Tennant Company (TNC) Q1 2015 Earnings Report, Transcript and Summary

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's First Quarter 2015 Earnings Conference Call. This call is being recorded. There will be time for Q&A at the end of the call. [Operator Instructions] After the Q&A, please stay online for closing remarks from management. If you have joined our call today by a telephone and logged into the conference call presentation on your computer, please mute the audio on your computer to avoid potential quality issues during the call. Thank you for participating in Tennant Company's first 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, Chris. Good morning, everyone and welcome to Tennant Company's First Quarter 2015 Earnings Conference Call. I am 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 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 will open up the call for your questions. You’ll notice that for the first time 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 new Investor Relations website at investors.tennantco.com for approximately three months after this call. Now before we begin, please be advised that our remarks this morning and our answers to questions may contain forward-looking statements regarding the Company's expectations of future performance. Such statements are subject to risks and uncertainties and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission. We encourage you to review those documents, particularly our Safe Harbor statement for a description of the risks and uncertainties that may affect our results. Our earnings release was issued this morning via Business Wire and it’s is also posted on our new Investor Relations website. At this point, I'll turn the call over to Chris.

Thank you, Tom, and thanks to all of you for joining us this morning. We are pleased to report another solid quarter in which Tennant continued to execute well on our growth strategies. The company posted consolidated net sales of $185.7 million in the 2015 first quarter, up approximately 6% organically compared to the prior year quarter. This record revenue for the first quarter was led by robust sales to strategic accounts in the Americas region. We also saw continued demand for newly introduced products, including our T12 and T17 rider scrubbers and increased global sales of outdoor equipment. As the first quarter results demonstrate, our platform to accelerate organic sales is working despite headwinds from the global economy and foreign currency exchange. Further, we anticipate continued organic sales gains and improved profitability for the full year. We are on track to reach our organic growth goal of $1 billion in sales by 2017 and we remain committed to the goal of a 12% or above operating profit margin. You may recall that our growth strategies are based upon the following three core pillars. First, reaching new markets and new customers. Second, continuing to deliver a strong product and technology pipeline and third, not losing sight of the discipline we have established around improving margins and controlling expenses. Let’s take a look at Tennant’s first quarter sales by geography. We generated continued growth in our largest region, the Americas, where organic sales rose approximately 11.5%. As I mentioned last quarter, we had two leading US big box retailers renew their contracts with us and this business contributed to our strong results from strategic accounts in the 2015 first quarter. The Latin America sales declined in the 2015’s first quarter due to the challenging macroeconomic conditions there. In the important market of Brazil, we continue to have a strong share and are well positioned for growth when the economy improves. Right after the first quarter ended, we were delighted to announce a nice business win for our Orbio Technologies Group. Kisco Senior Living which is a leading owner and operator of the senior living communities in the US chose to reduce its use of packaged chemicals and instead, generate sustainable commercial cleaning solutions on-site using our Orbio os3. Launched in 2014, the Orbio os3 uses the process of water electrolysis, which combines water, electricity and a small amount of salt to create an effective multi-surface cleaning solution and a disinfecting sanitizing solution. It is small, simple to use, and affordable and it meets US EPA regulatory guidelines for disinfection and sanitization. The positive response to the Orbio os3 across a broad range of industries is encouraging. Key leading indicators such as the pipeline of active prospects, customer trials and trial conversion to sales continues to grow. Sales in EMEA were down approximately 5% organically, while the EMEA results reflected a fragile European economy, we saw strong outdoor equipment sales and significantly improving order patterns as the quarter progressed. Notably, this marked our sixth consecutive quarter of positive growth in outdoor