Conferencia de resultados del T3 de 2026 de Tennant (TNC): los ingresos por robótica se disparan un 71 %

Puntos clave

• Tennant Company (NYSE: TNC) presentó ventas netas récord en el tercer trimestre de 322,3 millones de dólares, lo que supone un aumento interanual del 6,2%. Las ventas orgánicas crecieron un 5,7%, impulsadas por 4,1 puntos porcentuales de crecimiento en volumen y 1,6 puntos porcentuales procedentes de los precios.
• Los pedidos aumentaron un 9,5%, incluyendo un crecimiento del 18% en Norteamérica. La cartera de pedidos pendientes finalizó el tercer trimestre en 118 millones de dólares, lo que representa una disminución secuencial de 9 millones de dólares, pero sigue ofreciendo visibilidad de cara al cuarto trimestre.
• Los ingresos de la división de robótica se dispararon un 71% hasta los 37 millones de dólares. En lo que va de año, los ingresos por robótica alcanzaron los 95,3 millones de dólares, superando ya el total de todo el ejercicio 2025.
• El EBITDA ajustado se situó en 48,8 millones de dólares, o el 15,1% de las ventas. Excluyendo aproximadamente 6,1 millones de dólares en devoluciones de aranceles, el EBITDA ajustado fue de unos 42,7 millones de dólares, con un margen del 13,2%.
• Las ineficiencias en el coste de las ventas vinculadas al sistema ERP disminuyeron desde aproximadamente 10 millones de dólares en la primera mitad del año a cerca de 2 millones de dólares en el tercer trimestre. La directiva prevé que el impacto en el cuarto trimestre sea de 2 millones de dólares o menos.
• Tennant reafirmó sus previsiones para 2026, que incluyen unas ventas netas de entre 1.270 y 1.310 millones de dólares y un EBITDA ajustado de entre 155 y 170 millones de dólares.

Datos financieros clave

Rendimiento comercial y operativo

Norteamérica siguió siendo el principal motor de crecimiento. Las ventas orgánicas aumentaron un 8,6%, mientras que los pedidos regionales crecieron un 18%. El crecimiento fue generalizado en los equipos industriales y comerciales, liderado por la robótica y respaldado por los ingresos de servicios y nuevos productos, entre ellos el X2 y el X16.

Las ventas orgánicas en EMEA crecieron un 2,3%, su mejor rendimiento trimestral de 2026, al volverse positiva la fijación de precios. Sin embargo, los pedidos cayeron un 9% tras debilitarse en agosto. Tennant busca reconstruir la cartera de oportunidades manteniendo la disciplina de precios.

Las ventas orgánicas en APAC cayeron un 4,8%, aunque los pedidos aumentaron un 7%. La directiva atribuyó este resultado a la débil demanda en China, Australia y partes del sudeste asiático, junto con un elevado inventario de los distribuidores y una conversión de operaciones más lenta. La empresa está reevaluando su estrategia comercial interna en China.

Las ventas de equipos aumentaron un 7,8%, impulsadas por el volumen de maquinaria en Norteamérica y la robótica. Los ingresos por repuestos y consumibles cayeron un 6,3%, mientras que los ingresos por servicios y otros conceptos aumentaron un 17,3%. Los ingresos por tecnología autónoma generaron aproximadamente el 60% del crecimiento en la categoría de servicios y otros.

Expansión de la robótica

Los ingresos por robótica del tercer trimestre alcanzaron los 37 millones de dólares, un 71% más, con los modelos X4 y X6 impulsando la demanda de nuevos clientes y de usuarios en transición desde la plataforma Gen 2 anterior de Tennant. La empresa prevé unos ingresos por robótica para todo el ejercicio 2026 de entre 130 y 145 millones de dólares y mantiene su objetivo de alcanzar los 250 millones de dólares para 2028.

Tennant amplió por tres años su exclusividad con BrainCorp para la tecnología robótica de cuidado de suelos de última generación y afirmó que mantiene el ritmo para incorporar 10 productos en un plazo de 24 meses. Los envíos del modelo X2 comenzaron en el tercer trimestre, mientras que los del X16 y el P1 VAC empezaron en el cuarto trimestre.

La nueva serie P se dirige a clientes más sensibles al precio a través de canales de distribución y fabricación por contrato con menor intensidad de capital. El P1 VAC es el primer aspirador robótico autónomo de Tennant y amplía su catálogo hacia la limpieza de superficies blandas.

