Q1 2021 Acuity Brands Inc Earnings Call

January 7, 2021

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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.

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Good morning, and welcome to the acuity brands fiscal 2021 first quarter results conference call.

After todays presentation, there will be a formal question and answer session.

At that time directions will be given on how to ask a question.

Today's conference is being recorded at the request of the company.

Do you have any objections you may disconnect at this time.

Now I would like to introduce Mr., Piccinini, Vice President Investor Relations and corporate development of acuity brands.

Good morning, with me today to discuss our fiscal 2021 first quarter results are Neil Ashe, Our chairman President and Chief Executive Officer share.

Hold on our senior Vice President and Chief Financial Officer, and Ricky Reece, Our executive Vice President and President of acuity brands lighting, we are webcasting today's conference call at acuity brands Dot com.

On this call. We will also discuss certain non-GAAP financial measures reconciliations to comparable GAAP financial measures can be found in our first quarter press release, I would like to remind everyone debt. 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 day day 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 10-K and since you actually see filings on today's press release, which identify important.

Actors that could cause actual results to differ 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, and happy New year. Thank you for joining us today to discuss acuity brands.

As we transform our company I'm pleased with our performance in the first quarter fiscal 2021 vs.

We had strong financial results and we made progress on our digital transformation.

Our team was able to effectively serve our customers through our broad product portfolio and diverse paths to market.

At the same time, our gross margins were in line with those on the fourth quarter, even on lower sequential sales and we continue to generate a significant amount of free cash flow.

I am pleased on grateful for the outstanding way. Our team has continued to manage through the pandemic, we remain diligent about protecting the health and well being of our associates and ensuring the continuity of our operations.

Turning to first quarter highlights.

We are committed to making the communities in which we operate better we published our second annual Earthlike report, highlighting the companys priorities actions and metrics for environmental social and governance matters.

We continue to widely deploy capital by repurchasing 2.6 million shares of the Companys common stock for $255 million.

We successfully reintroduced ourselves to the debt capital markets through the issuance of a $500 million 10 year bond with a coupon of 2.15% proceeds were used largely to repair existing term loans.

We are making strong progress on the execution of our digital transformation I'll provide more updates on that progress later in the call. Finally, we have added talent to the organization as we build out our technology organization. We have added outstanding data science product management and engineering talent.

As we further build on M&A team Candace Steele Flippant joined acuity in November at our Chief Communications Officer, Kenneth will work with me and our team to define and amplify our company's narrative among our stakeholders on.

Very pleased with the quality of people who are joining our team the day.

I will turn it over to Karen for more detail on the financials.

Thank you Neil and good morning, everyone I will add some additional in price to our finance.

For the first quarter fiscal 2021.

You probably noticed in our press release, we are modifying the way we have historically explained our change in net sales to provide a more relevant description of the way, we analyze and manage our business today.

By way of on tax for the past decade, we have provided our best estimates on the impacts of volume and price mix on net sales.

Our intent when we began providing this information to reflect the impact of the conversion of our lighting products to Ltd.

Today, our lighting business is fundamentally different for example, our product lifecycle for shorter and our pace of innovation to increase we frequently and successfully introduced new features and benefits of products rather than just direct product substitution.

Therefore, we believe our historical reference to price mix is no longer meaningful and is less descriptive of how we manage our business.

Going forward, we believe the change in net sales is better described by the activity in our key sales channel.

Help with this transition I will provide historical explanation to you. This quarter. So that you can bridge the gap in the future our explanations for changes in net sales will be aligned with our dis aggregated revenue disclosure in the 10-Q should acquisitions have an impact in the future. We will provide that impact if it is meaningful.

Net sales for the three months ended November Thirtyth 2020, $792 million decreased 5% compared with the prior year period due primarily to an estimated four per cent decrease in the change in product prices and mix of products sold as well as an estimated one per cent decrease in sales volume.

Both fiscal 2021 first quarter price mix and volume were adversely affected by the negative impacts of the COVID-19 pandemic.

Also recall that last year's first quarter benefited from price increases put in place to offset Tara.

Looking sequentially from the fourth quarter using the same calculation price mix decreased 1%.

Due to the changing dynamics of our product portfolio. It is not possible to precisely quantify or differentiate the individual components on a comparable basis volume price and mix and as noted previously we will not be quantifying this in the future.

Now I would like to highlight the key changes in our sales channels.

I'm encouraged with the net sales of $599 million through our independent sales network in which we saw a modest decrease of 3% due to the negative impact of the pandemic.

Turning to our direct sales network, we continued to experience weakness in large industrial projects that we believe have been postponed due to the pandemic.

Sales in this channel of $76 million were down 9.5% in the quarter.

Our retail sales channel continues to be a bright spot with net sales up 3% to $55 million driven largely by higher demand primarily for residential products products.

Finally, a key impact with the pandemic has been and continues to be delayed or canceled projects by large retail customers and our corporate accounts channel net.

Net sales in this channel of $24 million were down 28% as compared to the prior year.

This retrofit opportunities were delayed or canceled as these customers were limiting the activity in their stores.

In the first quarter of fiscal 2021, and 2020, we had some adjustments to the GAAP results that we find useful to add back in order for the results to be comparable in our earnings release, we provide a detailed reconciliation of these non-GAAP measures.

We believe adjusting for these items and providing these non-GAAP measures provide greater comparability and enhanced visibility into our results of operations. We think you will find this transparency very helpful. On your analysis of our performance.

I would like to highlight that our current quarters gross profit margin of 42% was consistent with our fourth quarter gross profit margin even on lower sales.

Gross profit margin was $332 million down approximately $23 million from the year ago period. This.

The decrease in gross profit was due primarily to the decline in volume and lower price on certain products as well as the changing mix of products sold partially offset by our aggressive cost reduction efforts on productivity improvements.

Our EPS DNA expenses decreased approximately $19 million compared to the year ago period. This.

This decrease in EPS DNA expense was due primarily to decreased employee costs, including lower stock compensation.

Lower freight and commissions associated with decreased sales and the reduction of costs in response to lower sales.

Reported operating profit was $86 million compared with $84 million in the year ago period.

Adjusted operating profit for the first quarter of 2021 was $104 million compared with adjusted operating profit of $119 million in the year ago period.

Reported operating profit margin was 10.8% an increase of 80 basis points compared to the prior year.

Adjusted operating profit margin was 13.2% a decrease of 110 basis points compared with the margin reported in the prior year.

The effective tax rate for the first quarter of fiscal 2021 was 24.7 per cent compared with 22.9% in the prior year quarter.

The increase in the effective tax rate was due primarily to the recognition in the first quarter of fiscal 2021 of unfavorable discrete items related to the deductibility of certain compensation.

We currently estimate that our blended effective income tax rate before discrete items will approximate 23% for fiscal 2021.

Our diluted earnings per share for the first quarter of fiscal 2021 was $1.57 an increase of 13 cents per share or 9%.

Our adjusted diluted EPS this quarter of $2.03 was 10 cents lower than the prior year.

