ACUITY INC. (DE) 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 Inc. (referred to herein as “we,” “our,” “us,” the “Company,” or similar references) and its subsidiaries as of November 30, 2025 and for the three months ended November 30, 2025 and November 30, 2024. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included within this report. Also, please refer to Acuity Inc.'s Annual Report on Form 10-K for the fiscal year ended August 31, 2025, filed with the Securities and Exchange Commission (the “SEC”) on October 27, 2025 (“Form 10-K”). Overview Company We are a market-leading industrial technology company. We use technology to solve problems in spaces, light, and more things to come. Through our two business segments, Acuity Brands Lighting (“ABL”) and Acuity Intelligent Spaces (“AIS”), we design, manufacture, and bring to market products and services that make a valuable difference in people’s lives. We achieve growth through the development of innovative new products and services, including lighting, lighting controls, building management solutions, and an audio, video and control platform. We focus on customer outcomes and drive growth and productivity to increase market share and deliver superior returns. We look to aggressively deploy capital to grow the business and to enter attractive new verticals. Both ABL and AIS exhibit some seasonality, with net sales being affected by business days, weather and seasonal demand on construction and installation programs, particularly during the winter months, and the annual budget cycles of major customers. Historically, with certain exceptions, we have experienced our highest sales in the last two quarters of each fiscal year due to these factors. Financial Condition, Capital Resources, and Liquidity 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 flows 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 pay a dividend, and to make share repurchases. Sufficient cash flow generation is also critical to fund our operations in the short and long term and to maintain compliance with covenants contained in our financing agreements. Our significant contractual cash requirements primarily include principal and interest on outstanding debt, accounts payable, accrued employee compensation, operating lease liabilities, and certain purchase obligations incurred in the ordinary course of business that are enforceable and legally binding. Our obligations related to these items are described further within Management’s Discussion and Analysis of Financial Condition and Results of Operations within our Annual Report filed on Form 10-K. Refer to Financing Arrangements below for a discussion of significant changes to our contractual obligations for the first three months of fiscal 2026. We believe that we will be able to meet our liquidity needs over the next 12 months based on our cash on hand, current projections of cash flows from operations, borrowing availability under financing arrangements, and current access to capital markets. Additionally, we believe that our cash flows from operations and sources of funding, including, but not limited to, future borrowings and borrowing capacity, will sufficiently support our long-term liquidity needs. 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. Cash Our cash position at November 30, 2025 was $376.1 million, a decrease of $46.4 million from August 31, 2025. Cash generated from operating activities and cash on hand were used during the current year to voluntarily repay $100.0 million of borrowings on our Term Loan Facility (as defined below) as well as to fund our capital allocation priorities as discussed below. We generated $140.8 million of cash flows from operating activities during the three months ended November 30, 2025, compared to $132.2 million in the prior-year period, an increase of $8.6 million. Cash flows from operations increased due primarily to higher profit, partially offset by the timing of payments for inventory purchases. 19 Table of Contents 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 2.150% senior unsecured notes due December 15, 2030 (the “Unsecured Notes”), the terms of our five-year unsecured revolving credit facility (“Revolving Credit Facility”), and the terms of our unsecured term loan facility (“Term Loan Facility”) due June 30, 2027. At November 30, 2025, our outstanding debt balance was $797.0 million, which consisted of our Unsecured Notes and borrowings on our Term Loan Facility, compared to our cash position of $376.1 million. We were in compliance with all covenants under our financing arrangements as of November 30, 2025. The Unsecured Notes were issued by Acuity Brands Lighting, Inc., a wholly-owned subsidiary of Acuity Inc. The Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by Acuity Inc. and ABL IP Holding LLC, a wholly-owned subsidiary of Acuity Inc. The following tables present summarized financial information for Acuity 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 November 30, 2025 August 31, 2025 Current assets $ 971.1 $ 1,068.2 Amounts due from non-guarantor affiliates 273.3 303.5 Non-current assets 1,351.1 1,369.4 Current liabilities 534.2 604.0 Non-current liabilities 1,041.1 1,138.4 Summarized Income Statement Information Three Months Ended November 30, 2025 Net sales $ 814.2 Gross profit 359.2 Net income 87.5 In October 2025, we voluntarily repaid $100.0 million of our outstanding Term Loan Facility obligation. As of November 30, 2025, we had $300.0 million in borrowings outstanding under the Term Loan Facility. At November 30, 2025, we had additional borrowing capacity under the Credit Agreement of $593.0 million under the most restrictive covenant in effect at the time, which represents the full amount of the Revolving Credit Facility of $600.0 million less outstanding letters of credit of $7.0 million issued under the Revolving Credit Facility, primarily for