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Fay West

Thank you, Dave, and good morning everyone. In the Fourth Quarter of 2024, Tennant delivered GAAP net income of $6.6 million compared to $31 million in the prior year period.
Full year 2024 GAAP net income was $83.7 million compared to $109.5 million in 2023. Focusing on the full year performance, net income benefited from a 3.5% increase in net sales and an improvement in gross margin.
However, results were impacted by higher R&D costs due to increased investment in new product development, which supports our long-term growth initiatives. Operating expenses also rose year over year and included costs associated with our ERP modernization project, transaction and integration-related costs, restructuring related charges, and legal contingency costs.
Let me provide a little color on these costs which we have classified as non-GAAP.
Regarding our ERP project in 2024, we invested approximately $37 million in the design and build phase of this project and successfully completed our 2024 milestones, of this amount, $14 million was expensed and reflected in the P&L, and $23 million was capitalized. We are well positioned for the next phase of this critical project and are excited about the operational efficiencies that this project will unlock.
In 2025 we will begin a staggered go live of the ERP implementation and we'll make the necessary investments to limit business disruptions throughout the year. Additionally, as part of our enterprise strategy to drive efficiency, manage costs, and increase productivity, we executed a global workforce reorganization which resulted in an $8.2 million restructuring charge in 2024.
We expect to save about $10 million annually from these actions beginning in 2025. Our 2024 results also include a legal contingency expense.
In November 2024, we received an adverse jury verdict related to an intellectual property dispute. The dispute involves a plaintiff alleging that Tennant infringed a patent through its manufacture and sale of the EC Water option on commercial floor scrubbers sold between 2015 and 2023.
A jury ruled against Tennant and awarded $9.8 million in damages plus prejudgment interest of $4.7 million to the plaintiff. We strongly disagree with this verdict and are exploring all available options, including seeking to overturn the verdict and the resulting judgment through an appeals process. This ruling does not impact our ability to sell any of our products and is not expected to affect our long-term financial performance.
When excluding non-GAAP costs, adjusted EPS for the full year 2024 was $6.57 cents per diluted share, flat compared to the prior year. Looking beyond operating income, interest expense decreased due to lower interest rates. Our average interest rate, net of hedging for the full year 2024, was 4.6% compared to 5.3% in the prior year.
Our effective tax rate was 20.1% for the full year compared to 11.6% in 2023. The increase in the effective tax rate was primarily driven by the value of certain non-cash discrete items in each period, which will not reoccur in the future years. Absent these items, the effective tax rate for each period would have been approximately 24%.
Looking a little more closely at our quarterly results for the fourth quarter of 2024, consolidated net sales totalled $328.9 million a 5.6% increase compared to $311.4 million in the fourth quarter of 2023. On a constant currency basis, organic sales increased 6.3%. Approximately 90% of the year over year growth was attributed to volume, while the remaining 10% was driven by pricing.
Overall, we delivered 7.2% growth in equipment sales and 6.8% growth in service revenue in the fourth quarter of 2024 as compared to the prior year.
Turning to the geographic breakdown. Organic sales in the Americas increased 10% compared to the prior year period. The increase in the Americas was driven by volume and price growth in both North America and Latin America.
Volume growth was the primary driver, contributing 9% growth compared to 1% growth from price realization. Organic sales increased 4% in EMEA, primarily driven by growth in all product categories, and organic sales decreased 19% in APAC.
Adjusted EBITDA for the fourth quarter of 2024 was $47.4 million up $5.9 million compared to the prior year period.
Adjusted EBITDA margin increased 110 basis points to 14.4% of sales. Adjusted gross margin decreased 90 basis points to 41.3% in the fourth quarter due to inflationary pressure on materials as well as elevated freight costs.
Adjusted S&A expense decreased $3.1 million in the quarter, driven primarily by lower variable compensation as a percent of net sales, adjusted S&A improved 250 basis points to 27.4% compared to 29.9% in the prior year period.
Moving on to full year results. For the 12 months ended 2024, consolidated net sales were $1286.7 million a 3.5% increase compared to the $1243.6 million in 2023. On a constant currency basis, organic sales increased 3.2%. Approximately 80% of the year over year growth was attributable to pricing, while the remaining 20% was driven by volume.
We drove 4.2% growth in equipment sales and 8.5% growth in service revenue in 2024 compared to 2023. Parts and consumable sales were down 1.9% year over year in part due to the unfavourable impact of distributor consolidations during the year.
Turning to the geographic breakdown, In 2024, net sales in the Americas increased 5.7% over the prior year, or a 6.3% increase on an organic basis. The increase in net sales was driven by a relatively even split between volume and price. Volume growth across the region was generated primarily from our commercial equipment sales, while volume growth in our industrial equipment was flat.
Net sales in EMEA increased 1.3% primarily due to the acquisition of TCS, which contributed 2.6% of inorganic net sales growth. Organic net sales declined 1.6% due to lower volumes in both equipment sales, parts, and consumables, partially offset by price realization in all product categories.
