Core Insights - Acuity Brands, Inc. (AYI) is experiencing growth driven by innovation in its diversified product portfolio and a focus on the Intelligent Spaces Group (ISG) [1][3] - The company reported first-quarter fiscal 2024 results with earnings exceeding estimates, although revenues declined year over year [1] - AYI's stock has increased by 24.6% over the past three months, outperforming the Zacks industry average of 20.9% [1] Financial Performance - For fiscal 2024, AYI expects net sales between $3.7 billion and $4 billion, compared to $3.95 billion in fiscal 2023 [1] - First-quarter fiscal 2024 net sales were reported at $934.7 million, a decrease of 6.3% from $1.11 billion in the prior-year period [7] - Earnings estimates for fiscal 2024 have risen to $13.83 per share from $13.39 per share in the past week, indicating analyst optimism [1] Growth Drivers - The company is expanding its portfolio of innovative lighting control solutions and energy-efficient products to adapt to market trends [3] - A new state-of-the-art production facility in Mexico enhances product quality and reduces environmental impact [3] - ISG's net sales grew by 13% year over year to $64.2 million, driven by business wins and the acquisition of KE2 Therm [5] Strategic Focus - AYI is concentrating on its ISG segment, which enhances the intelligence, safety, and sustainability of spaces [4] - The company is expanding geographically and through acquisitions, including the recent acquisition of KE2 Therm to enter the commercial refrigeration control market [6] - Portfolio optimization through divestitures is also part of AYI's growth strategy, having sold the Sunoptics prismatic skylights business [6] Industry Challenges - The company faces challenges from a competitive industry and economic factors such as GDP growth and energy costs [7] - Supply chain issues and rising component costs are impacting operations, alongside the need for capital investments in energy-efficient technologies [7]

Core Insights - Acuity Brands, Inc. (AYI) reported strong first-quarter fiscal 2024 results, with earnings and revenues exceeding the Zacks Consensus Estimate, marking the 15th consecutive quarter of earnings beats [1][2] Financial Performance - Adjusted earnings per share were $3.72, surpassing the consensus estimate of $3.09 by 20.4% and increasing 13.1% from $3.29 in the prior year [2] - Net sales reached $934.7 million, exceeding the consensus mark of $924.5 million by 1.1%, although this represented a 6.3% decline year-over-year due to lower volumes [2] Segment Analysis - Acuity Brands Lighting and Lighting Controls (ABL) saw net sales decline 7.5% year-over-year to $876.4 million, while the Independent Sales Network and Direct Sales Network also experienced declines of 7.2% and 8.5%, respectively [3] - Retail sales increased by 11.4% to $55.6 million, while Corporate Accounts sales fell 15.5% to $41.5 million [3] - The Original Equipment Manufacturer and other channels reported a 16.6% decline in sales to $56.7 million [3] - Adjusted operating profit for ABL increased 10.8% to $153.8 million, with an adjusted operating margin up 280 basis points to 17.5% [3] Operating Highlights - Overall adjusted operating profit rose 9.9% to $153.9 million, with an adjusted operating margin of 16.5%, up 250 basis points year-over-year [5] - Adjusted EBITDA increased by 9% to $166.7 million compared to the previous year [5] Cash Flow and Financial Position - At the end of the fiscal first quarter, cash and cash equivalents were $513.3 million, up from $397.9 million at the end of fiscal 2023 [6] - Long-term debt remained stable at $495.7 million [6] - Cash provided by operating activities totaled $190 million, an increase from $186.6 million in the prior year, while free cash flow rose 4.2% to $175.4 million [6] - The company repurchased nearly 0.3 million shares for $50 million during the quarter [6] Fiscal 2024 Outlook - For fiscal 2024, AYI expects net sales to be in the range of $3.7 billion to $4 billion, compared to $3.95 billion reported in fiscal 2023 [7] - Adjusted earnings per share are projected to be between $13 and $14.50, compared to $14.05 in fiscal 2023 [8]

Financial Data and Key Metrics Changes - The company reported net sales of $935 million for Q1 2024, a decrease of $63 million or 6% compared to the prior year, primarily due to lower sales in the ABL business [16] - Adjusted operating profit increased by $14 million year-over-year, with an adjusted operating profit margin of 16.5%, an increase of approximately 250 basis points from the prior year [15][16] - Adjusted diluted earnings per share rose by $0.43 year-over-year to $3.72, reflecting higher net income and lower shares outstanding due to share repurchases [15][16] Business Line Data and Key Metrics Changes - In the ABL segment, net sales were $876 million, a decrease of around 7% compared to the prior year, while adjusted operating profit increased by 11% to $154 million, with an adjusted operating profit margin of 17.5%, a 280 basis point improvement [17] - The ISG segment reported net sales of $64 million, an increase of 13%, with adjusted operating profit of $10 million [16][17] Market Data and Key Metrics Changes - The company experienced a year-over-year and sequential