The decrease was primarily due to lower pre tax income and a higher effective tax rate, partially offset by lower diluted shares outstanding.

I am pleased with our positive cash flow from operations and the improvement in our working capital days driven by improvements in accounts receivable and inventory.

We generated $124 million of net cash provided by operating activities for the quarter ended November 32020.

We invested $11 million or 1.4% of net sales in capital expenditures during the quarter. We currently expect to invest approximately one and a half percentage of net sales and capital expenditures in fiscal 2021.

Additionally, during the fourth quarter of fiscal 2021, we repurchased 2.6 million shares for approximately $255 million or an average price of $100 per share.

We have approximately 5.1 million shares remaining under our current share repurchase board authorization.

At November Thirtyth, 2020, we had a cash and cash equivalents balance of $507 million.

We have demonstrated our ability to generate cash and use that cash to create shareholder value through investments in our business dividends to shareholders and share repurchases during the quarter. Thank you and I will turn it back to Neil.

Thanks, Karen.

Our company has a unique combination of domain expertise on the industries that we serve and in the technology that will change from our core lighting business is a durable performer in all markets, including the current market and we are executing on the transformation of this business.

We are in the process of making a better smarter and faster to transform the service levels to our customers and the vitality of our product portfolio.

This second atria are attractive valuable and strategically impactful technology assets that we believe we can build upon overtime.

We are demonstrating consistent cash generation and we have the opportunity to use that cash to grow our current businesses and investing in new businesses, while managing our capital structure, including share repurchases.

I will now turn to our Q1 performance as Karen mentioned net sales of $791 million were 5% below the prior year I'm, particularly pleased with the performance in our retail sales channel, which was up 3% over last year's first quarter, and then our independent sales network, which was down 3% as compared to the prior year as.

I described last quarter, our broad portfolio enables us to flex, where there is opportunity, which this quarter included strength in warehouse and logistics education on residential verticals.

Throughout the pandemic, we've seen broad disparity of performance across geographies and that continued in the first quarter.

We also manage productivity and cost relative to price to maintain our gross margin at 42%.

Throughout the pandemic, we have maintained our investment and product development.

We are introducing new lighting and controls products as well as improving and evolving parts of our product and solutions portfolio.

We are increasing the impact of software in our product portfolio in the first quarter, we had a major from where our release for Inlight air product.

This release is called ABT autonomous bridging technology and is designed to increase the overall range of the Enlite air system and network environments by 300% they could connectivity more reliable.

We have increased our focus on contractors and making their lives easier we launched the compact pro high Bay fixture by low Sony lighting during the quarter. This is a new addition to our contractor select portfolio and is the most compact high bay on the market, making it easier and quicker to install.

Contractors and distributors continue to respond favorably to our contract select portfolio is.

This portfolio of products has enabled us to respond to discretionary opportunities in the independent sales network and to serve the needs of customers on the retail channel.

Sales sales growth in these products continue to meaningfully outpace the market.

We expanded our capabilities to provide a broad portfolio of leading German side will you be products. In addition to our relationships with USIO Pirow Inviolate defense, we added an agreement to purchase and resell the Uva Angel clean Air Disinfection system as well as per CEU joint development of led light disinfection products.

We now have the ability to serve multiple end use alternatives and are in the market selling a variety of GDV products.

We are uniquely positioned to support customers with our luminaire controls and building management portfolio.

We continue to make progress on our digital transformation that we call better smarter faster.

I'm pleased with the team we are creating to deliver on our on our platform and how we are enabling more customer centric sales and operations.

For example, we are streamlining streamlining and enhancing our product catalog to make the process of finding configuring and ordering products simpler and faster.

We are also increasing our ability to communicate with an update our contractors distributors and agencies with more detailed status notifications.

We were offering them the ability to know on real time, the status of the product orders.

We will continue our work to increase the service levels.

We have successfully recruited talented data scientists to leverage our data and build products powered by machine learning algorithms.

I'm excited about the progress we've made on our digital transformation to date and look forward to further enhancements for our customers.

Effectively allocating capital is an important part of how we will create value for our company.

Our priorities remain to first grow our current businesses SEC.

Second grow our company through acquisitions sales.

Third maintain our dividend and force create value through repurchasing shares.

In the first quarter, we repurchased 2.6 million shares of stock for two for $255 million.

Since we restarted our profit our program during the fourth quarter, we have repurchased almost 80% of the company's stock.

We also successfully reintroduced ourselves to the debt capital markets during the fourth quarter, we issued a $500 million 10 year bond at 2.15%.

We are pleased to lock in this capital for this duration at these rates.

As you can see in the first quarter, we continued to demonstrate our ability to generate cash and our ability to deploy that to deploy that cash for long term value creation.

As we look ahead, while we still see uncertainty on the end markets. We serve we are cautiously optimistic about improvement during calendar year 2021.

We are using the breadth of our product portfolio and the strength of our go to market teams to deliver solid top line performance.

At the same time, we are managing our costs well, while continuing to invest in our business for the future. So that we will become a larger more dynamic company.

As we look to grow we believe that both for business performance as well as for the understanding of our company, we should more clearly separate our lighting lighting controls and components business and our intelligent buildings business.

To that end later this fiscal year, we plan to reorganize our business into two units acuity brands lighting and intelligent buildings.

Acuity brands lighting will include our lighting lighting controls and components business businesses and intelligent buildings will include Distech and atria.

This new structure will better position acuity to meet our customers' needs and strengthen our business innovation through better prioritization and alignment within each unit.

We also believe this change will provide improved visibility with respect to the operational performance and the underlying results of these businesses.

Before I turn the call over to you for questions I want to say that I continue to be pleased with our performance and our transformation. We are a company that delivers for our customers our associates, our communities and our shareholders.

With that I'll turn it over for questions and we welcome Ricky Reece, our president to join Karen on me for the question and answer period.

Ladies and gentlemen, if youd like to ask a question. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.

In order to provide everyone with the opportunity to ask questions. The company assets that you limit your questions to two per caller. If you have further questions. Please reinstate yourself back into the queue any additional questions will be answered as time permits.

Our first question comes from the line of Tim loans with Baird. Your line is now open.

Hi, Hi, good morning, everybody knows net sharp and happy new year.

Thanks, Dan happy new year.

Thanks, I guess, maybe just on first question I had is just kind of around maybe some broad commentary on maybe what you're seeing in the environment.

I guess first if you think about specification if you could maybe just kind of frame.

What your agents are kind of talking about in terms of backlog and project releases and then secondly, when you think about some of your distributor in some of your home center customers could you just characterize.

Sales within those channels as well as how inventory looks.

Sure I'll start and then Rick why don't you add a little bit of commentary. So first on the on the specification side on the independent sales network I'd say that since I joined the company I've been I've been impressed by the consistency of the performance through that channel. So the obviously there was a there was a there was a pause at the beginning.

The pandemic and that that pause will roll will roll through the will roll through the results over the course of the income for the next quarter and such but the the the consistent order performance in shipment performance of the of the agent network has been really really really impressive through this through this period.