The mail volumes were impacted by weaker than expected market conditions and a smaller contribution from backlog reduction in the current period. Net sales in the Asia Pacific region decreased 10.3% or 9.5% on an organic basis. This was driven primarily by volume declines in China and Australia, partially offset by price growth in Australia.
Turning to Adjusted EBITDA for the full year 2024 was $208.8 million an increase of $15.9 million versus the prior year. The improvement in adjusted EBITDA was primarily due to strong sales growth driven by both price and volume, specifically in the Americas.
Adjusted EBITDA margin was 16.2% in 2024, a 70 basis point increase over the prior year, and benefited from operating leverage driven by sales growth.
Full year 2024 adjusted gross margin increased to 42.7%, a 20 basis point improvement compared to 2023. Our margin profile for the full year 2024 was impacted by shifts in our geographic, product, and customer mix.
Our pricing and cost out initiatives more than offset the impact of inflation for the full year of 2024. Adjusted S&A expense of $352.1 million increased $3.3 million compared to 2023, primarily due to higher compensation and benefit expense associated with an increase in headcount. This was partially offset by lower variable compensation in 2024.
Adjusted S&A expense as a percentage of net sales improves 60 basis points to 27.4% in 2024. The S&A leverage benefit was primarily due to improved operating performance throughout the year.
Turning now to capital's deployment. Net cash provided by operating activities was $89.7 million in 2024 compared to $188.4 million in 2023, and we generated free cash flow of $68.8 million for the year. The decrease in cash provided was the result of working capital usage mainly related to inventories and $37.3 million for our ERP project.
Excluding amounts related to the ERP project; we converted 113% of net income to free cash flow in 2024. The company continues to deploy cash flow towards operational capital needs and to return capital to shareholders in line with its capital allocation priorities.
In 2024, we reinvested in our core business, investing $20.9 million in capital expenditures, returned capital to our shareholders with dividend payments of $21.4 million deployed $57.8 million to M&A, and repurchased approximately 200,000 shares of our common stock for $19.6 million.
As part of our commitment to deliver value to our shareholders, on February, 11, our board of directors authorized a new share repurchase program of 2 million shares of the company's common stock, In addition to the approximately 580,000 shares remaining under our current repurchase program.
Tennant's liquidity remains strong with a balance of $99.8 million in cash and cash equivalents as of the end of 2024 and $449.3 million of unused borrowing capacity on the company's revolving credit facility. Our net leverage was 0.48 times adjusted EBITDA, lower than our stated goal of 1 to 2 times. Thanks to our strong cash flow generation and disciplined capital allocation strategy.
We maintained our leverage and strengthened our balance sheet, paving the way for strategic acquisitions to be a growth opportunity going forward.
Moving to guidance, as Dave mentioned, we plan to build on our 2024 momentum to drive order growth in the 3.5% to 7% range, accounting for the impact of the 2024 backlog reduction headwind. This translates to a negative1% to negative4% organic sales decline in 2025. In addition to this organic sales decline, our net sales guidance also includes a foreign exchange impact of a negative 2% given the recent developments in the FX markets, particularly in Europe, Brazil, and China.
We anticipate a return to our historical quarterly sales seasonality patterns beginning in 2025 as our business will no longer be impacted by the elevated backlog levels of 2023 and 2024. This shift is expected to align our sales more closely with order demand.
Typically, the First quarter and the Third quarter of the year exhibit seasonally lower sales volumes. We will also focus on managing our costs both at the gross margin and the operating margin level. At the gross margin level, we anticipate favourable pricing actions and cost saving initiatives to drive expansion and outpace our inflation assumption of approximately 2% to 3%.
Our guidance does not anticipate any unforeseen incremental costs from tariffs, but we are taking all the necessary steps to minimize our exposure. At the S&A level, the strategic restructuring actions will provide approximately $10 million of savings to be used for strategic investments and to also help offset inflation.
We will remain disciplined and prudent in our spending, focusing our investments in the areas that position us for future growth, including R&D spending and increased operating efficiencies. We are also targeting 100% conversion of net income to free cash flow on a full year basis, excluding the impact of the ERP modernization costs, which we anticipate will be approximately $50 million in 2025.
We will continue our disciplined approach to allocating capital and maintaining a strong balance sheet.
For 2025, Tennant provides the following guidance net sales of $1210 million to $1250 million reflecting organic sales decline of negative1% to negative 4%. GAAP EPS of $3.80 cents to $4.30 cents per diluted share.
Adjusted EPS of $5.70cents to $6.20 cents per diluted share, which excludes ERP costs and amortization expense. Adjusted EBITDA in the range of $196 to $209 million. Adjusted EBITDA margin in the range of 16.2% to 16.7%. Capital expenditures of approximately $20 million and an adjusted effective tax rate of approximately 23% to 27%, which excludes an adjustment for amortization expenses. With that, I will turn the call back to Dave.