improvement in order rates, indicating a return to typical lead times and a normalization of order and shipment rates [14][28] - The company noted that the retail channel showed strong performance, partially offsetting declines in other channels [17] Company Strategy and Development Direction - The company is focused on increasing product vitality, elevating service levels, and using technology to improve product differentiation and operational efficiency [5][6] - The strategy includes geographic expansion and increasing control in built spaces, particularly through the intelligent spaces business [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the current order rates and performance, indicating a stable outlook without expecting significant changes in the macro environment [31][66] - The company plans to continue focusing on margin and cash flow in the Lighting and Lighting Controls business while expanding geographically in the Spaces Group [14][19] Other Important Information - The company generated $190 million in cash flow from operations, an increase of $3 million over the prior year, and allocated approximately $50 million to share repurchases [18] - The company opened a new state-of-the-art production facility in Mexico, which is expected to enhance operational efficiency and reduce environmental impact [9][10] Q&A Session Summary Question: Can you provide additional detail on gross margin performance? - Management indicated that the strong gross margin was a result of strategic pricing, cost management, and product vitality efforts [21][22] Question: How much of the order rate improvement is due to backlog depletion? - Management clarified that order rates are up modestly year-over-year and sequentially, indicating a normalization of lead times and consistent performance [27][28] Question: What is the outlook for large projects in the market? - Management noted that while there is some discussion about large projects, they do not foresee significant weakness and believe the market is stabilizing [45][46] Question: What drove the unexpected strength in margins? - Management attributed the strong margins to a higher mix of control products and effective execution of their business strategy [61][62] Question: How does the company view the impact of the upcoming election on projects? - Management does not anticipate significant impacts from the election on project activity, viewing the current market as stable [66]

Financial Performance - Q1 2024 - Acuity Brands' net sales decreased by 6% to $935 million compared to $998 million in Q1 2023[7, 29] - Adjusted diluted earnings per share increased by 13% to $3.72 from $3.29 in Q1 2023[7] - Adjusted operating profit increased by 10% year-over-year, reaching $154 million compared to $140 million in the same quarter last year[7, 31] - The adjusted operating profit margin expanded by 250 basis points[7] Segment Performance - ABL (Acuity Brands Lighting and Lighting Controls) - ABL net sales decreased by 7% to $876 million compared to $947 million in Q1 2023[10] - ABL adjusted operating profit increased by 11% to $154 million from $139 million in Q1 2023[10] - ABL adjusted operating profit margin increased by 280 basis points to 17.5% from 14.7% in Q1 2023[10] Segment Performance - ISG (Intelligent Spaces Group) - ISG net sales increased by 13% to $64 million compared to $57 million in Q1 2023[25] - ISG adjusted operating profit margin was 16%[25, 36] Fiscal Year 2024 Outlook - The company anticipates net sales to be in the range of $3.7 billion to $4.0 billion[15] - Adjusted diluted EPS is projected to be between $13.00 and $14.50[15]

Core Insights - Acuity Brands is experiencing a stabilization in its business, with improved margins and a forecast for growth into 2025 [2][3] - The company reported a revenue decline of 6.3% year-over-year, but margins widened significantly, with operating profits increasing by 22% [3] - Analysts expect a return to growth by mid-2024, with a projected 2% decline in FY 2024 revenue but growth anticipated in 2025 [3][4] Financial Performance - Revenue for Acuity Brands decreased by 6.3% year-over-year, driven by a 7.5% decline in the core ABL segment, while the ISG segment saw a 13% increase [3] - Adjusted earnings were reported at $3.72, reflecting a 13.1% year-over-year increase and exceeding expectations by nearly $0.50 [3] - Margins improved by 200 to 300 basis points across all levels, indicating a positive trend in profitability [3] Market Sentiment - The stock price increased by over 5% following the Q1 earnings release, indicating positive market sentiment [4][5] - Analysts maintain a "Moderate Buy" rating for Acuity Brands, with a price target suggesting a potential upside of 10% to 15% [4] - Institutional investors have consistently purchased AYI stock throughout 2023, reflecting confidence in the company's prospects [4] Capital Returns - Acuity Brands has maintained a small dividend for 16 years, with significant share repurchases contributing to a 3.2% yield [5] - The share count has decreased by more than 4% year-over-year, enhancing shareholder value [5] - The company's solid balance sheet features a debt-to-equity ratio below 0.25X, indicating financial stability [5]

