What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-06-27 compared with 2024-04-03 · 83 added, 80 removed, 149 unchanged (52% 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 February 29, 2024 and for the three and six months ended February 29, 2024 and February 28, 2023.

(referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of May 31, 2024 and for the three and nine months ended May 31, 2024 and May 31, 2023.

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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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 February 29, 2024 was $578.9 million, an increase of $181.0 million from August 31, 2023.

Our cash position at May 31, 2024 was $699.0 million, an increase of $301.1 million from August 31, 2023.

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 $292.6 million of cash flows from operating activities during the six months ended February 29, 2024, compared to $306.4 million in the prior-year period, a decrease of $13.8 million.

This decrease was due primarily to more favorable operating working capital reductions in the prior year as well as an increase in income tax payments associated with higher profit, partially offset by higher pre-tax income.

We generated $445.1 million of cash flows from operating activities during the nine months ended May 31, 2024, compared to $471.5 million in the prior-year period, a decrease of $26.4 million.

This decrease was due primarily to more favorable operating working capital reductions in fiscal 2023 as well as the timing of income tax payments in fiscal 2024, partially offset by higher pre-tax income in fiscal 2024.

Financing Arrangements

See the Debt and Lines of Credit footnote of the Notes to Consolidated Financial Statements for discussion of the terms 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”).

At February 29, 2024, our outstanding debt balance was $495.9 million, which consisted solely of our Unsecured Notes, compared to our cash position of $578.9 million.

We were in compliance with all covenants under our financing arrangements as of February 29, 2024.

At February 29, 2024, we had additional borrowing capacity under the Revolving Credit Facility of $596.2 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 $3.8 million issued under the facility.

As of February 29, 2024, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $1.2 billion.

At May 31, 2024, our outstanding debt balance was $496.0 million, which consisted solely of our Unsecured Notes, compared to our cash position of $699.0 million.

We were in compliance with all covenants under our financing arrangements as of May 31, 2024.

At May 31, 2024, we had additional borrowing capacity under the Revolving Credit Facility of $596.2 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 $3.8 million issued under the facility.

As of May 31, 2024, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $1.3 billion.

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 February 29, 2024 August 31, 2023

Summarized Balance Sheet Information May 31, 2024 August 31, 2023

Current assets $ 1,326.9 $ 995.7

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Non-current liabilities 792.0 785.4

Summarized Income Statement Information Six Months Ended February 29, 2024

Summarized Income Statement Information Nine Months Ended May 31, 2024

Net sales $ 2,307.0

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Investments in Current Business for Growth

We invested $29.0 million and $35.6 million in property, plant, and equipment during the six months ended February 29, 2024 and February 28, 2023, respectively.

We invested primarily in new and enhanced information technology, equipment, and facility improvements in fiscal 2024 to date.

We invested $41.0 million and $48.0 million in property, plant, and equipment during the nine months ended May 31, 2024 and May 31, 2023, respectively.

We invested primarily in new and enhanced information technology, equipment, tooling, and facility improvements in fiscal 2024 to date.

Strategic Acquisitions, Investments, and Divestitures

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digital controls to promote safety, efficiency, and reliability, while delivering cost savings to the customer.

This acquisition is intended to expand ISG's technology and controls product portfolio and reach new customers.

There were no divestitures during the first six months of fiscal 2024.

This acquisition expanded ISG's technology and controls product portfolio and reached new customers.

There were no divestitures during the first nine months of fiscal 2024.

We sold our Sunoptics prismatic skylights business in the first fiscal quarter of 2023 and recognized a pre-tax loss of $11.2 million on the sale of this business.

We paid dividends on our common stock of $8.8 million ($0.28 per share) and $8.5 million ($0.26 per share) during the six months ended February 29, 2024 and February 28, 2023, respectively.

We paid dividends on our common stock of $13.4 million ($0.43 per share) and $12.7 million ($0.39 per share) during the nine months ended May 31, 2024 and May 31, 2023, 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 six months of fiscal 2024, we repurchased 0.4 million shares of our outstanding common stock for $67.6 million.

Total cash outflows for share repurchases during the six months ended February 29, 2024 were $67.8 million.

During the first nine months of fiscal 2024 and 2023, we repurchased 0.5 million and 1.3 million shares of our outstanding common stock for $88.3 million and $218.8 million, respectively.

Total cash outflows for share repurchases during the nine months ended May 31, 2024 and May 31, 2023 were $88.7 million and $216.2 million, respectively.