David Huml

Thank you, Fay. We have a few upcoming events if you wish to learn more about our company and the direction we are heading. In March, we will participate in two virtual investor conferences. The first on March,19 is hosted by Sidoti, and the second on March, 20 is hosted by CL King. With that, we will open the call to questions. Operator, please go ahead.

Question and Answer Session

Operator

Thank you, and we will now begin the question and answer session. (Operator Instructions)
Steve Ferazani, Sidoti and Company

Steve Ferazani

Morning everyone. I appreciate all the detail on the call covered an awful lot of ground, so I'll try to group my questions here because there's a lot to cover for sure. You talked quite a bit about expectations for 2025 margins.
Generally it's very hard to keep margins flat to even grow them in a declining revenue environment and we understand completely why the revenue is declining given the massive backlog conversion last year. That being said, your gross margin sequentially declined in the last three quarters.
But you're saying it could be flat to up in 2025. I'm just trying to figure out how you get there, given what have been clearly there's been inflationary pressures. There's been, you don't have the benefit of price realization from backlog conversion. I'm just trying to figure out how you're comfortable getting to that.

Fay West

Morning, Steve. This is Fay. So, from a margin perspective, we are taking action to manage costs both from a COGS perspective as well as from an S&A perspective. When we look at the gross margin line, we're anticipating expansion. In line with our long term targets of roughly 30 basis points, so that's kind of what we're anticipating in 2025.
When we look at kind of all of the components of gross margin, we think that that cost out initiatives that that have been very successful for us in the past as well as productivity initiatives that we've implemented will help offset inflation, more than offset inflation. And we also believe that our pricing, our realization, our pricing realization, which will be net of kind of any mixed impact that we might be anticipating will drive the gross margin expansion. So, those are the components as we're looking at that.

Steve Ferazani

Okay, and then that's the restructuring that's resulting in $10 million in cost savings, is that all out of SG&A?

Fay West

Some of it is, most of it is from S&A. There is some component that's coming from COGS as well, and so on a year over year basis we S&A is decreasing on an absolute spend so that you know year over year we're going to be reducing the spend, but we are deleveraging slightly in 2025 just given the top line performance. So, most of the EBITDA expansion will come from our from our gross margin line.

Steve Ferazani

Excellent, appreciate that. I, you may have said it. We covered a lot of you covered a lot of numbers. Did you give the 4Q order rates and after that if you could talk about trends in in the 1st month and a half of 2025?

David Huml

The order Rates for Steve I want to make sure we understand your question. Are you asking about rates in? And then.

Steve Ferazani

Then also, and then I asked on top of that, if you can give any kind of color on how the start of 2025 has been.