At the same time as I mentioned on my comments, we've been able to flex where the business has been so whether that be through those channels.

Industry or through the retail sales network as Weve as as those sales obviously have increased.

So that's the the power of having this portfolio on as we look forward, we believe that that portfolio works for us in the same way Ricky we'd like to add to that.

Just a couple of comments very pleased on the retail side is Neil commented on 3% there.

That is where we mostly participate along with the distribution side in the residential market and we are seeing good opportunity and believe we are participating effectively in that market.

Spec cycle is alive and well on his new role highlighted we do have a a bit on the gap here as there was very low specification of projects being started during the summer so that will impact us as Neil highlighted probably for another quarter or so, but the durability and opportunities in other areas.

Of our go to market team and breadth of our portfolio has helped offset and mitigate some of that as far as backlog.

We still see a pretty strong backlog as we talk to our agents and and.

I know, there's a lot of it being hailed we're cautiously optimistic with things looking better out there that we'll see those projects go forward and job sites opening up put aside from the recent situation on certain parts of the country closing back down because of the spike and low pandemic, but.

But the backlog is comfortable and.

And we're feeling good about that inventory so no real big issues that were hearing with inventories. This is the year end for many of distribution. So they manage their inventories pretty tightly medium have December or January year end, so not seeing a lot of excess inventory on the channel.

So inventories I think we're in pretty good shape throughout the industry and.

And then just one thing to add to that on Tim on the as we think about kind of the performance. We've had if you look at if you look through and this is a is a pretty good quarter to highlight this the the direct sales network, which is really industrial and holiday. We obviously have a really strong product portfolio for whatever could happen on on infrastructure investment over the course of the day.

Average those projects have been a little bit stalled due to the pandemic, but we have the we have the highest quality products to participate in that and that going forward and then finally on the enterprise sales account as as Karen mentioned in her comments those are largely big box retailers that have not allowed access to their stores because they've been so busy through the pandemic. So.

That renovation cycle, obviously happened going forward, it's just not happening right now.

Okay. Okay, Thats really helpful. I appreciate all that.

And then maybe just as you kind of think forward about.

Pricing and maybe cost inflation.

We have seen yourselves and several of the other majors put out price increase letters, we've obviously seen some inflation in input costs, yes.

How should we.

Think about kind of price cost as you kind of work your way through the year. I mean is do you believe there is enough opportunity out there that debt pricing, Ken can offset any sort of cost inflation.

Yeah, I'll start and then Ricky if you want to add to this so obviously and we indicated this we've been working hard on productivity and the relationship between price cost to maintain the gross margin over the course of the last three quarters or so as we're looking forward, we're going to continue those efforts around around.

Productivity, obviously and then.

We as you as you pointed out we also acknowledge that we're going to participate in the than the price increases. So our plan is to is to pretty aggressively manage that price cost forward and you know as we look I believe that we are we are probably best positioned to be able to do that Rick you want to start highlights some of the.

The reasons, where that's coming from yes. We are as you highlighted Tim we are seeing pretty significant increase in steel.

Aluminum as well and we are pretty big user of steel and aluminum.

We have in our 10-K, we use about 70000 tons per year of steel and aluminum so.

That is impacting us per.

Molly Carman. This is another area use that in our lenses.

With the demand for pp and other uses for polycarbonate is causing the that supply demand to get out of whack and then electronic components as the other area was working from home and their bodies by an extra competitors and monitors and so forth. There's been a lot of demand on that area that is impacted pricing having said that.

The industry has at least in my tenure 15.

15 years or so on the industry has been pretty disciplined and good.

About being able to recover these kind of commodity and electronic increases.

The industry has reacted quickly.

Non us as well and getting the word out the door intends to offset these costs and I believe we will our focus will be on the gross margin.

We were flat sequentially this quarter. Despite some of those pressures on his new highlighted we're very focused on productivity and other areas to be able to offset any inflationary cost issues, we have but.

So price cost the objective is to focus on the gross margin and maintain our gross margin and recover any increases that were experiencing.

Okay. Okay, great. Thanks, Thanks from the color and good luck on 21 guys appreciate it.

Thank you.

Our next question comes from Chris Snyder with DBS. Your line is now open.

Thank you for the question guys.

So first kind of flow.

Following up on the on the previous commentary on the margin outlook and specifically the commodity impact. Obviously you guys have noted steel and aluminum has inflated pretty significantly here over the last couple of months. So I guess my question is what is the typical lag before we should expect to have this show up in the in the numbers and how significant do you think this headway.

And to be.

Just based on what we've seen today.

Yes, I'll start and Ricky if you want to add anything to that.

Chris I think if you look at our AR as Rick indicated on our last comment if you look at our our performance on price cost over the course of the last three quarters on our performance on productivity. We've continued to deliver consistent gross margins through that period, but.

Thats been through ups and downs on commodity prices ups and downs on volume and that's our expectation going forward. So we're aggressively managing this.

Obviously looking forward Ricky you started indicate the impact of some of those commodities and how we manage those do you want to do want to repeat that or add to it yes, just to repeat so you can do some on the math the 70000 tons that will use of steel aluminum as predominantly steel sales.

So you can look at what steel it has gone up substantially up 25% or so year over year and almost doubled since the.

Trough in the summer.

So thats how much we are using there and it is expected to moderate mitigate a bit overtime.

And then.

The other area is on how long does it take to get through.

Our turn of inventories it takes us a couple of months to turn inventory on of course, we have steel in work in process and so forth. So I'd say a quarter or so would be the lag between we would experience a cost increase in before it would run through our cost of sales, which is why announcing the price.

In Greece now we have income in effective in the middle of March so it should become effective in time with them and we'll start experiencing some of these increases. So you really see that on our fourth quarter and again, we will continue to manage price mix and productivity.

Yes, no I appreciate all of that color. So it sounds like the assets.

On the commodity pricing comes through you guys can do you can offset that with a higher price and then I guess just following up on that how has the customer response has been to the price increases that you on some of the other bigger peers are.

Trying to push through you know just given that historically that this industry has seen a lot more price deflation in price inflation, and we've seen pretty steady price deflation in a in a healthy construction market now work on a looking into 2021 on at least on the Nonresi side in a.

Very challenged markets I guess.

Our problems. The response been to these price increase and does that allow for any maybe risk around lower cost.

Producers, maybe trying to undercut.

So I just addressed that by saying if you look at kind of where so first of all it's early so it's none of these are effective yet even the first ones that were announced ours is at the middle to arguably low end of the amounts that people are have identified including smaller competitors that are largely.

The.

Asian source. So this is a consistent this this price cost relationship is consistent across all the industry participants and remember Chris that we are we're a diversified developer and manufacturer. So we source both components and finished goods from from Asia. So we're per.

The balance in our ability to to respond to wherever the best opportunity is both on a sourcing perspective as well as as well as on a sales perspective.

Appreciate all the color. Thank you.

Our next question comes from John Walsh with Credit Suisse. Your line is now open.

Hi, good morning, and happy new year.

Thanks, John Happy New year.