Recuperación del ERP

La directiva declaró que las interrupciones más significativas del ERP ya han quedado atrás. Las ineficiencias en el coste de las ventas vinculadas al ERP disminuyeron a aproximadamente 2 millones de dólares en el tercer trimestre, en comparación con los cerca de 10 millones de dólares registrados durante el primer semestre.

El trabajo pendiente se centra en la gestión de almacenes, facturación y cobros, datos maestros de clientes y la transición a un modelo de soporte informático a largo plazo. Tennant decidió no seguir adelante con la implantación planificada del ERP en EMEA y optó en su lugar por realizar mejoras de menor escala en los sistemas y en la calidad de los datos, mientras optimiza la plataforma en Norteamérica.

Previsiones de la directiva

Tennant reafirmó las siguientes previsiones para todo el ejercicio 2026:

En el punto medio del rango, las perspectivas implican unas ventas netas en el cuarto trimestre de aproximadamente 346 millones de dólares y un EBITDA ajustado de unos 49 millones de dólares, lo que representa cerca del 14% de las ventas. La directiva prevé que la conversión de la cartera de pedidos represente aproximadamente la mitad del incremento secuencial de los ingresos, mientras que el resto estará respaldado por nuevos pedidos y una mejora estacional anticipada en EMEA.

La empresa prevé que el mayor volumen, la conversión de la cartera de pedidos pendientes y los menores costes operativos impulsen el EBITDA del cuarto trimestre. Sin embargo, se espera que la inflación de las materias primas y los elevados costes de flete se mantengan por encima de lo previsto anteriormente y no se compensen por completo.

Riesgos y aspectos a vigilar

• La disponibilidad de piezas está mejorando, pero no se ha normalizado del todo. La escasez sigue afectando a la eficiencia de la producción, la absorción de costes fijos y los componentes de robótica.
• La inflación de materiales y logística, vinculada en parte por la directiva al conflicto en Oriente Medio, sigue ejerciendo presión sobre el margen bruto.
• El rendimiento del cuarto trimestre depende en parte del ritmo de conversión de la cartera de pedidos y de la recuperación de las órdenes en EMEA, aunque la directiva afirmó que ligeras desviaciones a la baja en ambos factores seguirían siendo coherentes con el rango de previsiones anuales.
• La demanda en APAC sigue siendo débil, con exceso de existencias en los distribuidores y una conversión de operaciones más lenta en varios mercados.
• Las cuentas por cobrar aumentaron a 291,7 millones de dólares, debido principalmente a los plazos de cobro tras la implantación del ERP en Norteamérica. Acelerar los cobros es una prioridad para el cuarto trimestre.
• El inventario aumentó a 213,2 millones de dólares, lo que refleja las necesidades de producción de robótica, las existencias en proveedores logísticos y el incremento de los costes de los materiales.

Puntos destacados de la sesión de preguntas y respuestas

La directiva atribuyó el margen bruto normalizado, superior a lo previsto, principalmente a la efectividad de los precios en Norteamérica y EMEA. Espera que la presión de costes vinculada al ERP siga disminuyendo, con un impacto de 2 millones de dólares o menos en el cuarto trimestre, aunque persisten la escasez residual de piezas y los problemas en las cuentas por cobrar.

En cuanto a la disponibilidad de componentes, la directiva afirmó que la escasez está disminuyendo y que la visibilidad sobre los requisitos de producción ha mejorado. La división de robótica también ha experimentado limitaciones relacionadas con sensores, procesamiento informático y otros componentes.

La directiva señaló que el P1 VAC amplía las aplicaciones abordables de Tennant y podría llegar tanto a clientes existentes como a nuevos clientes a través de la distribución. El modelo de fabricación por contrato permitió a Tennant entrar en el mercado más rápidamente y con una menor intensidad de capital.

La empresa también confirmó que un ajuste en las provisiones para incentivos a largo plazo redujo los gastos de venta y administrativos del tercer trimestre.

Transcripción completa de la conferencia de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

Operator

Good morning. My name is Sarah, and I will be your conference moderator today.

At this time, I would like to welcome everyone to Tennant Company's 2026 Third Quarter Earnings Conference Call. This call is being recorded.

[Operator Instructions]

Beginning today's meeting is Mr. Lorenzo Bassi, Vice President, Finance and Investor Relations for Tennant Company. Mr. Bassi, you may begin.

