What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-01-09 compared with 2022-06-30 · 80 added, 164 removed, 101 unchanged (71% of the section changed)

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The purpose of this discussion and analysis is to enhance the understanding and evaluation of the results of operations, financial position, cash flows, indebtedness, and other key financial information of Acuity Brands, Inc.

(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of May 31, 2022 and for the three and nine months ended May 31, 2022 and 2021.

(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of November 30, 2022 and for the three months ended November 30, 2022 and 2021.

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report.

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We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management systems, and location-aware applications.

We achieve customer-focused efficiencies that allow us to increase market share and deliver superior returns.

We look to aggressively deploy capital to grow the business and to enter attractive new verticals.

The results of operations for the three and nine months ended May 31, 2022 are not necessarily indicative of the results to be expected for the full fiscal 2022 year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for fiscal 2022, seasonality, and the impact of any acquisitions, among other reasons.

The results of operations for the three months ended November 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal 2023 year due primarily to continued uncertainty of general economic conditions that may impact our key end markets for fiscal 2023;

the impact of inflation;

component shortages;

disruptions in the global supply chain;

and the impact of any acquisitions and/or divestitures, among other reasons.

We are uncertain of the future impact of the ongoing COVID-19 pandemic or recovery of prior deterioration in economic conditions to our sales channels, supply chain, manufacturing, and distribution as well as overall construction, renovation, and consumer spending.

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We have numerous sources of capital, including cash on hand and cash flows generated from operations, as well as various sources of financing.

Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to reinvest in our current business growth, make strategic acquisitions and investments, pay dividends, and repurchase shares.

Our ability to generate sufficient cash flow from operations or to access certain capital markets, including banks, is necessary to meet our capital allocation priorities, which are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.

Sufficient cash flow generation is also critical to fund our operations in the short and long terms and to maintain compliance with covenants contained in our financing agreements.

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In the event of a sustained market deterioration, we may need additional capital, which would require us to evaluate available alternatives and take appropriate actions.

Our cash position at May 31, 2022 was $318.2 million, a decrease of $173.1 million from August 31, 2021.

Our cash position at November 30, 2022 was $284.1 million, an increase of $60.9 million from August 31, 2022.

Cash generated from operating activities and cash on hand were used during the current year to fund our capital allocation priorities as discussed below.

We generated $165.7 million of cash flows from operating activities during the nine months ended May 31, 2022 compared with $316.2 million in the prior-year period, a decrease of $150.5 million.

This decline was due primarily to increased operating working capital related primarily to higher inventory levels and increased income tax payments associated with our higher profit.

We generated $186.6 million of cash flows from operating activities during the three months ended November 30,

2022, compared with $83.7 million in the prior-year period, an increase of $102.9 million.

This increase was due primarily to increased cash collections from customers and fewer inventory purchases during the current period as well as the timing of quarterly income tax payments.

Financing Arrangements

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for discussion of our various financing arrangements, including the $500.0 million aggregate principal amount of 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”) as well as the terms of our $600.0 million five-year unsecured revolving credit facility (“Revolving Credit Facility”).

The Revolving Credit Facility expires in June 2023;

however, we entered into a new agreement prior to this expiration.

See Subsequent Event footnote of the Notes to Consolidated Financial Statements for further details on the terms of the new agreement.

At May 31, 2022, our outstanding debt balance was $616.8 million compared to our cash position of $318.2 million.

We were in compliance with all financial covenants under our financing arrangements as of May 31, 2022.

At May 31, 2022, we had additional borrowing capacity under the Revolving Credit Facility of $273.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less the outstanding letters of credit of $4.1 million issued under the facility and the $122.0 million of short-term borrowings outstanding under the Revolving Credit Facility.

As of May 31, 2022, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $592.1 million.

At November 30, 2022, our outstanding debt balance was $495.1 million, which consisted solely of our Unsecured Notes, compared to our cash position of $284.1 million.

We were in compliance with all financial covenants under our financing arrangements as of November 30, 2022.

At November 30, 2022, we had additional borrowing capacity under the Revolving Credit Facility of $595.9 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility less outstanding letters of credit of $4.1 million issued under the facility.

