Q4 2020 Acuity Brands Inc Earnings Call
[music].
Good morning, and welcome to acuity brands fiscal 2024th quarter Financial Conference call.
After todays presentation, there will be a formal question and answer session to ask a question. Please press. The Star then one key on your telephone today.
Today's conference is being recorded if you have any objections you may disconnect at this time now.
Now I would like to introduce Mr. Peach Honey, Vice President Investor Relations and corporate development, Sir you may begin.
Good morning, with me today to discuss our fiscal 2024th quarter results are Neil Ashe, Our President and Chief Executive Officer, Karen Welcome, our senior Vice President and Chief Financial Officer, and Ricky Reece, Our executive Vice President and President of the QD brands lighting, we are webcasting today's conference call.
Judy brand dotcom. During this call. We will also discuss certain non-GAAP financial measures reconciliations to comparable GAAP financial measures can be found in our fourth quarter press release, I would like to remind everyone that during this call we may make projections or forward looking statements regarding future events or future financial.
Performance of the company such statements involve risks and uncertainties such that actual results may differ materially further forward looking statements speak only as of the date. They are made and we undertake no obligation to update publicly any of these statements considering new information or future events. Please refer to our most recent same say 10.
Q FCC filing and today's press release, which identify important factors that could cause actual results.
For materially from those contained in our projections or forward looking statements now let me turn this call over to Neil Ashe.
Thanks, Pete Good morning, everyone. Thank you for spending time with us today to talk about acuity are comes.
Our company continued to perform well during the fourth quarter in a market that remain challenging.
As I said in the third quarter, the combined strength of our go to market channels product portfolio and supply chain allowed us to effectively serve the needs of customers across many categories.
We were able to maintain gross margins in line with prior year and the third quarter and continued to generate a significant amount of cash during the quarter.
Some of the highlights of this quarter included continued strong performance by our supply chain.
The health and well being of our associates remained our top priority, which allowed our supply chain to continue to operate effectively so we could in turn to service our customers.
Continued new product development, we expanded our product offerings with several new product introductions.
We repurchased about 687000 shares of the company's common stock for $70 million during the quarter I will just.
I will discuss our capital allocation priorities in more detail in a few minutes.
Finally, we continue to make progress on the execution of our digital transformation and I will also provide more updates later in the call on that.
Most importantly, our performance this quarter has continued to demonstrate the adaptability and durability of our business.
While our revenue declined 5% largely due to the COVID-19 pandemic, we held our gross profit margins and generated $450 million of free cash flow for the full year.
With that I'll turn it over to Karen for more detail on the financials.
Fair.
Thank you Neil and good morning, everyone I will add some further insight to our financial performance for the fourth quarter of 2020.
Net sales for the fourth quarter were $891 million, a decrease of 5% compared with the year ago period.
While it is not possible to precisely determine the separate impact of changes in volume price and mix. We estimate that the decrease in net sales was due primarily to an estimated 4% decrease in volume largely as a result of the negative impact on demand due to the COVID-19 pandemic as well as an estimated four.
Percent unfavorable impact from the price and mix of products sold.
These negative items were partially offset by the benefit from acquisitions of approximately 3% for.
From a channel perspective, I would like to highlight a few key items.
First net sales of $644 million through our independent sales network, which makes up approximately 72% of our total net sales were about flat with the prior year excuse.
Excluding the benefit from acquisitions sales in this channel declined 4% as compared to the prior year due to the decreased demand due to covance and unfavorable price mix.
Second net sales of $86 million through our direct sales network were down 12% over the prior year fourth quarter due primarily to weakness in large projects that have been postponed due to covance.
Third net sales of $57 million within the retail channel exceeded the prior year by 7% as this channel reflected higher demand primarily for residential type projects.
Lastly, net sales of $66 million in our corporate accounts channel were down 29% this quarter compared with the year ago period, primarily due to the impact of Covance on retail customers. As we noted last quarter these customers delayed or possibly canceled retrofit opportunities as they were limiting.
The activity in their stores all.
Also we do expect net sales to be inconsistent based on the nature of the construction cycle of the customer served primarily big box retailers.
In the fourth quarter of fiscal 2020, and 2019, we had some adjustments to the GAAP results, which we find useful to add back in order for the results to be comparable in.
In our earnings release, we provide a detailed reconciliation of non-GAAP measures adjust.
Adjusted results exclude amortization expense for acquired intangible assets.
Share based payment expense special charges for streamlining activities.
And the impact of acquisition related items.
We believe adjusting for these items and providing these non-GAAP measures provide greater comparability and enhanced visibility into our results of operations we.
We think you will find this transparency very helpful. In your analysis of our performance.
Gross profit was $375 million down approximately $20 million from the year ago period. This decrease in gross profit was due primarily to the decline in volume due to the impact of the COVID-19, pandemic and unfavorable price mix, partially offset by the benefit of acquisitions lower costs.
