Good afternoon and welcome to the Tennant Company’s Second Quarter Earnings. Today’s call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. [Operator Instructions]. I would now like to hand the call over to Mr. Tom Paulson, Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin.

Thanks, Kayla. Good morning everyone and welcome to Tennant Company’s second 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, 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 second quarter and our outlook for the year. First Chris will brief you on our operations and I will 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 of future performance. Such statements are subject to risk 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 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’ll also provide the most directly comparable GAAP measure. There were special non-GAAP items in the 2013 first quarter and no such items in the 2013 second quarter. Our 2013 second quarter earnings release includes a reconciliation of those non-GAAP measures to our GAAP results as well as a reconciliation of full year 2012 non-GAAP diluted earnings per share for our 2012 GAAP diluted earnings per share. Our earnings release were 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. We are pleased to report very solid sales and earnings in the 2013 second quarter. Just to give you a bit of perspective, this was the second strongest sales quarter in the Tennant’s history. Among our second quarter highlights, our sales gains were led by strong demand for new products and continuing the momentum in our global strategic accounts. We returned to organic sales growth with total organic sales up about 1% following three consecutive quarters of approximately 2% negative organic sales growth. Gross margins came in at the high end of our target range of 43% to 44%. We reduced sales and administrative expense as a percent of revenue to our lowest level in at least 10 years, through an ongoing focus to cost control and process improvement initiatives. And as a result, we continue to achieve further efficiencies in our cost structure which we anticipate will lead to higher profitability in the future. Tom will provide more details on our sales by geography but let me make a few comment. Tennant’s sales rose in our largest market the Americas, fueled by record quarter sales in North America. Contributing to the increase were sales gains to strategic accounts, scrubbers equipped with our ec-H2O technology and further growth in Latin America. Our strategic accounts business remains a key revenue driver for us and we expect it will comprise a growing percent of our revenues over time. Sales in Europe, Middle East and Africa or EMEA region were down with city cleaning equipment sales continuing to be constrained by economic headwinds and tight municipal spending in Europe. However, we are achieving growing momentum with strategic accounts having duplicated our successful North America strategic accounts structure and processes…

Thanks, Chris. In my comments today all references to earnings per share are on a fully diluted basis. In reviewing our 2013 second quarter results, I think it will be helpful to put them contexts. As we recover 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 than in the second half of 2011, we were back to more normal organic sales growth of approximately 6.5%. Organic sales growth for the 2012 full year was approximately flat with organic growth in Americas of about 3.1% 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 affected by the macroeconomic conditions in Europe. The mature markets in Asia-Pacific were also impacted 2012 by the weaker economic environment. China achieved organic sales growth in 2012 of about 5%. Now for the second quarter ended June 30th 2013 Tennant reported net sales of 200.2 million compared to 199.5 million in the prior year quarter. Organic sales grew approximately 0.9% excluding the unfavorable foreign currency exchange impact of approximately 0.5%. This is an encouraging improvement compared to the prior three consecutive quarters of approximately 2% negative organic sale growth. Second quarter 2013 net earnings were 14.3 million or $0.76 per share. In the year ago quarter Tennant reported net earnings of 13.7 million or $0.71 per share. Turning now to a more detailed review of the 2013 second quarter. Our sales are categorized into three geographic regions which are the Americas which encompasses all North America and Latin America; EMEA which covers the Europe, the Middle East and Africa and lastly Asia-Pacific which includes China and other Asian markets Japan and Australia.…

Thank you. [Operator Instructions]. Your first question is from the line of Jo Maxa. Joseph Maxa – Dougherty & Company, LLC: Thank you. Good morning.

Good morning Jo.

Hey, Jo. Joseph Maxa – Dougherty & Company, LLC: You’ve talked about strong backlog for Q3 and if I recall correctly last year you didn’t have your typical government orders. So I’m just wondering I know you’re not giving specific guidance but it sounds like a better Q3 as well not just Q4 which I know you’ve been expecting to have a pretty good quarter

Yeah we expect to see growth versus the prior year on an organic basis in both Q3 and Q4. Joseph Maxa – Dougherty & Company, LLC: Do you expect to see that in Europe as well looks like you might be getting close based on some easier comps?