As of November 30, 2022, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $880.0 million.

The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Brands, Inc.

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The following tables present summarized financial information for Acuity Brands, Inc., Acuity Brands Lighting, Inc., and ABL IP Holding LLC on a combined basis after the elimination of all intercompany balances and transactions between the combined group as well as any investments in non-guarantors as of the dates and during the period presented (in millions):

Summarized Balance Sheet Information May 31, 2022 August 31, 2021

Summarized Balance Sheet Information November 30, 2022 August 31, 2022

Current assets $ 1,021.0 $ 1,056.6

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Non-current liabilities 822.7 821.0

Summarized Income Statement Information Nine Months Ended May 31, 2022

Summarized Income Statement Information Three Months Ended November 30, 2022

Net sales $ 845.4

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Our capital allocation priorities are to invest in our current business for growth, to invest in mergers and acquisitions, to maintain our dividend, and to make share repurchases.

Investments in Current Business Growth

We invested $38.0 million and $30.6 million during the nine months ended May 31, 2022 and 2021, respectively, in property, plant, and equipment, primarily related to investments in new and enhanced information technology capabilities, tooling, equipment, and facility enhancements.

We currently expect to invest approximately 1.5% of net sales on capital expenditures during fiscal 2022.

Additionally, we increased our inventory levels to support growth and mitigate inconsistent supply availability at our production facilities.

Strategic Acquisitions and Investments

Investments in Current Business for Growth

We invested $18.2 million and $9.3 million in property, plant, and equipment during the three months ended November 30, 2022 and 2021, respectively.

We invested more in fiscal 2023 primarily for investments in new and enhanced equipment and tooling.

Strategic Acquisitions, Investments, and Divestitures

We seek opportunities to strategically expand and enhance our portfolio of solutions.

There were no acquisitions during the first nine months of fiscal 2022.

The $12.2 million of cash outflows reflected in the fiscal 2022 Consolidated Statements of Cash Flows relate to fiscal 2021 acquisitions primarily for working capital settlements.

Please refer to the Acquisitions footnote of the Notes to Consolidated Financial Statements for more information.

We paid dividends on our common stock of $13.7 million ($0.39 per share) and $14.3 million ($0.39 per share) during the nine months ended May 31, 2022 and 2021, respectively.

There were no acquisitions during the first three months of fiscal 2023 or fiscal 2022.

During the three months ended November 30, 2022, we committed to a plan to sell our Sunoptics prismatic skylights business, which we completed on November 10, 2022.

We recognized a loss of $11.2 million on the sale of the business.

Please refer to the Acquisitions and Divestitures footnote of the Notes to Consolidated Financial Statements for more information.

We paid dividends on our common stock of $4.3 million ($0.13 per share) and $4.7 million ($0.13 per share) during the three months ended November 30, 2022 and 2021, respectively.

All decisions regarding the declaration and payment of dividends are at the discretion of the Board of Directors (the “Board”) and are evaluated regularly in light of our financial condition, earnings, growth prospects, funding requirements, applicable law, and any other factors the Board deems relevant.

Share Repurchases

During the first nine months of fiscal 2022, we repurchased 2.3 million shares of our outstanding common stock for $405.1 million.

Total cash outflows for share repurchases during the nine months ended May 31, 2022 were $403.5 million.

During the first three months of fiscal 2023, we repurchased 0.5 million shares of our outstanding common stock for $77.6 million.

Total cash outflows for share repurchases during the three months ended November 30, 2022 were $76.5 million.

We expect to repurchase shares on an opportunistic basis subject to various factors including stock price, Company performance, market conditions, and other possible uses of cash.

As of May 31, 2022, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 3.5 million shares.

As of November 30, 2022, the maximum number of shares that may yet be repurchased under the share repurchase program authorized by the Board equaled 2.4 million shares.

The COVID-19 Pandemic

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We also continue to incur additional health and safety costs including expenditures for personal protection equipment and facility enhancements to maintain proper distancing guidelines issued by the Centers for Disease Control and Prevention.

We have taken actions to reduce costs, including the realignment of headcount with current volumes, a limit on all non-essential employee travel, other efforts to decrease discretionary spending, and reductions in our real estate footprint.