Good performance in the quarter on Echo the earlier comments.

Wanted to come back to this price cost question, one last time, maybe ask it a different way.

But so you announced the 8% price increase broadly in line with the industry will just kind of put the number out there.

As you look forward can you hold the 42% gross profit margin as the higher commodity cost you identified come through it.

It sounds like you think you can but I just want to make sure I'm actually understanding exactly what you mean by you're going to continue to focus on the gross profit margin.

Yes, that's exactly what we mean, so as we said kind of in the last quarter and we're focused on this quarter. We wanted to maintain margins in the 41, 42% range. So.

As you as you highlighted Ricky went through some of the components, but you can do the math and identify that those are an interesting portion of our cost of goods sold but they're not the majority of our cost of goods sold and.

And I will clarify that it's up to 8% not not an 8% across the board and we are as you pointed out into kind of the mid range of of the competitors. So it.

It appears that everyone's pretty rational about this right now and and it's our intention to two to manage to to margin.

Great and then you know.

In your press release, you talked about prioritizing and using the strong cash flow growth investments and share repurchases just wondered if we could get a little bit more on how you're thinking about share repurchases on them.

You've obviously bought back a bunch of stock, but are you thinking about targeting a certain percentage of flow reduction and absolute dollar amount, you think thats appropriate or maybe.

Maybe even a little bit a commentary on where you think the leverage of this business should be you know as you look forward.

Yeah those are really good questions we.

So so obviously we've been aggressive over the last period as there was what we believe to be unnecessary dislocation in the stock price. So we took advantage of that too to repurchase debt.

At levels that average that little a close to its close to 80% of their current of our current price. So we were pretty aggressive.

Our expectation is that we will continue to use share repurchase.

As we go forward, maybe not to the not to the magnitude that we did unless there's another dislocation that of course, we will but to.

To opportunistically create to create value for we believe create value for for our shareholders.

On on leverage basis, as we reintroduced ourselves to the capital markets. Obviously that we've been we've been on ambiguous about our desire to build up a larger more dynamic company and to use and to use acquisitions to do that and we view that balance.

As such we were we talked a lot when we when we reintroduced ourselves the capital markets about we wanted aid for them to remember, who we were be familiar with the credit and and see we talk to them about maintaining our investment grade so that effectively puts a put.

Puts more unless we change our mind puts puts a limit on the amount of leverage and so we'll use the we think it's we think our organic cash flow as a strategic asset.

We believe that we can use that to to most importantly grow our business and then as we see opportunities like we did over the course of the last five or six months, we will we can be aggressive with our share repurchase to create value for the shareholders.

Great I'll pass it on thank you.

Yes.

As a reminder, ladies and gentlemen, if youd like to ask a question at this time. Please press. The Star then the number one key.

Our next question comes from the line of Brian Lee with Goldman Sachs. Your line is now open.

Hi, Good morning, this is grades from on for Brian.

Oh from question, so with respect to your end markets as we return to the ability can you give us some sense of what you're seeing and by end market that gives you some confidence or that you increase on one.

And I have a follow up.

Yes, I'll I'll take that and then as Karen or Rick you want to add anything to it.

You know obviously, great. It's important to recognize that our product portfolio allows us to serve different different end use markets. So.

We've we've been specific and each of the last quarters of where we've seen strength. So that was warehouse and logistics. This part education et cetera. So as you look forward. There. If there is if there is infrastructure investment we will obviously benefit through that if there's continued industrial investment we will benefit.

From from that if if people decide that they need different different office configurations as people start to return to work and there's renovation and offices I Havent seen a renovation project that did not change the lights. So so we will participate on those so what we are where we positioned ourselves both from a price.

Stick perspective from a from an investment perspective from a capacity perspective is to be flexible to adapt to these industry segments as they start to open up so we'll I don't pretend that we have a crystal ball. So at so I'm not sure exactly which ones are going to come when but we have and so therefore, we.

But we put ourselves in a position to be flexible and we've got the right product portfolio for each of those different segments and the ability to respond as they respond. So that's what gives us the entire thats what makes us cautiously optimistic that as those those end user markets start to start to improve which is inevitably. They will we are we're in good position to to.

Realize our our unfair share of that.

Okay. Thanks for the color.

Total on just wondering if you can quantify how would you characterize the ability on end markets on is that returned to just flat year on year growth or.

All right all right like you, so you're not little bit no longer declining or are you referring to like low single digit mid single digit growth. Just wondering if you can quantify.

Yes, obviously, we don't provide revenue guidance and.

And so you guys can interpret the where the where construction is and obviously as well as we can so so that could give us a good idea I think the issue is not and I think this is where everyone's minds are on this the issue is not that things are whether or not things are going to come back. The issue is one of timing.

And on.

I think I would use this opportunity to highlight something that we commented on in this call and we had commented on in the last call also which is that our end performance has been has been pretty disparate across different geographic regions of the country. So in this quarter alone are our sales regions ranged from up 15.

10% to down 13% in in different regions, and Thats driven largely by the the impacts of the pandemic and the activity that does or does not happen in those areas as a result, and so that's just a a window into the inconsistency in the geographic market out there. So there isn't any problem.

With that.

The broad indices the segments that we target there is no problem with our product portfolio. There is no problem with our ability to serve it so were positioned for when some sort of normalcy returns and those those numbers should not be that wildly disparate in the future.

Thanks, a question on.

Our next question comes from Christopher Glynn with Oppenheimer. Your line is now open.

Thanks, Good morning, everybody.

Just curious some of the comments on cautious optimism the markets gaining some stability in.

21.

That kind of suggests the sequential seasonality into the.

The current quarter might be kind of muted relative to the kind of normal pattern.

You know I don't think so Chris as we think about.

Rick you had mentioned earlier the specification cycle that took a pause at the beginning of the pandemic needs to work its way through the.

Needs to wake the work its way through construction numbers ours included so I think that any kind of any any sequential improvement that would that would obscure that that seasonality would probably be counterbalanced by that.

Okay, and then anything encouraging or anything indicating out there in any materiality of the opportunity for the genocidal initiatives.

I'm smiling as I look at Ricky we have this and we have this debate on a regular basis and I will say that the people who run the business are at a at a certain level of growth and I am at a different level of growth. So so we're balancing that.

I think that the we've seen a we've seen a real interest is real and significant interest from large entities that recognize that that they need to use this technology as a permanent part of their.

Of their risk mitigation strategy going forward. So so I am I am increasingly confident that this is a long term product portfolio opportunity not a point in time product portfolio opportunity.

None of us can quantify how much that is yet so so good news is it's a it's a it appears to be a a permanent or potentially permanent part of the product mix.

And then lets good news is it's hard to quantify exactly how much that's going to be.

Ricky is that fair enough accurately.

I think it is the interest is certainly out there. We just just based on market with the products or its a little too early to see what the level of demand is but very encouraged about the breadth of our product offering we've got the.

Capabilities that book.

Broader we think than anyone else in the market.

On this.

Very on optimistic area, but very hard to predict right now the timing on when people start ordering.