Lorenzo Bassi

Good morning, everyone, and welcome to Tennant Company's Third Quarter 2026 Earnings Conference Call. I'm Lorenzo Bassi, Vice President, Finance and Investor Relations.

Joining me on the call today are Dave Huml, President and CEO, and Fay West, Senior Vice President and CFO. Dave will discuss our third-quarter results, our ERP progress in our robotics business, and Fay will cover our financials and our outlook for the fourth quarter and full year.

After our prepared remarks, we will open the call to questions. Our earnings press release and slide presentation that accompany this conference call are available on our Investor Relations website.

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 file 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 certain items. Our 2026 third quarter earnings release and presentation include the comparable GAAP measures and a reconciliation of these non-GAAP measures to our GAAP results.

I'll now turn the call over to Dave.

David Huml

Thank you, Lorenzo, and good morning, everyone. Our third quarter showed clear progress. Order demand continues to be robust. We are rapidly growing our robotics business.

Our ERP recovery efforts are reading out, and our operational performance continues to improve. Last quarter, we said that we expected order momentum and our elevated backlog would support the second half performance.

The third quarter gross margins would be comparable to the second quarter, and the backlog conversion would begin in the fourth quarter as parts availability constraints eased, and that is largely how our third quarter played out.

Our order momentum continued. Orders grew 9.5%, led by North America at 18%. Orders have now grown in every quarter this year, and orders grew 9% year-to-date.

Net sales were $322 million, a third-quarter record, up 6.2% with organic growth of 5.7%, driven by 4.1 percentage points of volume growth and 1.6 percentage points on price.

We delivered robust organic revenue growth of 9% in North America, 3% in Latin America, and 2% in EMEA, and a 5% decline in APAC. We exited Q3 with elevated backlog at $118 million, a reduction of $9 million from the end of the second quarter.

Importantly, strong order trends and an elevated backlog give us good visibility into the fourth quarter and reinforce our confidence in the underlying demand environment.

Turning now to the region's performance. In the Americas, momentum remained strong throughout the quarter. Orders grew double digits compared to the prior year, and organic sales increased 8.1%.

Growth was broad-based across both our industrial and commercial portfolios, led by robotics and supported by strong equipment demand across vertical markets and channels.

We also delivered continued growth in service and other categories. Demand indicators remain healthy. Our opportunity funnel continues to expand.

Customer engagement remains strong, and we saw encouraging order activity from recently launched new products, including the X2 and X16.

While we remain focused on improving conversion, throughput, and fulfillment performance, we believe the strength of our order trends, pipeline, and new product activity positions us well heading into the fourth quarter.

In EMEA, our pricing actions are beginning to gain traction. Price turned positive and organic sales grew 2.3%, marking the region's strongest quarter of the year.

Orders began softening in August and declined 9% in the quarter. We're focused on rebuilding order momentum and expanding our opportunity funnel while maintaining pricing discipline.

We believe these actions position us for sequential improvement in orders in the fourth quarter. In APAC, organic sales declined 4.8%, an improvement from the second quarter, and orders grew 7%.

Still, performance is below where we expected it to be. Soft demand in China, Australia, and parts of Southeast Asia is keeping distributor inventories elevated and slowing our deal conversion.

We are reassessing our domestic China commercial strategy to reflect current market and operating conditions.

Adjusted EBITDA was $48.8 million or 15.1% of net sales, including approximately $6.1 million of tariff refunds paid in prior periods related to changes in IEPA tariff regulations.

Excluding this one-time benefit, adjusted EBITDA margin improved approximately 235 basis points from the second quarter.

Normalized gross margin was 40.4%, up 90 basis points from 39.5% in the second quarter and ahead of our expectations, reflecting continued progress in operational execution and production output.

Margins remained below last year. While we executed solid pricing realization, the primary drivers were inflationary freight and material costs associated with the Middle East conflict and continued part availability constraints that created production inefficiencies and under-absorption.

Approximately 2/3 of the year-over-year pressure came from North America and 1/3 from EMEA. Given our Q3 performance and our visibility into the fourth quarter, we are reaffirming our full-year guidance, and Fay will walk you through what it implies for the fourth quarter.

First, an update on ERP. We continue to make solid progress in our ERP recovery efforts in North America.

We have effectively insulated the customer experience from direct system challenges, and we are managing through the residual impacts from system challenges earlier in the year and the remaining inefficiencies in our operation driven by system challenges, process adoption, and change management.

