questions, on the revenue that was pushed out of Q1 into Q2, can you give a sense for how large that was?

We don’t want to be specific about that. I mean we can say that it's significant and our open orders are a backlog are a fair amount higher than we would traditionally see and it’s, put it this way big enough that it gives us a lot of confidence that we are going to see and improving second quarter end. And we have lots of indications of even a stronger back half that we see in Q2.

And would this revenue be at similar margins to what you produced…

No reason to think any different than that.

And would SG&A rise as well with it?

I mean, you would see the typical level of variable expense that we would traditionally have with revenue. So, it wouldn’t be any different than that.

So, meaning both grow, COGS as well as SG&A?

Yes, but you will see significantly improved S&A leverage in Q2 relative to Q1. I mean that’s obviously one of the disappointing parts in Q1, it's -- at a lower revenue, you just don’t create the leverage and we didn’t pull back our spending we continue to invest. And you will see significantly improved year-on-year leverage in Q2 we believe and that we should expect to see improvement in the quarters throughout the year then.

You mentioned on the call as well as in the press release that you invested in process improvements et cetera. You also highlighted insurance cost I believe? What’s that relate to?

We are self-insured and so there are times where we will see an unusually high level of claims whether it be in medical or auto. We had it really effective in all 3 areas in this quarter so it's highly unusually, and we don’t see anything that gives us any over concerns for the balance of the year, but it was we believe is just unusual activity within the quarter.

How large was that?

We haven’t given a specific number, but it's somewhere in vicinity of about 50 basis points or so. So, it was meaningful in the quarter.

You mentioned in Europe that you are giving -- you are going to help some of your customers get financing. Could you give little more color there?

Yes, it would straight forward as this. I mean we are actively exploring other leasing partners and it happened a little quicker than we would have expected. It's certainly not that the customers can’t go find our own leasing partners, but it's definitely advantageous for us to have a few more leasing partners lined up and we are actively engaging some additional people to bring on board as leasing partners that our customers can utilize. So, that’s the predominant thing that we are doing.

When do you expect to have that lined up?

We hope very quickly.

Within Q2?

Yes, definitely within Q2. If we don’t get that done within the quarter, it won’t positively affect the quarter, our expectation is that we can move the needle a bit within Q2. So, we are engaged in that as we speak.

Your next question comes from the line of Robert Scott Graham from Jefferies.

This is Bhupendra [ph] sitting in for Scott here. First question on, could you guys discuss the monthly sales trend by region. You guys mentioned about like March was kind of weaker, so if you can explain it by which location, which geographic location was weaker, if you just can go by month?

All I’d say broadly is that we had order patterns that were more normal within the first 2 months and March is always our largest month. And we didn’t start to see the momentum in March come till later than we would have anticipated. We would have expected more orders in front of the pricing, but more importantly than that is really the strategic account business is, it’s just coming later in the year coming in Q2 and in Q4. And we believe it's lapping a tough quarter and also just typical timing that you have in business with our larger customers.

And on the strategic account side, you got to remember that over the last 2.5 years we’ve won a lot of new strategic account business, and we have a lot of existing strategic account business that’s beginning to renew their contracts with us and we also said we won 2 new pieces of business with a big box retailer and a supermarket chain in the first quarter. And now nothing ship to those, they are all coming rest of the year. But while we are able to pretty much predict over the course of a year, it's what a strategic account’s going to buy, because we always said that they have somewhere between around 36 month replacement cycles. So, we can estimate that within a year they are going to buy so much. What we are not so good at doing is figuring out exactly quarter-by-quarter where those orders are going to fall. And in this case I think we overestimate what was going to fall in the first quarter and that kind of began in the beginning of the quarter was clear that some of those are going to pushed out in the second quarter and beyond. But they should all fall in this year.

And you did clarify and the March decline here, but which particular region was that based in?

We really had off of our original expectation was really across the board and was -- we had some impact in virtually all of our geographies, so it wasn’t isolated to just one area. The area that we saw of the biggest concern is economically driven is in Europe which is as we commented on that is clearly the area that we were monitoring the closest.