Core Insights - Acuity Brands, Inc. reported net sales of $934.7 million for the first quarter of fiscal 2024, a decline of 6.3% compared to the previous year [1][24]. - The company achieved an operating profit of $132.9 million, reflecting a 22% increase year-over-year, with an adjusted operating profit of $153.9 million, up 9.9% [2][26]. - Diluted earnings per share (EPS) rose to $3.21, a 40.2% increase from the prior year, while adjusted diluted EPS was $3.72, up 13.1% [3][28]. - Cash flow from operations was reported at $190 million, a slight increase of 1.8% compared to the previous year [6][32]. Financial Performance - The company’s net sales decreased by $63.2 million compared to the prior year, with a total of $934.7 million in the first quarter [1][24]. - Operating profit as a percentage of net sales improved to 14.2%, an increase of 330 basis points year-over-year [2][26]. - The adjusted operating profit margin was 16.5%, up 250 basis points from the previous year [2][26]. Segment Performance - Acuity Brands Lighting and Lighting Controls (ABL) segment generated net sales of $876.4 million, down 7.5% from the prior year, but operating profit increased by 21.8% to $143.8 million [4][29]. - Intelligent Spaces Group (ISG) reported net sales of $64.2 million, a 13% increase year-over-year, although operating profit decreased to $5.3 million, down 31.2% [5][31]. Cash Flow and Capital Allocation - The company generated $190 million in cash flow from operations, an increase of $3.4 million compared to the prior year [6][32]. - Acuity Brands repurchased approximately 0.3 million shares of common stock for about $50 million during the first quarter [6][32]. Company Overview - Acuity Brands, Inc. is a market-leading industrial technology company focused on innovative products and services in lighting and building management solutions [8][9]. - The company operates through two main segments: ABL and ISG, aiming to enhance customer-focused efficiencies and expand market share [8].

[Part I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Acuity Brands reported Q1 FY2024 net sales of $934.7 million, a decrease from the prior year, but achieved significant increases in net income to $100.6 million and diluted EPS to $3.21, maintaining a strong balance sheet and robust operating cash flow Consolidated Balance Sheet Highlights (in millions) | Account | Nov 30, 2023 | Aug 31, 2023 | | :--- | :--- | :--- | | **Total current assets** | $1,474.1 | $1,395.2 | | **Total assets** | $3,463.9 | $3,408.5 | | **Total current liabilities** | $600.6 | $595.4 | | **Total liabilities** | $1,399.8 | $1,393.1 | | **Total stockholders' equity** | $2,064.1 | $2,015.4 | Consolidated Statement of Comprehensive Income Highlights (in millions, except per share data) | Metric | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Net sales | $934.7 | $997.9 | | Gross profit | $428.4 | $416.5 | | Operating profit | $132.9 | $108.9 | | Net income | $100.6 | $74.9 | | Diluted earnings per share | $3.21 | $2.29 | Consolidated Statement of Cash Flows Highlights (in millions) | Cash Flow Activity | Three Months Ended Nov 30, 2023 | Three Months Ended Nov 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $190.0 | $186.6 | | Net cash used for investing activities | $(14.5) | $(14.3) | | Net cash used for financing activities | $(59.7) | $(110.4) | | Net change in cash and cash equivalents | $115.4 | $60.9 | [Notes to Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's business structure, accounting policies, and financial activities, including segment performance, debt levels, and a non-material data security lawsuit settlement - The company operates through two business segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG)[14](index=14&type=chunk) - There were no acquisitions or divestitures in the first quarter of fiscal 2024. In fiscal 2023, the company acquired KE2 Therm Solutions, Inc. and sold its Sunoptics prismatic skylights business[24](index=24&type=chunk)[25](index=25&type=chunk)[29](index=29&type=chunk) - The company has **$500.0 million** in 2.150% senior unsecured notes due 2030 and an undrawn **$600.0 million** revolving credit facility, providing additional borrowing capacity of **$596.2 million** as of November 30, 2023[55](index=55&type=chunk)[56](index=56&type=chunk) - A proposed settlement was reached for a class action complaint related to 2020 and 2021 data security incidents; the impact of the settlement is not material[63](index=63&type=chunk)[64](index=64&type=chunk) - During the quarter, the company repurchased **0.3 million shares** for **$50.0 million** and paid cash dividends of **$4.1 million**[70](index=70&type=chunk) Segment Net Sales and Operating Profit (in millions) | Segment | Net Sales (Q1 FY24) | Operating Profit (Q1 FY24) | Net Sales (Q1 FY23) | Operating Profit (Q1 FY23) | | :--- | :--- | :--- | :--- | :--- | | ABL | $876.4 | $143.8 | $947.1 | $118.1 | | ISG | $64.2 | $5.3 | $56.8 | $7.7 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported a 6.3% net sales decrease in Q1 FY2024, primarily from ABL, but improved gross profit margin by 410 basis points, leading to a 22.0% increase in operating profit, while maintaining strong liquidity and continuing share repurchases [Financial Condition, Capital Resources, and