Okay and.

Appreciate the color last one from me.

Working capital spend in nice source kind of that from the beginning year fiscal 19 that the cash flow Ben.

Really terrific. Obviously, you know that that can't go on forever, but just curious what you might comment in terms of Eni conversion or free cash flow outlook for fiscal 21.

Karen Yes, so Chris I think you know, we would still expect to see our consistent cash generation of around $100 million or so a quarter targeting around $400 million.

As we consistently have done we have opportunities we've made improvements in inventory, but there's still room to go.

Hopefully there will be sales growth that will require investment in.

In in working capital. So obviously, we've been a little bit of a beneficiary of the shrinking balance sheet, but as as Kieran highlighted in our comments Capex is largely stable at about a point and a half percent and our days have improved so we will try to maintain that improved days performance.

Thanks, a lot of on good luck.

Thanks.

Thank you for participating in today's Q1 day I would like to turn the call back over to Mr., Neil Ashe for closing remarks.

Thank you. We appreciate you spending some time with US we feel like we're delivering consistent and improving performance throughout this throughout this pandemic, we've demonstrated the ability to to deliver at or better than the market and to maintain our margins and to turn that that those revenues into cash and so.

As as we mentioned on the call. We are we are confident on our product portfolio. We are confident in our ability to serve the market as it currently stands and hopefully as it begins to to rebound at some point on the calendar year. So thank you for the for the interest you have shown in us and we'll look forward to talking to you again this time next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Good morning, and welcome to the acuity brands fiscal 2021 first quarter results conference call.

After todays presentation, there will be a formal question and answer session.

I'm directions will be given on how to ask a question.

Today's conference is being recorded at the request of the company.

Do you have any objections you may disconnect at this time.

Now I would like to introduce Mr., Peacenik, Vice President Investor Relations and corporate development of acuity brands.

Good morning, with me today to discuss our fiscal 2021 first quarter results.

Cash, our chairman President and Chief Executive Officer, John <unk>, Our senior Vice President and Chief Financial Officer, and Ricky Reece, Our executive Vice President and President of acuity brands lighting, we are wet trucking today's conference call at acuity brands Dot com.

During this call will you also discuss certain non-GAAP financial measures reconciliations to comparable GAAP financial measures can be found in our first quarter press release.

Like to remind everyone debt. 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 today. They are made and we undertake no obligation to update on because any of these statements concerning your information or future events. Please refer to our most recent 10-K and thank you actually see filings on today's press release, which identify important fact.

First I could cause actual results to differ 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, and a happy new year. Thank you for joining us today to discuss acuity brands.

As we transform our company I'm pleased with our performance in the first quarter fiscal 2021.

We had strong financial result, and we made progress on our digital transformation.

Our team was able to effectively serve our customers through our broad product portfolio and diverse paths to market.

On the same time, our gross margins were in line with sales in the fourth quarter, even on lower sequential sales and we continue to generate a significant amount of free cash flow.

Turning to first quarter highlights.

We are committed to making the communities on which we operate better we published our second annual Earthlike report, highlighting the companys priorities actions and metrics for environmental social and governance matters.

We continue to widely deploy capital by repurchasing 2.6 million share for the couple of the Companys common stock for $255 million.

We successfully reintroduced ourselves to the debt capital markets through the issuance of a $500 million 10 year bond with a coupon of 2.15% proceeds were used largely to repay our existing term loans.

We are making strong progress on the execution of our digital transformation I'll provide more updates on that progress later on the call. Finally, we have added talent to the organization as we build out our technology organization. We have added outstanding data science product management and engineering talent.

Let me first of all that I'm, asking Candace Steele Flippant joined excuse me in November at our Chief Communications Officer, Kenneth will work with me and our team to define an amplifier companies narrative among our stakeholders I'm.

Im very pleased with the quality of people who are joining our team with that I will turn it over to Karen from mortgage tail on the panel.

Thank you Neil and good morning, everyone on.

I will add some additional sites to our financial performance for the first quarter of fiscal 2021.

By way of on tax for the past decade, we have provided our best estimates on the impacts of volume and price mix on net sales.

Our intent when we began providing this information on what to reflect the impact of the conversion of our lighting products to Ellie day.

Today, our lighting business is fundamentally different for example, our product lifecycle for shorter and our pace of innovation to then Craig we frequently and successfully introduced new features and benefits of products rather than just direct product substitution.

Therefore, we believe our historical reference to price mix is no longer meaningful and is less descriptive of how we manage our business.

Going forward, we believe the change in net sales is better described by the activity in our key sales channel.

To help with this transition I will provide the historical explanation to you. This quarter. So that you can bridge the gap in the future our explanations for changes in net sales will be aligned with our dis aggregated revenue disclosure in the 10-Q should acquisitions have an impact on the future. We will provide that impact if it is meaningful.

Net sales for the three months ended November Thirtyth 2020 of $792 million decreased 5% compared with the prior year period due primarily to an estimated four per cent decrease in the change in product prices and mix of products sold as well as an estimated one per cent decrease in sales volume.

Fiscal 2021 first quarter price mix and volume were adversely affected by the negative impacts of the COVID-19 pandemic also.

Also recall that last year's first quarter benefited from price increases put in place to offset Tara.

Looking sequentially from the fourth quarter using the same calculation price mix decreased 1%.

Now I would like to highlight the key changes in our sales channel.

Im encouraged with the net sales of $599 million through our independent sales network in which we saw a modest decrease of 3% due to the negative impact of the pandemic.

Turning to our direct sales network, we continued to experience weakness in large industrial projects that we believe have been postponed due to the pandemic sales in this channel of $76 million were down 9.5% in the quarter.

Our retail sales channel continues to be a bright spot with net sales up 3% to $55 million driven largely by higher demand primarily for residential products products.

Finally, a key impact with the pandemic has been and continues to be delayed or canceled projects by large retail customers and our corporate accounts channel.

Net sales in this channel of $24 million were down 28% as compared to the prior year. These.

These retrofit opportunities were delayed or canceled as these customers were limiting the activity in their stores.

I would like to highlight that our current quarters gross profit margin of 42% was consistent with our fourth quarter gross profit margin even on lower sales.

Gross profit margin was $332 million down approximately $23 million from the year ago period. This.

This decrease in gross profit was due primarily to the decline in volume and lower price on certain products as well as the changing mix of products sold partially offset by our aggressive cost reduction efforts on productivity improvements.

Our EPS DNA expenses decreased approximately $19 million compared to the year ago period. This.

This decrease in EPS DNA expense was due primarily the decreased employee cost, including lower stock compensation.

Lower freight and commissions associated with decreased sales and the reduction of costs in response to lower sales.

Reported operating profit was $86 million compared with $84 million in the year ago period.

Adjusted operating profit for the first quarter of 2021 was $104 million compared with adjusted operating profit of $119 million in the year ago period.

Reported operating profit margin was 10.8% an increase of 80 basis points compared to the prior year.

Adjusted operating profit margin of 13.2% a decrease of 110 basis points compared with the margin reported in the prior year.

