Good morning, my name is Sean, and I will be your conference operator today. At this time I would like to welcome everyone to Tennant Company's First Quarter 2016 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 on the line for closing remarks from management. [Operator Instructions]. Thank you for participating in Tennant Company's first quarter 2016 earnings conference call. Beginning today's meeting is Mr. Tom Paulson, Senior Vice President and Chief Financial Officer for Tennant Company. Mr. Paulson, please go ahead.

Thanks, Sean. Good morning, everyone and welcome to Tennant Company's first quarter 2016 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 2016 first quarter and our outlook for the 2016 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 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 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. As you saw in our earning release today we experienced a continued sluggish business environment in the 2016 first quarter, despite the adverse macroeconomic conditions and despite lapping record sales for our first quarter in the prior year period. Tennant's operations are performing well and we continue to build our business for sustained success. The company posted 2016 first quarter net sales of $179.9 million and diluted earnings per share of $0.25. Organic net sales were equal to the prior year period. On a constant currency basis Tennant would have reported first quarter earnings per share of $0.29 which would have been up 7.4% versus the prior year period. A more favorable channel mix and product mix contributed to our performance. We have increased sales through distribution and direct sales particularly in the Americas region. And higher sales of industrial equipment compared to the prior year quarter when we saw a stronger sales for commercial equipment due to orders from two U.S. big box retailers. Also benefiting our 2016 first quarter results, sales of scrubbers equipped with ec-H2O technology totaled approximately $32 million with solid growth in North America. Although sales in the 2016 first quarter got off to a slower start than we wanted, we were encouraged to see rising sales momentum towards the end of the quarter. As a result we are reaffirming our guidance for the full year. Tom will discuss our guidance in more detail in a moment. Looking ahead, we are staying the course strategically. We are committed to reaching our goals of $1 billion in organic sales and a 12% operating profit margin through a strong new product and technology pipeline, sales gains in emerging markets, a return to growth…

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, 2016, Tennant reported net sales of $179.9 million, compared to a record sales of $185.7 million in the 2015 first quarter, excluding an unfavorable foreign currency exchange impact of about 2% and the impact from the divestiture of the Green Machines outdoor city cleaning line that reduced net sales by 1.2%, organic sales were equal to the prior year quarter. First quarter 2016 net earnings were $4.4 million or $0.25 per share. In the year-ago quarter, Tennant reported net earnings of $5 million or $0.27 per share. Foreign currency exchange headwinds unfavorably impacted our 2016 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 2016 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 2016 first quarter organic sales increased approximately 1.7%, excluding about 2% of unfavorable foreign currency impact despite lapping the very robust Americas organic sales growth of approximately 11.5% in the prior year quarter. Organic sales in the 2016 first quarter were bolstered by sales through distribution and direct sales including sales of new products. Sales of scrubbers equipped with ec-H2O technology also grew in North America. Organic sales growth in Brazil was approximately 7.5% 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 2016 first quarter…

[Operator Instructions]. And your first question comes from Rosemarie Morbelli from Gabelli & Company. Your line is now open.

Thank you, good morning everyone.

Good morning Rosemarie.

Good morning.

In the press release you mentioned that you are working on an enhanced go-to-market strategy, I was wondering if you could give us little more detail on what are you doing differently from what you did for example last year, two years ago?

Well, what -- we have been actually working on this probably for the last two years and we continue to make progress but what has changed is we finally have the information necessary to determine by geography, by vertical market, and by customer where we are well represented, underrepresented, and had no representation at all. We have not been able to do that in the past, so that is why we are able to target our investments in terms of building market coverage against the biggest opportunities. We have started this effort first and foremost in the U.S. where we have I think the most sophisticated infrastructure but we are rolling it out into Europe, into China, and Brazil and other markets as well. But it is really the ability to pinpoint where the opportunities are in terms of attracting new customers or vending business where we are underrepresented that is driving our enhanced go-to-market abilities and success.

Is this Chris how you ended up growing in Brazil in spite of the current economic environment?

It may play a certain role but I think that what you are seeing is that we are I think winning more business from competition outside of our go-to-market strategy. I just think that we -- our reputation in Brazil is getting stronger and stronger, the quality of our products and especially the quality of our service offering which in down economic periods plays a more and more important role as businesses try to keep their machines longer and are going to pay more to maintain them. We really have the only national service organization I think that’s what's helping us outperform the market and perform well in a down economy.

