TENNANT CO (TNC)

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides a comparison of the Company's results of operations, as well as liquidity and capital resources for the quarters ended June 30, 2026 and 2025. The MD&A should be read in conjunction with the Company's consolidated financial statements and notes included in Item 1 of this Quarterly Report. Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including financial measures that are not defined under generally accepted accounting principles (GAAP) in the U.S. Net sales excluding foreign currency translation (i.e., organic sales) is not a measure of financial performance under GAAP; however, the Company believes it is useful in understanding its financial results and provides comparable measures for understanding the operating results of the Company between different periods.

Overview

Tennant Company is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions. Our products are used in many types of environments, including retail establishments, distribution centers, factories and warehouses, public venues such as arenas and stadiums, office buildings, schools and universities, hospitals and clinics, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.

Macroeconomic Events

As a global company, we are exposed to risks and uncertainties arising from macroeconomic, geopolitical, and regulatory conditions, including inflationary pressures, interest rate volatility, foreign currency fluctuations, changes in global capital markets, supply chain conditions, and evolving international trade and tariff policies. These factors continue to influence our operating environment and may impact revenue growth, margins, liquidity, and the execution of our strategic initiatives.

During the second quarter of 2026, geopolitical conflict involving Iran and heightened tensions in the Middle East remained volatile but did not materially escalate from levels experienced earlier in the year. These developments continued to create uncertainty in global energy markets, transportation routes, and supply chains, and contributed to freight and material cost pressure during the quarter.

Inflationary pressures remained elevated in many markets, varying by region and cost category. In EMEA, particularly Europe, economic conditions remained mixed, with lower equipment volumes in certain markets, export softness impacted by geopolitical developments in the Middle East, and competitive price concessions contributing to margin pressure. We also continued to experience input cost pressure, including tariff-related material cost pressure in the Americas.

We continue to implement cost management and productivity initiatives to mitigate these impacts and are actively monitoring customer demand, supply chain conditions, sourcing strategies, input costs, foreign currency movements, and the broader macroeconomic environment. While certain macroeconomic pressures, including energy costs and broader inflation indicators, moderated late in the quarter, ongoing geopolitical, regulatory, and trade-related uncertainty may continue to impact our business, financial condition, and results of operations.

Backlog remained elevated, reflecting increased demand and future-ship orders that outpaced material availability and supplier responsiveness. The ongoing stabilization of the North America ERP implementation also affected planning, production flow, and order fulfillment. The timing and pace of backlog reduction remain subject to supplier performance, long lead-time components, changes in customer demand, and continued execution of our optimization efforts.

As described in Part I, Item 1A - Risk Factors in the annual report on Form 10-K for the fiscal year ended December 31, 2025, we may encounter financial difficulties if the United States or other global economies

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experience an additional or continued long-term economic downturn as our product sales are sensitive to declines in capital spending by our customers. Any sustained adverse impacts to our business, the industries in which we operate, market demand for our products, and/or certain suppliers or customers may also affect our future results of operations, financial position, or cash flows. Changes in foreign currency may also adversely impact our net sales, earnings, and financial condition. We are actively monitoring the global macroeconomic environment, including geopolitical conflict, the potential impact of global supply chain constraints on material inflation, and changes in demand for our products.

Tariffs

On February 20, 2026, the United States Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act (IEEPA). Following the decision, the U.S. presidential administration announced new temporary tariffs based on different statutory authority for a 150-day period beginning February 24, 2026. These actions, together with ongoing legal and administrative developments related to the refund process for previously paid IEEPA tariffs, have continued to create uncertainty regarding tariff levels, duration, refund eligibility, and the potential for additional actions or retaliatory measures.

During the second quarter of 2026, we submitted claims seeking refunds of certain previously paid IEEPA tariffs. As of June 30, 2026, these claims had not been approved, and we had not recognized any benefit related to potential tariff refunds in our consolidated financial statements. The availability, timing, and amount of any refunds remain uncertain and subject to further legal, administrative, and governmental processes.

We continue to monitor developments in U.S. and international trade policy, including the status of temporary tariffs, tariff refund procedures, potential replacement measures, and retaliatory actions. We are also continuing to evaluate mitigation strategies, including sourcing, supply chain, pricing, and other commercial actions, to reduce the potential impact of tariffs on our business, financial condition, and results of operations.

Outlook

The Company continues to operate in a dynamic macroeconomic environment characterized by elevated input costs, uncertainty in global trade and tariff policy, foreign currency volatility, and geopolitical developments that may affect energy, freight, and logistics costs. During the second quarter, these pressures remained mixed across regions and cost categories, with continued freight and material cost pressure associated with geopolitical developments in the Middle East. The operating environment remains uncertain and continues to require disciplined execution and active cost management, though the Company may not be able to fully offset all cost increases through pricing actions, productivity initiatives, and other mitigation efforts.