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.

On January 25, 2024, the Board approved an increase of three million shares to the maximum number of shares that may yet be repurchased under the share repurchase program.

As of February 29, 2024, 3.9 million shares remained available within the program to repurchase.

As of May 31, 2024, 3.8 million shares remained available within the program to repurchase.

Results of Operations

Second Quarter of Fiscal 2024 Compared with Second Quarter of Fiscal 2023

The following table sets forth information comparing the components of net income for the three months ended February 29, 2024 and February 28, 2023 (in millions except per share data):

Third Quarter of Fiscal 2024 Compared with Third Quarter of Fiscal 2023

The following table sets forth information comparing the components of net income for the three months ended May 31, 2024 and May 31, 2023 (in millions except per share data):

Three Months Ended

February 29, 2024 February 28, 2023 Increase (Decrease) Percent Change

May 31, 2024 May 31, 2023 Increase (Decrease) Percent Change

Net sales $ 968.1 $ 1,000.3 $ (32.2) (3.2) %

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Percent of net sales 15.0 % 14.3 % 70 bps

Other expense:

Other (income) expense:

Interest (income) expense, net (1.8) 3.9 (5.7) (146.2) %

Miscellaneous expense (income), net 0.6 (3.7) 4.3 NM

Total other expense 0.5 2.0 (1.5) (75.0) %

Miscellaneous (income) expense, net (0.5) 0.7 (1.2) NM

Total other (income) expense (2.3) 4.6 (6.9) (150.0) %

Income before income taxes 147.6 138.7 8.9 6.4 %

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Net sales for the second quarter of fiscal 2024 decreased $37.7 million, or 4.0%, to $905.9 million, compared with $943.6 million in the prior-year period due to a decline in sales within our ABL segment, partially offset by higher sales within our ISG segment.

Acquisitions did not have a meaningful impact on consolidated net sales for the second quarter of fiscal 2024.

Gross profit for the second quarter of fiscal 2024 increased $5.7 million, or 1.4%, to $412.4 million, compared with $406.7 million in the prior-year period, and gross profit margin increased 240 basis points to 45.5% from 43.1% compared with the prior-year period.

Our gross profit increased compared with the prior period due primarily to favorable material and import costs, partially offset by the fall through of the net sales decline as well as higher quality, labor, and overhead costs.

Net sales for the third quarter of fiscal 2024 decreased $32.2 million, or 3.2%, to $968.1 million, compared with $1.0 billion in the prior-year period due to a decline in sales within our ABL segment, partially offset by higher sales within our ISG segment.

Acquisitions did not have a meaningful impact on consolidated net sales for the third quarter of fiscal 2024.

Gross profit for the third quarter of fiscal 2024 increased $4.9 million, or 1.1%, to $452.2 million, compared with $447.3 million in the prior-year period, and gross profit margin increased 200 basis points to 46.7% from 44.7% compared with the prior-year period.

Our gross profit increased compared with the prior period due primarily to favorable material costs, which outpaced the impact of lower net sales and higher production costs.

Operating Profit

Selling, distribution, and administrative expenses (“SD&A”) expenses for the second quarter of fiscal 2024 were $294.3 million, compared with $295.2 million in the prior-year period, a decrease of $0.9 million, or 0.3%.

Operating profit for the second quarter of fiscal 2024 was $118.1 million (13.0% of net sales), compared with $111.5 million (11.8% of net sales) for the prior-year period, an increase of $6.6 million, or 5.9%.

The increase in operating profit was due primarily to the increase in gross profit.

Selling, distribution, and administrative expenses (“SD&A”) expenses for the third quarter of fiscal 2024 were $306.9 million, compared with $304.0 million in the prior-year period, an increase of $2.9 million, or 1.0%.

The increase in SD&A expenses was due primarily to higher employee-related costs, partially offset by lower commissions and freight costs associated with the decline in net sales.

Operating profit for the third quarter of fiscal 2024 was $145.3 million (15.0% of net sales), compared with $143.3 million (14.3% of net sales) for the prior-year period, an increase of $2.0 million, or 1.4%.

The increase in operating profit was due primarily to the increase in gross profit, partially offset by higher operating expenses.

Interest (Income) Expense, net

We reported net interest income of $0.1 million and net interest expense of $5.7 million for the second quarter of fiscal 2024 and 2023, respectively.

We reported net interest income of $1.8 million and net interest expense of $3.9 million for the third quarter of fiscal 2024 and 2023, respectively.