We have taken actions to reduce costs, including the realignment of headcount with volumes, a limit on all non-essential employee travel, other efforts to decrease discretionary spending, and reductions in our real estate footprint.

Additionally, we elected to defer certain employer payroll taxes as allowable under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act) signed into law on March 27, 2020.

Half of these deferrals were paid in December 2021, and the remaining deferrals are due in December 2022.

We paid half of these deferrals in December 2021 and the other half in December 2022.

Although we have implemented significant measures to mitigate further spread of the virus, our employees, customers, suppliers, and contractors may continue to experience disruptions to business activities due to potential further government-mandated or voluntary shutdowns, general economic conditions, or other negative impacts of the COVID-19 pandemic.

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Results of Operations

Third Quarter of Fiscal 2022 Compared with Third Quarter of Fiscal 2021

The following table sets forth information comparing the components of net income for the three months ended May 31, 2022 and 2021 (in millions except per share data):

First Quarter of Fiscal 2023 Compared with First Quarter of Fiscal 2022

The following table sets forth information comparing the components of net income for the three months ended November 30, 2022 and 2021 (in millions except per share data):

Three Months Ended

May 31, 2022 May 31, 2021 Increase (Decrease) Percent Change

November 30, 2022 November 30, 2021 Increase (Decrease) Percent Change

Net sales $ 997.9 $ 926.1 $ 71.8 7.8 %

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Interest expense, net 6.6 5.9 0.7 11.9 %

Miscellaneous (income) expense, net (1.5) 2.7 (4.2) NM

Miscellaneous expense, net 9.1 0.3 8.8 NM

Total other expense 15.7 6.2 9.5 153.2 %

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Net sales for the three months ended May 31, 2022 increased $160.9 million, or 17.9%, to $1.06 billion compared with $899.7 million in the prior-year period.

Both our ABL and ISG segments benefited from recent price increases as well as higher volumes.

Revenues from acquired companies contributed an approximately 3% increase to current quarter revenues compared to the prior year.

Changes in foreign currency rates did not have a meaningful impact on net sales for the third quarter of fiscal 2022.

Gross profit for the third quarter of fiscal 2022 increased $58.5 million, or 15.1%, to $445.1 million compared with $386.6 million in the prior-year period, while gross profit margin decreased 100 basis points to 42.0% from 43.0%.

In this inflationary environment, we continued to experience material, labor, and freight escalations while also taking pricing actions that mitigated these escalations.

Gross profit margin was also unfavorably impacted by the near-term dilutive effects of recent acquisitions.

Net sales for the three months ended November 30, 2022 increased $71.8 million, or 7.8%, to $997.9 million, compared with $926.1 million in the prior-year period.

Both our ABL and ISG segments benefited from recent price increases as well as favorable mix.

Changes in foreign currency rates and the divestiture from our Sunoptics prismatic skylight business did not have a meaningful impact on net sales for the first quarter of fiscal 2023.

Gross profit for the first quarter of fiscal 2023 increased $30.7 million, or 8.0%, to $416.5 million, compared with $385.8 million in the prior-year period, while gross profit margin remained flat at 41.7% compared with the prior-year period.

Our gross profit margin remained flat with the prior year as we were able to offset material, labor, and other cost escalations with price and favorable mix.

Operating Profit

Selling, distribution, and administrative expenses ("SD&A") expenses for the three months ended May 31, 2022 were $302.4 million compared with $268.0 million in the prior-year period, an increase of $34.4 million, or 12.8%.

The increase in SD&A expense was due primarily to higher outbound freight and commission costs associated with higher sales as well as increased employee-related costs due in part to recent acquisitions.

Operating profit for the third quarter of fiscal 2022 was $142.7 million (13.5% of net sales) compared with $118.1 million (13.1% of net sales) for the prior-year period, an increase of $24.6 million, or 20.8%.

The increase in operating profit was due primarily to higher gross profit associated with the increase in sales, partially offset by

higher SD&A expenses.

The operating profit margin increase of 40 bps year over year was due primarily to improved leveraging of our operating costs, partially offset by the decline in gross profit margin.