Customer demand and order activity remained generally constructive, primarily driven by activity in the Americas, supported by our broad portfolio of products and solutions, core end-market demand, and continued interest in robotic and autonomous cleaning solutions. However, second quarter results reflected continued margin pressure and lower profitability compared to the prior-year period, driven by inflationary pressures, volume and mix, operational inefficiencies, and pricing and volume deleverage in EMEA.

The North America ERP platform continued to affect operational efficiency during the second quarter, as targeted productivity gains and cost efficiencies have taken longer to realize than expected. The Company incurred incremental support and technology-related costs to address process and system gaps. Management remains focused on optimizing the platform, improving execution and fulfillment, and accelerating realization of the expected productivity and operating leverage benefits.

While fiscal year 2026 remains a transition period, we believe the fundamentals of the business remain sound. The Company continues to invest selectively in strategic growth initiatives, including robotic and autonomous cleaning solutions, while maintaining a disciplined approach to spending, liquidity, working capital, and capital allocation. We believe these actions support the Company’s ability to improve operating performance over time, although the timing and pace of improvement will depend on execution, customer demand, and the broader macroeconomic environment.

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Results

The following table compares the results of operations for the three and six months ended June 30, 2026 and 2025, respectively (in millions, except per share data and percentages):

Net Sales

Consolidated net sales for the second quarter of 2026 totaled $324.0 million, a 1.7% increase as compared to consolidated net sales of $318.6 million in the second quarter of 2025. The components of the consolidated net sales change were as follows:

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ITEM 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") provides a comparison of the Company's results of operations, as well as liquidity and capital resources for the years ended December 31, 2025 and 2024. The MD&A should be read in conjunction with the Company's consolidated financial statements and notes included in Item 8 of this Annual Report. Throughout this MD&A, the Company refers to measures used by management to evaluate performance, including financial measures that are not defined under generally accepted accounting principles ("GAAP") in the U.S. Net sales excluding foreign currency translation (i.e., organic sales) is not a measure of financial performance under GAAP; however, the Company believes it is useful in understanding its financial results and provides comparable measures for understanding the operating results of the Company between different periods.

The year-over-year comparisons in this MD&A are as of and for the years ended December 31, 2025 and December 31, 2024, unless stated otherwise. The discussion of 2023 results and related year-over-year comparisons as of and for the years ended December 31, 2024 and December 31, 2023 are found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Form 10-K for the year ended December 31, 2024.

Overview

Tennant Company is a world leader in designing, manufacturing and marketing solutions that help create a cleaner, safer, healthier world. The Company is committed to creating and commercializing breakthrough, sustainable cleaning innovations to enhance its broad suite of products, including floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions. Our products are used in many types of environments, including factories and warehouses, distribution centers, office buildings, public venues such as arenas and stadiums, schools and universities, hospitals and clinics, and more. Customers include contract cleaners to whom organizations outsource facilities maintenance as well as businesses that perform facilities maintenance themselves. The Company reaches these customers through the industry's largest direct sales and service organization and through a strong and well-supported network of authorized distributors worldwide.

Macroeconomic Events

As a global company, we continue to be exposed to risks and uncertainties stemming from macroeconomic and geopolitical conditions. These factors include inflationary pressures, interest rate volatility, foreign currency exchange rate volatility, changes in capital markets conditions, and shifts in international trade policy. Collectively, these conditions create a dynamic operating environment that may affect the Company’s ability to drive growth, restore margins, and advance its transformation initiatives

While overall inflationary pressures have generally moderated, the Company continues to experience a more concentrated and direct impact on the cost components of its products, which remain significant to its cost structure. Changes in trade policy, particularly tariffs, pose a significant risk to our operations. Tariff increases, changes to trade agreements, or potential retaliatory actions could raise supplier costs, weaken demand, and disrupt the Company’s operations. The Company has implemented, and expects to continue implementing, pricing actions, cost management initiatives, and supply chain measures to mitigate these pressures; however, such efforts may not fully offset the impact.

Global geopolitical instability continues to contribute to economic and operational uncertainty. Ongoing conflicts in Ukraine and the Middle East, rising tensions involving China and Taiwan, and the possibility of escalation in regions where the United States may be involved have increased the risk of wider economic disruption. These developments could result in supply chain volatility, logistics constraints, higher input costs, and changes in customer purchasing behavior. The timing, duration, and severity of these potential effects are uncertain and difficult to predict.

