Tennant Company (TNC) Q3 2015 Earnings Report, Transcript and Summary

Good morning. My name is Stephanie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Tennant Company's third quarter earnings conference call. There will be time for Q&A at the end of the call. [Operator Instructions] Thank you for participating in Tennant Company's third quarter earnings conference call. Beginning today's meeting is Mr. Tom Paulson, Senior Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, you may begin.

Thanks, Stephanie. Good morning, everyone, and welcome to Tennant Company's third quarter 2015 earnings conference call. I'm Tom Paulson, Senior Vice President and Chief Financial Officer of Tennant Company. With me on the call today are Chris Killingstad, Tennant's President and CEO; Karen Durant, Vice President and Controller; and Tom Stueve, Treasurer. Our agenda today is to review Tennant's performance during the 2015 third quarter and our outlook for the full year. First, Chris will brief you on our operations, and then I'll cover the financials. After that we'll open up the call for your questions. We are using slides to accompany this conference call. We hope this makes it easier for you to review our results. A taped replay of this conference call along with these slides will be available on our Investor Relations website at investors.tennantco.com for approximately three months after this call. Now, before we begin, please be advised, our remarks this morning and our answers to questions may contain forward-looking statements regarding the company's expectations of future performance. Such statements are subject to risks and uncertainties and our actual results may differ materially from those contained in the statements. These risks and uncertainties are described in today's news release and the documents we filed with the Securities and Exchange Commission. We encourage you to review those documents, particularly our Safe Harbor statement, for a description of the risks and uncertainties that may affect our results. Additionally, on this conference call we will discuss non-GAAP measures that include or exclude special or non-recurring items. For each non-GAAP measures, we'll also provide the most directly comparable GAAP measure. There were special non-GAAP items in the third quarter 2015. Our 2015 third quarter earnings release includes a reconciliation of these non-GAAP measures to our GAAP results for the third quarter and the first nine months of 2015. Our earnings release was issued this morning via Business Wire and is also posted on our Investor Relations website. At this point, I'll turn the call over to Chris.