Liquidity](index=21&type=section&id=Financial%20Condition%2C%20Capital%20Resources%2C%20and%20Liquidity) The company's cash position increased to $513.3 million, driven by strong operating cash flow, resulting in $1.1 billion total liquidity, with capital allocation focused on growth, M&A, dividends, and share repurchases - Cash position increased to **$513.3 million** at November 30, 2023, with **$190.0 million** in cash generated from operations during the quarter[112](index=112&type=chunk) - As of November 30, 2023, the company had **$1.1 billion** in total liquidity, comprising cash on hand and available borrowing capacity under its Revolving Credit Facility[115](index=115&type=chunk) - Capital allocation priorities are: investing in the current business, mergers and acquisitions, maintaining the dividend, and share repurchases[119](index=119&type=chunk) - In Q1 FY2024, the company repurchased **0.3 million shares** for **$50.0 million** and paid dividends of **$4.1 million**[121](index=121&type=chunk)[122](index=122&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Q1 FY2024 saw a 6.3% net sales decrease, yet gross profit increased by 2.9% with margin expansion, leading to a 22.0% rise in operating profit and a 34.3% increase in net income, with diluted EPS reaching $3.21 Q1 FY2024 vs. Q1 FY2023 Results of Operations (in millions) | Metric | Q1 FY2024 | Q1 FY2023 | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $934.7 | $997.9 | (6.3)% | | Gross profit | $428.4 | $416.5 | 2.9% | | Gross profit margin | 45.8% | 41.7% | +410 bps | | Operating profit | $132.9 | $108.9 | 22.0% | | Operating profit margin | 14.2% | 10.9% | +330 bps | | Net income | $100.6 | $74.9 | 34.3% | | Diluted EPS | $3.21 | $2.29 | 40.2% | - The increase in gross profit was primarily due to favorable material and import costs, which offset the impact of the net sales decline[127](index=127&type=chunk) - The decrease in net interest expense to **$0.9 million** from **$6.6 million** was due to higher interest income on cash balances and lower average short-term borrowings[131](index=131&type=chunk) [Segment Results](index=26&type=section&id=Segment%20Results) In Q1 FY2024, ABL segment net sales decreased but operating profit increased significantly, while ISG segment net sales grew, though its operating profit declined due to higher costs Segment Performance Q1 FY2024 vs Q1 FY2023 (in millions) | Segment | Metric | Q1 FY2024 | Q1 FY2023 | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **ABL** | Net Sales | $876.4 | $947.1 | (7.5)% | | | Operating Profit | $143.8 | $118.1 | 21.8% | | | Operating Margin | 16.4% | 12.5% | +390 bps | | **ISG** | Net Sales | $64.2 | $56.8 | 13.0% | | | Operating Profit | $5.3 | $7.7 | (31.2)% | | | Operating Margin | 8.3% | 13.6% | (530) bps | - ABL's operating profit increase was due to improved profitability on lower sales and the absence of special charges and accelerated amortization that occurred in the prior-year period[136](index=136&type=chunk) - ISG's operating profit decrease was primarily due to increased employee-related costs and professional fees, which offset the benefit of higher net sales[137](index=137&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company states that there have been no material changes to its exposure to market risks from those disclosed in its Annual Report on Form 10-K - There have been no material changes to the company's exposure from market risks since the last Form 10-K filing[141](index=141&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of November 30, 2023, excluding the recently acquired KE2 Therm Solutions, Inc., with no material changes in internal control over financial reporting during the quarter - The company's principal executive and financial officers concluded that disclosure controls and procedures are effective at a reasonable assurance level as of November 30, 2023[144](index=144&type=chunk) - The evaluation of controls excluded KE2 Therm Solutions, Inc., which was acquired during fiscal year 2023 and constituted less than **2%** of total assets[144](index=144&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[146](index=146&type=chunk) [Part II. OTHER INFORMATION](index=29&type=section&id=Part%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=29&type=section&id=Item%201.%20Legal%20Proceedings) The report refers to the Commitments and Contingencies footnote within the Notes to Consolidated Financial Statements for information on legal proceedings - Information regarding legal proceedings is incorporated by reference from the Commitments and Contingencies footnote of the Notes to Consolidated Financial Statements[148](index=148&type=chunk) [Risk Factors](index=29&type=section&id=Item%201A.%20Risk%20Factors) The company reports that there have been no material changes in its risk factors from those disclosed in its Annual Report on Form 10-K - There have been no material changes in risk factors from those disclosed in the company's Form 10-K[149](index=149&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the quarter ended November 30, 2023, the company repurchased a total of 290,084 shares of its common stock at an average price of $172.48 per share Share Repurchases for the Quarter Ended November 30, 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Sep 2023 | 54,383 | $164.83 | | Oct 2023 | 49,883 | $164.86 | | Nov 2023 | 185,818 | $176.77 | | **Total** | **290,084** | **$172.48** | - As of November 30, 2023, the maximum number of shares that may yet be repurchased under the authorized program was **0.9 million**[150](index=150&type=chunk)[151](index=151&type=chunk) [Other Information](index=29&type=section&id=Item%205.