securing collateral requirements under our casualty insurance policies. As of November 30, 2025, our cash on hand combined with the additional borrowing capacity under the Revolving Credit Facility totaled $969.1 million. Capital Allocation Priorities Our capital allocation priorities are to invest in our current business for growth, to invest in mergers and acquisitions, to pay a dividend, and to make share repurchases. Investments in Current Business for Growth We invested $26.0 million and $18.9 million in property, plant, and equipment during the three months ended November 30, 2025 and November 30, 2024, respectively. We invested primarily in new and enhanced equipment, information technology, tooling, and facility improvements in fiscal 2026. Strategic Acquisitions, Investments, and Divestitures We seek opportunities to strategically expand and enhance our portfolio of solutions. QSC, LLC On January 1, 2025, we acquired all of the equity interests of QSC, LLC (“QSC”), a leader in the design, engineering, and manufacturing of audio, video, and control solutions and services, for $1.2 billion. This acquisition expanded AIS into a cloud-manageable audio, video, and control platform that includes controls, sensors, and software with broad applications across multiple end-markets including education, commercial, hospitality, government, healthcare, and transportation. We funded the transaction using cash on hand and proceeds from our 20 Table of Contents Term Loan Facility. The operating results, assets, liabilities, and cash flows of QSC have been included in our consolidated financial statements since the date of acquisition. Please refer to the Acquisitions footnote of the Notes to Consolidated Financial Statements for more information. Dividends We paid dividends on our common stock of $5.3 million ($0.17 per share) and $4.5 million ($0.15 per share) during the three months ended November 30, 2025 and November 30, 2024, 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 three months of fiscal 2026 and 2025, we repurchased approximately 0.1 million shares and less than 0.1 million shares of our outstanding common stock for $27.6 million and $5.4 million, respectively. Total cash outflows for share repurchases during the three months ended November 30, 2025 and November 30, 2024 were $27.1 million and $6.7 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. As of November 30, 2025, 3.3 million shares remained available within the program to repurchase. 21 Table of Contents Results of Operations First Quarter of Fiscal 2026 Compared with First Quarter of Fiscal 2025 The following table sets forth information comparing the components of net income for the three months ended November 30, 2025 and November 30, 2024 (in millions except per-share data): Three Months Ended November 30, 2025 November 30, 2024 Increase (Decrease) Percent Change Net sales $ 1,143.7 $ 951.6 $ 192.1 20.2 % Cost of products sold 589.9 502.3 87.6 17.4 % Gross profit 553.8 449.3 104.5 23.3 % Percent of net sales 48.4 % 47.2 % 120 bps Selling, distribution, and administrative expenses (1) 393.4 316.0 77.4 24.5 % Operating profit 160.4 133.3 27.1 20.3 % Percent of net sales 14.0 % 14.0 % — bps Other expense (income): Interest expense (income), net 8.4 (4.0) 12.4 NM Miscellaneous (income) expense, net (0.6) 2.5 (3.1) NM Total other expense (income) 7.8 (1.5) 9.3 NM Income before income taxes 152.6 134.8 17.8 13.2 % Percent of net sales 13.3 % 14.2 % (90) bps Income tax expense 32.1 28.1 4.0 14.2 % Effective tax rate 21.0 % 20.8 % Net income $ 120.5 $ 106.7 $ 13.8 12.9 % Diluted earnings per share $ 3.82 $ 3.35 $ 0.47 14.0 % NM - not meaningful ____________________________________ (1) Fiscal 2025 includes $4.6 million in acquisition-related costs. Net Sales Net sales for the first quarter of fiscal 2026 increased $192.1 million, or 20.2%, to $1.1 billion, compared with $951.6 million in the prior-year period due primarily to an increase in sales in our AIS segment, driven by the acquisition of QSC, as well as an increase in net sales in our ABL segment. Gross Profit Gross profit for the first quarter of fiscal 2026 increased $104.5 million, or 23.3%, to $553.8 million, compared with $449.3 million in the prior-year period, and gross profit margin increased 120 basis points to 48.4%, compared with 47.2% in prior-year period. Our gross profit increased compared with the prior period due primarily to contributions from the QSC acquisition. The improvement at AIS was partially offset by lower gross profit at ABL due primarily to higher production costs, partially offset by the fall through of higher sales and lower materials costs. Operating Profit Selling, distribution, and administrative expenses (“SD&A”) expenses for the first quarter of fiscal 2026 were $393.4 million, compared with $316.0 million in the prior-year period, an increase of $77.4 million, or 24.5%. The increase in SD&A expenses was due primarily to amounts related to the QSC acquisition, including higher employee-related costs and higher amortization from acquired intangibles. Operating profit for the first quarter of fiscal 2026 was $160.4 million (14.0% of net sales), compared with $133.3 million (14.0% of net sales) for the prior-year period, an increase of $27.1 million, or 20.3%. The increase in operating profit was due to higher gross profit, partially offset by higher SD&A expenses. 22 Table of Contents Interest Expense (Income), net We reported net interest expense of $8.4 million and net interest income of $4.0 million for the first quarter of fiscal 2026 and 2025, respectively. The increase in net interest expense was due primarily to interest incurred on our outstanding Term Loan Facility and lower interest-bearing cash and cash equivalent balances held during the period as a result of our purchase of QSC in the second quarter of fiscal 2025. 