And as people do a lot more maintenance is the margin on that particular side of the business similar higher than when they buy new machines?

You know unfortunately our margin structure if you compare the gross margins that we make on the sale of a piece of equipment versus what we make in an aftermarket support which includes both the sales of labor and parts and consumable sale. But the gross margin structure is quite similar and so we can really -- it’s a great annuity stream for us as equipment sales slow a bit and we make up for an aftermarket support that the margin structure doesn’t suffer through that.

Thank you and if I may ask one last question, in the press release you mentioned that you have a seen a sales momentum towards the end of the quarter, are you continuing to see that momentum or was that kind of just a little surge which has…?

It is actually good news. I mean we -- the growth momentum did come later then we would have liked in the quarter but it did build and the best part of about it is that we’re seeing a continuation of that as we move into Q2. And it is not just isolated in one area, it’s a pretty broad based and so it is encouraging that we have seen a continuation of that. It has got to keep building. I mean Q2 is a really big quarter for us but it is progressing as we would like.

Thank you.

You’re welcome.

And your next question comes from Joe Maxa with Dougherty & Co. Your line is now open.

Thank you, good morning.

Good morning Joe.

The sales momentum that’s building, Q2 obviously is a strong quarter typically, is that -- are you thinking you will be able to see some organic growth in the quarter or is it too early to tell?

You know we certainly hope to see organic growth in the quarter. It's honestly too early to tell for sure. Just because this is a quarter where this momentum has to build across the quarter and June ends up being the biggest month of the quarter, so again too soon to know for sure but early indications based on the trends that we’d expect to see some level of organic growth.

And with the introduction of more industrial products this year, is that more back half weighted first half, I am just trying to get a sense of how that may affect margins as we look through the year?

It is one of the reasons why we are more confident in our ability in the back half of the year because we do build and we really aren't starting to ship in earnest until the quarter run rate now. But that momentum does build as we go through the back half and that’s kind of the normal thing that happens and it might even be a bit more pronounced in industrial equipment. So it should bode well for the back half of the year.

And also I would just mention, at the M17 that we launched in the first quarter is probably our biggest launch of the year with the most potential. And that doesn’t just go from 0 to a 100 in a month. You are going to see the biggest impact in terms of sales in that product also happening in the back half of the year.

Just any commentary or color from what you are hearing from customers regarding the environment, any spending plans, are they typical spending they are going to holding off, maybe wait a little bit longer any…?

What we see is its mixed and so I think if you look at healthcare education retail in the U.S. for example it is pretty robust. Certain parts of the industrial marketplace anything associated with or anything associated with agriculture that we’re and to a certain extent government too that we sell into is a little bit weaker. So we’re redirecting our resources against the biggest opportunities in the vertical markets that seemed to be spending.

Okay, great. That’s all I had, thank you.

Thanks Joe.

And your next question comes from Chris Moore, CJS Securities. Your line is now open.

Good morning guys, thanks so much. Sure, with respect to Europe it looks like the strategic sales were kind of the bright spot there. Can you give any sense in terms of how from a percentage standpoint how important strategic sales are now and probably more importantly kind of moving forward where are you in that initiative?

I would say in Europe we have duplicated the success that we had in the U.S. in terms of how we organized around strategic accounts. But we are number of years behind the U.S. So we’re just now starting to get traction but if you look at what happened in the U.S. over the last six to seven years it went from a nice piece of business for us to by far the most dominant part of our business and continues to grow aggressively. We see that happening in Europe overtime as well. So we feel we have the right people, we have the right structure in place, and we’re building relationships with the big players across Europe to really continue to grow that business. The one difference in Europe versus the U.S. is that most of the strategic accounts exist within a given country, so you got to negotiate in every country to generate business. While in the U.S. if you negotiate with a strategic account you basically get access to all of their locations throughout the United States, the much more efficient sale and it builds much more quickly. But we are quite optimistic about our prospects for strategic accounts in Europe over the coming years.

Got you and it is probably a little early to answer this but in terms of the markets that you are selling into obviously, things there are still struggling but from a kind of market share perspective particularly in the U.S. any reason to think that you are number one share there has not been eroded or do you get a feel for that?