We’re not ready to comment specifically on Europe there is just too much uncertainty but we would say that there is some positive things happening particularly in France. And we do we feel we’re beginning to see some level of stability but there remains a fair amount of uncertainty in southern Europe. Joseph Maxa – Dougherty & Company, LLC: And then also I want to ask a little bit on Asia Pacific nice bounce back sequentially from 2Q from 1Q. Could you remind us what the weakness was in the first quarter and do you think that’s behind you and you’ll see improvements in the back half over Asia-Pacific?

The predominant thing we’ve been experiencing in China was we have such a strong front half in the prior year in the city cleaning business and that really just we haven’t received any of those orders again. We frankly pushed our focus into other areas and we’ve also begun to make some changes in China. We now have our new team firmly in place and they’ve been in place for about six months now or a little bit longer than that. We’ve begun to expand not only geographically but also with bringing on new distributors. And we’re starting to see some momentum in our business particularly in the couple of verticals, in retail and also in automotive. So we’re more optimistic about the back half. Joseph Maxa – Dougherty & Company, LLC: Okay that sounds good. Lastly for me, on the 25 new products you introduced this year, can you guys give us may be when are they expected to be launched? And do you have any what you would consider major products like you have these three you mentioned that were introduced earlier this year?

Well Joe this is Chris. The split is probably 10 in the first half 15 in the second half with the biggest volume generating products really launched in the first half. But in the second half we do have some really interesting commercial products, products where we’ve really not been advantaged in the past or where we haven’t had a presence but we think can do quite well. But assume that the big volume generating products really launched in the second half with some industrial products there, all commercial products in the second half as I said the interesting thing is that they are new products more advantaged products that should service well. Joseph Maxa – Dougherty & Company, LLC: Alright. That’s helpful. Thank you

Alright.

Thanks, Jo.

Your next question is from the line of Dan Rizzo. Daniel D. Rizzo – Sidoti and Company, LLC:

We are more focused on organic growth that is has been and will continue to be our primary focus area. But we also continue to look at acquisitions we do look at acquisitions through two lenses predominantly one would be technology deals that would allow us to advance our innovation platform and secondarily, we also are looking at places where we can expand our sales and service coverage in various parts of the world. But we do have a pipeline we are looking at transactions but our primary focus is on organic growth. Daniel D. Rizzo – Sidoti and Company, LLC: Okay. And then with the court case that was disappointing, when is there a time frame when that would be like fully resolved? Is it like the US where it will take a while for an appeal to be heard or how does that work?

We don’t know exactly and as I’ve said we’ve filed papers to reserve our right to appeal. We are firmly focused on wanting to innovate we’d love to put this stuff behind us litigating this is a distraction but at the same time we need to figure out the best way to protect our reputation and the reputation of ec-H2O. So we will do what’s right for the business and for that technology but we can’t tell you how long that’s going to take from a process standpoint in the German courts. Daniel D. Rizzo – Sidoti and Company, LLC: And are there other courts that are waiting outside of Germany?

Yeah the last one is Belgium and Belgium kind of wanted to wait until the German court ruling but in Belgium we do have an opportunity to submit some additional information. So it’s not a foregoing conclusion that they will come to the same decision as the German courts. But I think what’s important to note is that kind of a logical question is what does this decision do to your business? And so far we have not seen any impact on our ec-H2O sales. As we said on the T12 the new industrial product to North America 63% of those products went out with ec-H2O in the second quarter, pretty strong acclamation that people are still buying into it. We’re seeing attachment rates for the technology in all our European markets remaining pretty steady year-over-year and that’s the important thing to note because overall sales are down in EMEA so our eEc-H2O sales are down but attachment rates remain strong. The place we’re going to have to spend most time paying attention to what happens is in Germany because that’s (inaudible) backyard. Daniel D. Rizzo – Sidoti and Company, LLC: But if I mean your customers are ignoring it I mean then even if there is an adverse ruling in the appeals court wouldn’t that just suggest that you stopped advertising to change your language and then it’s kind of a non-issue at that point wouldn’t that be (inaudible)

Yes I think that would be accurate. We actually have changed most of the advertising language already over the course of products and understanding of the technology and what it means to our customers over the last five years. Daniel D. Rizzo – Sidoti and Company, LLC: Okay.

So we do not see this being anyway material issue to our ec-H2O business going forward. Daniel D. Rizzo – Sidoti and Company, LLC: Okay. Alright. Thank you, guys

Thanks Dan.