Thank you, Tom, and thanks to all of you for joining us this morning. We are pleased to report record revenues for the third quarter, as Tennant continued to execute well on our growth strategies. The company posted consolidated net sales of $204.8 million in the 2015 third quarter, up 7.6% organically from a year ago. Our third quarter results were led by robust sales to strategic accounts in our largest market of North America and also broad-based growth in our Asia-Pacific region. In addition to strong sales to strategic accounts in North America, we saw continued gains in global sales of new products, especially the T12 and the T17 Rider Scrubbers for the industrial market and the T300 Walk Behind Scrubber for the commercial market. Notably, sales of scrubbers equipped with the company's ec-water technology grew approximately 8% from a year ago, again surpassing the $40 million mark in the third quarter. Gross margins in the third quarter rose to 43.3% and our net earnings per diluted share, as suggested and on a constant currency basis, grew 33% to $0.84 compared to the prior-year quarter. Overall, the business is performing well. We are focused on investing in the strongest growth opportunities for Tennant, and those are in our core industrial and commercial cleaning solutions, including Orbio Technologies. As you saw in our news release, after careful assessment, we have determined that our Green Machines, outdoor city cleaning line, does not sufficiently complement our core business. Therefore, we are exploring strategic alternatives for the Green Machines brand and related assets, which contribute only about 2% of our total sales. This is a good business with the potential to thrive with a new owner for home Green Machines is a strategic asset. It is our intension to identify potential buyers, who will drive further investment and growth in Green Machines' products and services. This is the right decision for Tennant. As result of this move, the company incurred a non-cash impairment charge and a restructuring charge in the 2015 third quarter. Tom will provide more information regarding these special items. Tom will also provide a detailed picture of our performance by geography, but I'll share a few highlights. We had 8.3% organic sales growth in the Americas, with continued strong gains in North America and another quarter of increased organic sales in Brazil, despite difficult economic conditions there. Organic sales growth in Western Europe was again within our target range, up 5% to 9%. And we saw approximately a 15% organic sales rise in China. Clearly, our platform to accelerate organic sales is working. We remain committed to both our organic growth goal of $1 billion in sales by 2017 as well as to a 12% or above operating profit margin. You may recall that the main drivers of our growth strategy are: strong and sustain new product growth in our core business and in the Orbio Technologies Group; significant sales gains in emerging markets; a return to growth in Europe; ongoing focus on strategic accounts; and an enhanced go-to-market strategy, designed to meaningfully expand Tennant's global market coverage and customer base. We continue to be encouraged by our performance and our investments in people, technology, products and market coverage are paying off. Let me slide a few examples. One of our key investments has been selectively building our workforce. In 2013 and 2014 together, we added roughly 270 people primarily in sales, service and manufacturing positions. As our financial performance shows, these additions are beginning to generate returns for us. Moreover, we have a number of technology-based initiatives. I'll start with the global rollout of our new Customer Relationship Management or CRM, marketing and sales management tool. This system helps us identify new customers, grow our business and improve the overall Tennant customer experience. Already, we have implemented our new CRM solution in North America, EMEA and Australia, and we are benefiting from its improved sales analytical capabilities. We expect to complete the global rollout to Japan, China and other regions by early next year. E-commerce continues to grow as an important sales platform and customer interface for Tennant. Today we estimate that more than 70% of our customers start their buying journey online, and increasingly they are purchasing parts and consumables this way. Our progress in building a more robust platform is on track and our secure My Tennant portal is the first step in this effort. It is generating more inquiries and sales for us in a cost-effective manner. E-commerce is a growing trend in other industries, and we expect this evolution to occur in the cleaning industry as well. In a few years, we anticipate being able to report e-commerce as another revenue channel along with our existing direct distribution and strategic account channels. Taking a look now at the contributions from new products. Sales of new products introduced within the past three years have risen to 19% of equipment revenue for the 2015 first nine months. Year-to-date, in 2015, Tennant has introduced 33 new products and product variants. That's on top of 55 new products launched from 2012 to 2014. Just after the 2015 third quarter end, we introduced the IRIS Asset Manager. This onboard technology tracks machine productivity and maintenance needs. It helps customers with large fleet of equipment, making form decisions and reduce their overall cost to clean, which is a very attractive proposition and a fast emerging trend. Customer demand it and it's another way that we add value. The IRIS Asset Manger is currently available on 19 Tennant commercial and industrial cleaning machines in nine countries around the world. We are excited about Tennant's new core equipment products and technologies as well as our sustainable cleaning solutions. We initially launched our next-generation ec-water NanoClean on the new T300 Walk Behind Scrubber. And now offer it on our T7 Micro Rider Scrubber too. This technology will soon be available on our full line of commercial scrubbers. The name NanoClean refers to the creation of nanoscale bubbles that are an important part of the cleaning mechanism. Next-generation ec-water NanoClean technology electrically converts water into an innovative solution that offers the same benefits as the original, but cleans better, cleans more soils and is effective in more applications. In addition, the new Orbio os3 continues to receive positive responses from customers across a variety of industries. The os3 delivers onsite generation of an effective multi-surface cleaner and antimicrobial solution that needs U.S. EPA regulatory guidelines for disinfection and sanitization. It is easy to operate, affordable and compact. Customer satisfaction is high for those who have already adopted this disruptive technology. We believe the OS3 has great potential for growth. We also remained disciplined in controlling expenses and improving margins. You've heard me mentioned our campaign to cash initiative. We have completed the five-year investment in this program, which aims to lower costs and increase margins by standardizing and simplifying our processes. With today's global economic uncertainty and a volatile currency environment, it's more important than ever that we focus on controlling what we can control and that is what campaign to cash is all about. These are just a few examples of the work we have done to position for continued success. We are encouraged by Tennant's performance against our growth agenda in the 2015 first nine months, on top of our strong performance in 2014. As I have noted, we have made critical investments in sales, marketing and distribution to increase our global market share. These investments are bearing fruit and we expect to deliver organic sales gains in the mid-single digit range for the 2015 full year. While we have seen global economic uncertainty and foreign currency negatively impact sales and earnings in 2015, we remain committed to profitable growth. We are creating value to our new product introductions and expanding our global sales and marketing initiatives to increase our global market share, while concurrently running a more efficient business to raise productivity. We anticipate this will lead to double-digit organic operating profit growth in 2015 as adjusted. We continue to be excited about Tennant's future. Now, I will ask Tom to take you through Tennant's third quarter financial results. Tom?