ERP-related inefficiencies and cost of sales fell from roughly $10 million in the first half to approximately $2 million in the third quarter, while support ticket activity continues to decline as our focus has shifted to overcoming inefficiencies to drive productivity.

The remaining work is concentrated in a handful of well-understood areas, including extended warehouse management, invoicing and collections, customer master data, and the transition to our long-term system support model.

We have taken steps to mitigate future risks, strengthen our governance, and better integrate IT support with our business functions as the organization moves into a more steady-state operating model.

The most significant disruptions are behind us, and we expect any future issues to be isolated rather than systemic.

As a result, our focus is increasingly shifting from stabilization and recovery to value realization, improving productivity, capturing operating efficiencies, and unlocking working capital benefits.

That focus on value realization also shaped our decision not to move forward with the planned ERP deployment in EMEA. By concentrating our efforts on optimizing North America and strengthening our business process and IT capabilities, we can deliver greater value with greatly lower risk.

In EMEA, we will carefully pursue smaller, targeted system and data quality improvements and incremental continuous improvement enhancements while leveraging our existing systems.

We believe this approach allows us to focus resources where they can have the greatest impact on operational and financial performance.

Shifting focus to our robotics business. We accelerated our growth again in Q3 through targeted investments and execution of our growth strategies in our TMC Robotics venture.

Robotics revenue in Q3 was $37 million, up 71% and ahead of plan compared with 37% growth in the second quarter. Year-to-date robotics revenue of $95.3 million already exceeds our full-year 2025 total.

Our investments in our robotics support ecosystem are enabling growth and delivering a more consistent customer experience as we profitably scale.

The X4 and X6 robots led our growth, driving significant demand from both new customers and existing customers transitioning from our earlier Gen 2 platform robots.

Let me touch briefly on our evolving robotics product strategy. At the premium end of the market, our strategy is to expand our portfolio of X-Series robots, leveraging our expanded collaboration with BrainCorp.

Tennant brings cleaning equipment expertise, customer relationships, equipment design, solution integration, and a global sales, service, and life cycle support network.

BrainCorp advances the autonomy platform, including AI, spatial intelligence, and software. The companies have extended exclusivity for next-generation robotic floor care for 3 years, and we are on pace to introduce 10 new products within 24 months.

We believe this partnership, combined with Tennant's customer and service ecosystem, positions us to advance differentiated robotic solutions and support customers seeking performance, reliability, uptime, safety, data privacy, and a strong return on their investment.

Our latest X-Series robots, the X2 Rover and X16 suite, have launched and have robust order books developing. The new Performance Series, or P-Series, strategy addresses a different need: customers and channels seeking a more accessible entry point into robotic cleaning.

The economics and expectations of these customers are different, with greater price sensitivity and more moderate expectations for performance, reliability, and useful life.

We are targeting this market segment with an intentionally designed value-oriented robot supplied via a contract manufacturing partnership rather than relying on the same product and investment model used for premium offerings.

This approach provides us with the right product at the right price and feature set, and speed to market with lower capital intensity.

The P-Series will expand our TAM, broaden our market coverage, and deliver incremental profitable growth while preserving a clear and differentiated premium value proposition for the X Series.

We launched the P1 VAC, the first model in our Performance Series and Tennant's first autonomous robotic vacuum. It expands our robotics portfolio into soft floor cleaning, combining autonomous vacuuming and dust mopping with a side brush designed to direct debris from woven edges into the cleaning path.

The P1 VAC is designed for routine cleaning and commercial environments, giving customers another way to automate everyday tasks while complementing Tennant's existing robotic offerings.

Our approach is focused on offering the right robotic solution for the right application. The X Rover series combines Tennant's equipment, customer success and service capabilities with BrainCorp's autonomy technology for applications requiring the most advanced functionality and premium performance.

The Performance series will provide a differentiated tenant offering for customers prioritizing simple, easy-to-use, application-specific performance and a more accessible price point, with distribution serving as the primary route to market.

Together, the 2 series position us to compete across a broader range of the market and customer needs as we profitably scale our robotics business.

For the full year 2026, we expect robotics revenue of $130 million to $145 million, in line with our goal of $250 million in robotics revenue by 2028.

With that, I'll turn the call over to Fay.