David Huml

Yeah, let me dimensionalize 2024 order rates, really proud of what the team accomplished, although the impact was somewhat muted with the backlog reduction benefit on top of it. But we were providing order rates in 2024 to give you a sense of the momentum we're building in the business.
So, after a pretty tough start to the year in 2024 and Q1, we delivered almost double digit order rates coming Q2, Q4. So, in each quarter, Q2, Q3 and Q4, we had about. Close to double digit order rates year over year.
We didn't specifically call out order rates in Q4, but suffice to say that as a result of executing our enterprise strategy, we've developed significant momentum coming through the second half of the year, and we exit the year of significant momentum in order rates driven by execution of our elevate strategy.
When you look at our guidance, and you know this, Steve, we have to overcome this mathematical headwind of the backlog reduction benefit. 24, but when you look at the midpoint of our guidance, we're going to drive 5% to 6% order rates in 2025 to deliver on our plan. And so we think the momentum that we generated in the second half of 2024 gives us confidence that we've got that we've got the right set of actions in place and we'll continue to execute against our growth strategies to deliver on that 5% to 6% order rate in full year 2025 to deliver on guidance.
I think it's Noting 5% to 6% order rates is above our 3% to 5% long term commitment for growth. And if you look back at 2024, absent the backlog dynamic, we would have grown at 6% sales if it, without backlog dynamic water rates at 6%, we would have put up a 6% growth here. So, I think it's a reason that we have confidence in our 2025 guidance and feel good about the set of actions that we're executing against for growth.

Steve Ferazani

That's great. If I could get one more in, it's just about the share purchase announcement last week. Typically, you've used the share or purchase just to offset dilution. This was a much bigger number. I mean it's more than 10% of your float. Can you just give us a sense of the strategy here? Is there a time limit on this? And how are you changing the way you think about the share or purchase moving forward?

Fay West

So there's no time limit on the share purchase and so if we just kind of look over the last few years, Steve, right, we've been in the market, every year since, 2021 and 2024, we repurchased roughly 770,000 shares, right, for roughly $60 million.
So, over that time period, we're 770,000 shares repurchased, we continue to repurchase shares in the market, and our primary focus is to offset dilution. But you know we can be opportunistic as well and you know the authorization allows us flexibility and gives us runway over the next few years in order to execute against that strategy.
Of course share repurchases are part of our overall capital. Allocation framework where we're balancing all of our capital priorities including returning shareholders returning value to shareholders via dividends, reinvesting in our business, maintaining kind of the right leverage, and also pursuing M&A, right? And so you know it's part of our playbook and gives us kind of the right runway.

Steve Ferazani

Your guidance for 2025, is that assuming you're just offsetting dilution, so any kind of strategic purchases could lift that EPS number?

Fay West

So, when we think about from a cash flow perspective, from a free cash flow perspective, kind of, how to how to utilize that cash, right, we're contemplating kind of right now, I mean right now just offset dilution is kind of our playbook, but we have the opportunity to pull that lever a little bit stronger if needed.

Steve Ferazani

Okay, Great thanks everyone.

David Huml

Thanks, Steve.

Operator

Thomas Hayes, CL King.

Thomas Hayes

Hey, good morning, Dave. Hey, I appreciate the color and congrats on a nice, fish of the year.

David Huml

Thanks Tom.

Thomas Hayes

Hey, Dave, I was just wondering, you provide a lot of color on geographic markets, maybe just your thoughts on the opportunities for you guys in the Asia Pacific markets in 25' after a kind of a challenging 24'.

David Huml

Yeah, thanks for the question. Happy to comment. It's certainly been a rough ride for us at APAC coming through 2024, and I want to pause and acknowledge the significant efforts of the team on the ground in those geographies in that region operating in a really challenging environment, a rapidly changing marketplace in China specifically that has required a significant amount of grid agility to manage through.
Our planning assumption heading into 2025 is not for recovery in China specifically, and we're sort of acknowledging. The reality on the ground that it will take a governmental action, governmental level action at a country level to right the ship and the China from a macro market perspective.
So, that's not something the tenant is likely going to be able to influence. Instead, we kind of, acknowledge the operating environment within China and the halo effect of that operating environment throughout Asia Pacific. We noted some of the market uncertainty that we're getting signals from Australia.
We've acknowledged that reality and taken steps to pivot our approach and for us. What that means is focusing on vertical market areas, product categories, and customers candidly where we think there's less competition, less price and margin pressure, and we are advantaged to compete, whether that advantage is in product performance, our service capability, or just frankly our reach with our channels.
So, you know we've taken a step back and said, listen, assuming that the market does not afford us the opportunity to the market doesn't improve. Then what are we going to do to win in that environment? So, I'm really proud of the team demonstrating significant agility to take the market reality and adjust course heading into 2025, specifically in APAC.
But again, we're not counting on any recovery underneath our guidance for APAC. So, if we get any, that'll be a positive development for us. We're going to pivot a bit and go drive success in the market as it exists.