Our fiscal 2024 net interest income reflects higher interest bearing cash and cash equivalent balances, higher investing rates on those balances, and lower average short-term borrowings outstanding compared to the prior year.

Miscellaneous Expense (Income), net

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

We reported net miscellaneous expense of $0.6 million and net miscellaneous income of $3.7 million for the second quarter of fiscal 2024 and 2023, respectively.

Miscellaneous (Income) Expense, net

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

We reported net miscellaneous income of $0.5 million and net miscellaneous expense of $0.7 million for the third quarter of fiscal 2024 and 2023, respectively.

This year-over-year change is due primarily to the impact of foreign currency-related items compared to the prior year.

Income Taxes and Net Income

Our effective income tax rate was 24.1% and 24.0% for the second quarter of fiscal 2024 and 2023, respectively.

Net income for the second quarter of fiscal 2024 increased $6.0 million, or 7.2%, to $89.2 million, from $83.2 million reported for the prior-year period.

Diluted earnings per share for the second quarter of fiscal 2024 increased $0.27, or 10.5%, to $2.84 compared with diluted earnings per share of $2.57 for the prior-year period.

Our effective income tax rate was 22.8% and 24.3% for the third quarter of fiscal 2024 and 2023, respectively.

This decrease was due primarily to higher discrete items for research and development tax credits as well as excess tax benefits on stock compensation in the third quarter of fiscal 2024.

We recognized excess tax benefits of $0.2 million related to share-based payment awards for the third quarter of fiscal 2024.

We recognized no excess tax benefits related to share-based payment awards for the third quarter of fiscal 2023.

Net income for the third quarter of fiscal 2024 increased $8.9 million, or 8.5%, to $113.9 million, from $105.0 million reported for the prior-year period.

Diluted earnings per share for the third quarter of fiscal 2024 increased $0.34, or 10.4%, to $3.62 compared with diluted earnings per share of $3.28 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 three months ended February 29, 2024 and February 28, 2023 (in millions):

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the three months ended May 31, 2024 and May 31, 2023 (in millions):

Three Months Ended

February 29, 2024 February 28, 2023 Increase (Decrease) Percent Change

May 31, 2024 May 31, 2023 Increase (Decrease) Percent Change

Net sales $ 898.5 $ 940.7 $ (42.2) (4.5) %

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Operating profit margin 16.5 % 13.1 % 340 bps

ABL net sales for the second quarter of fiscal 2024 decreased $47.3 million, or 5.3%, to $843.5 million, compared with $890.8 million in the prior-year period.

Sales within the ABL segment decreased due to lower net sales across all channels.

The second quarter of 2023 benefited from working through an elevated backlog.

Operating profit for ABL was $126.0 million (14.9% of ABL net sales) for the second quarter of fiscal 2024, compared with $123.6 million (13.9% of ABL net sales) in the prior-year period, an increase of $2.4 million.

The increase in operating profit was due primarily to improved profitability on lower sales as well as lower sales-related costs, such as commissions and freight to customers.

ISG net sales for the second quarter of fiscal 2024 increased $9.9 million, or 17.0%, to $68.1 million, compared with $58.2 million in the prior-year period.

Sales within the ISG segment increased due primarily to higher volume and the acquisition of KE2 Therm.

ISG operating profit was $9.1 million for the second quarter of fiscal 2024, compared with $6.3 million in the prior-year period, an increase of $2.8 million.

ABL net sales for the third quarter of fiscal 2024 decreased $42.2 million, or 4.5%, to $898.5 million, compared with $940.7 million in the prior-year period.

Sales within the ABL segment decreased due to lower net sales across all channels, except for corporate accounts.

Net sales in the third quarter of 2023 benefited from working through an elevated backlog.

Operating profit for ABL was $151.5 million (16.9% of ABL net sales) for the third quarter of fiscal 2024, compared with $150.0 million (15.9% of ABL net sales) in the prior-year period, an increase of $1.5 million.

The increase in operating profit was due to improved profitability on lower sales as well as lower sales-related costs, such as commissions and freight to customers.

ISG net sales for the third quarter of fiscal 2024 increased $9.9 million, or 15.0%, to $75.7 million, compared with $65.8 million in the prior-year period.

The increase in sales within the ISG segment is attributed to higher sales of Distech products as well as the acquisition of KE2 Therm.