The effective tax rate for the first quarter of fiscal 2021 was 24.7 per cent compared with 22.9% in the prior year quarter.

The increase from the effective tax rate was due primarily to the recognition in the first quarter of fiscal 2021 of unfavorable discrete items related to the deductibility of certain compensation.

We currently estimate that our blended effective income tax rate before discrete items will approximate 23% for fiscal 2021.

Our diluted earnings per share for the first quarter of fiscal 2021 was $1.57 an increase of 13 cents per share or 9%.

Our adjusted diluted EPS this quarter of $2.03 was 10 cents lower than the prior year.

The decrease was primarily due to lower pre tax income and a higher effective tax rate, partially offset by lower diluted shares outstanding.

I am pleased with our positive cash flow from operations and the improvement in our working capital days driven by improvements in accounts receivable and inventory.

We generated $124 million of net cash provided by operating activities for the quarter ended November Thirtyth 2020.

Additionally, during the fourth quarter of fiscal 2021, we repurchased 2.6 million shares for approximately $255 million or an average price of $100 per share.

We have approximately 5.1 million shares remaining under our current share repurchase board authorization.

At November Thirtyth, 2020, we had a cash and cash equivalents balance of $507 million.

We have demonstrated our ability to generate cash and use that cash to create shareholder value through investments on our business dividends to shareholders and share repurchases during the quarter. Thank you and I will turn it back to Neil.

Thanks, Karen.

Our company has a unique combination of domain expertise on the industries that we serve and in the technology that will change them. Our core lighting business is a durable performer in all markets, including the current market and we are executing on the transformation of this business we.

We are in the process of making it better smarter and faster to transform the service levels to our customers and the vitality of our product portfolio.

This second atria are attractive valuable and strategically impactful technology assets that we believe we can build upon overtime.

We're demonstrating consistent cash generation and we have the opportunity to use that cash to grow our current businesses and investing in new businesses, while managing our capital structure, including share repurchases.

I will now turn to our Q1 performance as.

As Karen mentioned net sales of $791 million or 5% below the prior year I'm, particularly pleased with the performance in our retail sales channel, which was up 3% over last year's first quarter, and then our independent sales network, which was down 3% as compared to the prior year.

As I described last quarter, our broad portfolio enables us to flex, where there is opportunity, which this quarter included strength in warehouse and logistics education on residential verticals.

Throughout the pandemic, we've seen broad disparity of performance across geographies and that continued in the first quarter.

We also manage productivity and cost relative to price to maintain our gross margin at 42%.

Throughout the pandemic, we have maintained our investment and product development.

We are introducing new lighting and controls products as well as improving and evolving parts of our product and solutions portfolio.

We are increasing the impact of software and our product portfolio in the first quarter, we had a major from our release for Inlight Air product.

This release is called ABT autonomous bridging technology and is designed to increase the overall range of the Enlite air system and network environments by 300% vacant connectivity more reliable.

We have increased our focus on contractors and making their lives easier we launched the compact pro high Bay fixture pilots O'neill lighting during the quarter. This is a new addition to our contractor select portfolio and is the most compact high value on the market, making it easier and quicker to install.

Contractors on distributors continue to respond favorably to our contract select portfolio.

This portfolio of products has enabled us to respond to discretionary opportunities in the independent sales network and to serve the needs of customers on the retail channel.

Sales sales growth in these products continue to meaningfully outpace the market.

We expanded our capabilities to provide a broad portfolio of leading germicide value. The products. In addition to our relationships with USIO Pirow Inviolate defense, we had an agreement to purchase and resell the UBI Angel clean Air Disinfection system as well as per CEU joint development of led light disinfection products.

We now have the ability to serve multiple end use alternatives and are in the market selling a variety of GDV products.

We are uniquely positioned to support customers with our luminaire controls and building management portfolio.

We continue to make progress on our digital transformation that we call better smarter faster.

I'm pleased with the team we are creating to deliver on our growth on our platform and how we are enabling more customer centric sales and operations.

For example, we're streamlining streamlining and enhancing our product catalog to make the process of finding configuring and ordering products simpler and faster.

We are also increasing our ability to communicate with an update our contractors distributors and agencies with more detailed status notifications.

We were offering them the ability to know on real time, the status of the product orders.

We will continue our work to increase the service levels.

We have successfully recruited talented data scientists to leverage our data and build products powered by machine learning algorithms.

I'm excited about the progress we made on our digital transformation to date and look forward to further enhancements for our customers.

Effectively allocating capital is an important part of how we will create value for our company.

Our priorities remain to first grow our current businesses SEC.

Second grow our company through acquisitions.

Third maintain our dividend and fourth create value through repurchasing shares.

In the first quarter, we repurchased 2.6 million shares of stock for two for $255 million. So.

Since we restarted our product our program during the fourth quarter, we have repurchased almost 8% of the company's stock.

We also successfully reintroduced ourselves to the debt capital markets during the fourth quarter.

We issued a $500 million 10 year bond at 2.15%.

We are pleased to lock in this capital for this duration at these rates.

As you can see in the first quarter, we continued to demonstrate our ability to generate cash and our ability to deploy that to deploy that cash for long term value creation.

As we look ahead, while we still see uncertainty on the end markets. We serve we are cautiously optimistic about improvement during calendar year 2021.

We are using the breadth of our product portfolio and the strength of our go to market teams to deliver solid top line performance.

At the same time, we are managing our costs well, while continuing to invest in our business for the future. So that we will become a larger more dynamic company.

To that end later this fiscal year, we plan to reorganize our business into two units acuity brands lighting and intelligent buildings.

Acuity brands lighting will include our lighting lighting controls and components business businesses and intelligent buildings will include Distech and atria.

This new structure will better position acuity to meet our customers' needs and strengthen our value innovation through better prioritization and alignment within each unit.

We also believe this change will provide improved visibility with respect to the operational performance and the underlying results of these businesses.

With that I'll turn it over for questions and we welcome Ricky Reece, our president to join Karen on me for the question and answer period.

Ladies and gentlemen, if youd like to ask a question. Please press. The Star then the number one key on your Touchtone telephone to withdraw your question press the pound key.

In order to provide everyone with the opportunity to ask questions. The company assets that you limit your questions to two per caller. If you have further questions. Please reinstate yourself back into the queue and your additional questions will be answered as time permits.

Our first question comes from the line of Tim loans with Baird. Your line is now open.

Hi, Hi, good morning, everybody nice sharp and happy new year.

Thanks, Dan happy new year.

Thanks, I guess, maybe just first question I had is just kind of around maybe some broad commentary and maybe what you're seeing in the environment.

I guess first if you think about specification if you could maybe just kind of frame.

What your agents are kind of talking about in terms of backlog and project releases and then secondly, when you think about some of your distributor and some of your home center customers could you just characterize.

Sales within those channels as well as how inventory looks.

Sure I'll start and then Ricky why don't you add a little bit of commentary. So first on the on the specification side on the independent sales network I'd say that since I've joined the company I've been I've been impressed by the consistency of the performance through that channel. So the obviously there was a there was a there was a pause at the beginning.