Cost for certain input and actions taken to reduce labor costs in response to decrease demand.
Gross profit margin for the fourth quarter was 42.1%, which was flat with the year ago period.
Lower cost for certain inputs and contributions from acquisitions were offset by unfavorable price mix and the decline in volume.
Our SDMA expenses decreased approximately $3 million compared to the year ago period.
The decrease in EPS DNA expense was primarily due to the reduction of costs in response to the lower sales, partially offset by the addition of costs from acquired businesses.
During the fourth quarter, we recognized $8 million of special charges, primarily related to leased asset impairment costs associated with planned reductions in our real estate footprint as well as severance related to actions, we took to streamline the organization and right sized to the current demand.
Reported operating profit was $106 million compared with $130 million in the year ago period, while adjusted operating profit for the fourth quarter of 2020 with $131 million compared with adjusted operating profit of $146 million in the year ago period.
Good.
Reported operating profit margin was 11.9% a decrease of 200 basis points compared to the prior year.
Adjusted operating profit margin was 14.7% a decrease of 90 basis points compared with the margin in the prior year.
The effective tax rate for the fourth quarter of fiscal 2020 was 24.5% compared with 20.2% in the prior year quarter.
The increase in the effective tax rate was due primarily to the recognition in fiscal 2019 of certain research and development cost tax credits, including claims for prior periods that did not recur in the current fiscal year. We currently.
We currently estimate that our blended effective income tax rate before discrete items will be approximately 23% for fiscal 2021.
Our diluted earnings per share for the fourth quarter of a $1.87 cents was 55 cents lower than the prior year our.
Our adjusted diluted EPS this quarter of $2.35 was 40 cents lower than the prior year the dk.
The decrease was primarily due to lower pre tax income.
We continued to have positive cash flow from operations. Despite the decline in sales and ended the quarter with a strong balance sheet we.
We generated $505 million of net cash provided by operating activities for the year ended August 31, 2020, which was up $10 million compared to the prior year.
At August 31, 2020, we had a cash and cash equivalents balance of $561 million, an increase of $100 million. Since August 31, 2019, even after investing $303 million in acquisitions and $90 million returning money.
To shareholders by repurchasing stock and paying dividends during the fiscal year.
During the fourth quarter of fiscal 2020, we repurchased approximately 687000 shares shares for approximately $70 million or an average price of about $103.65 per share we have.
We have almost 3.9 million shares remaining under our current share repurchase board authorization are.
Our investment in capital expenditures was $55 million for fiscal 2020, an increase of almost $2 million compared with the prior year period weaker.
We currently expect to invest approximately 1.5% of net sales in capital expenditures in fiscal 2021.
Our total debt outstanding was $401 million at August 30, Onest 2020, and we currently have additional borrowing availability of approximately $396 million under our revolving credit facility there.
The revolving credit facility and term loan mature in June 2023.
We have demonstrated significant financial strength and flexibility during this challenging economic environment and we will continue to seek the best use of our strong cash generation to enhance shareholder value. Thank you and I will turn it back to Neil.
Thanks, Karen.
As we embark on our new fiscal year I'd like to take a minute to reiterate our strategy. We are demonstrating that our core lighting business is a durable performer in all markets, including the current market we are.
We are executing on a transformation of this business we are in the <unk>.
We're in the process of making it better smarter and faster to transform the service levels to our customers and our new product development cycles with.
With this tuck in atrium, we have attractive strategically impactful technology assets that we believe we can build into a very valuable business overtime.
Finally, we are demonstrating consistent cash generation and we have the opportunity to use that cash to grow our current businesses and invest in new businesses, while managing our capital structure as we have begun to do with our share repurchases this quarter.
As Carol described net sales of $891 million were 5% below the prior year and 8% below the prior year excluding acquisitions.
During the quarter, we made the decision to be aggressive in the marketplace. Thanks to a myriad of actions across the company, we were able to make strategic investments in price while also maintaining our gross profit margins.
As the market has changed our business is flexing to where we see opportunity there.
This quarter, we grew sales through the retail channel and an infrastructure and industrial markets.
While we were able to grow in those areas. Many of the end markets. We serve continued to be negatively impacted by the impacts of cobot.
There is no better illustration of this than the geographic and consistency that we saw across the country.
Our sales have fluctuated widely depending on the health and economic situation in different regions of the country with sales up in some territories and down and others.
I would also like to take a minute to acknowledge that while cobot is no longer knew it also has not gone away and it is no less dangerous to our associates and our operations.
We are and need to continue to be just as diligent about our processes to protect the health and wellbeing of our associates and to ensure the continuity of our operations.
Turning to product development, our complimentary strengthen product development go to market and supply chain have allowed us to continue to change the market.