equipment. Our strategies here remain on track and we expect to post organic sales gains in EMEA for the 2015 full year. Sales in the Asia-Pacific or APAC region declined approximately 1.3% organically. APAC results were lower due to economic weakness in Australia and slower sales in China compared to the robust double-digit organic sales growth of approximately 26% in the prior year quarter. Port labor disputes on the United States West Coast were a factor in the lower APAC sales. However, Tennant continue to invest for growth in this important region. In APAC, we also expect to report organic sales gains for the 2015 full year. Taking a look at Tennant’s new products. We continue to execute against one of the strongest new product and technology pipelines in the company’s history. In 2014, the company introduced 18 new products. In 2015, we plan to introduce 36 new products on top of 55 launched from 2012 through 2014. As you know, innovative products and technologies are a significant driver of Tennant’s revenue. Sales of new products introduced within the past three years totaled 14% of equipment revenue for the 2015 first quarter, up from 10% for the prior year quarter. In the first quarter, we launched four new ergonomic backpack vacuum models for professional cleaners to maximize comfort and mobility. Backpack vacuums can double operator productivity compared to using a traditional upright or canister model providing a significant benefit for facility managers and shortly after the first quarter ended, we were excited to launch our next generation of sustainable cleaning technology ec-H2O NanoClean. This solution offers all the benefits of our original ec-H2O plus it cleans better, cleans more soils, and is more effective in more applications. The name NanoClean refers to the creation of nano-scale bubbles that are an important part of the cleaning mechanism. Our finding that nano-bubble technology correlates to cleaning performance is groundbreaking science. The ec-H2O NanoClean technology will first be available on our new Tennant’s 300 T300 walk-behind floor scrubber, which is one of the largest unit categories in the floor cleaning industry. This scrubber is engineered for improved productivity and versatility, with multiple machine heads for a variety of cleaning applications to optimize cleaning performance for specific areas. In addition, our ec-H2O NanoClean technology will soon be available on Tennant’s full line of commercial scrubbers. Already, the next generation ec-H2O NanoClean has won an award. The 2015 China Clean Expo Innovation Awards recognized the most creative, and useful products for solutions in the cleaning market. ec-H2O NanoClean won the innovation award in the management and application solutions category. We are pleased to receive this highly competitive recognition. We are also honored that Tennant scrubbers equipped with our first generation ec-H2O technology won a 2015 distributor choice product award from Sanitary and Maintenance Magazine based on votes from their distributor readers. Now, I’d like to take a moment to welcome Jeffery Moorefield as Tennant’s new Senior Vice President of Global Operations. Jeff just started on April 20 and he succeeds Don Westman who will be retiring on June 2nd. We thank Don for his many contributions to the success of Tennant over the past nine years. We are delighted to have Jeff join us from Pentair, where he most recently was the Global Vice President of Operations for Pentair’s Technical Solutions business. Previously, he held the same title for Pentair’s Filtration and Process business and Water Purification business during his tenure there. Jeff and his Tennant team will play a key role in achieving our growth and profitability goals. As we look ahead, we are encouraged by Tennant’s performance against our growth agenda in the 2015 first quarter on top of our success in 2014. We have made critical investments in sales, marketing, and distribution to increase our global market share. These investments are paying off and we expect to deliver organic sales gains in the mid to high single-digit range in 2015. Going forward, the main drivers of our growth strategy continue to include, strong and sustained new product growth in our core business and in the Orbio Technologies Group, continued significant sales gains in emerging markets, growth in Europe, ongoing focus on strategic accounts and an enhanced go-to-market strategy designed to meaningfully expand Tennant’s global market coverage and customer base. While we continue to anticipate that global economic uncertainty and foreign currency volatility will unfavorably impact sales and earnings in 2015, we are committed to controlling what we can control. Our focus is on creating value through 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. We remain excited about Tennant’s future. Now, I’ll ask Tom to take you through Tennant’s first quarter financial results. Tom?