Just last question, if you guys can update on your acquisition pipeline or anything you guys are looking at?

We really don’t have anything more to say than we really had continue to have 2 focus areas and one of that is around extending our technology capabilities which is similar to the Water Star acquisition we made last year. And we will look at opportunities that would increase our sales and service coverage in newer geographies, beyond that we really can’t comment any further, but I would not expect us to see any, as we commented before, any large transaction happening. Anything would be smaller and tactical.

Your next question comes from the line of Will Hamilton from Granite Point Capital.

Given the timing issue for this quarter, whether you could provide a little bit more detail on the backlog. How much it might be up year-over-year. I know historically you haven’t provided the actual number.

Yes, which is why we are going to shy away from doing that, we will just say that it is meaningfully higher than normal.

And since inventories are only are up 2%, I mean is that then timing in terms of you bringing in the raw materials and producing and then shipping?

It's really that the inventory component is predominantly, we do bring in raw materials and have a small amount of finished goods that we are going to put in place in front of a price increase. We also had orders that just didn’t -- got shifted out into Q2, so that’s really why our inventory’s a bit higher than we would like it to be. It's kind of as simple as that.

Right, but I was referring to the fact that if the backlogs are stronger than normal, wouldn’t the inventories also be a little bit higher? It's up 2% versus a 1% increase in the top line, but it seems it would suggest that, that would be higher if the backlog is that much stronger, or is it just simply that everything shifts very quickly?

Things can shift quickly and to try to precise with the inventory levels and backlog and deliveries is a pretty complicated puzzle.

And then I was just wondering, you called out China in the press release of being up 15% year-over-year. How is that compared to the growth I guess last year, if you could provide a bit more color in that? And how much is China as a percent of, say of APAC at this point?

We haven’t given specifics on the size of China in our market for obvious reasons and what I can say is we have seen growth periods in excess of 15%, but I’m not going to comment specifically on any individually quarter. But we don’t see any reason why we won’t see higher growth rates than 15% as we look out the future periods.

And lastly you mentioned some renewals of strategic accounts going on, wondering what the pricing environment might be, whether you might be taking some price additions?

What we can comment on there is we’ve already taken the pricing that we discussed, we took the most meaningful price increase was in North America and that going to effect on April 1. As far as future pricing activity, I’m not going to comment at that at the current time, but given the inflationary environment I certainly wouldn’t expect that we would take additional pricing the rest of the year, but that can also change quickly. But for now I’d think we have taken the pricing that we are going to take for the year.

But we renewed most of the contracts at current or better margins.

Your next question comes from the line of Dana Walker from Kalmar Investments.

Would either of the pricing step that you took, the legal discussion going on in the courts or any other factor affected the way that your orders and/or your shipments would have played out?

We don’t believe so, obviously the pricing we just sort of expected that we would have had some of those orders come in a little bit earlier, but we don’t believe that any of the actions going on in the court system had any impact on our revenue levels in the quarter.

And you would then state that the renegotiations would have also had no effect on order timing and/or shipment timing?

What, strategic account negotiation?

Yes.

No, I mean as I said, what we know is that within a given year, we are probably going to get x number of orders from an existing strategic account. What’s harder to determine is which quarter. But I don’t think that any of the price negotiations in the first quarter influenced the timing.

Yes, pricing is about how we would expect, Dana, we had about 2% of pricing benefit in Q1 and we anticipate a level somewhere in that vicinity for the balance of the year. So, pricing is playing out about where we would expect it to be in this type of inflationary environment.

If you have a price increase though about to go into effect, unless that is similar to a price increase that you took at the same time last year, was that not auger for somewhat more pass through and thus more a net price?

Are you pushing at the margin side of things there?

No, you state that you have a price increase that is going in effect on April 1, or did go in effect on April 1. Unless a comparable price increase took place last year at this time, would that not suggest that, that 2% net price increase if you talk about in the first quarter that, that wouldn’t accelerate?

We would like to think you’d have some increase pass through.

And then finally from me, this comes out more in your segment reporting, but with this so much better mix reflected in gross margin, would your parts business and/or your service business be growing at a faster pace than it has in the past?