Thanks Chris. In my comments today, all references to earnings per share are on a fully diluted basis. Also please note, as I go through the results, I'll generally not comment on the year-to-date financials as those are detailed on earning release. For the third quarter ended September 30, 2015, Tennant reported net sales of $204.8 million compared to $202.6 million in the prior-year quarter. Excluding an unfavorable foreign currency exchange impact of about 6.5%, organic sales grew approximately 7.6% in the 2015 third quarter. On a reported basis, the 2015 third quarter sales of $204.8 million is a new record for sales in the third quarter, despite the foreign currency exchange headwinds of about $13 million. For the 2015 first nine months, organic sales rose approximately 6%, excluding an unfavorable foreign currency exchange impact of about 6%. 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. As adjusted, our third quarter 2015 net earnings were $12.1 million or $0.68 per share. These as adjusted results exclude two special items that total a charge of $13.1 million after-tax or a loss of $0.73 per share. In the year-ago quarter, Tennant reported net earnings of $11.8 million or $0.63 per share. Foreign currency exchange headwinds unfavorably impacted our 2015 third quarter financial results. I'll provide more information about the special items and foreign currency exchange impact in just a few minutes. Turning now to a more detailed review of the 2015 third 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. As Chris noted, in the Americas, 2015 third quarter organic sales increased approximately 8.3% excluding about 3.5% of unfavorable foreign currency impact. Record sales for the third quarter in North America were once again fueled by strong sales to strategic accounts including sales of new products. In the 2015 third quarter, Latin America organic sales declined approximately 3%. However, organic sales growth in Brazil was up nearly 5%, despite the continued economic headwinds. This is an important emerging market for us and we remain confident about the long-term growth prospects there. In EMEA, our organic sales in the 2015 third quarter decreased approximately 2%, excluding an unfavorable foreign currency impact of about 13%. Organic sales growth in Western Europe was within our target range of 5% to 9%, but was more than offset by sales declines for our master distributor for Russia and lower sales of outdoor equipment. EMEA organic sales for the 2014 full-year grew approximately 4.4%, excluding a favorable foreign currency impact of about 1%. EMEA organic sales for the 2015 first nine months decreased approximately 3.1%, excluding an unfavorable foreign currency impact of about 14.5%. We do anticipate that the EMEA organic sales growth for the 2015 fourth quarter maybe slightly positive, but we do not anticipate the organic sales growth for the 2015 full year will be positive. As Chris mentioned, we are exploring strategic alternatives for the Green Machines outdoor city cleaning line. There can be no assurance that a transaction will take place. However, it is our intention to identify potential buyers who will drive further investment and growth in Green Machines products and services. As a result of this initiative, our Green Machines assets have been classified as held for sale and we recorded a non-cash long-lived asset impairment of $11.5 million after-tax or a loss of $0.64 per share. Given this decision, we also recorded restructuring charge in the 2015 third quarter of $1.6 million after-tax or a loss of $0.9 per share. The restructuring action was designed to reduce our infrastructure costs and consisted primarily of severance, the majority of which was in euro. In Asia-Pacific region, organic sales in the 2015 third quarter grew 21.3%, excluding an unfavorable foreign currency impact of about 14%. Organic sales increased in all countries in this region with particular strength in Australia. Also, as Chris mentioned, organic sales in China rose approximately 15% compared to the prior-year quarter for the second consecutive 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 third quarter was 43.3% compared to 43% in the prior-year quarter. The 30 basis point increase in gross margin was primarily due to improved operating efficiencies in both our direct service