Thomas Hayes

I appreciate that. It's great. Maybe on the fantastic news on the X6 rover roll out, I think you said it was, you can start taking orders in Q2, you went through a little bit quickly, but maybe you just kind of go over again, the target markets for the for the product.

David Huml

Yeah, glad you asked. We continue to be very bullish on our AMR opportunities. We kind of dimensionalize the entire AMR space and it's kind of in context because I think it's important to always refer to a product in terms of the broader market opportunity.
AMR solves for our customers major challenge in the space of labour availability and labour cost. That's a global dynamic that will provide us. Wind well into the future. Our products provide a solid customer ROI and solve that labour challenge, and I'm very proud of the results we've delivered on AMR here in our first 5 years of availability. Cumulatively, we've shipped over 9,000 units to about 900 customers in 25 countries.
And when you look at the sales we've generated in AMR, it's about $250 million. In profitable sales cumulatively over that period. So, if you just straight line the $250 million over five years, we can at about a $50 million per year run rate, although as we talked about in prior calls, our AMR sales have been anything but linear as we've launched new products and had large wins and have been lapping large wins with customers. But let's use [$50 billion] as kind of our run rate coming through 2023.
I think 2024 is really a breakout year for us. We delivered $75 million in sales in our AMR portfolio in 2024. That was a combination of the fantastic reception to our X4 rover, as well as some significant fleet repurchasing on our existing legacy product. We continue to scale our T16 AMR industrial products.
As we're benefiting from our brain exclusivity agreement, participating in ARR from navigation software subscriptions as well. So, when you think about X6, this is really the next evolution in the market disruption of robotics.
We mentioned in the script that it's really benefiting from the platform design of the X4. We designed the X4 so that we could easily scale it up and launch the next model. So, I think it's worth noting. That the X6 is coming to market, about one year after the X4. That's a very rapid product development for any machine, let alone a robotic machine, and we're excited about having the X6 as kind of a big brother to the X4, here in 2025.
In case you missed it, the X6 also features a charging dock which allows the robot to charge itself, return to its own charging dock, and doesn't require human interaction to charge itself, recharge the batteries. The X6 you asked about vertical market coverage and kind of use case applications you can think about it as kind of a high-end commercial product and a mid to low end industrial product.
So, when you think about larger retail store formats, large scale educational institutions, large hospitals and healthcare institutions, that's a great fit for the X6 on the sort of low. End of manufacturing, warehousing, and logistics. That's a great fit for the X6.
So, another reason to be excited about this X6 is we can sell it across a very broad range of our vertical markets, our core vertical markets we serve, and we can activate our entire selling organization to take the X6 to market. I think it's going to be another addition to the game changing X platform for us at AMR.

Thomas Hayes

Just let me follow up on that. Would you imagine that there's some customers that would have or order the X4 and the X6 or are they pretty separate?

David Huml

I think it's possible probably it probably won't be the norm. I would envision that more people would have when you think about the cleaning capacity of an X4, it's around on kind of one tank of water and one charge, it's around 20,000 square foot, where the X6 is about 75,000 square feet.
And so, I doubt that somebody would want to go with a combination fleets of 6 and X4. They're probably going to look at their majority of their cleaning application and size the appropriate piece of equipment for that for that site, and then buy multiples either for that site or if they operate multiple sites, across a region or across the country.

Thomas Hayes

Okay, appreciate it. Maybe just one last question for Faye on the ERP charges, I think you said in your prepared remarks about $50 million in charges in 25', I guess two parts, one, is there any view you could provide as far as how those charges progressed during 25' and any split between SG&A and capital between that $50 million.