We have a broad offering of products positioned to compete in multiple end markets.
Our product development activity remains strong in this challenging environment and we continue to invest in innovative product solutions.
We are expanding our support for German seidl UBI products by developing a portfolio of products that serve a variety of needs.
We previously announced a partnership with initio related to care to 22 technology.
Im pleased to announce we have entered into a strategic agreement with pure lighting and violent defense related to broad spectrum, you Ve technology.
While the size of the market remains to be determined and our initial expectations are modest. We believe we have the right combination of product development go to market and supply chain that allows us to scale as the market develops.
We are uniquely positioned to support customers with our luminaire controls and building management portfolio.
Our controls portfolio also continued to expand.
This quarter, we launched the center switch just one touch or jot wireless control solution.
A contractor friendly room control system, which allows simple wireless dimming and local control.
This technology enables pairing of a job enabled devices and luminaires without the need for additional zero to 10 volt dimming wires mobile apps or additional software.
John enabled products feature a Bluetooth radio, which wireless LTE interfaces with other enabled devices to provide switching dimming daylight harvesting and presence detection.
Finally, we continue to have us have strong traction with our contractor select portfolio, which on a comparable basis was up 11% over the prior year as we were able to respond to discretionary opportunities and support additional home center business.
As I mentioned, we have also continued to make progress on the execution of our digital transformation, which we are calling better smarter faster.
Simple examples of this include shortening our lead times, and allowing all of our ecosystem partners, including contractors distributors and agencies to know the status of their orders in real time.
You are already starting to see the impact of this and higher service levels.
We are having great success recruiting talented and engaged technologists to help drive this forward.
We are pleased with the progress and excited about the possibilities.
Turning to capital allocation, our priorities remain to first grow our current businesses.
Second to grow through M&A, and third to recurrent to return cash to shareholders by maintaining our dividend and repurchasing shares.
In the last year, we have invested in people and capital related to our digital digital transformation and product innovation.
We completed two acquisitions, TSG and locus labs and continue to look for other opportunities to extend our capabilities, particularly in the technology space we pay.
We paid dividends of $20 million, and we repurchased almost 2% of our shares outstanding in the fourth quarter.
We are demonstrating both our ability to generate cash as well as our ability to deploy that cash for long term value creation.
Before I turn the call over to you for questions I want to say that I am pleased with our performance this quarter and our ability to generate cash in this challenging environment.
Looking ahead, there is still great uncertainty around demand and the timing of any economic recovery there.
Therefore, we expect this new fiscal year will present us with challenges some continuing and no doubt some new we will.
We will continue to manage through this uncertainty and it is our intention to be aggressive where we believe we need to be including taking any actions that we deem necessary around price.
We believe that we have the financial strength and the resolve to manage the effects of the pandemic and to emerge stronger over the long term, we have the opportunity to more broadly adopt the company to expanding opportunities in our core businesses and to develop new ones we have.
We have the market position the people and the cash flow to become a larger more dynamic company that delivers for our customers our associates and our shareholders.
With that I'll turn it over for questions and we welcome Ricky Reece, our president to join Carrot and me for the question and answer period.
Thank you Sir.
As a reminder to ask a question do we need to press star one on your telephone to withdraw your question. Please press the pound key.
In order to provide everyone the opportunity to ask questions. The company ask that you limit your questions to two per caller if you.
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Our first question comes from the line of Tim Watch from Baird. Please go ahead.
Hey, Hey, everybody. Good morning, Thanks for for all the details.
Well Jim.
Maybe just maybe starting just on the end market Neil.
If you could just give us a little bit of a sense of maybe what you're hearing from agents around backlogs and.
Project activity and if you could just maybe remind us what's the lag between kind of leading indicators that we see on residential and maybe how that influences your business.
Sure I'll start and then and then I'll ask Ricky to provide some some context as well.
I'd say that first Tim the last quarter is probably predictive of the future and that we flex the business to where there was opportunity. So we saw strength in in markets, which are growing like residential through home center of the contractor select portfolio for discretionary and then around industrial.
As well and infrastructure. So so we feel like the portfolio is pretty broad as we dive and specifically to see and I. We do see the project as we look forward the project portfolio to be too.
To be mixed we're now.
Were not I don't think that anyone has visibility in this market to exactly how it's going to play out Ricky maybe you can you can provide some context to that.
I would thank you Neil I'd have to first say or the 15 years I've been in the industry. This is probably the the highest degree of uncertainty that weve that I've ever experienced and trying to forecast where this market is going and thats indicative. When you look at the economist and range of their forecast everywhere from very low single day.
Digit down the double digit down so we're all trying to determine where it's going but specific to the question of what we're hearing from our channel partners agents distributors and others is it's it's uneven Neil mentioned earlier, it's very uneven by geography, there are certain areas of the country that we are encouraged that we are seeing.