organizations and our manufacturing operations. These results include foreign currency headwinds that unfavorably impacted gross margin by approximately 100 basis points. We still anticipate achieving a gross margin of approximately 43% for the 2015 full year. Research and development expense in the 2015 third quarter totaled $8.2 million or 4% of sales compared to $6.8 million or 3.4% 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 third quarter as adjusted to exclude the $1.8 million pre-tax restructuring charge totaled $62.9 million or 30.7% of sales. Although at a slower pace, we continue to invest in our sales growth and efficiency initiatives, which combined with the benefits on the restructuring charge are anticipated to improve S&A leverage in future quarters. S&A in the third quarter of last year was $63.2 million or 31.2% of sales. Our 2015 third quarter operating profit as adjusted to exclude the $13 million in pre-tax special items totaled $17.5 million or 8.6% of sales compared to the year earlier operating profit of $17.1 million or 8.4% 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 last few quarters, we believe it is helpful to provide additional information. As many of you know, in a global company such as Tennant, isolating the impact of foreign currency exchange is complicated. We have calculated an estimated constant currency income statement, which assumes no change in exchange rates from prior year. In so doing, we are then able 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 third quarter financial results. Unfavorable impact to sales of approximately 6.5% or about $13.1 million. Unfavorable impact to gross margin of a 100 basis points; using a constant currency, our gross margin would have been about 44.3% compared to 43.3% as reported. Unfavorable impact to operating profit of approximately $4.2 million; using a constant currency, our operating profit margin would have been about 10% compared to 8.6% as adjusted. And unfavorable impact of earnings per share of approximately $0.16; using a constant currency, our earnings per share would have been about $0.84 compared to $0.68 as adjusted. This estimated unfavorable impact from foreign currency exchange during the 2013 third quarter was larger than we anticipated, due to the prevailing strength of the U.S. dollar. We are actively working on a number of opportunities to help mitigate the foreign currency exchange headwinds that include: increasing selling prices in the affected local markets, where possible; starting to produce and ship some products from locations with a more favorable foreign currency exchange pairing; and expanding the scope of our hedging strategies to include cash flow hedging in order to hedge forecasted foreign currency transaction with foreign currency, with foreign exchange options, contracts or forward contracts. Despite external circumstance beyond our control, we remain committed to our goal of a 12% or higher operating profit margin by successfully executing our strategic priorities and assuming that global economy improves. As we work towards this target, we are keenly focused on: driving organic revenue growth in the mid-to-high single digits; holding fixed cost essentially flat in our manufacturing areas, as volume rises; striving for zero net inflation at 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 nine months excluding the special items was 30.7% compared to 32.1%, which is for first six months of 2015 and compared to 31% for the first nine months of 2014. The base tax rate for the 2015 first nine months was 31.5%, which excludes two special items previously discussed and also routine discrete tax items. Note that we're not able to include any benefit in the 2015 first nine months 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 very strong. Net receivables at the end of the 2015 third quarter were $137.2 million versus $141.8 million a year earlier. Quarterly average accounts receivable days outstanding were 63 days for the third quarter compared to 65 days in the prior-year quarter. Tennant's inventories at the end of the 2015 third quarter were $83.3 million versus $84 million a year earlier. Quarterly average FIFO days inventory on hand were 93 days for the 2015 third quarter compared to 90 days in the year-ago quarter. Capital expenditures of $14.6 million in the 