%20Other%20Information) During the first quarter of fiscal 2024, no directors or Section 16 officers of the company adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements - No directors or Section 16 officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[152](index=152&type=chunk) [Exhibits](index=29&type=section&id=Item%206.%20Exhibits) This section indicates that all exhibits filed with the report are listed on the Index to Exhibits - A list of all exhibits filed as part of the Form 10-Q is provided in the Index to Exhibits[153](index=153&type=chunk)

Part I [Business](index=3&type=section&id=Item%201.%20Business.) The company is an industrial technology firm with two segments, ABL and ISG, focused on lighting and building management solutions - The company operates through two primary business segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG)[9](index=9&type=chunk) - ABL's strategy focuses on product vitality, service levels, and technology differentiation for its lighting and controls portfolio, serving customers like electrical distributors and retail home improvement centers[10](index=10&type=chunk) - ISG's strategy is to make spaces smarter, safer, and greener by offering building management solutions for HVAC, lighting, and access control, primarily targeting system integrators and enterprise campuses[12](index=12&type=chunk) Fiscal 2023 Manufacturing & Sourcing by Region | Region | Manufactured | Purchased | Total | | :--- | :--- | :--- | :--- | | United States | 15% | 7% | 22% | | Mexico | 57% | —% | 57% | | Asia | —% | 15% | 15% | | Others | 6% | —% | 6% | | **Total** | **78%** | **22%** | **100%** | Research & Development Expenses (Fiscal Years 2021-2023) | Fiscal Year | R&D Expense (in millions) | | :--- | :--- | | 2023 | $97.1 | | 2022 | $95.1 | | 2021 | $88.3 | - As of August 31, 2023, the company employed approximately 12,200 associates, with about 7,700 in Mexico and 3,600 in the United States. Approximately 7,800 associates are covered by collective bargaining agreements[28](index=28&type=chunk) [Risk Factors](index=8&type=section&id=Item%201a.%20Risk%20Factors.) The company faces strategic, operational, legal, and financial risks including raw material costs, supply chain disruptions, and regulatory compliance - **Strategic Risks:** The business is exposed to fluctuations in the cost and availability of raw materials like steel, aluminum, and electronic components, which could negatively impact profitability[39](index=39&type=chunk)[40](index=40&type=chunk) - **Operational Risks:** A significant portion of manufacturing (**57% of finished products**) is located in Mexico, exposing the company to potential disruptions from civil unrest or trade disputes[57](index=57&type=chunk) - **Cybersecurity Risks:** The company has experienced security compromises and faces ongoing risks from cyber-attacks, which could disrupt business, lead to data loss, and result in reputational damage or liability[61](index=61&type=chunk)[63](index=63&type=chunk) - **Labor Risks:** Approximately **65% of the workforce** is covered by collective bargaining agreements, with 57% of these agreements expiring within the next year, primarily in Mexico[66](index=66&type=chunk) - **Legal & Regulatory Risks:** The company is subject to a broad range of complex laws and regulations, including environmental (ESG), data privacy, and trade agreements like USMCA. Failure to comply could result in significant costs and liabilities[80](index=80&type=chunk)[81](index=81&type=chunk) - **Financial Risks:** The market price of the company's stock may be volatile. Additionally, rising interest rates could reduce demand for products by increasing borrowing costs for construction and renovation projects[98](index=98&type=chunk)[101](index=101&type=chunk) [Unresolved Staff Comments](index=20&type=section&id=Item%201b.%20Unresolved%20Staff%20Comments.) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[104](index=104&type=chunk) [Cybersecurity](index=20&type=section&id=Item%201c.%20Cybersecurity.) This item is not applicable for the current reporting period - Not applicable[104](index=104&type=chunk) [Properties](index=20&type=section&id=Item%202.%20Properties.) The company owns or leases 46 significant facilities, with the majority of its 18 manufacturing sites located in the United States and Mexico Summary of Facilities by Type (as of Aug 31, 2023) | Facility Type | Owned | Leased | Total | | :--- | :--- | :--- | :--- | | Manufacturing facilities | 12 | 6 | 18 | | Warehouses | — | 1 | 1 | | Distribution centers | 2 | 6 | 8 | | Offices | 5 | 14 | 19 | | **Total** | **19** | **27** | **46** | Manufacturing Facilities by Geography (as of Aug 31, 2023) | Country | Owned | Leased | Total | | :--- | :--- | :--- | :--- | | United States | 4 | 2 | 6 | | Mexico | 5 | 2 | 7 | | Europe | 2 | — | 2 | | Canada | 1 | 2 | 3 | | **Total** | **12** | **6** | **18** | [Legal Proceedings](index=20&type=section&id=Item%203.