Fay West

Thank you, Dave. Third quarter GAAP net income increased to $19.5 million or $1.12 per diluted share from $14.9 million or $0.80 per diluted share last year, benefiting from lower ERP project costs and the absence of prior-year legal contingency costs.

Adjusted diluted earnings per share were $1.40 compared to $1.46 in the prior year period.

Our non-GAAP adjustments are detailed in the supplementary schedules. Higher sales and tariff refunds partially offset higher operating costs and interest expense.

Operating cost pressures included material and logistics inflation, driven in part by the Middle East conflict, production inefficiencies related to parts availability and residual ERP issues, and higher S&A and R&D spending, including investments in robotics.

Net interest expense was $5 million compared to $2.4 million in the prior year period. The increase reflects higher average borrowings, including borrowings to fund share repurchases, partially offset by a lower average interest rate.

Our reported effective tax rate was 24.7%, and our adjusted tax rate was 25.4% within our full-year adjusted tax rate guidance range of 24% to 29%.

Net sales were $322.3 million, up 6.2% over the prior year. Organic sales grew 5.7%, with volume up 4.1 percentage points and price up 1.6 percentage points.

Acquisitions added 0.4%, and currency added 0.1%. By category, equipment sales increased 7.8% on higher North America machine volume and robotics growth.

Parts and consumables decreased 6.3% as pricing was more than offset by lower volume. In North America, the decline was in consumables as we lapped prior-year incentive programs in direct customer sales, while parts sales grew slightly.

In EMEA, delivery delays at our third-party logistics provider held back parts and consumables shipments, and we are working to resolve them.

Service and other increased 17.3% on higher Autonomy revenue and the service business. Autonomy revenue was responsible for approximately 60% of the year-over-year growth in this category.

By region, organic sales grew 8.1% in the Americas, with North America up 8.6%, driven primarily by volume growth, with pricing realization contributing approximately 1/4 of the increase despite continued production and fulfillment constraints.

Latin America was up 2.8% on higher volume after an exceptional first half with orders up 16%. EMEA grew 2.3%, primarily on price realization and higher volume across most European markets, partially offset by lower sales in Southern Europe.

APAC declined 4.8% on lower equipment volume and unfavorable pricing in certain markets, reflecting softer demand and distributor overstock in Southeast Asia, partially offset by growth in India.

Gross margin was 42.3% compared to 42.7% in the prior-year period and improved 280 basis points from the second quarter. Results included approximately $6 million in tariff refunds, which contributed about 190 basis points to gross margin.

Excluding this benefit, gross margin was approximately 40.4%, above the 39.5% we anticipated last quarter. Excluding the tariff refunds, roughly 2/3 of the year-over-year decline in the gross margin came from North America and 1/3 from EMEA.

The decline reflects inflationary pressures largely associated with the Middle East conflict and other macroeconomic headwinds.

Parts availability constraints also contributed to production inefficiencies and under-absorption, while residual ERP inefficiencies added labor and freight costs of approximately $2 million.

Favorable pricing partially offset these pressures. The tariff refunds recovered a portion of the costs absorbed in prior periods. Any additional claims will be subject to legal, administrative, and governmental processes, and our outlook assumes no further refunds.

We continue to manage ongoing tariff-related cost pressures through pricing, sourcing and productivity initiatives. Adjusted S&A was $89.5 million or 27.8% of net sales compared to $83.3 million or 27.5% of net sales in the prior year.

The increase reflects a combination of factors, including continued investment in our robotics business, the addition of recurring software licensing costs associated with our ERP platform, and the normal inflationary pressures we're seeing across labor and other operating costs.

R&D expense was $12.4 million or 3.8% of net sales, up from $10.5 million from the prior year, reflecting continued investment in innovation, including robotics and autonomous solutions.

Adjusted EBITDA was $48.8 million or 15.1% of net sales compared to $49.8 million or 16.4% last year. The year-over-year decline reflects the impact of the gross margin and operating expense drivers I outlined earlier.

Excluding the tariff refunds, adjusted EBITDA was approximately $42.7 million or 13.2% of net sales, up from 10.9% in the second quarter.

Operating cash flow improved for the second consecutive quarter to $11.9 million from $5 million in the second quarter and a $31 million use of cash in the first quarter.

Compared to the prior-year quarter, operating cash flow was $16.8 million lower. And on a year-to-date basis, we have used $14.3 million of operating cash.

This reflects overall lower operating performance and higher working capital, including higher receivables and inventory balances.