In a bit of a V shaped recovery and things are coming back and projects that may have gotten postponed during the summer or appearing to come back but there are other areas of the country that are still shutdown and aren't seeing a recovery.
And then some there may be a double W where its came up a little bit maybe go back down so it's a bit inconsistent but we.
But we are encouraged that there is a recovery that appears to be going on but it's going to be a very uneven I think both geographically and by verticals is neuro highlighted we are seeing some good activity in warehouse and logistics areas as you might imagine with all of the.
Online purchasing and so forth, it's going on some of the infrastructure, we're seeing some good outdoor and good activity in that that's pretty Universal and then the school season was pretty good we saw some good activity in schools and think we performed fairly well, but then on the other side of the hospitality industry.
Obviously as extremely slow retail.
They're not want anybody in their stores right now because the cove, it and so forth and so thats slowing down in some way.
And some of those areas and then heavy industrial has been pretty soft for us. So.
I agree with you I think this quarter is.
Likely to continue kind of in this range for a period of time, but I think we're well positioned we have.
We have some of the strongest access to market of anyone in the industry, our agents or strategic distributors or are opened and doing extremely well and we're benefiting from match strength as well as our product portfolio.
Okay. Okay. That's that's all really helpful. I appreciate all the color there and then I guess just for my second question Theres been a lot of moving pieces in Cogs initiated the past couple of years.
As you look forward I mean, do you think it's kind of a reasonable assumption or base case framework that you can you can keep gross margins flat on and we're on this kind of 40% to 41% type level or is there something else. We should maybe maybe think about there.
Yes, Tim as we said last quarter. It was our intention to manage to this level and so we were able to invest strategically in price as I mentioned because of a lot of activities across the country to manage those.
It is our desire to to continue to manage into that range. As you describe kind of the 41, 42% range that may vary on a quarter here and there as we as we take specific actions, but thats thats our target.
Okay, Okay, great well good luck on the on the fiscal year here and there, but at the end of the calendar year. Thanks, guys.
Thanks, so much.
Thank you. Our next question comes from the line of Ryan Merkel from William Blair. Please go ahead.
Hey, Thanks, good morning, and congrats on the quarter.
Thanks Ryan.
So first off Neal it sounds like the plan is to continue to invest in price can you just talk about why this is the right strategy today and I'm wondering if there might be some competitive response from the channel.
Yes, I mean look big picture splits I mean, just kind of state the obvious which is that.
The end markets are are under significant economic pressure and there's still a bunch of supply in the marketplace. So we're managing our share gains with our gross margin to ensure that we.
We take our at least.
At least our share if not a disproportionate share of what those markets are so so.
So.
We also mentioned that we were strategic about our investments in price. So we're.
This is not to say there is not a blanket activity, we're taking we're being strategic about areas, where we want to.
Balance out supply and demand and make sure that.
We are investing in long term relationships and opportunities with with our end user markets. So.
So I'm pleased that we were able to do that and maintain the gross margin to Tim's question. That's that's kind of the plan going forward.
There were definitely activities by other players in the market, both the majors and as smaller players and and you can see the the impact of the you know you can see the the how that netted out in our performance in the in the quarter.
Okay Yeah.
That's helpful.
And then secondly, how bigger jobs that were on hold being broadly released or is it just sector specific I'm just trying to gauge if confidence is rising among commercial property owners.
Rick you want to take that one sure.
Hey, Ryan its interesting the larger jobs call.
Column hundreds of thousands of dollars up into the millions of going forward. Some obviously were postponed when you couldn't get contractors on the job site and so forth, but the very large jobs.
Our going forward and we're seeing them come back.
As you might imagine a lot was invested in those and they were its various levels of construction and lighting is one of the last to come in.
Where we have seen the postponement continue is in the smaller jobs.
That area hasn't come back as strong as the larger jobs, we're not hearing the jobs are canceled although there certainly could be some that ultimately get cancelled, but it appears to still be postponed as we talk to our agents and distributors there back.
Backlog in there for whole backlog than the smaller projects is good again, it's uneven around the country, but is good.
So we have seen the can.
Continuation and coming back on the postponement on larger.
Not as much so on those smaller medium sized jobs.
That's helpful. Thank you.
Thank you.
Our next question comes from Christopher Glynn from Oppenheimer. Please go ahead.
Okay.
Thanks, Good morning.
I was curious around the strategic pricing initiatives.
You then in those areas.
Had kind of tentative.
Strong volume correlation and resiliency around share.
Share pickup in those specific areas.
Yes, Chris entity, I would say that whenever you make strategic investments in price. It's that you try and be as I said as strategic as you, possibly can and to correlate those to share gains I just highlight a couple of things. Obviously you saw the performance in contractor select on a on a comparable basis. It was.
