Acuity Brands(AYI) - 2024 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements 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 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] - 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][25][29] - 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][56] - 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][64] - During the quarter, the company repurchased 0.3 million shares for $50.0 million and paid cash dividends of $4.1 million[70] 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 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 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] - 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] - Capital allocation priorities are: investing in the current business, mergers and acquisitions, maintaining the dividend, and share repurchases[119] - In Q1 FY2024, the company repurchased 0.3 million shares for $50.0 million and paid dividends of $4.1 million[121][122] Results of Operations 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] - 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] Segment Results 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] - 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] Quantitative and Qualitative Disclosures about Market Risk 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] Controls and Procedures 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] - 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] - 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] Part II. OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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][151] Other Information 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] Exhibits 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]