Receivables were $291.7 million, up $35 million from year-end, mainly due to collection timing as we optimize invoicing and collections in North America following the ERP implementation.

Past due balances improved meaningfully in September, and accelerating collections is a top priority for the fourth quarter. Inventory was $213.2 million, up $15 million from year-end, mainly in EMEA.

The increase reflects X2 robotics components and finished goods built to support the production ramp, stock position with our third-party logistics provider, additional robotics parts to improve availability for key customers, and higher material costs.

We invested $6.7 million in capital expenditures and returned $5.2 million to shareholders through dividends in the quarter, bringing capital return this year to $76.6 million.

We ended the quarter with $75.3 million in cash, approximately $289.4 million of unused revolver capacity, and net leverage of 2x EBITDA at the upper end of our target range of 1 to 2x.

Our capital allocation priorities remain unchanged. Reflecting confidence in the business and our cash flow outlook, the Board recently approved a 5% increase in our quarterly dividend to $0.325 per share, continuing our long-standing commitment to returning capital to shareholders.

Turning to our outlook. With 3 quarters behind us, we are reaffirming our full-year 2026 guidance. We continue to expect these ranges.

Net sales in the range of $1.27 billion to $1.31 billion, reflecting reported growth of 5.5% to 9% and organic sales growth of 3.5% to 7%.

Adjusted EBITDA in the range of $155 million to $170 million, representing an adjusted EBITDA margin between 12.2% and 13%; GAAP diluted EPS of $2.15 to $2.80 and adjusted diluted EPS of $3.80 to $4.45, which excludes ERP modernization costs and amortization expense.

At the midpoint, our guidance implies fourth quarter net sales of approximately $346 million and adjusted EBITDA of approximately $49 million, or about 14% of net sales.

We see a clear path to achieving our fourth quarter sales outlook. Converting existing backlog is expected to account for roughly half of the sequential sales increase.

The balance is supported by new order volume consistent with strong activity we've seen throughout the year, along with expected improvement in EMEA in what is typically a seasonally strong quarter.

We expect adjusted EBITDA to benefit from higher volumes, backlog conversion, and lower operating costs. At the same time, gross margins will continue to face pressure from material inflation and elevated freight costs.

While we are actively managing part availability constraints and executing cost-out initiatives across the business, we now expect inflationary pressures to remain higher than previously anticipated and not be fully offset.

These factors continue to impact plant efficiency and fixed cost absorption. Despite these headwinds, we believe we can manage through them with minimal impact to our fourth quarter performance.

Our outlook also includes contingency. The key variables to achieving Q4 are the pace of backlog conversion as parts availability improves and the recovery in EMEA orders.

Even with a moderate shortfall in both, we would expect to remain within our guidance range. With that, I'll turn it back to Dave.

David Huml

Thanks, Fay. Before we take questions, let me close with 3 key points. First, the third quarter delivered the progress we committed to: strong orders, record third-quarter sales, a return to organic growth, and meaningfully better margins.

Second, ERP has moved from recovery to optimization, and our focus is now on capturing the benefits of that investment.

And third, robotics is accelerating with revenue up 71% and a portfolio that now reaches new applications and price points. We also recognize that not everything is where we expect it to be yet, Asia Pacific, EMEA orders and operating leverage.

We have actions underway in each area. As we look to 2027, our priorities are converting our order momentum into growth, capturing ERP efficiencies to drive operating leverage, and scaling robotics. We'll share our 2027 outlook when we report fourth quarter results.

With that, we'll open the call to questions. Operator, please go ahead.

Operator

[Operator Instructions]

Your first question comes from the line of Aaron Reed with Northcoast Research.

Preguntas y respuestas

Aaron Reed

Great quarter. I was happy to see it. My question for you is that the gross margin recovery seemed to have come ahead of expectations.

I was wondering if you could just review that beat? And how much of that underlying 230 bps decline do you expect to recover in Q4 as parts availability improves?

Fay West

So when you look at third-quarter margin, there's a big impact in the quarter from tariffs and the refunds from tariffs. And so on a more normalized basis, it's roughly 40.4% gross margin, which is a little bit higher than what we had initially anticipated.

When we look at the drivers for that, it's primarily price realization coming through differentially in both North America and EMEA. So that's the biggest driver of the beat here in the quarter.

Aaron Reed

And then the other question I had is: of the under-absorption and product inefficiency drag, how much of that is ERP-related versus supplier part shortages?