<unk> up 11%. We also introduced some new products. So the absolute number was even higher than that and obviously, that's an area, where we are where we are intentionally aggressive to meet the market place and you can see the benefits of that of that.
Of that happening beyond that where we're as we said strategic so it's the investment it was around specific product portfolios in and around specific.
End uses and customers to try and balance out the supply and demand and make sure as I said, we we hopefully can get a at least our share if not a disproportionate share of of the new activity.
Okay and.
For my follow up thanks for that.
Considering the cash balance in the net cash position.
The share repurchase activity was.
Arguably modest given where the shares were but.
Yes, maybe havent looking at a great acquisition pipeline, just curious about kind, but those short term.
Trade offs in capital allocation independent of your long term kind of permanent prioritization, just given the immediate cash balance.
Yes, no. It's a great question, and then say exactly the way the conversations that we've been having about the about the balance sheet. Obviously, we want to reiterate the priorities that were going to our our primary objective is to grow both our current businesses and through the addition of new ones and beyond that we will we'll match.
We'll manage the capital structure for for value creation.
We were pleased with the with the.
The amount we were able to to repurchase.
And we brand into in the fourth quarter, some volume restrictions on our at our abilities and so we'll continue to kind of look at it through that lens, which is first to to focus on growing our businesses, making and grow through acquisition, making sure that we have we have.
We have the necessary capacity to do the things, we want to do and and will be responsible with with the rest of the cash that we generate.
And actionability of pipeline as it stands.
We I would say that's that's intermediate term at this point. So so we're focused on we're focused on the current business right now and improving the current business both through the digital transformation as well as the work were doing around.
Entries, and Distech and and that will roll in through the acquisition process.
Intermediate term.
Thank you.
Thank you.
Next question comes from Deepon Ragavan from Wells Fargo Securities. Please go ahead.
Hi, good morning, everyone.
The quarter.
Neil you mentioned the current construction indicators are weak we get that your revenue mix. It's 50 50 in new construction and ventilation.
Given your comments it definitely appears you're assuming new construction will be down in 2021, but how you're thinking about the re modeling portion of revenues, helping can that be materially up and if you can provide us any lessons from past recoveries that would be helpful too and I have a follow up.
Okay, well thanks Deepa.
Ill start Ricky just doesn't cut them on the historical perspective, there first.
I would say.
Taking a step back and obviously I still im relatively new to this business, though so I mean, our company and these these cycles. So so I've been doing a lot of research myself as well and I would say that there is a consistent theme, which is for US change is good so.
Some folks said hey are you worried about the fact that there won't be an all new office tower and fill in the blank place and the reality is those office towers are already built so we don't have a lot of opportunity there, but as everyone re thanks.
Where they're going to how and where they're going to house their folks and how they're going to do business ourselves included you realize theres going to need to be a lot of change and that change should be good for us. The question is is when and Ricky that's.
Obviously, we can participate pretty aggressively you highlighted the size of jobs in the <unk> and the last answer, but maybe you can pick up on kind of what we've seen the past and how you think that might play out here.
Yep.
You are right now we are much more participating in the renovation side than we have you know going back five or six years ago with the project.
Probably a bit more than half of our business here than last year or two because of the great opportunity for energy savings and quality of life that the new technologies are bringing so we do see that as an opportunity to help offset that.
The slowness that we may see in new construction and.
As echo a bit of what Neil saying I believe in this post cobras error, we are going to see real opportunity for renovations, whether it's an office space, whether it's how we shop, whether it's how restaurants and hospitality need or a range and manage their buildings Weve got the terminal side are you.
The opportunity that may be out there so there's clearly opportunity in the future.
The traditional renovation weve add but I think evolving into broader renovation than just energy savings how can we make the space say for how can we.
Address the opportunities that controls and so forth bring in so it is a bit of an opportunity around what may be a soft new construction market, but I wouldn't want to be so negative on the new construction. There are aspects of new construction that we are seeing some good activity I talked about what we're seeing.
In the <unk> and the warehouse and logistics space. Some just major opportunities that we're seeing in that.
In that area and I think we're going to continue to see opportunities and infrastructure and then resi our participation in resi through the home center channel and and the C. and I channel.
As an opportunity for us that area has been.
Pretty strong certainly the do it yourself force people that are at home and trying to fill their time why there were sheltering in places.
Been a big opportunity for us and other home do it yourself type projects and we see opportunity there for us to expand our participation in that resi area on renovation as well as new construction, you're seeing home starts are holding up pretty.
Holding up pretty well as well as the selling of existing homes that also present opportunity for renovation. So.
Your point's a good one I do think there are opportunities out there even in a soft new construction area, but there are headwinds for certain but we like where we're positioned with our broad portfolio not only in luminaires budding controls to be able to those proceeds on these opportunities and after spending countless hours with you on teams calls Ricky I can attest to.