Selling, distribution, and administrative expenses ("SD&A") expenses for the three months ended November 30, 2022 were $300.7 million, compared with $270.7 million in the prior-year period, an increase of $30.0 million, or 11.1%.

The increase in SD&A expenses was due primarily to higher commissions and freight costs associated with higher sales.

Amortization expense of definite-lived intangibles increased in fiscal 2023 as we recorded $4.0 million of accelerated amortization for intangibles associated with certain brands that were discontinued.

We recognized special charges of $6.9 million during the first quarter of fiscal 2023.

Please refer to the Special Charges footnote of the Note to Consolidated Financial Statements for further details.

Operating profit for the first quarter of fiscal 2023 was $108.9 million (10.9% of net sales), compared with $115.1 million (12.4% of net sales) for the prior-year period, a decrease of $6.2 million, or 5.4%.

The operating profit margin

decrease of 150 bps year over year was due primarily to higher special charges, commission rates, and amortization expense.

Other Expense

Other expense consists of net interest expense and net miscellaneous (income) expense, which includes non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses.

Interest expense, net, was $6.2 million for the three months ended May 31, 2022 and 2021.

We reported net miscellaneous income of $1.5 million for the three months ended May 31, 2022 and net miscellaneous expense of $2.7 million for the three months ended May 31, 2021.

The year-over-year change in net miscellaneous (income) expense was largely due to gains and losses on foreign currency-related transactions.

Other expense consists of net interest expense and net miscellaneous expense, which includes non-service related components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses.

Interest expense, net, was $6.6 million and $5.9 million for the three months ended November 30, 2022 and 2021, respectively.

We reported net miscellaneous expense of $9.1 million and $0.3 million for the three months ended November 30, 2022 and 2021, respectively.

The year-over-year change in net miscellaneous expense was largely due to the $11.2 million loss of the sale of the Sunoptics prismatic skylights business, the details of which are described in the Acquisitions and Divestitures footnote of the Note to Consolidated Financial Statements.

This loss was partially offset by higher gains on foreign currency-related items compared to the prior year.

Income Taxes and Net Income

Our effective income tax rate was 23.4% and 21.5% for the three months ended May 31, 2022 and 2021, respectively.

The increase in the effective income tax rate was primarily due to favorable discrete items recognized in the third quarter of fiscal 2021.

We currently estimate that our blended consolidated effective income tax rate, before any discrete items, will be approximately 23% for fiscal 2022, assuming the rates in our taxing jurisdictions remain generally consistent throughout the fiscal year.

Net income for the three months ended May 31, 2022 increased $20.0 million, or 23.3%, to $105.7 million from $85.7 million reported for the prior-year period.

The increase in net income resulted primarily from an increased operating profit compared to the prior-year period.

Diluted earnings per share for the three months ended May 31, 2022 increased $0.70, or 29.5%, to $3.07 compared with diluted earnings per share of $2.37 for the prior-year period.

This increase reflects higher net income as well as lower outstanding diluted shares.

Our effective income tax rate was 19.6% for the three months ended November 30, 2022 and 2021 and reflects favorable discrete items recognized in both periods.

Net income for the three months ended November 30, 2022 decreased $12.7 million, or 14.5%, to $74.9 million, from $87.6 million reported for the prior-year period.

The decrease in net income resulted primarily from $22.1 million in combined losses and special charges recognized from the Sunoptics sale and other restructuring activities as well as accelerated amortization of intangible assets.

Diluted earnings per share for the three months ended November 30, 2022 decreased $0.17, or 6.9%, to $2.29 compared with diluted earnings per share of $2.46 for the prior-year period.

This decrease reflects lower net income, partially offset by lower outstanding diluted shares.

Segment Results

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the three months ended May 31, 2022 and 2021 (in millions).

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the three months ended November 30, 2022 and 2021 (in millions).