ISG operating profit was $12.5 million for the third quarter of fiscal 2024, compared with $8.6 million in the prior-year period, an increase of $3.9 million.

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

First Six Months of Fiscal 2024 Compared with First Six Months of Fiscal 2023

The following table sets forth information comparing the components of net income for the six months ended February 29, 2024 and February 28, 2023 (in millions except per share data):

Six Months Ended

February 29, 2024 February 28, 2023 Increase (Decrease) Percent Change

First Nine Months of Fiscal 2024 Compared with First Nine Months of Fiscal 2023

The following table sets forth information comparing the components of net income for the nine months ended May 31, 2024 and May 31, 2023 (in millions except per share data):

Nine Months Ended

May 31, 2024 May 31, 2023 Increase (Decrease) Percent Change

Net sales $ 2,808.7 $ 2,941.8 $ (133.1) (4.5) %

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Other expense:

Interest expense, net 0.8 12.3 (11.5) (93.5) %

Interest (income) expense, net (1.0) 16.2 (17.2) (106.2) %

Miscellaneous expense, net 1.2 6.1 (4.9) NM

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Net sales for the six months ended February 29, 2024 decreased $100.9 million, or 5.2%, to $1.84 billion compared with $1.94 billion in the prior-year period due to a decline in sales within our ABL segment, partially offset by higher sales within our ISG segment.

Acquisitions and divestitures did not have meaningful impacts on consolidated net sales for the first six months of fiscal 2024.

Gross profit for the six months ended February 29, 2024 increased $17.6 million, or 2.1%, to $840.8 million compared with $823.2 million in the prior-year period.

Gross profit margin increased 330 basis points to 45.7% for the six months ended February 29, 2024 compared with 42.4% in the prior-year period.

Net sales for the nine months ended May 31, 2024 decreased $133.1 million, or 4.5%, to $2.81 billion compared with $2.94 billion in the prior-year period due to a decline in sales within our ABL segment, partially offset by higher sales within our ISG segment.

Acquisitions and divestitures did not have meaningful impacts on consolidated net sales for the first nine months of fiscal 2024.

Gross profit for the nine months ended May 31, 2024 increased $22.5 million, or 1.8%, to $1.29 billion compared with $1.27 billion million in the prior-year period.

Gross profit margin increased 280 basis points to 46.0% for the nine months ended May 31, 2024 compared with 43.2% in the prior-year period.

Our gross profit increased compared with the prior period due primarily to favorable material and import costs, which outpaced the impact of lower net sales and higher production costs.

Operating Profit

SD&A expenses for the six months ended February 29, 2024 were $589.8 million compared with $595.9 million in the prior-year period, a decrease of $6.1 million, or 1.0%.

The decrease in SD&A expenses was due primarily to lower commissions and freight costs associated with the decline in net sales as well as decreased amortization, partially offset by increased employee-related costs.

SD&A expenses for the nine months ended May 31, 2024 were $896.7 million compared with $899.9 million in the prior-year period, a decrease of $3.2 million, or 0.4%.

The decrease in SD&A expenses was due primarily to lower commissions and freight costs associated with the decline in net sales as well as lower amortization expense, partially offset by increased employee-related costs.

Amortization expense of definite-lived intangibles decreased in fiscal 2024 as we recorded $4.0 million of accelerated amortization in fiscal 2023 for intangibles associated with certain brands that were discontinued.

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

Please refer to the Special

Charges footnote of the Notes to Consolidated Financial Statements for further details.

Operating profit for the first six months of fiscal 2024 was $251.0 million (13.6% of net sales) compared with $220.4 million (11.4% of net sales) for the prior-year period, an increase of $30.6 million, or 13.9%.

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

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

Operating profit for the first nine months of fiscal 2024 was $396.3 million (14.1% of net sales) compared with $363.7 million (12.4% of net sales) for the prior-year period, an increase of $32.6 million, or 9.0%.

The increase in operating profit was due primarily to higher gross profit, lower SD&A expenses, and nonrecurring special charges in the first quarter of fiscal 2023.

Interest Expense, net

Interest expense, net was $0.8 million and $12.3 million for the six months ended February 29, 2024 and February 28, 2023, respectively.

Interest (Income) Expense, net

We reported net interest income of $1.0 million and net interest expense of $16.2 million for the nine months ended May 31, 2024 and May 31, 2023, respectively.

The decrease in net interest expense was due to higher interest bearing cash and cash equivalent balances, higher investing rates on those balances, and lower average short-term borrowings outstanding compared to the prior year.