And when do you expect North America manufacturing to return to a normal run rate?

David Huml

Yes. Thanks for the question, Aaron. Let me expand a bit and talk a little bit about ERP more broadly. We've given ERP a lot of airtime over the last several quarters, understandably so given the impact it's had on our ability to operate.

When we think about the ERP-related inefficiencies in Q3, they're much lower than they were in prior quarters, lower than Q2. And I would point to the gross margin impact.

In the first half, it was around $10 million. In Q3, it was around $2 million, and we expect Q4 to be $2 million or less. So we're clearly driving greater throughput at better margins as it relates to ERP efficiencies.

It's becoming increasingly difficult to assign our challenges specifically to ERP-related issues versus forecasting issues. Our incoming order demand is very robust, and we've got some forecasting challenges.

We didn't see it coming in all instances, and the mix of our business is coming differently than we expected. So when I think about ERP specifically in your question, how much of the -- I'm going to call it margin impact was assigned to ERP.

The majority of what we saw in the quarter and what we're dealing with is the residual impacts of challenges we had in the ERP in Q1 and Q2. And we talked about these in prior calls.

We had 2 major issues I would point out. One is around the demand signals that we put on our supply base were either incorrect, short or 0, which results in us having to scramble and expedite to get parts in to meet our incoming demand.

So you're seeing that come through in terms of expedited freight and inefficiency through lost production time where we didn't have parts to run the plant.

The other residual impact we're dealing with is around invoicing issues that we had in the first half of the year that created AR collection issues. With our customers, invoices either didn't go out, weren't received by our customer, and turned into a dispute or a situation to be resolved from a collections perspective.

Both of those issues have been corrected, but the residual impact of the part shortages and the AR issues are still being managed and showing up in our financials as we came through the quarter.

We expect those to continue to reduce in terms of impact, and we're working hard to make sure that we're closing those gaps.

Looking forward, I think you're asking how we should think about ERP-related issues as we move through Q4 and into 2027.

We're really focused on 4 key areas. Around ERP-related productivity or inefficiency issues. One is in our extended warehouse management, and this is the part of the system that allows us to manage incoming parts, plan for parts, receive parts, and move parts from the warehouse to the line.

So there's a body of work going around adopting the new system and process around extended warehouse management. I mentioned earlier our invoicing and the collections challenge.

We've got some work going on there to improve our invoicing practices to reduce the collections challenges downstream. Our customer master data: we're operating at an elevated expectation for the integrity of our data and stronger governance around our customer master data, and more work to be done there.

And then we're transitioning our long-term support model from an IT perspective with closer linkage to the business to make sure that the priorities that we're addressing are the ones most urgently required by the business to serve the customer and deliver on our financial commitments.

So we're focused on the right areas. I've said it before; I said in the script, we've largely insulated the customer from the direct impact of our ERP challenges and inefficiencies.

We're working through the residual impacts in Q3. We expect those to be lower in Q4 and eventually be very difficult to describe a specific impact to. And so we expect to be candidly, as we move through Q4 and 2027, I don't expect to be talking much about ERP in terms of either the cost impact on the COGS line or the project cost impact to the business.

Aaron Reed

So it sounds like the short version is almost -- The vast majority of it is behind you, and this is probably one of the best times you have a really good, clear visibility into the future. Is that an accurate but wildly oversimplified version of that?

David Huml

Wildly oversimplified, but accurate. We've got our arms around where we want to continue to drive efficiency and productivity.

We see the P&L financial impact continuing to reduce quarter-over-quarter. And so we're getting to work to right the ship fully. And actually, it's worth noting the target is not just to get back to pre-go-live efficiency and productivity.

It's to capture the full efficiency we envisioned when we made the investment. And so we'll continue to focus on that as our ultimate goal as we work through the residual impact and the remaining challenges relative to the ERP system, our processes, and change management.

Operator

Your next question comes from the line of Steve Ferazani with Sidoti.

Steve Ferazani

I appreciate all the detail on the call; a lot of numbers. I did want to ask because your EBITDA margin, even with some of the numbers you walked through, is still massively ahead of what we were thinking.

And I'm looking at the S&A line. I know we've talked about carrying some extra contracted IT professionals to manage through this. But that number is even lower.

I'm just trying to think: are there some lower LTI accruals in this quarter that drove that, because that's way lower than we were thinking.