Three Months Ended

May 31, 2022 May 31, 2021 Increase (Decrease) Percent Change

Net sales $ 1,008.4 $ 850.0 $ 158.4 18.6 %

Operating profit 149.6 126.5 23.1 18.3 %

Operating profit margin 14.8 % 14.9 % (10) bps

Net sales $ 58.3 $ 55.4 $ 2.9 5.2 %

Operating profit 9.2 7.2 2.0 27.8 %

Operating profit margin 15.8 % 13.0 % 280 bps

ABL net sales for the three months ended May 31, 2022 increased $158.4 million, or 18.6%, to $1.01 billion compared with $850.0 million in the prior-year period.

Sales within the independent sales network channel increased due to benefits from recent price increases as well as higher volumes.

Additionally, sales within the corporate accounts channel increased year over year as some large accounts began previously deferred maintenance and renovations.

Sales within the retail sales channel increased as sales began to return to normal levels after the customer inventory rebalancing experienced in previous quarters.

Acquisitions contributed an approximately 3% increase in sales compared to the prior year and are reflected within the other sales channel in ABL's disaggregated revenue.

Sales in our direct sales network channel were approximately flat year over year as products supporting this channel were impacted by component shortages.

Operating profit for ABL was $149.6 million (14.8% of ABL net sales) for the three months ended May 31, 2022 compared to $126.5 million (14.9% of ABL net sales) in the prior-year period, an increase of $23.1 million.

The increase in operating profit was due primarily to contributions from higher sales partially offset by increased materials, labor, and freight costs as well as higher operating costs to support the increase in sales.

ISG net sales for the three months ended May 31, 2022 increased $2.9 million, or 5.2%, to $58.3 million compared with $55.4 million in the prior-year period driven primarily by strong demand for building and heating, ventilation, and air-conditioning controls as well as price increases.

ISG operating profit was $9.2 million for the three months ended May 31, 2022 compared to $7.2 million in the prior-year period, an increase of $2.0 million.

This increase was due primarily to contributions from higher sales, partially offset by increased employee costs.

First Nine Months of Fiscal 2022 Compared with First Nine Months of Fiscal 2021

The following table sets forth information comparing the components of net income for the nine months ended May 31, 2022 and 2021 (in millions except per share data):

Nine Months Ended

May 31, 2022 May 31, 2021 Increase (Decrease) Percent Change

Net sales $ 2,895.8 $ 2,468.3 $ 427.5 17.3 %

Cost of products sold 1,685.6 1,412.6 273.0 19.3 %

Gross profit 1,210.2 1,055.7 154.5 14.6 %

Percent of net sales 41.8 % 42.8 % (100) bps

Selling, distribution, and administrative expenses 850.1 759.4 90.7 11.9 %

Special charges — 1.5 (1.5) NM

Operating profit 360.1 294.8 65.3 22.2 %

Percent of net sales 12.4 % 11.9 % 50 bps

Other expense:

Interest expense, net 18.1 17.7 0.4 2.3 %

Miscellaneous (income) expense, net (3.1) 6.5 (9.6) NM

Total other expense 15.0 24.2 (9.2) (38.0) %

Income before income taxes 345.1 270.6 74.5 27.5 %

Percent of net sales 11.9 % 11.0 % 90 bps

Income tax expense 76.5 62.4 14.1 22.6 %

Effective tax rate 22.2 % 23.1 %

Net income $ 268.6 $ 208.2 $ 60.4 29.0 %

Diluted earnings per share $ 7.66 $ 5.66 $ 2.00 35.3 %

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Net sales for the nine months ended May 31, 2022 increased $427.5 million, or 17.3%, to $2.90 billion compared with $2.47 billion in the prior-year period.

Both our ABL and ISG segments benefited from recent price increases as well as higher volumes.

Revenues from acquired companies contributed an approximately 3% increase in sales compared to the prior year.

Changes in foreign currency rates did not have a meaningful impact on net sales for the first nine months of fiscal 2022.

Gross profit for the nine months ended May 31, 2022 increased $154.5 million, or 14.6%, to $1.21 billion compared with $1.06 billion in the prior-year period.

Gross profit margin decreased 100 basis points to 41.8% for the nine months ended May 31, 2022 compared with 42.8% in the prior-year period.

In this inflationary environment, we continued to experience material, labor, and freight escalations while also taking pricing actions that mitigated these escalations.

Gross profit margin was also unfavorably impacted by the near-term dilutive effects of recent acquisitions.