Your contribution to the renovation of multiple space has been over the last couple of months CPR to second question.
Yes, I don't think that.
That was helpful. Rick in your thanks, So Kevin.
How much of the pricing the negative 4% year on year, our price mix negative 4% year on year is a function of stiff comps I mean last August I think you had price mix of up 5% one of the highest in the industry.
And how much of that worse is how much of that pricing is from a fundamental deterioration I think where I'm going with this is if you can talk about sequential pricing trends I think that will be better for us to understand that negative 4%.
Yeah on your print. Thank you yeah, yeah. Thank you, Dave, but I think you're spot on if you look back of where we were with pricing in the first quarter in the first quarter, we had a 3% favorable price and mix.
And mix impact and it really started in the prior year. If you recall last year's fourth quarter, we had announced a price increase so in the first quarter, we had a 3% impact of favorable price mix in the second quarter, we had about a 1% favorable impact of price mix and then in the third quarter. It was about flat.
So you're correct. It really just is one for the full year. It's an it's about a flat impact of price, but it did come down sequentially quarter each quarter during this fiscal year.
Thanks, very much and good luck.
Thank you.
Thank you.
Next question comes from Jeff Osborne from Cowen and company. Please go ahead.
Good morning, Mr questions across the pond.
Perfect.
You just touched on when they become available who comes from two new partnerships.
We spoke about compressible market margin.
Uh huh.
Sure I'll start Ricky dive in if if I leave anything out so as we've we've taken Jeff. The view that this is a longer term opportunity as opposed to a short burst opportunity I think the initial thought in the marketplace was race into the marketplace with any solution you can in order to.
To to try and address an immediate need.
We are we have taken a slightly different approach, which is that we want to we want to cover what we think are the most impactful technologies and we want to then provide the opportunity for those to become part of our product families going forward, so that as as as enterprises start to make this a.
Strategic decision about how they want to.
How they want to invest in mitigation for four asymmetric risks like the ones that we have come in contact with how will they start to do that.
We don't think that these will lead to broad re lighting projects. So this wouldn't be like the led revolution, but we do think that if it is a very effective strategic investment for the mitigation of these asymmetric risks so high volume areas things like high volume areas.
Ways to incorporate them effectively into into your existing relate projects ways to add them to existing spaces through through others. So in the combination of our care to 22 technology, which is which is.
Which when it finishes all of its certifications is expected to be safe for for constant use. While people are are in are in that specific space.
Paired with the broad spectrum xenon pulse technology that we announced today, we provide different alternatives for different uses that that can be in the marketplace. As I mentioned, we we don't expect a huge bump in the next quarter or two we expect to be in the market with these in the beginning.
In the first half of <unk> in a meaningful way in the first half of the next calendar year and and then hopefully we will grow that business and make it a permanent part of our portfolio and impactful part of our portfolio going forward.
Thank you that's all.
Thank you.
Next question comes from Brian Lee from Goldman Sachs. Please go ahead.
Hey, Tim Thanks, Thanks for taking the questions good morning.
Maybe just first question on the sort of.
Sort of.
Volume outlook and market outlook here, you guys have done quite well.
Over the past couple of quarters kind of navigating this unprecedented endemic.
Are you comfortable sort of given the progression that heading into fiscal 21, you can get back to sort of parity on a year on year growth rate.
Rate basis, I mean, you're down 5%.
This quarter year on year heading into fiscal 21 should should we anticipate that in the near term you can get back to parity I'm just trying to square that up with some of the comments around the ongoing weakness in Nonresi and you guys kind of sound.
Sounding a little bit more cautious there even though the actual results seem to suggest you're picking up a good deal of momentum.
Yes, Brian I mean, obviously, we don't give guidance and has Ricky indicated this is as.
As choppy an outlook from an economic perspective and market demand perspective, as he has seen in his 15 years and so.
The way, we're managing through this is to position ourselves to perform however, the market shakes out. So we've demonstrated over the last I believe since the pandemic started over the last two quarters that we will be very depressed areas and how we respond to the market conditions. So that we can.
As I said earlier, hopefully take a disproportionate share or.
Or more that disproportionate than our current share and you've seen the the evidence of that in the in the current market and the current performance as you look forward.
People are all over the map on when there will be a recovery from a calendar perspective, and Ricky indicated that from a geographic perspective. It's also very it also varies pretty widely so.
Take all that together and you say that we're positioned to.
We're positioned for the market stays like it is the market going down further in the market right.
Rebounding, we have a strong new product portfolio that is that is available to take share when that when that happens.
The last piece I would say just from a from a.