%20Legal%20Proceedings.) Information regarding legal proceedings is disclosed in the Commitments and Contingencies footnote to the financial statements - Details on legal proceedings are available in the Commitments and Contingencies footnote to the financial statements[108](index=108&type=chunk) [Mine Safety Disclosures](index=20&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company's operations - Not applicable[108](index=108&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities](index=22&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's stock trades on the NYSE, and it actively repurchased shares in fiscal 2023, though its five-year return has underperformed key indices - The company's common stock trades on the New York Stock Exchange under the ticker symbol "AYI"[109](index=109&type=chunk) Share Repurchases for Quarter Ended August 31, 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | June 2023 | 129,774 | $163.44 | | July 2023 | 75,027 | $167.12 | | August 2023 | 101,935 | $164.33 | | **Total** | **306,736** | **$164.64** | - As of August 31, 2023, a maximum of **1,229,790 shares** may yet be repurchased under the current Board authorization[111](index=111&type=chunk)[112](index=112&type=chunk) [[Reserved]](index=23&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Fiscal 2023 saw a slight sales decline but improved gross margins, offset by higher expenses, while generating significantly stronger operating cash flow Fiscal Year 2023 vs. 2022 Performance | Metric | FY 2023 | FY 2022 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $3,952.2M | $4,006.1M | ($53.9M) | (1.3)% | | Gross Profit | $1,713.2M | $1,672.7M | $40.5M | 2.4% | | Gross Margin | 43.3% | 41.8% | +150 bps | - | | Operating Profit | $473.4M | $509.7M | ($36.3M) | (7.1)% | | Operating Margin | 12.0% | 12.7% | (70 bps) | - | | Net Income | $346.0M | $384.0M | ($38.0M) | (9.9)% | | Diluted EPS | $10.76 | $11.08 | ($0.32) | (2.9)% | - Cash flow from operating activities increased significantly to **$578.1 million** in fiscal 2023 from $316.3 million in the prior year, mainly due to better cash collections and fewer inventory purchases[125](index=125&type=chunk) - Capital allocation in FY2023 included repurchasing **1.6 million shares for $269.3 million**, paying $16.8 million in dividends, and acquiring KE2 Therm Solutions, Inc[133](index=133&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) - The ABL segment's net sales decreased by **2.3% to $3.72 billion**, while the ISG segment's net sales grew by **16.9% to $252.7 million**[149](index=149&type=chunk)[151](index=151&type=chunk) - The company identified critical accounting estimates including revenue recognition, inventory valuation, goodwill and intangible asset impairment, share-based payment expense, and product warranty costs[155](index=155&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%207a.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company is exposed to market risks from interest rate and foreign exchange fluctuations, particularly from its operations in Mexico and Canada - The company's primary market risks are from changing interest and foreign exchange rates[174](index=174&type=chunk) - Long-term debt is primarily fixed-rate, so a fluctuation in interest rates would not affect interest expense. However, a **10% increase in market rates** would decrease the fair value of senior unsecured notes by an estimated **$14.2 million**[175](index=175&type=chunk)[176](index=176&type=chunk) - Significant foreign exchange risk exists from operations in Mexico and Canada. A hypothetical **10% decrease in the Mexican peso's value** relative to the USD would favorably impact operating profit by **~$19.4 million**, while a **10% increase** would negatively impact it by **~$23.7 million**[177](index=177&type=chunk) [Financial Statements and Supplementary Data](index=34&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section contains the company's audited consolidated financial statements and accompanying notes for the fiscal year ended August 31, 2023 [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=82&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reports no changes in or disagreements with its accountants on accounting principles or financial disclosure - None[455](index=455&type=chunk) [Controls and Procedures](index=82&type=section&id=Item%209a.%20Controls%20and%20Procedures.) Management concluded that disclosure controls and procedures were effective as of August 31, 2023, excluding the recently acquired KE2 Therm - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of August 31, 2023[457](index=457&type=chunk) - The evaluation of controls excluded the operations of KE2 Therm, which was acquired during the fiscal year[457](index=457&type=chunk) - No changes in internal control over financial reporting occurred during the most recent quarter that materially affected, or are reasonably likely to materially affect, internal controls[459](index=459&type=chunk) [Other Information](index=82&type=section&id=Item%209b.