Thanks Chris. In my comments today, all references to earnings per share are on a fully diluted basis. For the first quarter ended March 31, 2015, Tennant reported net sales of $185.7 million compared to $184 million in the prior year quarter. Excluding an unfavorable foreign currency exchange impact of about 5%, organic sales grew approximately 6% in the 2015 first quarter. As you may recall, organic sales in the 2014 first quarter grew approximately 10.5% excluding an unfavorable foreign currency exchange impact of about 1%. So we were lapping a very robust prior year quarter. For the 2014 full year, organic sales rose approximately 10.3% excluding an unfavorable foreign currency exchange impact of about 1%. We continue to be encouraged by the solid level of organic sales growth. First quarter 2015 net earnings were $5 million, or $0.27 per share. In the year ago quarter, Tennant reported net earnings of $5.8 million, or $0.31 per share. As anticipated, foreign currency exchange headwinds unfavorably impacted our 2015 first quarter financial results. I’ll provide more information about this in just a few minutes. Turning now to a more detailed review of the 2015 first quarter. Our sales are categorized into three geographic regions which are the Americas, which encompasses all of North America and Latin America; EMEA which covers Europe, the Middle East and Africa; and lastly Asia-Pacific which includes China and other Asian markets, Japan and Australia. In the Americas, 2015 first quarter organic sales increased approximately 11.5% excluding about 2% of unfavorable foreign currency impact. Record sales for the first quarter in North America were fueled by strong sales to strategic accounts including the sales of new products. In the 2015, firs quarter, Latin America organic sales declined approximately 5% as compared to organic sales growth of about 10% in the prior year quarter. This was primarily due to economic headwinds in Brazil. As Chris noted this was an important emerging market for us and we remained confident about the long-term growth prospects there. In EMEA, our organic sales in the 2015 first quarter decreased approximately 5%, excluding an unfavorable foreign currency impact of about 14.5%. On the derivation of organic sales growth excludes the impact of foreign currency exchange, it’s important to note the increase in headwinds from an approximate 2% benefit in the 2014 third quarter to an approximate 8% unfavorable impact in the 2014 fourth quarter and now an approximate 14.5% unfavorable impact in the 2015 first quarter. In EMEA, organic sales for the 2014 full year grew approximately 4.4%, excluding a foreign currency exchange impact of about 1%. As Chris noted, we do anticipate EMEA organic sales growth for the 2015 full year will be positive. In Tennant's Asia Pacific region, organic sales decreased approximately 1.3%, excluding an unfavorable foreign currency impact of about 6.5%. Economic weakness in Australia and slower sales in China unfavorably impacted the 2015 first quarter. APAC Organic sales for the 2014 full year rose approximately 12.8% excluding an unfavorable foreign currency impact of about 4% and organic sales in China grew approximately 15% for the 2014 full year. We are expecting positive organic sales growth in APAC for the 2015 full year. Tennant's gross margin for the 2015 first quarter was 42% compared to 41.8% in the prior year quarter. We achieved a 20 basis point improvement in gross margin despite an unfavorable impact from the selling channel mix given the robust sales to strategic accounts. In addition, foreign currency headwinds unfavorably impacted gross margin by approximately 60 basis points. As I mentioned last quarter, we are proactively addressing our supply chain challenges stemming from higher production volume and new products in order to increase manufacturing productivity and further improve our gross margin performance. We made continued progress during the 2015 first quarter and expect to see further improvement in the second quarter. We still anticipate achieving a 43% gross margin for the 2015 full year. Research and development expense in the 2015 first quarter totaled $7.7 million or 4.2% of sales compared to $7.5 million or 4.1% of sales in the prior year quarter. We continue to invest in both our core business, and Orbio, which is focused on advancing a