Fay West

Yeah, so the $50 million is really kind of a very comprehensive and inclusive view of the total project costs, which includes things like internal resources and that support the project as well as other things like license costs, before go live and so the $50 million I think the, I mean the calendarization of that throughout the year is going to be, I think, evenly split.
There's nothing that we're anticipating going to be large in one month or one quarter versus another. And then from a, yeah, and I think we're likely going to see more expense in 2020. 5 versus 2024, most of, when you're in the design phase, you're able to capitalize more than you are and then as you go live, certain components of those costs will be more likely to be capital expense versus capital.

David Huml

So I can.

Lorenzo Bassi

Think about it, flipping compared to, 2024 where we had a more of a 40-60 split, and here you're going more expand on this, 6,040 expenses to capital think about it that way.

Thomas Hayes

Cool, appreciate the call. Thank you.

David Huml

Thanks Tom.

Operator

Aaron Reed, North Coast Research.

Aaron Reed

Thanks for, the opportunity, and great quarter, David.
So one thing I want to follow up on Tom's question, and I just want to make sure that I have this correct here. So, you after the deployment of the X6, you're going to be up to 5 AMR products available, correct?
Okay, so can you tell me a little about where those are deployed? I know a lot of those are starting in the US, how much of those have made their way across the pond and kind of what does that look like in terms of the footprint for those different, AMR products?

David Huml

Yeah, great question. So, I mentioned earlier we've got product deployed in 25 different countries. I think it's important to note our global selling and service organization is fully capable of demonstrating, selling in, and deploying AMR, across the geographies that we serve our cumulative units deployed to date roughly follow our geographic mix as an enterprise. Having said that, we really just launched Explorer Rover.
In Q2 in the US and later in the second half and in EMEA so, we haven't really had a full year experience with explorer Rover in any geography and as 2024 showed us, the customer response to that product has been, very positive. So, I think that we have an opportunity with the X4 to drive accelerated adoption not only in mature markets but in some of our ancillary markets as well just given the performance of price points. Etc. On the ground.
So, we've got a 5 product portfolio. Our strategy, when we when we flushed out our portfolio, we were trying to make sure that we had a robotics offering to serve all of the core vertical markets we serve across the geography that we compete in and we tend to have a fairly consistent set of core vertical markets we serve.
And the reason we did that was a the labour challenges are consistent across vertical markets regardless of whether it's education, healthcare, retail. BSC manufacturing, so the need is real and we weren't sure where the uptake would be fastest across the vertical market customers.
So we wanted to have an offering that we could talk to virtually any customer that was interested about robotics, and that's where the T380 and T16 AMR were born out of, with this desire to have full vertical market coverage across our vertical markets.
Now X4 Logic product on the generation 3 navigation software platform, removing the seats so we get a smaller form factor, better maneuverability, improving performance. It really gives us a chance to go back in and build out a even more advanced set of products on the X platform.
So, although it's 5 models across. Across the range I really view the X platform as a step change in terms of the improvement in maneuverability, performance, etc. So, we will continue to, as the X6 demonstrates, we're going to continue to upgrade our capabilities and performance, come to market with exciting new products, and expand our reach as we determine where the Uptake is going to be accelerated across the vertical markets and perhaps flexed in the future.
But for now, the strategy is to make sure we have a robotic offering across the entire range of vertical markets we serve and make sure that we're bringing the latest and greatest technology to bear on this robotics disruption for our customers today that's represented by the DAX platforms.

Aaron Reed

Okay, great, that's super helpful. And then kind of piggybacking off that, I can kind of, and I almost view the, so you had a new manufacturing facility come online for the T16 AMR. Is that fully up and running and can you tell me a little bit more about that?

David Huml

Can you clarify your question, but I'm not sure what you're referring to with the manufacturing.

Aaron Reed

Yeah, maybe I miss read this here. I thought there was a new manufacturing facility in the Netherlands or is that not correct?

David Huml

No, we do have manufacturing in mainland Europe and we're evaluating where we build our AMR products for each of the regions, but we haven't launched a new T16 manufacturing line in Netherlands.

Aaron Reed

Oh, okay, then my mistake. Okay, and then just a second follow-up question, this is more on the ERP side, so, you know I'm excited to see the progress on the implementation. And can you provide us an update on the status or any milestones you've achieved so far and really how does the timetable look for completing the roll out and lastly, how can we expect those benefits to be deployed throughout 25' and going forward.