Technical perspective is we will be lapping the impact of the TSG acquisition, starting closed care in September of last year. So im so you'll start to see whereas in the fourth quarter that was and it's been about a 3% contributor. So so so that's the that's the that's the major difference we would see in trend going forward, but.
Look we're trying to.
Like everyone else, we're trying to to to guess, what the market's going to do but we've positioned ourselves to execute not on that yet but to be successful wherever it does go and thats and thats, what we're holding ourselves accountable to.
Okay Fair enough I appreciate that and then maybe just two.
Two follow up questions more more related to the model maybe these are for Karen.
On the first one price mix down 4%, you guys kind of telegraph that last quarter. So I.
I suppose not too surprising but.
Also talking about being strategic on pricing going forward.
Don't know if that's a tone shift or you know that.
Thats something different in terms of how you're thinking strategically about price, but does that infer we should expect sort of a price.
Price mix to continue to be a bit of a negative headwind for the upcoming quarters here as we think about modeling that'd be the first question and then second question is on on SDMA.
You guys were down about 5% on sales as DNA was down a couple of million Bucks. If we exclude the special charges a year on year. So can you.
Give us a sense of kind of how much fixed cost is embedded in the EPS DNA in is there anything year on year, maybe it's variable comp.
That is reverting higher and keeping the EPS DNA line.
A little bit more flattish, whereas revenue is not quite back up there. Thanks guys.
Yes, Thank you Brian.
Price mix question that you had for the model I think given the comments that we've had around the strategic price investments that we made and will continue to make good.
Given this difficult market environment that probably you could see some of the similar trend in the first quarter. When you look year over year given that in the first quarter of last year, we were favorable price mix, 3%. So I would I think that thats a reasonable assumption when you look at the EPS DNA about 12.
13% of that is fixed.
On the CP is variable with freight and commissions included in that number and then don't forget year over year, you're also having a bit of the acquisition impact that will minimize when we go into the first quarter of the year.
All right. Thank you everyone.
Thank you.
Next question comes from the line of John Walsh from Credit Suisse. Please go ahead.
Hi, good morning, and.
Congrats on solid execution around the gross profit line.
Uh huh.
I wanted to come back to a couple of questions that were that were already asked.
I was listening to your response to.
Chris is question around the balance sheet.
And I'm just kind of curious what did you see this quarter that gave you confidence to actually turn back on the share repurchase sounded like you actually even wanted to do a little bit more and just because your net cash why wouldn't we think that you would kind of just keep buying.
Back at steady bites here given how much is left on your.
Authorization.
Yes, so well, let's go let's go back in time, and we'll we'll re kind of re set.
The.
The timeline to pick up for you.
John which is that the.
I knew we have a pandemic no one knows where the market's going to the the end market is going to go we positioned ourselves for for what I think everyone believed would be could be a dramatic shift.
We we outperformed from a revenue perspective expectations in the second quarter ours in the markets and we and we executed very well on the ability to turn that into cash and so we were we were husband in cash into on our way into the into the pandemic with the expectation that we might have.
Have challenges with our with our end users and the customer base and we wanted to make sure. We were we were in a good position.
As Weve started to normalize around the current performance, we we realize we didnt need to husband that cash for for those reasons and so we restarted that we restarted the the the share repurchase process. So.
So.
Can you expect this to be or how programmatic can you expect this to be it will vary depending on a number of factors both on our current performance as well as our expected needs of future capital in our access going forward. So so.
So we were pleased as you picked up and I said in the earlier answer we.
We were a bit constrained by volume.
In the in the fourth quarter, So, we'll see where we can go from here.
Gotcha, Thank you and.
And then just going back to this kind of healthy and cease buildings.
You know trying to figure out the market size I mean.
I mean, I guess as you look at the HPC players I mean, there is a wide range on on what it could ultimately be but most people are talking about an opportunity in the billions.
And I guess, if that's the case why not get more aggressive around you B C or far you've you see kind of portfolio.
I understand it's still relatively new and you don't have the product launch but.
Why not make a bigger investment than kind of the partnership strategy, we've been executing on thus far.
Well I want to highlight kind of where you started to go with this John which is that the ultimate solution for healthy buildings is going to be some combination of technologies and all of which require some control and so both in our building management, so with our distech assets with our controls portfolio or.
All of those which are going to be necessary for whatever decision that any enterprise or any building takes to for to create a healthy environment. So with the investments that we've made in the partnership Lucio and the broad spectrum. We believe we have the the we have made all the investments we need to in the end.
IP and the technologies and now we're stitching those together with controls, which we which we believe are.
Our differentiator for US and then we will scale those into the marketplace and so.
I don't want to I don't want to tamp down the enthusiasm for this other than to say that we're meeting customers, where they are right now and so all everyone's trying to trying to establish what exactly the impact of this is going to be and and I believe that our product and controlled portfolio is well positioned to meet that need.