suite of sustainable water-based cleaning technologies. Selling and administrative expense in the 2015 first quarter totaled $62.1 million or 33.4% of sales, which was inline with our expectations as we continue to invest in our sales growth initiatives. This compares to S&A in the first quarter of last year of $60.2 million or 32.7% of sales. Our 2015 first quarter operating profit totaled $8.3 million or 4.4% of sales, compared to the year earlier operating profit of $0.2 million or 4% of sales. We have routinely discussed the impact of foreign currency exchange on our sales but now with a significant change in foreign currency exchange rates in the past two quarters, we believe it’s helpful that we provide additional information. As you may know, in a global company such as Tennant, isolating the impact of foreign currency exchange is complicated. We have calculated an estimated an constant currency income statement which assumes no change in exchange rate from the prior year, In so doing will enable to compare that to our actual financial results to isolate the estimated impact of foreign currency exchange. Here is a recap of the estimated foreign currency exchange impact on our 2015 first quarter financial results. Unfavorable impact to sales of approximately 5% or about $9.4 million, unfavorable impact to gross margin of 60 basis points using a constant currency, using a constant currency, our gross margin would have been about 42.6% compared to 42% as reported. Unfavorable impact to operating profit of approximately $1.9 million using a constant currency, our operating profit would have been about 5.2% compared to 4.4% as reported, an unfavorable impact to earnings per share of approximately $0.07. Using a constant currency, our earnings per share would have been about $0.34 compared to $0.27 as reported. This estimated unfavorable impact coming primarily from the strengthening of the US dollar during the 2015 quarter was lower than we had anticipated due to lower than planned sales in EMEA, Australia and Japan. Despite external circumstances beyond our control, we remained committed to our goal of a 12% or higher operating profit margin by successfully executing our strategic priorities and assuming the global economy improves. As we work towards this goal, we are keenly focused on driving organic revenue growth in the mid to high single-digits, holding fixed costs essentially flat in our manufacturing areas as volume rises, striving for zero net inflation of the gross profit line and standardizing and simplifying processes globally to continue to improve the scalability of our business model while minimizing any increases in our operating expenses. We continue to successfully execute our tax strategies. Tennant’s overall effective tax rate for the 2015 first quarter was 32.4%. The base tax rate was 31.8%, which excludes routine discrete tax items. Note that we were not able to include any benefits in the 2015 first quarter for the federal R&D tax credit as this is not yet been reenacted for 2015. Turning now to the balance sheet. Again, this continues to be a very strong balance. Net receivables at the end of the 2015 first quarter were $134 million versus $144 million a year earlier. Quarterly average accounts receivable days outstanding were 64 days for the first quarter even with the prior year quarter. Tennant's inventories at the end of the 2015 first quarter were $85.6 million versus $73.8 million a year earlier. Quarterly average FIFO days inventory on hand were 97 days for the 2015 first quarter compared to the 88 days in the year ago quarter. We have increased our inventories to support higher sales levels and many new product launches. Capital expenditures of $4.1 million in the 2015 first quarter were $0.6 million higher than $3.5 million in the prior year with planned investments in tooling related to new product development, and manufacturing information technology process improvement projects. Tennant's cash from operations which is typically negative in the first quarter due to the seasonality of the business totaled a negative $2.1 million in the 2015 first quarter compared to a negative $3.9 million in the prior year quarter. Cash and cash equivalents are strong totaling $76.8 million up $13.4 million from $63.4 million a year ago. Total debt of $26.1 million declined $2.1 million from $28.2 million