David Huml

Yeah, let me dimensionalize it and say if you want to jump in as we go. This this ERP consolidation is on a very aggressive timeline as a project. We plan to complete this whole thing in 3 years.
The first year was largely devoted to planning, lining up our resourcing, picking our partners, negotiating contracts. That was 23'. 24' was largely focused on designing the system and building the system, so gathering and scoping requirements, and then physically designing the system to perform the way that we want our ERP to on a global basis, harmonizing our processes as we go.
In 2025 we're now moving into data loads and user testing to make sure that as we design and build the system, it's performing as we expected it to before we flip go live. That's kind of the first half of 2025. Heading into the second half, we'll have a series of staged go lives by reason around the world and our plan is to complete those goal lives calendar year 2025.
This is a very aggressive timeline and so you know we're doing that because we want to keep the pressure on ourselves to make progress. You asked about milestones, but I think the fact that we find ourselves here in kind of two years of a 3 year program and we are in user testing as we speak, preparing for business readiness and go live as we. Move into the first half and enter into the second half of 2025.
I think we're in a very enviable position. There's a lot of heavy lifting to get us to this point. I'm really proud of what we've accomplished from a milestone perspective. So, we're sitting in a really good position. We have a lot of work yet to go to get through the user testing and to make sure that we're prepared for the go lives in the second half of 2025.
Our overarching strategy and our investments. Reflect our desire to minimize the potential risks of go live and reduce or eliminate any impact on the customer as we migrate to new ERPs. So, we are spending a lot of time and effort to make sure that we feel really solid about the system capability, our performance, and our people's ability to work in the new way and the new system before we look to switch live, and we're spending time, effort, energy investment to mitigate the risk to the enterprise.
And insulate our customer. We'll keep you posted since 2025 is kind of the 3rd year of this program and really a pivotal year as we head into Go Live. We'll keep you posted on how the testing is going and as we approach go lives by region as we move through the quarters. Say anything you would add.

Fay West

The second part of your question at completion of the project, we anticipate that we'll see a savings roughly between $10 million and $15 million kind of on an annual run rate basis. And so that's going to come from a lot of the efficiencies that will be unlocked by the, by harmonizing kind of our ERP platform into one platform. So, run rate $10 million to $15 million of savings.

Aaron Reed

Great, thank you for the call.

Operator

[Iva Purcello] with North Coast Research.

Hey, good morning. Guys.

David Huml

Good morning.

So you did talk a little bit about it on the call, but i was just wondering. How much exposure do you have to parts manufactured in China, and then what is your level of concern regarding potential trade wars?

David Huml

Yeah, thank you for the question. Tariffs are kind of top of mind for all of us, but especially for our operations and supply chain folks, our commercial teams, specifically related to China and the 10% tariff. I think it's important for us to just dimensionalize the US what's our exposure to China as a source, as a country, China is less than 10% of our COGS, it's around a $50 million exposure.
For the company, about $20 million of that is direct import by tenant company where we would have to be exposed to the tariffs directly, and the remainder of it is exposure through our suppliers where we know that they are sourcing subcomponents on our behalf or adding value to subcomponents from China that we expect to know to impact us.
So, that kind of dimensionalizes the size of the exposure. Are we worried about it, absolutely, but we're taking. Decisive action to attempt to mitigate the impact. We have a range of alternatives available to us in terms of offsetting the impact of tariffs. We obviously we can negotiate to eliminate and reduce tariffs with our existing partner suppliers.
We have improved our local for local sourcing, so we now have a network of suppliers that allow us to flex and dual source components to avoid tariffs over longer term. And design around the products that are tariff challenged and you know we also always have the alternative of passing on tariffs in price to our customers.
Our preference would be at these levels of impact our preference would be to mitigate it ourselves, using the muscles we've built over the last several years, versus having to go out and reissue a new price change when candidly we just put out our 2025 pricing in early January and we're working to realize that impact.

All right yeah thank you that was super helpful.

Operator

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

David Huml

Thank you. I could not be more proud of the results that our high performing teams have achieved in 2024, and I'm really looking forward to our plans for 2025. I'm confident that we have the investments, initiatives, and talents in place to achieve our strategic objectives and deliver on our financial commitments. I want to thank you all for your participation today and your interest in tenant company.
This concludes our earnings call. Have a great day.

Operator

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.