テナント（TNC）2026年第3四半期決算説明会：ロボティクス売上高が71%急増

要点

• テナント・カンパニー（NYSE: TNC）が発表した第3四半期の売上高は前年同期比6.2%増の3億2,230万ドルとなり、過去最高を記録しました。オーガニック売上高は、販売量の増加が4.1ポイント、価格調整が1.6ポイント寄与し、5.7%増加しました。
• 受注は9.5%増加し、特に北米市場では18%増となりました。第3四半期末時点の受注残高は前四半期比で900万ドル減少したものの、1億1,800万ドルと引き続き第4四半期の見通しを支える水準を維持しています。
• ロボティクス関連の売上高は前年同期比71%増の3,700万ドルへ急増しました。年初来のロボティクス売上高は9,530万ドルに達し、すでに2025年通期の総売上を上回っています。
• 調整後EBITDAは4,880万ドル（売上高比15.1%）でした。約610万ドルの関税還付金を除いた調整後EBITDAは約4,270万ドルで、マージンは13.2%でした。
• ERP（基幹業務システム）導入に伴う売上原価の非効率による影響額は、上半期の約1,000万ドルから第3四半期には約200万ドルへと縮小しました。経営陣は第4四半期の影響額を200万ドル以下と見込んでいます。
• テナントは2026通期の業績予想を据え置き、売上高を12億7,000万〜13億1,000万ドル、調整後EBITDAを1億5,500万〜1億7,000万ドルと改めて見込んでいます。

主要財務データ

事業および業績の動向

北米市場が引き続き主要な成長ドライバーとなりました。オーガニック売上高は8.6%増加し、同地域の受注は18%増加しました。成長は産業用および業務用機器全般に及び、ロボティクス分野が牽引したほか、サービス収入や「X2」「X16」などの新製品も寄与しました。

EMEA（欧州・中東・アフリカ）地域のオーガニック売上高は2.3%増となり、価格調整がプラスに転じたことで2026年で最高の四半期実績を記録しました。しかし、8月以降に需要が減速した影響で受注は9%減少しました。テナントは価格規律を維持しつつ、案件パイプラインの再構築を目指しています。

APAC（アジア太平洋）地域のオーガニック売上高は4.8%減少したものの、受注は7%増加しました。経営陣は、中国、オーストラリア、東南アジアの一部における需要の伸び悩み、ディストリビューターの在庫高止まり、商談化の遅れを要因として挙げています。同社は中国国内における事業戦略の再評価を進めています。

機器販売は、北米における製品出荷量の増加とロボティクス分野に牽引され7.8%増加しました。部品・消耗品事業の売上高は6.3%減少した一方、サービス・その他部門の売上高は17.3%増加しました。サービス・その他部門の成長のうち、約60%を自動化製品（Autonomy）関連が占めました。

ロボティクス事業の拡大

第3四半期のロボティクス売上高は前年同期比71%増の3,700万ドルに達し、「X4」および「X6」が新規顧客ならびに従来モデル（Gen 2プラットフォーム）からの移行需要を牽引しました。同社は2026年通期のロボティクス売上高を1億3,000万〜1億4,500万ドルと見込んでおり、2028年までに2億5,000万ドルを目指す目標を維持しています。

テナントはBrainCorpとの次世代ロボット床洗浄機に関する独占契約を3年間延長し、24ヶ月以内に10製品を市場投入する計画通りに進展していると述べました。「X2」は第3四半期に出荷が開始され、「X16」および「P1 VAC」は第4四半期に出荷が開始されました。

新登場の「Pシリーズ」は、資本集約度の低い受託製造と代理店チャネルを活用することで、より価格感応度の高い顧客層をターゲットとしています。「P1 VAC」はテナント初となる自律型ロボット掃除機であり、ソフトフロアの清掃分野へと製品ラインナップを拡充します。

ERP導入トラブルの正常化

経営陣は、最悪のERP導入問題は脱したと述べています。売上原価におけるERP関連の非効率によるコスト影響は、上半期の約1,000万ドルから第3四半期には約200万ドルへと縮小しました。

残された課題は、倉庫管理、請求・回収業務、顧客マスターデータ管理、および長期的なITサポート体制への移行が中心です。なお、テナントは予定していたEMEA地域でのERP展開を見送り、北米プラットフォームの最適化を図るとともに、より小規模なシステム改修とデータ品質の改善に注力することを決定しました。

経営陣の見通し（ガイダンス）

テナントは以下の2026通期業績予想を再確認しました。

中間値で見ると、この予想は第4四半期の売上高が約3億4,600万ドル、調整後EBITDAが売上高比約14%に当たる約4,900万ドルになることを示唆しています。経営陣は前四半期比での増収分の約半数を受注残高の売上化が占め、残りは新規受注とEMEA地域の季節的な需要回復によってもたらされると予想しています。

同社は販売数量の増加、受注残高の売上化、および営業費用の削減が第4四半期のEBITDAを支えると見込んでいます。ただし、原材料インフレや高水準の物流コストは従来予想よりも高止まりする見通しであり、コスト上昇分を完全に相殺することはできない見込みです。

リスク要因および注視すべき点

• 部品調達の状況は改善しつつあるものの、完全には正常化していません。依然として部品不足が生産効率、固定費の吸収、およびロボティクス用コンポーネントの調達に影響を与えています。
• 経営陣が一部中東情勢の緊迫化に起因するとみている原材料や物流のインフレは、引き続き売上総利益率の圧迫要因となっています。
• 第4四半期の業績は、受注残高の売上転換ペースとEMEA地域での受注回復に部分的に依存しますが、経営陣は両者が若干下振れたとしても通期ガイダンスの範囲内にとどまると述べています。
• APAC地域の需要は引き続き低迷しており、複数の市場でディストリビューターの過剰在庫や商談化の遅れが見られます。
• 売上債権は2億9,170万ドルに増加しました。これは主に北米でのERP導入に伴う回収タイミングの影響によるものです。回収の加速が第4四半期の最優先事項となっています。
• 棚卸資産は、ロボティクス生産用部材の確保、物流パートナーでの在庫、および原材料コストの上昇を反映し、2億1,320万ドルに増加しました。

アナリスト質疑応答の主なポイント

経営陣は、標準化後の売上総利益率が予想を上回った主な要因として、北米およびEMEAでの価格浸透を挙げました。一部で部品不足や売上債権の回収遅延といった問題は残るものの、ERP関連のコスト圧迫は引き続き縮小し、第4四半期の影響額は200万ドル以下に抑えられる見通しです。

コンポーネントの調達状況について、経営陣は不足傾向が緩和され、生産計画の見通しが向上したと述べました。一方、ロボティクス分野ではセンシングやコンピューティングなどの各種コンポーネントで一部供給の制約が発生しています。

経営陣は、「P1 VAC」によってテナントの対応可能な用途範囲が広がり、既存顧客のみならず販売代理店を通じた新規顧客への訴求が可能になると述べました。また、受託製造モデルの採用により、資本投入を抑えつつ迅速に市場へ参入することが可能となりました。

また、同社は長期インセンティブ引当金の調整により、第3四半期の販売費及び一般管理費が減少したことを確認しました。

決算説明会 文字起こし全文

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決算説明会の完全なトランスクリプト

経営陣による説明

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.

質疑応答

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.