The pandemic and that that pause will roll will roll through the will roll through the results over the course of the in kind on the next quarter and such but the the the consistent order performance on shipment performance of the of the agent network has been really really really impressive through this through this period.

At the same time as I mentioned on my comments, we've been able to flex where the business has been so whether that be through those channels.

Industry or through the retail sales network as Weve as as those sales obviously have increased.

So that's the the power of having this portfolio on as we look forward, we believe that that portfolio works for us in the same way Ricky would you like to add to that yes. Just a couple of comments very pleased on the retail side as Neil commented on 3% there.

That is where we mostly participate along with the distribution side in the residential market and we are seeing good opportunity and believe we are participating effectively in that market.

Capex cycle is alive and well on his new role highlighted we do have a bit of a gap here as there was very low specification of projects being started during the summer so that will impact us as Neil highlighted probably for another quarter or so, but the durability and opportunities in other areas.

Of our go to market team and breadth of our portfolio is helped offset and mitigate some of that as far as backlog.

We still see a pretty strong backlog as we talk to our agents and and.

There's a lot of it being on health, we are cautiously optimistic with things looking better out there that we will see those projects go forward and job sites opening up but aside from the recent situation on certain parts of the country closing back down because of the spike in the pandemic.

But the backlog is comfortable and.

On we're feeling good about that inventory so no real big issues that were hearing with inventories. This is the year end for many of distribution. So they manage their inventories pretty tightly medium have December or January year end, so not seeing.

A lot of excess inventory on the channel.

So inventories I think we're in pretty good shape throughout the industry.

Have those projects have been a little bit stalled due to the pandemic, but we have the we have the highest quality products to participate in that and that going forward and then finally on the enterprise sales account as as Karen mentioned in her comments those are largely big box retailers that have not allowed access to their stores because theyve been so busy through the pandemic. So.

That renovation cycle, obviously happen going forward, it's just not happening right now.

Okay. Okay, Thats really helpful. I appreciate all that and then maybe just as you kind of think forward about.

Pricing and maybe cost inflation.

We've seen yourselves and several of the other majors put out price increase letters, we've obviously seen some inflation in input costs.

Should we think.

Think about kind of price cost as you kind of work your way through the year I mean as you believe there is enough opportunity out there that debt pricing, Ken can offset any sort of cost inflation.

Productivity, obviously and then.

We as you as you pointed out we also acknowledge that we're going to participate in the <unk> than the price increases. So our plan is to is to pretty aggressively manage that price cost for it and you know as we look I believe that we are we are probably best positioned to be able to do that Ricky want to start highlights some of the.

The reasons, where thats coming from yes.

As you highlighted Tim we are seeing pretty significant increase in steel.

Aluminum as well and we are pretty big user of steel and aluminum.

We have in our 10-K, we use about 70000 tons per year of steel and aluminum so.

That is impacting us per.

Hollycon from this is another area use that in our lenses.

With the demand for pp and other uses for polycarbonate is causing the that supply demand to get out of whack and then electronic components as the other area was working from home and their bodies buying an extra competitors on monitors zone forward. There's been a lot of demand on that area that is impacted pricing having said that.

The industry has at least in my tenure 15.

15 years or so on the industry has been pretty disciplined and good.

About being able to recover these kind of commodity and electronic increases.

The industry has reacted quickly.

US as well and getting the word out the door intends to offset these costs and I believe we will our focus will be on the gross margin.

We were flat sequentially this quarter. Despite some of those pressures on an as Neil highlighted we are very focused on productivity on other areas to be able to offset any inflation cost issues, we have but.

So price cost the objective is to focus on the gross margin and maintain our gross margin and recover any increases that were experiencing.

Okay. Okay, great. Thanks, Thanks for the color and good luck on 21 guys appreciate it.

Thank you.

Our next question comes from Chris Snyder with CBS. Your line is now open.

Thank you for the question guys.

So first kind of flow.

Following up on on the previous commentary on the margin outlook and specifically the commodity impact obviously as you guys have noted steel and aluminum has inflated pretty significantly here over the last couple of months. So I guess my question is what is the typical lag before we should expect to have this show up in the in the numbers and how significant do you think this headway.

Could be.

Just based on what we've seen today.

Okay.

Yes, I'll start and Ricky if you want to add anything to that.

Chris I think if you look at our AR as Rick indicated on our last comment if you look at our our performance on price cost over the course of the last three quarters on our performance on productivity, we continue to deliver consistent gross margins through that period, but.

Thats been through ups and downs on commodity prices ups and downs on volume and that's our expectation going forward. So we're aggressively managing this.

Obviously looking forward Ricky you started indicate the impact of some of those commodities and how we manage those do you want to you want to repeat that or add to it yes, just to repeat so you can do some on the math of 70000 tons that we use of steel aluminum that's predominantly steel sales.

You can look at what steel that has gone up substantially up 25% or so year over year and almost doubled since the.

Trough in the summer.

So thats how much we are using there and it is expected to mitigate a bit over time.

And then.

The other area is on how long does it take to get through.

Our turn of inventories it takes us a couple of months to turn inventory and on of course, we have steel in work in process and so forth. So I'd say a quarter or so would be the lag between we would experience a cost increase on before it would run through our cost of sales, which is why announcing the price.

In Greece, now, we have income and effective.

In the middle of March so it should become effective in time, when we'll start experiencing some of these increases so you really see that in our fourth quarter and again, we will continue to manage price mix and productivity.

Yes, no I appreciate all of that color so it sounds like.

The commodity pricing comes through do you guys think you can offset that with higher pricing and I guess just following up on that.

Customer response has been to the price increases that you on some of the other bigger peers are.

Moving to push through you know just given that historically that this industry has seen a lot more price deflation in price inflation, and we've seen pretty steady price deflation in a in a healthy construction market and now we're kind of looking into 2021 on at least on the Nonresi side in a.

Very challenged markets I guess.

Our how has the response been to these price increase and is that allow for any maybe risk around lower cost.

Producers, maybe trying to undercut.

So I just addressed that by saying if you look at kind of where so first of all it's early so it's none of these are effective yet even the first was that were announced ours is at the middle to arguably low end of the amounts that people are have identified including smaller competitors that are largely.

[music].

The balance in our ability to to respond to wherever the best opportunity is both on a sourcing perspective as well as as well as on a sales perspective.

Appreciate all the color. Thank you.

Our next question comes from John Walsh with Credit Suisse. Your line is now open.

Okay.

Hi, good morning, and happy new year.

Thanks, John Happy New year.

Good performance in the quarter on Echo the earlier comments.

Wanted to come back to this price cost question, one last time, maybe ask it a different way.

But so you announced the 8% price increase broadly in line with the industry will just kind of put the number out there.

As you look forward can you hold the 42% gross profit margin as the higher commodity cost you identified come through it.

It sounds like you think you can but I just want to make sure I'm actually understanding exactly what you mean by Youre going to continue to focus on the gross profit margin.