%20Other%20Information.) The company amended the severance agreement for its President and CEO, modifying the calculation of the minimum bonus component - The company amended the severance agreement for CEO Neil M. Ashe on October 26, 2023, changing the calculation of the minimum bonus component of potential severance payments[460](index=460&type=chunk) [Disclosure Regarding Foreign Jurisdictions That Prevent Inspections](index=82&type=section&id=Item%209c.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20That%20Prevent%20Inspections.) This item is not applicable to the company - None[460](index=460&type=chunk) Part III [Directors, Executive Officers, and Corporate Governance](index=83&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%2C%20and%20Corporate%20Governance.) Required information on directors, officers, and corporate governance is incorporated by reference from the company's 2024 proxy statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement[461](index=461&type=chunk)[462](index=462&type=chunk) [Executive Compensation](index=83&type=section&id=Item%2011.%20Executive%20Compensation.) Required information on executive compensation is incorporated by reference from the company's 2024 proxy statement - Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement[463](index=463&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=83&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) Required information on security ownership is incorporated by reference from the company's 2024 proxy statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the company's definitive proxy statement[464](index=464&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=83&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence.) Required information on related transactions and director independence is incorporated by reference from the company's 2024 proxy statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement[465](index=465&type=chunk) [Principal Accountant Fees and Services](index=83&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) Required information on accountant fees and services is incorporated by reference from the company's 2024 proxy statement - Information regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement[466](index=466&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=84&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules.) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item lists the financial statements, schedules, and exhibits filed with the Form 10-K[468](index=468&type=chunk) [Form 10-K Summary](index=93&type=section&id=Item%2016.%20Form%2010-K%20Summary.) The company has elected not to provide a summary of the Form 10-K in this section - None[500](index=500&type=chunk)

Financial Data and Key Metrics Changes - In Q4 2023, Acuity Brands generated net sales of approximately $1 billion, a decrease of $100 million or 9% compared to the prior year, primarily due to a decline in the ABL business [19] - Adjusted operating profit margin expanded to 16.1%, an increase of approximately 80 basis points from the prior year, driven by improvements in gross profit margin [20] - Adjusted diluted earnings per share increased by $0.02 or 1% over the prior year to $3.97 [20] Business Line Data and Key Metrics Changes - ABL's net sales were $944 million in Q4, a decrease of 11% compared to the prior year, with adjusted operating profit decreasing 2% to $159 million [20][21] - The Intelligent Spaces Group (ISG) reported net sales of $72 million, an increase of 17%, with adjusted operating profit declining approximately 3% to $14 million due to continued investments for long-term growth [23] Market Data and Key Metrics Changes - The retail channel in the ABL business showed strong performance, while the OEM business experienced a decline [29] - The overall market conditions in lighting are expected to remain challenging, with ABL sales anticipated to decline in the low to mid-single digits for fiscal 2024 [26] Company Strategy and Development Direction - The company aims to enhance product vitality, improve service levels, and leverage technology to differentiate products and services [6][12] - Acuity Brands continues to focus on geographic expansion and increasing control planes in the Intelligent Spaces business, with successful entry into the UK market and the acquisition of KE2 Therm [12][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in executing their strategy despite a choppy economic environment, noting strong volume in their networks [29] - For fiscal 2024, the company expects net sales to be between $3.7 billion and $4 billion, with continued growth in the ISG business projected in the mid-teens [26] Other Important Information - The company has repurchased approximately $1.3 billion in shares since Q4 2020, amounting to about 23% of the shares outstanding at that time [17] - Acuity Brands has maintained its dividend and continues to focus on effective capital allocation [17] Q&A Session Summary Question: Insights on end market demand and quoting environment - Management noted that while the business environment is choppy, they are comfortable operating within it and have a responsible plan for 2024 [29] Question: Guidance on sales and margin management - The guidance anticipates ABL sales down low to mid-single digits, with expectations to