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Miscellaneous expense, net consists of non-service components of net periodic pension cost, gains and losses associated with foreign currency-related transactions, and non-operating gains and losses.

We reported net miscellaneous expense of $1.7 million for the six months ended February 29, 2024 and $5.4 million for the six months ended February 28, 2023.

We reported net miscellaneous expense of $1.2 million for the nine months ended May 31, 2024 and $6.1 million for the nine months ended May 31, 2023.

This year-over-year decrease was due primarily to the recognition of an $11.2 million loss on the sale of our Sunoptics prismatic skylights business in fiscal 2023, partially offset by the impact of foreign currency-related items compared to the prior year.

Income Taxes and Net Income

Our effective income tax rate was 23.6% and 22.0% for the six months ended February 29, 2024 and February 28, 2023, respectively.

Our effective income tax rate was 23.3% and 22.9% for the nine months ended May 31, 2024 and May 31, 2023, respectively.

This increase was due primarily to the recognition of higher favorable discrete items in the prior year.

Net income for the first six months of fiscal 2024 increased $31.7 million, or 20.1%, to $189.8 million from $158.1 million reported for the prior-year period.

Diluted earnings per share for the six months ended February 29, 2024 increased $1.19 to $6.05 compared with diluted earnings per share of $4.86 for the prior-year period.

We recognized excess tax benefits of $1.8 million and $1.7 million related to share-based payment awards during the nine months ended May 31, 2024 and May 31, 2023, respectively.

Net income for the first nine months of fiscal 2024 increased $40.6 million, or 15.4%, to $303.7 million from $263.1 million reported for the prior-year period.

Diluted earnings per share for the nine months ended May 31, 2024 increased $1.54 to $9.67 compared with diluted earnings per share of $8.13 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 six months ended February 29, 2024 and February 28, 2023 (in millions):

Six Months Ended

February 29, 2024 February 28, 2023 Increase (Decrease) Percent Change

The following table sets forth information comparing the operating results of our segments, ABL and ISG, for the nine months ended May 31, 2024 and May 31, 2023 (in millions):

Nine Months Ended

May 31, 2024 May 31, 2023 Increase (Decrease) Percent Change

Net sales $ 2,618.4 $ 2,778.6 $ (160.2) (5.8) %

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Operating profit margin 12.9 % 12.6 % 30 bps

ABL net sales for the six months ended February 29, 2024 decreased 6.4% compared with the prior-year period due primarily to lower net sales across all channels except within the retail sales channel.

The first six months of 2023 benefited from working through an elevated backlog.

Operating profit for ABL was $269.8 million (15.7% of ABL net sales) for the six months ended February 29, 2024 compared to $241.7 million (13.2% of ABL net sales) in the prior-year period, an increase of $28.1 million.

ABL net sales for the nine months ended May 31, 2024 decreased 5.8% compared with the prior-year period due to lower net sales across all channels.

Net sales in fiscal 2023 benefited from working through an elevated backlog.

Operating profit for ABL was $421.3 million (16.1% of ABL net sales) for the nine months ended May 31, 2024 compared to $391.7 million (14.1% of ABL net sales) in the prior-year period, an increase of $29.6 million.

The increase in operating profit was due primarily to improved profitability on lower sales as well as lower sales-related costs, such as commissions and freight to customers.

During the first six months of fiscal 2023, we recorded within ABL $6.9 million of special charges and $4.0 million of accelerated amortization expense for intangibles associated

with certain brands that were discontinued.

ISG net sales for the six months ended February 29, 2024 increased 15.0% compared with the prior-year period primarily driven by the acquisition of KE2 Therm as well as price increases and favorable product mix.

ISG operating profit was $14.4 million for the six months ended February 29, 2024 compared with $14.0 million in the prior-year period, an increase of $0.4 million.

During the first nine months of fiscal 2023, we recorded within ABL $6.9 million of special charges and $4.0 million of accelerated amortization expense for intangibles associated with certain brands that were discontinued.

ISG net sales for the nine months ended May 31, 2024 increased 15.0% compared with the prior-year period primarily driven by the acquisition of KE2 Therm as well as higher demand, price increases, and favorable product mix for Distech products.

ISG operating profit was $26.9 million for the nine months ended May 31, 2024 compared with $22.7 million in the prior-year period, an increase of $4.2 million.

This increase was due primarily to contributions from higher sales, partially offset by increased employee-related costs and professional fees.

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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