Fay West

Yes. I think when we talked last quarter, we had said that second half S&A would look pretty comparable to first half S&A. There is some LTI accrual adjustment coming through in the quarter that is impacting this quarter's results.

Steve Ferazani

In terms of component availability, you walked through some of the risks to hitting the full-year targets.

Can you give us a little more color on component availability and the potential impact on the robotics rollout given that you have a lot of products coming out? It looks like really strong demand drives the growth.

How much you're managing and the challenges around component availability?

David Huml

Yes. Broadly speaking, our parts shortages are easing. They're not completely recovered, but they're easing.

We saw a significant impact in Q3 from parts shortages driven by the factors we've talked about in the past. And robotics has not been immune to those challenges, not only in the components you would expect, but also beyond the sensing and the compute components that enable robotics and autonomous navigation.

So we're actively managing part shortages across the entire network. We've seen easing and an extended line of sight to having the parts to meet our production demand, but we're not completely out of the woods yet.

Steve Ferazani

Turning to robotics. I've got to say I didn't have the P1 back on my bingo card for product rollouts. I actually had to go back to your website because I didn't even realize you sold vacuums.

To be honest, I've covered you for so many years. How did this end up in the product lineup? Does this grow your addressable market? Because it seems like it's going to serve a lot of markets that maybe weren't bigger for you previously.

David Huml

Yes. So we don't fully disclose our new product roadmap for obvious reasons, but this space has always been on our roadmap to evaluate and address.

The team has been working over the past kind of year to 15 months to begin by understanding the market, the customer application, the expectations. And then I think what's really interesting and compelling about the P1 back, a, it's our first vacuum.

But b, when we fully scoped the market opportunity and what position we wanted to occupy in that space, we then did a really robust evaluation around how we would bring that product to market.

We're rather open-minded about having to build it ourselves, borrowing it, or buying it. And we landed in a really good place. We've got a product that meets the customers' expectations for the application as well as the value proposition that allows us to compete profitably.

Importantly, this class of product is primarily sold or largely sold through distribution channels. So we had to build a product that was capable of being reliably sold and profitably sold through that channel, and one that we could support with our ecosystem support.

So we're excited about it. I think that the opportunity has always existed. We chose to focus elsewhere with our more recent product introductions that we've talked about.

This one was always on the roadmap, and the team found, I think, a really innovative, creative way to bring it to market. We're excited to get it out and launched.

Early returns are really good. And this plays at the lower end of the market. If you think about vacuuming as less sophisticated than scrubbing. It's more of a value price point and a differentiated expectation for performance and reliability and life and ease of use; as I mentioned, it goes through distribution as well.

I think the best way to learn the market is to actually be participating in it. So we were able to get to market with a product that meets the customers' needs in a less capital-intensive way and very quickly.

We're out in the market now after kind of a highly accelerated development time. So we're excited to get it in the market and see what feedback we get from customers around the world.

Steve Ferazani

When you're thinking about a product like this, how much of this is additional selling to customers that you've served with hard floors, now you're trying to serve soft floors versus brand-new customers that you've never serviced before?

David Huml

Yes. Great question. Time will tell. Obviously, we're going to start with customers we already have a relationship with who have chosen the Tennant value prop, whether that be in non-robotic or robotic equipment.

We do think there's significant opportunity in vacuuming with new customers, especially in this form factor and at these price points. And these are markets and floor types and floor spaces that are typically served by distribution.

So by bringing the product to market through distribution channels, we think we can reach new applications, new customers.

Steve Ferazani

Excellent. Last one, if you can just remind us of the cadence of initial deliveries with the last 3 products, when we should start seeing them in your P&L, I guess, the X2, X16, and now the P1 back.

David Huml

Yes. So we've done a good job of launching the product to market before and taking orders before we actually ship. So let me see if that makes sense.

We announced the X2 and X16 in Q3; X2 started shipping in Q3, and X16 started shipping here now in Q4. P1 was on the October launch and started shipping in Q4.

Steve Ferazani

So, the quarter we're in?

David Huml

Correct.

Steve Ferazani

Excellent. So that's real fast.

David Huml

Yes. That, I think, is a proof point of why we stood up the robotics center in terms of bringing new products to market at the speed of the market. I think P1, X2, and X16 are all important proof points.

Operator

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

Lorenzo Bassi

Thank you, operator. Thank you all for your time and attention today, and I hope you have a great day.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.