2015 first nine months were $1.1 million higher than $13.5 million in the prior year with planned investments in information technology process improvement projects, tooling related to new product development and manufacturing equipment. Tennant's cash from operations was $30.9 million in the 2015 first nine months, down $5.9 million compared to $36.8 million in the 2014 first nine months, primarily due to the timing of tax payments. Cash and cash equivalents totaled $56.8 million versus $79.8 million a year ago. Total debt of $24.6 million declined $3.6 million from $28.2 million a year ago. Our debt-to-capital ratio was 9.1% at the end of the 2015 third quarter compared to 9.3% 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 $11 million in the 2015 first nine months. Reflecting our commitment to shareholder return, we're proud to say that Tennant has increased the annual cash dividend payout for 43 consecutive years. During the first nine months, we purchased 648,000 shares of Tennant's stock at an average price of $60.33 per share for a total cash outlay of $39.1 million. Our Board of Directors authorized a new share repurchase program of up to 1 million shares of Tennant common stock in June of 2015. This authorization underscores the Board's continued confidence in our business and the strength of our capital position. As of September 30, 2015, we had approximately 757,000 shares remaining under our repurchase program, which aims to enhance shareholder value by providing the financial flexibility to offset any dilutive effect of stock-based compensation program and to consider repurchases to create value based on overall market conditions. Assuming the stock market continues to be volatile, we expect to be active in repurchasing Tennant's shares. Moving now to our outlook. Based on our year-to-date results, expectations of the performance for the remainder of year, and a greater than anticipated unfavorable foreign currency impact, we are lowering our sales guidance range and we are narrowing our earnings guidance range for the 2015 full year. We now estimate 2015 full-year net sales in the range of $850 million to $825 million, down 0.8% to up 0.4% or approximately up 4% to 6% organically, assuming an unfavorable foreign currency impact on sales in the range of 5% to 6%. Previously we had anticipated 2015 full-year net sales in the range of $825 million to $845 million. We lowered our full year's sales guidance range to reflect the larger than anticipated unfavorable foreign currency impact in the second half and softer than anticipated organic sales in EMEA and Latin America. Despite the lower sales guidance range, we are narrowing our 2015 full-year earnings guidance to a range of $2.45 to $2.65 per share as adjusted. We previously estimated 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 $12 million to $14 million or approximately $0.44 to $0.52 per share. On a constant currency basis, we anticipate organic operating profit growth in 2015 as adjusted. The estimated higher effective tax rate in 2015 of approximately 31% compared to 27.2% in 2015 is anticipated to negatively impact earnings per share by about $0.14. The foreign currency exchange headwinds coupled with a higher effective tax rate is anticipated to negatively impact 2015 earnings in the range of $0.58 to $0.66 per share or approximately 22% to 25%. For the 2015 full year, earnings per share totaled $2.70 and net sales of $822 million. 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 that range of unfavorable 5% to 6% with a $12 million to $14 million negative effect on operating profits; gross margin performance of approximately 43%; research and development expense of approximately 4% of sales; capital expenditures in the range of $25 million to $28 million; and an effective tax rate of approximately 31% including the anticipated enactment of the 2015 Federal R&D tax credit. Note that our 2015 effective tax rate target does anticipate a 2015 benefit for the Federal R&D tax credit. However, that is not yet been reenacted for 2015 and we're not allowed to include its favorable impact in the 2015 tax rate we record until it is enacted. Tennant's operations are performing well and our objective is to continue to build our business for sustained success. Now, we'd like to open up the call to any questions. Stephanie?