Demand trends across our major markets were mixed throughout the year. In China, after a period marked by uneven economic recovery and pricing pressure, organic growth returned late in the year. In EMEA and the broader APAC region, organic growth also improved in the latter part of the year, reversing earlier declines and

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reflecting resilience in select markets and effective responses to customer needs despite ongoing macroeconomic and competitive pressures.

Enterprise Resource Planning (ERP) System Implementation

In the first week of November 2025, the Company went live with the ERP system in its largest region, North America. The transition introduced unexpected challenges that constrained operating capacity post go-live, including order‑management and fulfillment disruptions, manufacturing scheduling issues, and reduced inventory visibility, particularly within Parts & Consumables and Service. The system transition also resulted in the loss of three weeks of machine order entry and parts shipping capability, as well as contributing to slower transaction processing and prolonged customer delays.

In response, the Company deployed cross‑functional recovery teams, implemented manual and system‑based workarounds, increased on‑site support, and adjusted production scheduling. Although December showed improvement as our mitigation efforts took hold, we were unable to fully offset the impact of the November disruptions.

While primary system issues have been addressed, certain customer‑related impacts and incremental support needs continued into early 2026, and we expect some temporary inefficiencies to persist as teams acclimate to the new platform and as optimization efforts continue.

See the "Risk Factors" section in Part I, Item 1A of this Annual Report for further discussion of the possible impact of the above conflicts and macroeconomic events on our business and financial results.

Outlook

The Company expects the macroeconomic and demand environment in 2026 to generally reflect the conditions experienced during 2025. Tariff‑related cost increases and inflationary input costs are expected to remain key elements of the cost structure. The Company has implemented targeted pricing and cost‑out initiatives intended to moderate these impacts, though the timing and magnitude of benefits may vary.

Following the North America ERP implementation in late 2025, certain operational inefficiencies and elevated support needs are expected to persist into the second quarter of 2026. As part of broader system‑stabilization efforts, the Company conducted a comprehensive physical inventory that required a two‑week shutdown of manufacturing operations in early January, which is expected to weigh on first‑quarter sales and costs. The Company also anticipates continued operating inefficiencies during the early stages of system stabilization, resulting in higher costs and margin pressure, most notably in the first quarter. As stabilization progresses and processes mature, the Company expects to transition toward a more normalized operating rhythm by mid‑year.

While these factors may influence near‑term results, operating margins are expected to improve through 2026 as ERP stabilization advances and as the cumulative benefits of pricing actions, cost‑management measures, and supply‑chain initiatives are realized. Margin performance is expected to strengthen gradually over the course of the year, with first‑quarter margins anticipated to be generally consistent with levels experienced in the fourth quarter of 2025 and improving thereafter as operational efficiency increases. The Company also expects ongoing margin pressure from tariffs implemented in the second half of 2025. To help offset these impacts, it has taken targeted actions across its supply chain and commercial pricing processes.

Additionally, the Company continues to invest in strategic priorities that support long‑term growth and competitiveness, including the ongoing expansion of its robotics portfolio and autonomous solutions.

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Historical Results

The following table compares the historical results of operations for the years ended December 31, 2025 and 2024 in dollars and as a percentage of net sales (in millions, except per share amounts and percentages):

Net Sales

Consolidated net sales in 2025 totaled $1,203.5 million, a 6.5% decrease as compared to consolidated net sales of $1,286.7 million in 2024. The components of the consolidated net sales change were as follows:

The 6.5% decrease in consolidated net sales was driven by:

•Organic sales decline of 7.3% primarily due to volume declines in North America, which lapped a significant backlog-reduction benefit in the prior-year period and was affected by transitional impacts related to the new ERP implementation. These factors were partly offset by price realization in the Americas and EMEA;

•A net favorable impact from foreign currency exchange of approximately 0.7% primarily due to the strengthening of the Euro relative to the U.S. dollar; and

•Acquisition-related growth of 0.1% driven by TCS.

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The following table sets forth annual net sales by geographic area and the related percentage change from the prior year (in millions, except percentages):

Americas

Net sales in the Americas were $792.0 million in 2025, a decrease of 10.9% from 2024 driven by:

•Organic sales decline of 10.5%, primarily due to volume declines in North America, as a result of lapping a significant backlog-reduction benefit in the prior-year period, order fulfillment disruptions associated with our fourth quarter 2025 ERP transition, and softer underlying demand primarily in industrial equipment in the second half of 2025. This was partially offset by price realization; and

•A net unfavorable impact from foreign currency exchange of approximately 0.4%.

Europe, Middle

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