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 $0.6 million and net miscellaneous expense of $2.5 million for the first quarter of fiscal 2026 and 2025, respectively. Income Taxes and Net Income Our effective income tax rate was 21.0% and 20.8% for the first quarter of fiscal 2026 and 2025, respectively. Net income for the first quarter of fiscal 2026 increased $13.8 million, or 12.9%, to $120.5 million, from $106.7 million reported for the prior-year period. This increase was due primarily to higher operating profit, partially offset by higher net interest expense and income tax expense. Diluted earnings per share for the first quarter of fiscal 2026 increased $0.47, or 14.0%, to $3.82 compared with diluted earnings per share of $3.35 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 AIS, for the three months ended November 30, 2025 and November 30, 2024 (in millions): Three Months Ended November 30, 2025 November 30, 2024 Increase (Decrease) Percent Change ABL: Net sales $ 895.1 $ 886.0 $ 9.1 1.0 % Gross profit 400.6 406.4 (5.8) (1.4) % Operating profit 149.0 143.3 5.7 4.0 % Gross profit margin 44.8 % 45.9 % (110) bps Operating profit margin 16.6 % 16.2 % 40 bps AIS: Net sales $ 257.4 $ 73.5 $ 183.9 250.2 % Gross profit 153.2 42.9 110.3 257.1 % Operating profit 37.0 10.8 $ 26.2 242.6 % Gross profit margin 59.5 % 58.4 % 110 bps Operating profit margin 14.4 % 14.7 % (30) bps ABL net sales for the first quarter of fiscal 2026 increased 1.0% compared with the prior-year period. This increase was due primarily to higher net sales within the independent sales network and corporate accounts channels, partially offset by lower net sales within the direct sales network. ABL gross profit was $400.6 million (44.8% of ABL net sales) for the first quarter of fiscal 2026, compared with $406.4 million (45.9% of ABL net sales) in the prior-year period, a decrease of $5.8 million. The decrease in gross profit was due primarily to higher production costs, partially offset by the fall through of higher net sales and favorable materials cost. ABL operating profit was $149.0 million (16.6% of ABL net sales) for the first quarter of fiscal 2026, compared with $143.3 million (16.2% of ABL net sales) in the prior-year period, an increase of $5.7 million. The increase in operating profit was due primarily to lower selling and employee costs, which more than offset the decline in gross profit. 23 Table of Contents AIS net sales for the first quarter of fiscal 2026 increased 250.2% compared with the prior-year period. The increase was due primarily to the acquisition of QSC. Additionally, sales of Distech products increased during the first quarter of fiscal 2026. AIS gross profit was $153.2 million (59.5% of AIS net sales) for the first quarter of fiscal 2026, compared with $42.9 million (58.4% of AIS net sales) in the prior-year period, an increase of $110.3 million. The increase in gross profit was due primarily to the acquisition of QSC as well as the fall through of higher Distech net sales. AIS operating profit was $37.0 million (14.4% of AIS net sales) for the first quarter of fiscal 2026, compared with $10.8 million (14.7% of AIS net sales) in the prior-year period, an increase of $26.2 million. This increase primarily reflects higher operating profit from the QSC acquisition. AIS's operating results also include higher amortization from acquired intangibles from the QSC acquisition. Critical Accounting Estimates Management’s Discussion and Analysis of Financial Condition and Results of Operations addresses the financial condition and results of operations as reflected in our Consolidated Financial Statements , which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). As discussed in the Description of Business and Basis of Presentation footnote of the Notes to Consolidated Financial Statements , the preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expense during the reporting period. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition; inventory valuation; business combinations; and goodwill and indefinite-lived intangible assets. We base our estimates and judgments on our substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. 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. For a detailed discussion of other significant accounting policies that may involve a higher degree of judgment, refer to our Form 10-K. Cautionary Statement Regarding Forward-Looking Statements and Information 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 include, but are not limited to, statements that describe or relate to the Company’s plans, initiatives, projections, vision, goals, targets, commitments, expectations, objectives, prospects, strategies, or financial outlook, and the assumptions underlying or relating thereto. In some cases, we may use words such as “expect,” “believe,” “intend,” “anticipate,” “estimate,” “forecast,” “indicate,” “project,” “predict,” “plan,” “may,” “will,” “could,” “should,” “would,” “potential,” and words of similar meaning, as well as other words or expressions referencing future events, conditions, or circumstances, to identify forward-looking statements. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Act. 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, assumptions, and other important factors, many of which are outside of our control and any of which could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. 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, the sections titled “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations”), 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. This quarterly report is not comprehensive, and for that reason, should be read in conjunction with such filings. You are cautioned not to place undue reliance on any forward-looking statements. 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, whether as a result of new information, future events, or otherwise. 24 Table of Contents