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

A good quarter actually, and I just wanted to check on the guidance here. So you lowered sales at the midpoint by like $15 million. Can you talk about the assumptions at the upper-end and the lower-end?

Yes, I mean, we certainly -- first and foremost, I would say that, we hope are being conservative. And given the volatility that we're seeing, we felt that was the prudent thing to do. What we would say is we would certainly hope and anticipate we will be closer to the higher-end of our range and our assumptions are that we will continue to see volatility in some markets. We certainly are not seeing the growth that we would anticipate. And although it's better than many, in Brazil, also China is growing a little bit slower. We do continue to expect some concern in parts of Europe. But I'd also say that we do believe that Western Europe continues to provide some optimism, as we look forward. North America continues to be extremely strong. And the one caveat I would say is that we've really had a particular strength in some large transactions in the first part of the year in North America. We're going to not have that every quarter and our current anticipation is we don't see any big deal coming through in the fourth quarter. We don't feel that's going to have any impact on future periods, but we do feel that it will have somewhat of a negative impact on our ability to grow in North America, although we'll still see substantial growth in that market.

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

Our business really for the last four months of the year, it tends to get pretty darn strong. And what I would say is that October is shaping up the way it needs to shape up. So there is nothing unusual positive or negative. It's really transpiring how we would expect it to be into deliver against expectation. We do know that the quarters made -- it really matters in what happen to November and December. October gets the quarter started. We do see the year typically ends with momentum and that certainly what we anticipate is going to happen based on our channel checks.

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

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

Your next question comes from Joe Maxa with Dougherty.

I missed the first part, so I apologize, if this has been asked. But regarding the Green Machines, how is that impacting your fourth quarter guidance?

It really has limited impact. We're not adjusting for that. And like we said, it'd be great if we're capable of getting the transaction closed. We're not counting on that happening. We're just going to say that, we expect to bring that transaction ahead as soon as we possibly can, but the impact was really the level of the charge that we took in Q3. We don't anticipate anything of significance in Q4.

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

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

And then I was going to ask on the organic growth in EMEA, I think you said you're not expecting growth there this year. But it looks like Asia-Pacific maybe do better than you perhaps were expecting?

I mean, we are disciplined overall in our Asia-Pacific performance in the first half of the year. And in all honesty, other than China, began to gain some momentum in Q2. We're really pleased with the performance across the board in Q3. Our organic growth was probably in excess of 21%. We expect growth for the full year. And we would admit China is growing a little slower than we'd like, but 15% is not bad. EMEA, we would tell you that we're pleased by what we're seeing in Western Europe. And we do anticipate modest organic growth in Q4, but there won't be enough to offset the lack of organic growth in the first part of the year. But as we look forward, we're actually feeling overall better about Europe other than our outdoor businesses just hasn't been solid for us. And with our master distributor, they're struggling in Russia as everybody is. But there are some bright spots in Europe, as we look at the momentum that we're bringing into next year.

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

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

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

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

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

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

That's our expectation. I mean we've kind of defied what other people are seeing. So some of the trends that we're seeing in China, which is labor continues to get scarcer and wage inflation continues to happen, and people tend to move towards changes in the way that they clean, and that all bodes well for the mechanization of cleaning. And we believe that even with slower GDP growth that we can still see solid growth. And we continue to expand. I mean, we're adding more distributors. We're expanding our direct capabilities in China, both on the sales and service side. And that expansion and investment, it needs to drive growth, and that's certainly our expectation that it will continue.

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

All right. Thank you. We are continuing to invest in our growth agenda and remain on track to deliver gains in organic sales and adjusted operating profit margin in 2015. Organic sales through the first nine months of 2015 increased approximately 6%. We anticipate foreign currency headwinds to remain challenging throughout the remainder of the year. We are focused on creating value through new product introductions and expanding our world-wide sales and marketing initiatives to increase Tennant's global market share, while concurrently running a more efficient business to raise productivity. Let me reiterate that we remain committed to our organic growth goal of $1 billion in sales by 2017 and to a 12% or above operating profit margin. We are confident in our ability to execute on our strategies and we believe Tennant is well-positioned to succeed. And that is why I think the best is yet to come. We look forward to updating you on our 2015 fourth quarter and full year results in February of 2016. Thank you for your time today and for your questions. Take care everybody.

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