The share information is hard to come by in our industry. We got to triangulate information with multiple sources. The only other company that does publish information publically is Nykredit Bank [ph] part of the NKG Group out of Denmark. And if you look at their performance and our performance over the last nine quarter we are beating them very heavily. So in that regard in the largest market against what is probably our most significant competitor we are definitely taking share.

Great, alright, thanks guys.

Thank you.

And your next question comes from Bhupendra Bohra from Jeffries. Your line is now open.

Hey, good morning Chris and Tom. Let's go back on the fourth quarter call, if you look at the gross margins I think you mentioned there were some headwind from the channel, let's say direct versus distribution and if you look at the gross margins right now your assumptions for the year were like about 43, you came in slightly above that, could you give us some color like what changed over like in February and March especially with respect to your direct and distribution channel and then we can talk about the industrial versus commercial here?

Sure, one comment as always we hope we are being conservative as we talk about our gross margin. We were really pleased with our performance in Q1 and we had a great efficiency in our service organization, our supply chain ran very nicely, and importantly we did get a little bit of pricing benefit. And then it was meaningful that the prior year we had a significant business from two big box retailers in the United States and that’s a strategic account businesses lower margin. And I mean it is still great operating profit margin but its lower gross margins and we lap at with more strength in our peer direct business which is a higher margin piece of our business. And then there was a bit of a skew towards industrial versus commercial and directionally that tends to -- it can help us -- it doesn’t always help but in this case it was beneficial.

Okay, so Chris I think you gave a number -- new products were about like 36% of the sales in this particular quarter. So, did we get a tailwind from some of the new products which were introduced over like 2015, end of quarter because M17 if I am looking at that was introduced like end of the quarter here so, it sounds like that did not contribute much to the numbers?

The thing you have to remember is that when we launch a new product we often get peak annual sales in the second or third year after launch after their built. So, the first year is normally not the high sales mark. And so we continued to launch new products every year, quite a few. Last year was 36 so cumulatively speaking we’ve now got to a point where in the first quarter of this year for the first time in a while we’ve got above 30% which is the vitality index that we target. It’s a pretty high bar for industrial companies but as a innovation leader we think that’s appropriate and we have finally gotten above the 30% again, which says that our new product strategy is working and working very well.

Okay, got it. Thank you.

Thanks Bhupendra.

[Operator Instructions]. Your next question comes from Rosemarie Morbelli with Gabelli & Company. Your line is now open.

Thanks. If I look at your operating margin target of 12%, this compares to if we exclude FX 4.5% for this quarter and I know you have not given us any kind of a timing but what should we expect a 100 basis point a year improvement, can it jump to a 300 basis points, can you help us understand how long it will take to get to that?

We are consciously not trying to be as precise as we have been in the past around the magnitude of the leverage that we are creating given the uncertainty of the economy. But our objective is now going forward as to consistently see margin expansion at the operating margin line each and every quarter versus the prior year. We are not going to always be successful but we are marching down a path where even in a really low growth environment we are working very hard to create some level of a leverage. If we begin to see a return to more normalized growth and we will -- and weakening of the U.S. dollar that will significantly expand margins quickly. So we are going as fast as we can to get to 12%. We’ve committed ourselves to it. We are just not prepared to say precisely what kind of benefit we are going to get each and every year. But we are internally moving towards trying to improve versus the prior year in each and every quarter as we manage the business.

Thanks and your definition of a normalized environment is that top line growth of about 5% organic?

5% or higher. I mean we target 5% and 9% and we unfortunately don’t -- we are not guiding to that yet this year and we hope we see a return to that and we just don’t know when. So we contain to manage the business cautiously but we are pleased with the momentum we are seeing right now.

Thank you.

You’re welcome.

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

Alright, thanks Sean. We are continuing to pursue our growth agenda. While we anticipate that the global macroeconomic environment will remain challenging, we believe that Tennant is competitively advantaged through our innovative products and technologies and our go-to market strategy. And we are well positioned to leverage our operating efficiency. We remain committed to reaching our goals of $1 billion in organic sales and a 12% or above operating profit margin. And we are very excited about Tennant's future. We are hosting our Annual Shareholder Meeting this Wednesday in Golden Valley, Minnesota. Please join us if you can. Otherwise we look forward to updating you on our 2016 second quarter results in July. Thank you for your time today and for your questions. Take care everybody.

And this concludes today's conference. You may now disconnect.