I think the it's.
Frankly, I just don't think there is a lot of there's not a lot in it for us to try and describe the market is bigger than we currently see it right now, but we are we are definitely positioned to to take a disproportionate share of what's out there.
Great. Thank you for that I appreciate the answers.
Thanks, John Thanks.
Thank you.
Final question comes from the line of Chriss Snyder from you'd be EPS. Please go ahead.
Thank you for the time guys. So I understand there is significant uncertainty in the current market and you guys don't give guidance, but can you just talk about the typical timeline between not between when a non residential project starts and lighting sales I'm just trying to bridge the gap between what we're seeing on the construction starts side, where the decline.
Lines are quite significant.
Since covert hit and when this really starts to flow through into lighting demand.
Yes, Chris This is Ricky I would say it depends on the size of the project to some extent, but when you look at when a construction project starts lighting is one of the last to come in so if its a smaller project say under $50000 that could be three four months.
From when it starts to when we would be receiving the order and delivering the lives for that project. If you get up into the half a million in larger type projects. You are typically looking at nine months to two years before.
Before that they would be purchasing lighting for a project like that so it. It varies we certainly look at that lag factor and try to use that but.
But thats the general range of the lag between when a project starts and when we would typically see in order for the lighting.
Thank you for that that's very very helpful.
And then for my follow up just on price mix was down 4% during the quarter can you just maybe break out the price mix components, there and maybe are there any reasons to think this changes meaningfully in either direction over the next couple of quarters.
I'll, just summarize that so so and.
And tie it back to things, we've already said before so first.
We we took price in the fourth quarter of last year and the first quarter of this year. So the price mix was positive in the fourth quarter of last year positive in the first quarter of fiscal 20.
And so for the full year were about flat on on the impact of price second as we mentioned that we were strategic about where we were investing in price to balance our to balance the supply and demand and to ensure that we were taking share you saw success in areas, where we invested in things like contract.
Contractor select portfolio.
So as we look forward then.
I would expect in obviously this is a cyclical business. That's what we've been talking about for the last hour that there's a consistent amount of supply and an inconsistent amount of demand. So we want to take a disproportionate share of the of the demand that does exist out there and so we will be targeted in our investments in price to try and Maine.
Team that all the while also maintaining our gross profit margin. So as you see where we've been in the fiscal third quarter fiscal fourth quarter and.
Our conversation with him at the beginning of the of the of the.
The call. We believe that we can manage in that mix and we will we will be as aggressive as we feel like we need to be to try and to try and drive our positioning in the market and Chris.
And Chris just to come back to your first question to be clear and I think is clear when you were asking about the lag. It's I was describing new construction when it's a new new project to building coming out of the ground. If it's a renovation project are relied project then we may get an order and need to ship it within 24 48 hours.
Ours, obviously much quicker for those types of projects and maintenance type projects, but the lags I was describing is around new construction, which I believe was what your question was what we wanted to make sure.
Yes, no that was certainly clear on my end I. Appreciate all the color and then just I guess, if I could follow up on that.
How hot it seems like the visibility in the turnaround as much quicker on the renovation side. So.
How has that trended I understand that.
Theres, it's fair to believe that that's going to be more resilient than maybe starts going forward, but at the same time workplace mobility has been low and.
And that could maybe discouraged iteration. So just given that you do it seemed like you have more real time insight into demand there could you provide any any color on that.
Yes, the only color is again, its very uneven as I said before around the country.
We have seen a slowdown in the renovation just as we've seen the delay in the in the new construction.
Just couldn't get on jobs, obviously retailers and others don't want people in their space and so forth. So the trend there has been pretty consistent with our overall trend.
Appreciate the time, thank you for the color.
Thank you.
Thank you for participating in todays Q any I would like to turn the call back over to Mr., Neil Ashe for closing remarks.
So again I'd like to emphasize a couple of things first we feel like we performed really well in the quarter, we were able to to manage to a 5% five or so.
5% net sales decline and a flat gross profit margin and we but we are demonstrating consistently the ability to generate cash in all market environments and so.
We believe that we are well positioned for however, the market shakes out whether it stays at these levels.
And we have a robust product portfolio for for the inevitable bounce.
Bounce back that's going to happen, whether that's in the renovation or the new construction starts and.
And we feel really good and the last thing I'd like to say is I like to compliment our team on an incredible effort over the course of the last the last two quarters, whether we're talking about the supply chain. The the product development folks. The technologists, we brought on board all of the enabling functions everyone has rallied in what is obviously a very demanding in.
Hi are meant to deliver what we believe is a is it.
It's a very solid performance and so we're excited about the future.
And we're well positioned for where we think it's going to shake out. So thank you for for your investment of time and learning about acuity and we appreciate the conversation and we look forward to talking to you again this time in another quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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