a year ago. Our debt-to-capital ratio was 8.7% at the end of the 2015 first quarter versus 9.6% a year ago. Regarding other aspects of our capital structure, Tennant is currently paying a quarterly dividend of $0.20 per share. We paid cash dividends of $3.7 million in the 2015 first quarter. Reflecting our commitment to the shareholder return we are proud to say that Tennant has increased the annual cash dividend payout for 44 consecutive years. During the 2015 first quarter, we purchased 64,490 shares of Tennant's stock at an average price of $64.12 per share for a total cash outlay of $4.1 million. As of March 31, 2015, we had 341,079 shares remaining under our repurchase program. Moving now to our outlook. We are reaffirming our guidance for the 2015 full year. We continue to estimate 2015 full year net sales in the range of $825 million to $855 million, up 0.4% to 4%percent, or approximately 5% to 9% organically, assuming an unfavorable foreign currency impact on sales in the range of 4% to 6%. We continue to estimate 2015 full year earnings in the range of $2.40 to $2.70 per share. Foreign currency exchange headwinds in 2015 are estimated to reduce operating profit in the range of $10 million to $12 million, or approximately $0.37 to $0.44 earnings per share. However, we do anticipate organic operating profit growth in 2015. The estimated higher effective tax rate in 2015 of approximately 31% compared to 27.2% in 2014 is anticipated to negatively impact earnings per diluted share by about $0.14. The foreign currency exchange headwinds coupled with a higher tax rate is anticipated to negatively impact 2015 earnings in the range of $0.51 to $0.58 per share or approximately 19% to 22%. For the 2014 full year earnings per share totaled $2.70 on net sales of $822 million. We are not changing our guidance for the 2015 full year. However, the foreign currency volatility is likely to disrupt the historical pattern of our quarterly results. We now anticipate the foreign currency exchange headwind will be the strongest in the second quarter of 2015. We are estimating a more normal geographic mix of sales in 2015 second quarter which is anticipated to result in a larger unfavorable impact from foreign currency exchange as compared to the 2015 first quarter. We are also lapping record-breaking in the 2014 second quarter. We are currently expecting a stronger second half with a particularly strong fourth quarter. Our 2015 annual financial outlook includes the following expectations; economic strength in North America, modest improvement in Europe and growth in emerging markets. Increased foreign currency impact on sales for the full year in the range of an unfavorable 4%; to 6% with a $10 million to $12 million negative effect on operating profit. Gross margin performance of approximately 43%. Research and development expense of approximately 4% of sales, capital expenditures in the range of $25 million to $28 million, and an effective tax rate of approximately 31% including the anticipated reenactment of the 2015 Federal R&D tax credit. Note that our 2015 effective tax rate does anticipate a 2015 benefit for the federal R&D tax credit. However, that is not yet been reenacted for 2015. Therefore, we are not allowed to include its favorable impact in the 2015 tax rate we record until it’s enacted. Our current sales and earnings guidance reflects the success of our ongoing focus on accelerating organic sales growth and our continued investments in direct sales, distribution and marketing to drive additional future growth. It also assumes that it will take us into the second quarter to further improve the performance throughout our supply chain as we continue to ramp up to support higher levels of production and launch new products. Finally, it also includes the estimated significant unfavorable impact of sales and earnings from foreign currency exchange rates. We continue to consider and analyze a number of opportunities to proactively mitigate the foreign currency exchange headwinds that include, increasing selling prices in the affected local markets, evaluating the potential to expand the scope of our hedging strategies and exploring the feasibility of producing and shipping productions from locations with a more favorable foreign currency exchange carrying. 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. Thanks, Chris.