It's growing, put the growth rates in both our after-market business whether parts and consumables or service were above our average growth rates of 1.5%, 1.6% organically. We were roughly in the vicinity about double that growth rate on a reported basis in service and parts and consumables. So, there really wasn’t a huge shift one way or the other in that part of our business.

Let me ask one more related to your plan to introduce the first of your modular industrial products in 2013. You have been talking about this for a while, what implications do you believe this has for share, profit margin and for that matter just redefining the company’s internal ethic?

Dana, let’s put it in the broader context of the statement I made that we have now probably the most robust new product pipeline in the company’s history and the launch of a new series of large scrubbers and sweepers is only the beginning. We over the next several years have a great balance of industrial equipment coming out and commercial equipment. And we are also working on some very interesting underlying technologies that we hope we can incorporate into these products to enhance performance. And our goal has been all along that whenever we launch a new product it has to have a higher gross margin than the product it replaces, and we see that happening across the board.

[Operator Instructions] Your next question comes from the line of Zahid Siddique from Gabelli.

Couple of questions, actually. First one on the 12% margin goal by the end of 2013, we have only about 7 quarters left and I wanted to see if that’s still -- I guess you are expecting it to be still doable, but given that even if you look at 2010, 2011 when your revenue was growing very rapidly, you were around 8%, maybe and now your Q1 was 4.5%, 4.6%. So, what gives you the confidence in over the next 7 quarter or so, you can actually get to 12%?

A couple of things. We do believe that our growth for the rest of this year and into next year is going to be back within targeted range, although we were outside of it just for one quarter now. So, I think that’s an important point. We do believe our growth rate will return to the targeted range. I think we have shown that our gross margins, we are very capable of staying at higher end of our range and you could take more optimistic view that it might even be a bit better than that. And we are beginning to gain momentum around our operating expense leverage. I mean we did see meaningful improvement throughout all of last year. We expect to see improved leverage in each of the 3 quarters for the balance of this year. So, our efforts our holding headcount flat, driving process improvement, the implementation of some of the projects that are underway right now gives us confidence that we will continue to see improvement quarter-on-quarter, meaning year-on-year in the quarters. And that will work its way through not only through balance of this year but we expect all through next year also.

Now moving on to the price increase. Did you in today’s call quantify that price increase, I might have missed that?

Yes, what we said, Zahid, was that our pricing benefit in Q1 was around right about at 2%, and we expect pricing benefits to be at a similar level for the rest of the year. Somewhere in that vicinity, call it 1.5% to 2%.

And the actual increase on April 1 was 2% as well?

No, how we manage our price increase is we generally give a pretty broad range, and that’s a list pricing and we will give a broad range and then we manage our pricing to the level of actual year-on-year increases. We would call that price stick. And that pricing stick was about 2% in Q1.

How are the municipal markets doing?

The one measure that we can look to is our outdoor business which grew very nicely in Q1, and so it's certainly not great but it’s better.

Last question. You mentioned something about the R&D credit not being taken, could you quantify or maybe elaborate what that means?

It's about 100 basis points, that is not in our current -- that we didn’t take any of that benefit in Q1, and because it hasn’t been enacted yet we can’t build that into our tax rate as we go through the year, but it's for a full-year it would be about 100 basis points of improvement. So, it does mater.

And when do you expect that to be enacted?

It varies all over the place, I mean we certainly seen it where it didn’t get enacted until really late in the year. So, for now we will expect it will happen sometime during the year, but it’s anybody’s best guess in all honesty.

We have no further questions in queue.

All right. One more shot at the closing remarks. So, we remain bullish about Tennant’s future. And we are committed to achieving our strategic vision which is to become a global leader in water-based and other sustainable cleaning technologies. We plan to continue to grow sales through innovating in our core equipment business and advancing our water-based technologies. At the same time we are focused on controlling spending across the organization, building a scalable business model, with improved global processes and achieving further operating leverage and enhanced profitability. So, thank you for your time today and for your questions and we look forward to updating you on our 2012 second quarter results in July. Take care, everybody.

This concludes today’s conference call, you may now disconnect.