Thank you. Your next question comes from the line of (inaudible)

Good morning guys

Good morning

Hi. First question, this is kind of the first quarter of like three quarters of declining in core growth I just wanted to get if you can discuss on a monthly basis how did this core sales actually trend in April, May and June? And then what are you seeing July basically in your commercial and industrial?

Yeah I think we did have three quarters of organic declines that were roughly 2% and we had a percent of goal last quarter. And I would say there is not a dramatic difference between months I mean we just generally tend to finish quarters a little bit stronger. I think in this case I would say we did have robustness in our business in the back part of the quarter and we come into Q3 with strength and a nice open order position and also even more importantly than that order patterns that are where we would expect them to be to achieve our growth rates. We’re confident with the momentum that we’re seeing in the business.

Okay. That’s good. On the SG&A now this is the first time you’re kind of trending below 30 number here and I just wanted to make sure like is that sustainable in the back half and is that built in your EPS guidance like you said you’re comfortable I believe in the lower end of the sales guidance but you’re fine with the EPS guidance but just wanted to see what’s built in it?

Yeah what I’d comment there is we just don’t get specific around levels of operating expenses. What I would say is we do anticipate improvement in our profitability of the operating profit level and relative to the prior year quarter so we expect our operating margin to be better in Q3 we expect it to be better in Q4. Therefore we’re likely to see some modest improvement in our expense leverage in each of those respective quarters also. But I would say to say that we’re going to repeat the level of performance we saw in Q2 would be aggressive I mean it was a really terrific quarter from a leverage point of view and to get to those kind of levels would might be a bit overly aggressive in the back part of the year but we’ll continue to see improvement.

I think in the short term I think that’s right but remember our goal remains to get to 27% to 28% SG&A leverage and also as a percent of sales. So we’re trending in that direction it’s going to be a little bit lumpy but we will get there.

Given the revenue levels we’ve been at we feel very good about the expense controls that we have in the place and we’re highly confident that we can get to the 27% to 28% as we restore the normalized growth levels over the period of time.

Okay, okay. So I mean did you do something different this quarter like the 1% growth top line core sales

One is we do manage our spending to our revenue level so that’s one thing I mean we can and we continue to invest in R&D So I mean we continue to invest and we are to see some efficiencies I mean we have made changes in our processes we’ve made system changes and we’re beginning to see some benefits from those changes. We’ll see a lot more benefit in the future but we in the world of consistency and processes and automation, we’re not having to add people at the same pace we historically have had to add. And we’re also seeing benefits in leverage in our indirect spending that’s flown through operating expenses we’re doing a better job of working with our suppliers to hold our cost down.

Okay. And last question on ec-H2O I believe you’re expecting growth like in the second half now what makes you so comfortable actually with the growth in the second half? Is it driven by the traction in the new products or is it anything else what is driving that?

I mean if you look at the new products the attachment rate on new products is very strong and we think that will continue and T12 sales will continue to grow. The ec-H2O sales in North America were pretty robust and we expect that to continue. In EMEA, they are down but remember the entire business is down so there we watch attachment rates as EMEA may see improvement in the back half versus the first half ec-H2O should benefit from that as well.

Okay thanks a lot guys.

You’re welcome.

Your next question is coming from the line of Rosemarie Morbelli. Rosemarie Morbelli – Gabelli & Company, Inc: Good afternoon. Since I’m new to Tennant I was wondering if you could help me understand if your new product introductions are actually cannibalizing some of the old product lines and to which degree they do that?

Yeah I’ll comment on that I mean we do I can’t say there isn’t a cannibalization but in general what we do is our products are either in the case of the burnisher rider as a brand new product that we don’t have any products in our portfolio so there is no cannibalization within that product line. In the case of the T12 it’s a replacement for an existing product that we discontinued that product and we replace them with a new version. So cannibalization in general, really is not a big deal. And our objective as we replace the product we want to hold margins flat or improve them and we also want to change the growth trajectory of that product. So we in total firmly believe that new products definitely change the trajectory of our growth patterns and we think we’ll even see improvement on that back part of the years as we do momentum builds across the introduction of new products. Rosemarie Morbelli – Gabelli & Company, Inc: Okay. Thanks. And I was wondering if there is any specific area in France that is stronger than other parts of EMEA?