[Operator Instructions] Your first question is from Jason Ursaner with CJS Securities. Your line is open.

Good morning.

Good morning, Jason.

Just had a couple of questions on the organic growth trends. Last year in the Americas, you had a large order for the City School system that shipped, just wondering if we can get some sense for how large an impact that had on organic growth last year.

We did not disclose the absolute size of that Jason. We did comment that it was – if not the largest or one of the largest orders that we’d received in the history of the company thought. Suffice it to say that it was material, but we still believe we can continue to organically grow relative to those big numbers.

Okay. And then just this year - in the most recent quarter, the two big box retailers in strategic accounts, again, any sense for how big of an impact that had on the organic growth in the America? I guess, I am just trying to reconcile this with the back half-weighted commentary, particularly Q4 if maybe Q2, we should have more moderate expectations on organic growth.

A couple of things, I mean, one, we do believe that – if you look at our organic growth, it is likely to be larger in the back half of the year than in the front-half of the year and also the commentary around Q4 is not only on the strength of the organic growth that we anticipate, but it’s also the fact that that it will be one of the lower quarters from an impact from the foreign exchange impact on the quarter. We will see Q2 peak. We will see Q3 begin to moderate and in Q4 continue to moderate. So, that’s the other big element of why we are pushing people to say Q4 should be expected to be one of the better quarters of the year if not the best quarter.

Okay. And Asia-Pacific, just want to make sure, I heard clearly, did you say Chine grew 15% in the quarter or that was for…

That was actually last year; that was actually last year number. And we anticipate that – continue to see growth in China although we have – we did not see the type of growth we’d like to see in Q1, but we still continue to anticipate meaningful organic growth in China as well as significant Asia-Pacific total growth from an organic point of view.

Okay. Looking at the negative 1% plus organic trend there, any way to split out the growth between Australia, China and kind of the rest of the segment for this quarter?

Yes, I mean, just directionally, we did see organic declines in all three of – or the two big markets, Australia and China. We also saw a decline in Japan, but we saw significant strength in the Southeast Asian countries. So that was – we are still bullish on the territory. We are particularly bullish on China and we anticipate growth for the full year organically in Asia-Pacific.

Okay. Thanks. I appreciate the details. I’ll let others have a chance. Thanks.

Yes, you are welcome, Jason.

Your next question is from Joe Maxa with Dougherty & Co. Your line is open.

Good morning.

Good morning, Joe.

Hi, Joe.

So, on the organic growth in Europe and in Asia-Pacific starting, a little bit of a hold to get to the positive, how do you see getting it, the expectations to see organic growth for the full year, what’s going to drive it?

Let me comment on Europe first. We got off to a slow start in Europe but the order patterns really strengthened in March, particularly in the back part of the month and they are continuing to strengthen as we speak right now in April. And our pipeline is quite full. So we just – and we are bullish as we look out through the rest of the year. We feel that while it’s always tough in Europe, you never know for sure, we feel that Q1 was an aberration and I remain confident in what the year looks like as we go forward. In the case of Asia-Pacific, I mean, I’d never like that talk about lapping, but we lap a really strong Q1 and our pipeline is full, not quite as full as we like it to be, but we anticipate it to grow for the full year and I think we’ll see a stronger back part of the year in Asia-Pacific in total than we’ll see in the front-half. But again, we remain confident based on the quality of our pipeline and the quality of our new products that we’ll see organic growth for the full year there.

Right, I’ll also add on in the Europe, Joe, we’ve done a lot of work over the last two, three years, things like restructuring our French business which is beginning to pay dividends. It’s still early days. We’ve reorganized our entire strategic account effort in EMEA and that’s paying dividends. We have reorganized against our distribution business. And so, all of those things should continue to bear fruit and hopefully we’ll accelerate a little bit as the year progresses.

Do you see outdoor being a big piece of that organic growth?

Outdoor right now is one of the strongest – is the strongest part of our EMEA business and that should continue.

Okay, great. On the NanoClean business, back, I know, few years ago, you talked about the ec-H2O in the first generation. Now being able to clean about 70% of the environments you target. How does NanoClean change that? Does that get it up to 90%? How should we be thinking about that new product?

When we say 70% of the environments, you could into a retailer for example, but we couldn’t maybe clean all parts of that retailer. For example, the entrance ways where you have significant soil and salt that accumulates in the northern hemisphere during the winter, that was tough to clean. We can now clean that. So it’s a mixture of being able to clean more specific places within the facilities we are already cleaning with ec-H2O as well as, because it cleans more types of – it cleans better cleans more types of soil, we can also take it into new customers. I am not sure if that means we are cleaning 80% now, but it is incrementally a significant improvement. But we think that one of the big opportunities for us with NanoClean is as we try to attract new customers around the world, this is a great lead technology to capture their attention and win new business with.