maintain margins through strategic management of product vitality and service levels [30][31] Question: Channel inventory management and macroeconomic headwinds - Management indicated that they have returned to a normal relationship between order intake and shipment rates, and while the macro environment is challenging, they are comfortable operating at current levels [34][62] Question: Cash generation and M&A pipeline - The company plans to maintain its capital allocation priorities, focusing on growth investments, M&A, dividends, and share repurchases, with an expected $40 million to $60 million in share repurchases for 2024 [36][37] Question: ABL guidance for 2024 and seasonal trends - Management expects steeper declines in the first half of 2024, with a normalization in the back half as legacy impacts clear [40][42] Question: Gross margin expectations and volume impacts - Management stated that they do not need to maintain the high gross margins from Q4 to achieve their earnings guidance for 2024, emphasizing structural improvements in the business [65][66]

Financial Data and Key Metrics Changes - In Q3 2023, the company reported net sales of $1 billion, a decrease of 6% compared to the prior year, primarily due to a decline in the ABL business [14] - Adjusted operating profit margin improved to 16.3%, an increase of approximately 100 basis points year-over-year and 230 basis points sequentially [15] - Adjusted diluted earnings per share increased by $0.23 or 7% over the prior year, reaching $3.75 [15] Business Line Data and Key Metrics Changes - ABL net sales were $941 million, a decrease of 7% compared to the prior year, driven by declines in the independent sales network and lower OEM sales [16] - The Spaces segment reported sales of $66 million, an increase of 13%, with continued growth from Distech and Atrius [17] - ABL's adjusted operating profit margin was 17%, reflecting a 120 basis point improvement year-over-year [16] Market Data and Key Metrics Changes - The company noted that order rates and shipment rates are returning to closer alignment, although normal sequential seasonality has not yet been achieved [12] - The corporate accounts and OEM segments experienced volatility, with lower order rates impacting overall performance [22] - Retail performance remained strong, contributing positively to the overall sales mix [22] Company Strategy and Development Direction - The company is focusing on strategic pricing, productivity improvements, and managing material costs to enhance margins [30] - The launch of Design Select aims to improve service for the specification community by offering 3,000 configurable products [6][7] - The acquisition of KE2 Therm is expected to expand Distech's addressable market into commercial refrigeration control [9] Management's Comments on Operating Environment and Future Outlook - Management indicated that the third quarter's performance was in line with expectations, with sales impacted by lead-time normalization and macroeconomic conditions [12] - The company plans to prioritize margin management, strong cash flow generation, and effective capital allocation moving forward [12] - Management expressed confidence in the growth of the Intelligent Spaces Group and the successful integration of recent acquisitions [35] Other Important Information - The company generated $472 million in cash flow from operating activities for the first nine months of fiscal 2023, an increase of $306 million over the same period in 2022 [17] - Year-to-date capital expenditures were $48 million, with $219 million allocated for share repurchases [18] - Full-year net sales are expected to be between $3.9 billion and $4 billion, with adjusted diluted earnings per share expectations unchanged [19] Q&A Session Summary Question: Can you break down order rates and shipment rates by channel or segmentation? - Management noted that corporate accounts and OEM sides are experiencing volatility, while direct sales and project business are relatively stable [22] Question: When might the company return to normal revenue seasonality? - Management stated they are not ready to predict a return to normal seasonality and will take it one quarter at a time [24] Question: What is the impact of the company's segmentation strategy on sales and margins? - The segmentation allows for better predictability and efficiency, enhancing service levels and competitive positioning [26] Question: Can you elaborate on the price-cost dynamic and sustainability of gross margins? - Management emphasized a focus on strategic pricing and productivity improvements, which have led to strong gross margins [30] Question: What factors are impacting the order rate deceleration? - Management indicated that longer lead times and a price increase environment from the previous year have contributed to the current order dynamics [38] Question: How does the company view the trade-off between margin focus and volume? - Management believes that focusing on margins while maintaining competitive pricing is the right strategy for value creation [46] Question: What is the outlook for the renovation markets? - Management noted that while there are challenges, renovations will continue as new tenants will require lighting and controls [61]