Any specific areas of Rosemarie Morbelli – Gabelli & Company, Inc: France in Europe I mean in France why is France so much stronger than the rest of Europe if I read properly?

I mean we’re seeing some robust growth in France and also remember France has been a trouble market for us for a while. And we are working to restructure our French business to focus on the parts of the business that we think we have competitive advantage and where we can grow. And those efforts have started to pay dividends and that’s why we’re seeing robust growth in France. I mean the interesting thing with the European business or the EMEA business right now is really if you were to strip out the city cleaning business which is it’s very soft because of lack of municipal spending and you were to adjust for Central Eastern Europe Middle East Africa business which as most of you know and for you information we restructured it we turned it over to a master distributor last year. If you did an apples-to-apples comparison on that business from a sales perspective, we’re actually seeing fairly robust growth in our core business in most European countries outside of Portugal, Spain and Italy and as we all know Southern Europe remains a challenge. Rosemarie Morbelli – Gabelli & Company, Inc: Okay. And then lastly you talked about your strong backlog have you seen in the past or recently some previously placed orders being either cancelled or delayed as customers decide that the economy is not strong enough to actually take position of those new pieces?

Nothing of the ordinary I mean I mean I would say if you looked across the three quarters where we had some declines in our business, certainly the order patterns were a lot slower to get approval. And so it just it had taken more effort and the time an order was longer but no meaningful level of (inaudible) and we have honestly better momentum in Q2 and improved momentum over that as we’re entering into Q3. And the open order position certainly helps us on and we’re feeling great about our back half products. Rosemarie Morbelli – Gabelli & Company, Inc: Thank you.

Thank you. [Operator Instructions]. The next question is from the line of Ron Rosenberg.

Yeah, hi, good morning.

Hi Ron.

Jon Rosenberg.

Sorry Jon.

How you’re doing?

Good.

Thanks for taking my question. Your press release spoke about gross margin declining a bit in spite some of that is being impacted by channel mix and a greater trend towards strategic accounts. Are we to infer from that strategic accounts I mean I would have thought that given your introduction of new products gross margin would be up So are we to infer that there is some kind of strategic accounts more costly than your in municipals could you give me some more granularity about what’s going on there?

Let me give you a little bit flavor there I mean we I mean strategic accounts are becoming more and more important to us. And if we look at the gross margin line and it’s different for every company in general our margins strategic accounts within a given geography versus sales through our most other traditional channels the margins tend to be a little bit lower at the gross margin line. And by what we would say it’s more efficient below the gross margin line and we believe is incrementally higher at the operating margin line. And given the magnitude and the size of those business there is going to be times where there are growing percent of the total it’s going to have an impact on margins. We’re still within our targeted range. We’re at the high end of that range and as we commented a year ago our Q2 margins we were quite open we didn’t feel that the 44.6% margin level of last year was sustainable. I mean we actually we’re seeing some deflation during that timeframe that also had a big impact on margins. So we’re honestly not concerned where gross margins are at and we’re right in line with expectations.

Alright. And you got to remember we started 2012 forecasting margins in the 41% or 42% to 43% range and increased that to the 43% to 44% range which is what we’re maintaining and the margins in the second quarter were at the high end of the range that we’re targeting.

Okay well thanks. They were indeed I’m just trying to better understand the dynamics and I was expecting perhaps I was misreading the trend. But thank you very much

Well your comment Jon about new products I mean they are helping our margins so you need to remember there is a lot of moving parts to our margin structure and they can vary quarter to quarter. But overall it’s not a concern to us and our strategic account business is very important to us and we think it’s an additive to our overall margin structure.

Okay great. Thanks very much.

Thank you.

You’re welcome.

Thank you. At this time there are no further questions. Are there closing remarks?

Yes, there are some closing remarks. So we continue to expect 2013 sales to be stronger in the second half of this year as new products sales momentum accelerates and growth continues in our global strategic accounts business and in the Americas. We are pursuing growth through innovation in our core equipment business and a strong new product pipeline which includes the launch of 25 new products in 2013 as well as advancing our water based technologies. And 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 as the global economy improves and demand for cleaning equipments regains momentum. Thank you for your time today and for your questions and we look forward to updating you on our 2013 third quarter results in October. Take care, everyone.

Thank you. This does conclude today’s conference call. You may now disconnect.