Yes, that's exactly what we mean, so as we said kind of in the last quarter and we're focused on this quarter. We wanted to maintain margins in the 41, 42% range. So.

You know as you as you highlighted Ricky went through some of the components, but you can do the math and identify that those are an interesting portion of our cost of goods sold but they're not the majority of our cost of goods sold and.

And I'll clarify that it's up to 8% not not an 8% across the board and we are as you pointed out into kind of the mid range of of the competitors. So it.

Appears that everyone's pretty rational about this right now and and it's our intention to two to manage to to margin.

Great and then you know in your press release, you talked about prioritizing and using the strong cash flow growth investments and share repurchases just wondered if we could get a little bit more on how you're thinking about share repurchases on you've obviously bought back.

A bunch of stock, but are you thinking about targeting a certain percentage of flow reduction and absolute dollar amount, you think thats appropriate or maybe.

Maybe even a little bit a commentary on where you think the leverage of this business should be as you look forward.

Yeah. Those are really good questions. We so so obviously we've been aggressive over the last period as there was what we believe to be unnecessary dislocation in the stock price. So we took advantage of that too to repurchase debt.

At levels that average a little close to its close to 80% of their current of our current price. So we were pretty aggressive.

Our expectation is that we will continue to use share repurchase.

As we go forward, maybe not to the not to the magnitude that we did unless there is another dislocation then of course, we will but to.

To opportunistically create to create value for we believe create value for for our shareholders.

On on leverage basis, as we re introduced ourselves to the capital markets. Obviously, that's we've been we've been unambiguous about our desire to build up a larger more dynamic company and to use and to use acquisitions to do that and we view that balance.

Puts more unless we change our mind puts a puts a limit on the amount of leverage and so we'll use the we think it's we think our organic cash flow as a strategic asset.

Great I'll pass it on thank you.

Yes.

As a reminder, ladies and gentlemen, if youd like to ask a question at this time. Please press the Star then the number one Keith.

Our next question comes from the line of Brian Lee with Goldman Sachs. Your line is now open.

Hi, Good morning, this is grades from on for Brian.

Good question, so with respect to your end markets and retreat facility can you give us some sense of what you're seeing and by end market that gives you some confidence for that your inventories on one.

And I have a follow up.

Yes, I'll I'll take that and then as Karen or Rick you want to add anything to it.

Obviously grace it's important to recognize that our product portfolio allows us to serve different different end use markets so and.

And we've we've been specific and each of the last quarters of where we've seen strength. So that was warehouse and logistics. This part education et cetera. So as you look forward there.

There is if there is infrastructure investment we will obviously benefit through that if there's continued industrial investment we will benefit from from that if if people decide that they need different different office configurations as people start to return to work and there's renovation and offices I havent seen a renovation.

Project that did not change the lights. So so we will participate on those so what we are where we positioned ourselves both from a product perspective from a from an investment perspective from a capacity perspective is to be flexible to adapt to these industry segments as they start to open up so we'll.

I don't pretend that we have a crystal ball so at so I'm not sure exactly which ones are going to come when but we have and so therefore, we put on we put ourselves in a position to be flexible and we've got the right product portfolio for each of those different segments and the ability to respond as they respond. So that's what gives us the and that's what makes this call.

Lastly, optimistic that as those those end user markets start to start to improve which is inevitably. They will we are we're in good position to to realize our our unfair share of that.

Okay. Thanks for the color.

A follow up on just wondering if you can quantify how would you characterize the ability on.

Gets on is that return to just flat year on year growth or.

All right like you, so you're not little bit no longer declining or are you, referring share like low single digit or net so mid single digit growth just wondering if you can quantify.

Yes, obviously, we don't provide revenue guidance.

And on.

I think I would use this opportunity to highlight something that we commented on in this call and we had commented on in the last call also which is that our our end performance has been has been pretty disparate across different geographic regions of the country. So in this quarter alone are our sales regions ranged from up 15.

With the you know the.

The broad industry segments that we target there is no problem with our product portfolio. There is no problem with our ability to serve it so were positioned for when some sort of normalcy returns and those those numbers should not be that wildly disparate in the future.

Thanks.

Our next question comes from Christopher Glynn with Oppenheimer. Your line is now open.

Thanks, Good morning, everybody.

Just curious some of the comments on cautious optimism on the markets gaining some stability in.

21.

That kind of suggests the sequential seasonality into the.

The current quarter might be kind of muted relative to the kind of normal pattern.

No I don't think so Chris as we think about.

Rick you had mentioned earlier the specification cycle that took a pause at the beginning of the pandemic needs to work its way through the.

Need to wake the work its way through construction numbers ours included so I think that any kind of any any sequential improvement that would that would obscure that that seasonality would probably be counterbalanced by that.

Okay, and then anything encouraging or anything indicating out there any materiality of the opportunity for the dermis idle initiatives.

I'm smiling as I look at Ricky we have this.

We have this debate on a regular basis and I will say that the people who run the business are at a at a certain level of growth and I am at a different level of growth. So so we're balancing that.

I think that the we've seen a we've seen a real intra is real and significant interest from large entities that recognize that that they need to use this technology as a permanent part of their.

Of their risk mitigation strategy going forward. So so I am I am increasingly confident that this is a long term product portfolio opportunity not a point in time product portfolio opportunity.

None of us can quantify how much that is yet so so good news is it's a it's a it appears to be a a permanent or potentially permanent part of the product mix.

And then less good news is it's hard to quantify exactly how much that is going to be Ricky is that fair enough accurately.

I think it is the interest is certainly out there. We just just hit the market with the products or its a little too early to see what the level of demand is but very encouraged about the breadth of our product offering we've got the.

Capabilities that.

Broader we think than anyone else in the market.

Yes.

Barry on optimistic area very hard to predict right now the timing on when people start ordering.

Okay and.

Appreciate the color last one from.

From me.

Working capital spend in nice source kind of back from the beginning year fiscal 19 that the cash flow Ben.

Really terrific. Obviously, you know that that can't go on forever, but just curious what you might comment in terms of day, Eni conversion or free cash flow outlook for fiscal 21.

Karen Yes, so Chris I think we would still expect to see our consistent cash generation of around $100 million or so a quarter targeting around $400 million.

As we consistently have done we have opportunities we've made improvements in inventory, but there's still room to go.

Hopefully that will be sales growth that will require from.

Estimate and in and working capital. So obviously, we've been a little bit of a beneficiary of the shrinking balance sheet, but as as Kieran highlighted in our comments Capex is largely stable at about a point and a half percent and AR days have improved so we will try to maintain that improved days performance.

Thanks, a lot of on good luck.

Thanks.

Thank you for participating in today's Q1 day I would like to turn the call back over to Mr., Neil Ashe for closing remarks.

As as we mentioned on the call. We are we are confident on our product portfolio. We're confident in our ability to serve the market as it currently stands on and hopefully as it begins to to rebound at some point in the calendar year. So thank you for the for the interest you have shown in us and we'll look forward to talking to you again this time next quarter.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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