Operating Profit

SD&A expenses for the nine months ended May 31, 2022 were $850.1 million compared with $759.4 million in the prior-year period, an increase of $90.7 million, or 11.9%.

The increase in SD&A expense was due primarily to higher outbound freight and commissions costs associated with higher sales as well as increased employee-related costs

due in part to recent acquisitions.

Operating profit for the first nine months of fiscal 2022 was $360.1 million (12.4% of net sales) compared with $294.8 million (11.9% of net sales) for the prior-year period, an increase of $65.3 million, or 22.2%.

The increase in operating profit was due primarily to higher gross profit associated with the increase in sales, partially offset by higher SD&A expenses.

The operating profit margin increase of 50 bps year over year was the result of improved leveraging of our operating costs, partially offset by lower gross profit margin.

Other Expense

Interest expense, net, was $18.1 million and $17.7 million for the nine months ended May 31, 2022 and 2021, respectively.

We reported net miscellaneous income of $3.1 million for the nine months ended May 31, 2022 and net miscellaneous expense of $6.5 million for the nine months ended May 31, 2021.

During the first nine months of fiscal 2021, we recorded an impairment charge of $4.0 million for an unconsolidated equity investment.

Further details regarding the impairment charge are included in the Fair Value Measurements footnote of the Notes to Consolidated Financial Statements .

Excluding the impairment, the year-over-year change in net miscellaneous (income) expense was largely due to gains and losses on foreign currency-related transactions.

Income Taxes and Net Income

Our effective income tax rate was 22.2% and 23.1% for the nine months ended May 31, 2022 and 2021, respectively.

The decrease in the effective income tax rate was primarily due to favorable discrete items recognized in the first quarter of fiscal 2022 related to excess tax benefits on share-based payments.

Net income for the first nine months of fiscal 2022 increased $60.4 million, or 29.0%, to $268.6 million from $208.2 million reported for the prior-year period.

The increase in net income was due primarily to an increased operating profit.

Diluted earnings per share for the nine months ended May 31, 2022 increased $2.00 to $7.66 compared with diluted earnings per share of $5.66 for the prior-year period.

This increase reflects higher net income as well as lower outstanding diluted shares.

Segment Results

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the nine months ended May 31, 2022 and 2021 (in millions).

Nine Months Ended

May 31, 2022 May 31, 2021 Increase (Decrease) Percent Change

November 30, 2022 November 30, 2021 Increase (Decrease) Percent Change

Net sales $ 947.1 $ 883.6 $ 63.5 7.2 %

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Operating profit margin 13.6 % 4.3 % 930 bps

ABL net sales for the nine months ended May 31, 2022 increased 17.7% compared with the prior-year period.

Sales within the independent and direct network channels increased due primarily to benefits from recent price increases as well as higher volumes.

Additionally, sales within the corporate accounts channel increased year over year as some large accounts began previously deferred maintenance and renovations.

Sales within the retail channel were relatively flat compoared to the prior period.

Acquisitions contributed an approximately 3% increase in sales compared to the prior year and are reflected within the other sales channel in ABL's disaggregated revenue.

Operating profit for ABL was $394.2 million (14.3% of ABL net sales) for the nine months ended May 31, 2022 compared to $326.9 million (14.0% of ABL net sales) in the prior-year period, an increase of $67.3 million.

The increase in operating profit was due primarily to contributions from higher sales partially offset by increased material, labor, and freight costs as well as higher operating costs to support the increase in sales.

ISG net sales for the nine months ended May 31, 2022 increased 10.9% compared with the prior-year period primarily driven by strong demand for building and heating, ventilation, and air-conditioning controls as well as price increases.

ISG operating profit was $12.4 million for the nine months ended May 31, 2022 compared with $7.9 million in the prior-year period, an increase of $4.5 million.

ABL net sales for the three months ended November 30, 2022 increased $63.5 million, or 7.2%, to $947.1 million, compared with $883.6 million in the prior-year period.

Sales within the ABL segment benefited from recent price increases as well as favorable mix year over year.