Okay, very good. And lastly on the OS3, can you give us a sense on maybe your pipeline today versus six months ago or a year ago, just wondering how you are seeing that builds?

What we say is that, it continues to improve. I just continue to look at the leading indicators which is the prospect pool increasing, are we increasing trials and then importantly are those trials converting to sales and that continues to improve. I think, we talk about the win of Kisco Senior Living community that we won. I mean, how many of those types of communities exist in the United States, and this is one of the high profile ones. I think it has a lot of influence on other senior living communities around the country. So clearly, this is an area where we’ve had an early win and we hopefully we can leverage that. This is really the second big win with the OS3 that we talked about. We did say that OS3 was a part of the large school district win that we had last year as well. And we hope that these two are the first of many to come.

Thank you.

[Operator Instructions] Your next question is from Scott Graham with Jefferies. Your line is open.

Hey, good morning.

Good morning, Scott.

So, my only – I have two questions and they are pretty straightforward. If – I know you are talking about the 1.7 – I am sorry the $1 billion sales target is on track for 2017. But, with currency sort of minus 5 at this point, is that realistic still or are you thinking that the organic is going to offset that between now and that period?

Yes, what, to be real clear about that Scott, I mean, our assumption as we march from across the four years was that that we needed average organic growth of 7%. We are tracking ahead of that so far, but it would be really difficult to get to the $1 billion without the dollar going back to the – where it was in relationship to other currencies. So, it’s more important for us that we are focused on that we need to grow organically at 7% and if the dollar doesn’t weaken, we could very well achieve our organic growth target and not get all the way to a revenue of $1 billion. But we would still consider that success. But we are not smart enough to know what’s going to happen at currency. We are focused on the organic side.

Yes, I’m with you. I think that would be – that’s required.

Thanks, thanks, Graham for that question.

So, the other question is about, it’s obviously, pretty big hits on – as we talked about last conference call for currency and taxes. So, at that time, you say, you were looking at some things on the cost side – are you looking at anything structural right now where, sort of fixed cost take out. I think a lot of companies are – and I’ll say this maybe somewhat boldly under a false sense of security that things are going to maybe go back to where they were with various markets and certainly with currency. I guess, my question simply is, if you cut cost on the variable side, well, that's nice, but it doesn't always read through if you don't make your variable number - your sales numbers. Are you looking at anything structurally within the organization where it's a permanent cost takeout that we could really - sort of circle and add that to EPS?

Not yet. I mean, we really believe that we are going to wait and see where currency goes to and it’s not to say that we won’t make a different decision at some point in the future. But for now, we are trying to do things that improves our capability of growing the business organically and we are doing real things like creating the capability of manufacturing some of the same products that we only make in the US today and now having the flexibility to manufacture them in Europe that can be advantageous for us to export out to Europe and to other markets. So those are real tangible things we are looking to add some different hedging programs at the current time. We haven’t made any decisions. It’s very expensive and very complicated and without any real economical benefit. But we just believe we are going to watch currency to focus on organic side of our business and continue to invest to drive share and we think that’s the right long-term strategy. It could dictate at some point in time that we make a different decision, But for now, we are going to ride with it.

Fair enough. All right, hey, thank you both.

You bet.

Thank you.

Since there are no further questions at this time, I’d like to turn the call back over to management for any closing remarks.

All right, thanks Chris. The new growth strategies we outlined at the beginning of 2014 are working and spurt organic sales gains in each quarter of 2014. We are encouraged by Tennant’s performance against our growth agenda in the 2015 first quarter. We remain on track to reach our organic growth goal of $1 billion in sales by 2017. And as I noted earlier, we remain committed to the goal of a 12% or above operating profit margin. We are hosting our Annual Shareholders Meeting this Wednesday in Golden Valley, Minnesota. Please join us if you can, otherwise, we look forward to updating you on our 2015 second quarter results in July. Thank you for your time today and for your questions. Take care, everybody.

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