Operating profit for ABL was $118.1 million (12.5% of ABL net sales) for the three months ended November 30, 2022, compared with $128.1 million (14.5% of ABL net sales) in the prior-year period, a decrease of $10.0 million.

The decrease in operating profit was due primarily to the recognition of special charges of $6.9 million attributed to the segment in the current period, the acceleration of amortization for definite-lived intangibles related to brands that were discontinued, and increased commission rates.

ISG net sales for the three months ended November 30, 2022 increased $10.4 million, or 22.4%, to $56.8 million, compared with $46.4 million in the prior-year period, driven primarily by strong demand for building management controls, improved component availability, and price increases.

ISG operating profit was $7.7 million for the three

months ended November 30, 2022, compared with $2.0 million in the prior-year period, an increase of $5.7 million.

This increase was due primarily to contributions from higher sales, partially offset by increased employee costs.

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Actual results could differ from those estimates.

We discuss the development of critical accounting estimates with the Audit Committee of the Board of Directors.

We discuss the development of critical accounting estimates with the Audit Committee of the Board of Directors on a recurring basis.

There have been no material changes in our critical accounting estimates during the current period.

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Cautionary Statement Regarding Forward-Looking Statements and Information

This filing contains forward-looking statements within the meaning of the federal securities laws.

Statements made herein that may be considered forward-looking include statements incorporating terms such as “expects,” “believes,” “intends,” “anticipates,” and similar terms that relate to future events, performance, or results of the Company.

In addition, the Company, or the executive officers on the Company’s behalf, may from time to time make forward-looking statements in reports and other documents we file with the U.S.

Securities and Exchange Commission or in connection with oral statements made to the press, current and potential investors, or others.

Forward-looking statements include, without limitation:

(a) our projections regarding financial performance, including our expected margins and ability to leverage operating costs, liquidity, capital structure, capital expenditures, investments, share repurchases, and dividends;

(b) expectations about the impact of any changes in demand, including improvements in our end markets, as well as volatility, challenges, and uncertainty in general economic conditions;

(c) expectations about volatility in raw material, purchased finished goods, and transportation costs as well as component and labor availability;

(d) our ability to execute and realize benefits from initiatives related to streamlining our operations and integrating recent acquisitions, realize synergies from acquisitions, capitalize on growth opportunities, introduce innovative products and services, and realize benefits from sustainability initiatives;

(e) our estimate of our fiscal 2022 effective income tax rate, results of operations, and cash flows;

(f) our estimate of future amortization expense;

(g) our ability to achieve our long-term financial goals and measures;

(h) our expectations about the resolution of legal matters;

and (i) our expectations of the impact of the ongoing COVID-19 pandemic and the conflict between Russia and Ukraine.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this quarterly report.

Except as required by law, we undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this quarterly report or to reflect the occurrence of unanticipated events.

Our forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and management’s present expectations or projections.

These risks and uncertainties that could cause our actual results to differ materially from those expressed in our forward-looking statements are discussed in Part I, Item 1a.

Risk Factors of our Form 10-K.

This filing contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”).

Forward-looking statements use words such as “expect,” “believe,” “intend,” “anticipate,” “indicative,” “projection,” “predict,” “plan,” “may,” “could,” “should,” “would,” “potential,” and words of similar meaning, as well as other words or expressions referencing future events, conditions, or circumstances.

We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act.

Statements that describe or relate to the Company’s plans, goals, intentions, strategies, or financial outlook, and statements that do not relate to historical or current fact, are examples of forward-looking statements.

Forward-looking statements are not guarantees of future performance.

Our forward-looking statements are based on our current beliefs, expectations, and assumptions, which may not prove to be accurate, and are subject to known and unknown risks and uncertainties, many of which are outside of our control.

These risks and uncertainties could cause actual results to differ materially from our historical experience and management’s present expectations or projections.These risks and uncertainties are discussed in our filings with the U.S.

Securities and Exchange Commission, including our most recent annual report on Form 10-K (including, but not limited to, Part I, Item 1a.

Risk Factors ), quarterly reports on Form 10-Q, and current reports on Form 8-K.

Any forward-looking statement speaks only as of the date on which it is made.

You are cautioned not to place undue reliance on any forward-looking statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis