Q3 2023 Acuity Brands Inc Earnings Call

June 29, 2023

[music].

Good morning, and welcome to the acuity brands fiscal 2023 third quarter earnings call.

At this time all participants are in a listen only mode.

After the Speakers' presentation, the company will conduct a question and answer session.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to Charlotte Mclaughlin, Vice President of Investor Relations Charlotte. Please go ahead.

Thank you Liz.

Good morning, and welcome to the acuity brands fiscal 2023 third quarter earnings call.

As a reminder, some of our comments today may be forward looking statements based on management's beliefs and assumptions and information currently available to our management at this time.

These beliefs are subject to known and unknown risks and uncertainties.

Many of which maybe beyond our control, including those detailed in our periodic SEC filings.

Please note that our company's actual results may differ materially from those anticipated.

We undertake no obligation to update these statements.

Reconciliations of certain non-GAAP financial metrics with our corresponding GAAP measures are available in our 2023 third quarter earnings release, which is available on our Investor Relations website at Www Dot investors the Qt brand dotcom.

With me this morning is Neil Ash.

Chairman, President and Chief Executive Officer.

Who will provide an update on our strategy and our third quarter highlights.

And Karen <unk>, our senior Vice President and Chief Financial Officer, who will walk you through our fiscal third quarter financial performance.

There will be an opportunity for Q&A at the end of this call.

Participating please limit your remarks to one question and one follow up if necessary.

Webcasting todays conference call live thank.

For your interest in acuity brands I will now turn the call over to Neil Ash.

Thank you Charlotte and welcome to all of you joining us this morning.

In the third quarter of fiscal 2023, we expanded adjusted operating profit margin, both sequentially and year over year.

We continue to grow adjusted diluted EPS, and we generated strong cash flow from operations. Despite a decline in net sales.

We completed the acquisition of chemotherapy and we continued to repurchase our shares.

We are making meaningful progress in both our lighting and space businesses.

And the acuity brands lighting and lighting controls business our strategy is clear.

Increased product vitality increased service levels and use technology to improve and differentiate both our products and our services.

This quarter, we launched design select.

We develop design select to elevate our service for the specification community by making it easy for them to choose superior solutions with dependable service.

Designed select consists of 3000 configurable products that meet important specification needs from some of our core families of lighting and lighting control brands, including ocular.

Gotham Lithonia lighting and <unk>.

And sensor switch does.

Select is an important addition to our service strategy.

ABL lighting and lighting control products are now organized into three clear categories.

Contractor select is 300 of the most important everyday lighting and lighting control products available in stock at retailers and electrical distributors.

Design select is 3000 configurable products that meet the key choices of lighting specifier with dependable service and.

And the remainder is made to order.

Through the combination of high product vitality and improved service levels with the specification community distributors and contractors, we continue to differentiate ourselves and challenging the existing industry standards.

We also continue to introduce new products during the quarter.

Our luminous brand launched the inline family of exterior luminaries for use in plaza and arenas.

Each slide each light module can rotate 355 degrees and can be individually controlled allowing installers to position the luminaire onsite for improved flexibility to create optimal elimination solutions.

The recognition of our product vitality efforts is important to our team and our customers and this quarter several of our products won prestigious Red Dot design award, including products from luminous and Eureka.

The Eureka Pangram trace was awarded a red Dot best of the best distinction for its groundbreaking design.

Other winners in this category included products from Apple IBM, and stone us and spend categories from VR headset to first responder drove.

We're proud to be in this company of innovators.

Now moving to our intelligence space. This group this was a big quarter for our spaces team, both the detect and atria.

First on <unk>, our strategic priority is to expand our addressable market, which we are doing it two ways. The first is geographic which continues to progress successfully.

The second is by increasing what we control and have built space.

During the quarter, we announced the completion of the acquisition of <unk>, which allows us to expand <unk> addressable market by entering the commercial refrigeration controls space.

By controlling commercial refrigeration, we are able to more effectively sell the entire <unk> portfolio in verticals like retail restaurants and schools.

The timing is significant as the refrigeration industry response to the need for ultra low global warming potential refrigerant technologies.

This has led to growing demand for trans critical <unk> solutions, which require the precision of digital controls to provide safety efficiency and reliability, while delivering cost savings to the customer.

I now want to spend a few minutes on <unk>.

Our strategy with atria has been to build a data layer that connects the edge to the cloud and use that data to develop applications that make a difference and built basis.

Earlier this month, we showcased our products at the IV Con 2023 conference in Las Vegas.

This is the largest smart building conference for commercial real estate and facilities companies.

At <unk>, we launched Atreus data lab, a powerful data layer that supports our portfolio of <unk> applications that is foundational to our ability to automate the environment of adult space.

Patriots day to lab captures data from a building management system and organize it in the cloud.

From there it harmonizes the data for accessibility and usefulness and creates a digital twin.

Applications are built on top of that digital twin, allowing users to analyze historic scenarios get live updates of the current building environment and model other scenarios.

This service is important because every building is different.

Our HVAC applications have been built to ensure that our partners achieve their specific energy and sustainability goals through the collection measurement and management of data in each of their spaces.

Atria sustainability and Atreus energy our lives and we're built on the foundation of Hs building insights atria.

<unk> sustainability is an automation tool that captures categorizes and reports on carbon emissions. We then built spaces.

Patriots energy facilitates the reduction of energy and carbon usage by allowing facilities teams to benchmark their usage against science based target.

Later this year, our team will be rolling out atreus facilities and <unk> resolved.

Now looking to the remainder of fiscal 2023.

Our third quarter played out as we expected with sales being impacted by both lead time normalization in the macro environment.

Entering our fourth quarter, we believe that there will be a continuation of these trends.

While our order rates and our shipment rates are returning into closer alignment with each other we have not yet return to normal sequential seasonality.

And ABL, we're going to focus on strategic pricing continued productivity improvement and managing material costs.

And ISG, we're going to focus on the continued growth of <unk> in Hs and the successful integration of <unk>.

We will continue to prioritize managing margin generating strong cash flow and allocating capital effectively.

Now I'll turn the call over to Karen who will update you on our third quarter performance.

Thank you Neal and good morning to everyone on the call in.

In the third quarter of 2023, we delivered sequential and year over year adjusted operating profit margin improvement. Despite a decline in net sales.

We grew adjusted diluted earnings per share and generated strong cash flow from operations.

For total <unk> Yi, we generated net sales of $1 billion.

Which was 6% lower than the prior year as a result of the decline in net sales and our ABL business.

Neil described this was the result of lower volume consistent with lead time normalization trends and the impact of the wider macro environment.

As we made clear on our last call our focus is on delivering margin and operating cash flow.

During the quarter, both operating profit and adjusted operating profit were flat on lower sales.

We expanded adjusted operating profit margin to 16, 3%, which was an increase of approximately 100 basis points over the prior year, an improvement of 230 basis points sequentially driven by the improvement in gross profit margin.

During the quarter, our adjusted diluted earnings per share of $3 75.

Increased 23 or 7% over the prior year.

Moving to our segment performance review.

ABL net sales were $941 million in the quarter.

This decrease of 7% compared with the prior year was largely driven by declines in the independent sales network and lower OEM sales.

This was partially offset by infrastructure projects and the direct sales network and continued strong performance in our retail channel.

<unk> operating profit and adjusted operating profit were both flat on lower net sales and we delivered adjusted operating profit margin of 17%, a 120 basis point improvement over the prior year and a 200 basis point improvement sequentially as price held and material input.

Cost improves, particularly steel and inbound freight.

The space. This segment continued to perform well with another good quarter.

Sales were $66 million, an increase of 13% as both <unk> and atria continued to grow.

Basis operating profit was $9 million and adjusted operating profit was $13 million as we continued to invest in the business for longer term growth.

Now moving to our cash flow performance.

We generated $472 million of cash flow from operating activities for the first nine months of fiscal 2023, an increase of $306 million over the same period in 2022, driven largely by improvements in working capital.

We have improved both days of inventory and accounts receivable compared to the end of the year.

As we've discussed on prior calls we've continued to bring inventory down by 22 inventory days from the peak in February 2022.

And we've also brought inventory levels down by over $36 million sequentially from the second quarter of fiscal 2023.

Year to date, we invested $48 million in capital expenditures and allocated $219 million to repurchase approximately one 3 million shares.

Our capital allocation priorities remain the same we have invested for growth in our current businesses through R&D and Capex.

We've expanded our platform through acquisitions as evidenced by the purchase of <unk> in our lighting business and key to firm in our space business.

We've maintained our dividend and we've created permanent shareholder value with approximately $1 2 billion of share repurchases since the fourth quarter of fiscal 2020 at an average price of approximately $142 per share, which was funded by organic cash flow.

To summarize our performance for the quarter, we delivered strong margin and cash flow despite sales being down year over year.

Based on year to date results and our expectations for the fourth quarter. We now expect full year net sales to be between $3 9 billion and $4 billion.

Our expectations for full year adjusted diluted earnings per share have not changed.

Our focus continues to be on meeting the needs of our customers and delivering margin and cash flow. Thank.

Thank you for joining us today I'll now pass you over the operator to take your questions.

If you'd like to ask a question at this time. Please press star one one on your telephone and wait.

<unk> announced.

To withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Our first question comes from Tim <unk> with Baird.

Maybe just to start out on the market.

I appreciate the color around kind of order rates and shipment rates and kind of how those are normalizing I was curious if there was any way to kind of break that out by by channel or segmentation, whether it is kind of the project business or what youre seeing on the stock and flow side and then maybe some of your more direct accounts.

Yeah, Good morning, Tim.

So let me start from kind of back to front. So first on the on the corporate accounts and on the OEM side, that's where those are obviously going to be volatile and those those are down and those order rates are relatively low there is a lots of reasons for those.

The timing of renovations at at our big customers on the corporate account side and then second on the on the OEM side Theres, probably some continued destocking going down in the driver market.

And then as you kind of get to our direct sales network and our.

And our project business, that's where the C&I order rate as is relatively stable at this point, so and our direct sales.

<unk> is also consistent so there they are finding a level here, where they are they're relatively consistent and then finally, we've had continued strong performance in retail so when you boil. It all back together I think it's a continuation of the trends we've seen from from this quarter and looking out to what we can.

See right in front of us.

Okay, Okay, and I guess like as you mentioned in your prepared remarks that youre not really quite back to normal revenue seasonality. Yet I mean is there any kind of expectation or thought when you might be back to that kind of normal seasonality.

Yes, we're not ready to call that yet Tim as we as we sort our way through this I mean, we're looking at the same kind of windshield metrics that you are to try and understand so because we haven't gone through.

Period that looks like this one we don't have a perfect proxy for where that is so we're at this point going to take it one quarter at a time.

Okay. Okay makes sense and then just the last one and this is maybe more of a bigger picture question, just with how Youre bucking sales, which just ended the contractor select the design select and kind of the MTO products.

I guess could you talk about what is different with that segmentation versus before and.

If you're aligning it this way does that have more of a top line sales impactful use easier order or is that more of a benefit to margins because maybe it eliminates a lot of like cats and dogs on on some of the products.

Yes, so so I think the delineation and the clarity of the delineation is powerful on a number of levels.

First is.

As you know we've had a lot of success with contractor select so building a product of 300 SKU product line Thats Thats built for stocking and resale in retail in electrical distribution provides us the ability to be very.

Have very high product vitality have very high service level and be an important partner to the retail and electrical distribution industry and it allows us to compete effectively with whoever wants to enter the market through that channel. So that's been a real success for us <unk>.

Design select is then about configurable products for the specification community and what this allows them to do is choose basically make good choices among the product families. So this is the next step in that process. So.

Our expectations arent that this creates a new line of revenue, but it is our expectations are that will create a lot more efficiency for them as well as as well as for US and then finally, we can isolate made to order. So when we isolate made to order then we can treat it as such which is made to order and we can.

Price it accordingly, we can and we can service it accordingly.

So that's the import of creating those different buckets is is ultimately that we're trying to make the lighting lighting control business more predictable repeatable and scalable.

Okay. Okay very good I appreciate the commentary thanks, guys. Good luck on this year.

Thanks, Tim.

Our next question comes from Joe O'dea with Wells Fargo.

Sir Your line is now open.

Hi, good morning, Thanks for taking my questions.

Wanted to start on the margin front.

Really strong gross margins during the quarter I think.

Just sort of if you could unpack a little bit on the price cost dynamic and maybe if we go back a couple of years you were talking about a gross margin target of around 42%.

It looks like you should be north of 43%. This year. So how we think about the sustainability of that and then what you might be seeing on the price side any sort of incoming pressure youre seeing there.

Hey, Joe Thanks for the question. This morning, I'll start and then I'll pass it over to Neil to add on as we talked about on the call at ABL, We're really focused on strategic pricing continued productivity improvements and managing material costs. So we've demonstrated discipline in all of these areas. This year, which is resulting in a strong.

Gross margin that you see in the third quarter and Thats going to continue to be our focus and the other thing I would add is that we're having continued growth at ISG and so that's helping us as well.

Yeah, and I would only build on that a little bit Karen I think you summarized it well to say that.

Joe I think we have made an improvement from where we were when we were targeting the 42%. So so clearly we've improved the business since then.

And I would just pick up on two things that Karen pointed out their first around strategic pricing. So that's where the contractor select portfolio. We can compete with anyone that wants to enter the market through those channels, which is which is very effective and we can choose which which projects we want to participate in based on pricing. So we're.

<unk> significantly more strategic about about how we're pricing second is that we are we're really working hard and our teams have done a nice job on the combination of productivity improvements and material material cost savings that's a combination of.

Our product vitality efforts and the and the work that we're doing in our supply chain too.

To level load and then finally I would emphasize that the continued growth of ISG is is is growth accretive margin accretive and and returns accretive.

Thank you and then just a question related to the outlook. Both both this year and next I think this year that the earnings outlook.

It sounds like maintaining that but it's $1 50 range and so anything that you would talk to in terms of what's most likely within a narrowing of that band and then as you think about it.

24 guide in a few months Neil just whats what are sort of the most important watch items for you over the next few months to sort of inform how you how you would be thinking about that that outlook.

Yes, So let me contextualize first and then I'll dig into answer the specifics of your question.

As we've said consistently our plan is to provide annual guidance.

And not update that guidance through the year, we felt it important to identify for you that we werent going to meet the lower end of our net sales guidance for the year, but we still are in the.

The adjusted EPS range that we gave at the beginning of the year and to be transparent. We're proud of that so this has been our teams have done really hard work to deliver the results that we're delivering this year or two to maintain dollars profit margin on lower sales to increase margins et cetera. So we feel really good about that.

As we look forward to 224 as.

As I said, where we're going to take US one quarter at a time for right now so we're not going to get.

Too far ahead of ourselves on predicting 24.

Our general indications are that the rest of this calendar year feels like it's going to be similar trends that we're having now that could change.

And we're confident in our ability to continue to grow the ISG business and then some of the growth initiatives that we're planning for for ABL going forward. So.

Our priority as we've said through through this environment is to is to layer in margin, which we've demonstrated that we're doing well.

Whether or not we have sales growth, we're trying to layer in margin. We're trying to continue to deliver free cash flow and we've delivered a ton of it and we're going to continue to grow the intelligence based group.

Thank you.

Thanks.

Our next question.

Comes from Ryan Merkel with William Blair.

Okay.

Hey, Thanks, Good morning, everyone I wanted to pick up on the orders again, just so we're clear it sounds like orders are tracking.

Down mid single digits, and you mentioned lead times in the macro.

Can you just unpack those a little bit more is it distributor destocking is a tighter credit what are some of the factors that are impacting the order rate accelerating a little bit here.

Yes, I will.

Ill take a shot at that and Karen fill in any gaps that I leave in the explanation. So first just to reiterate.

The bigger picture here so.

Looking back to last year, we had a combination of longer lead times, and a price increase environment, which basically pulled forward a lot of orders.

So we had a swell backlog and we've been working through that backlog through this year.

And through this quarter, it's starting to be back to about normal.

So which means that in any period, we will basically shift what's ordered so.

Over the long arc of time, obviously, we will but in a normal quarter. We will we will shift generally what's ordered in that quarter and a little bit from the quarter before so we're starting to get to kind of more normalized normalized level there.

On a positive side those numbers are relatively consistent absent the volatility of the of the.

The corporate accounts than the OEM, which I discussed in the first question.

So so that we feel we feel good about kind of where we are on that front.

So as you look forward off of that then.

The quarters is the next one and this is why we're saying we're taking this one quarter time will be impacted by kind of normal macroeconomic trends and.

And I don't say, we're looking at the same data you are in and we don't pretend to have a crystal ball. So are our focus there is that and we're going to continue to get every piece of business we can get.

All indications are from all of our data sources that were either holding or taking share and and we'll continue to try and layer and margin and deliver free cash flow and in this environment.

Got it that's helpful. And then another question I had was on project releases I was hearing that tighter credit and Shorja of switchgear was delaying the releases of projects are you guys seeing that in any visibility as to why and maybe that gets a little bit better.

Yes, so I'll take switch gear and then projects first on switch gear.

The lead times as we understand it have not yet have not compressed for four switch gear. So just to put that in context. They were in the kind of 50 week range. So not days weeks range. So they have been the bottleneck on many of the already funded projects.

So thats so thats the switch gear thing those will all of those projects will continue to happen and now that our lead times are basically normal our expectation is that they will order their lighting for those projects on a more normal schedule. So that's.

That should play out over a while in terms of new projects, that's really from our perspective, that's the macro environment. So.

With higher rates I think everyone's going to re look at their projects and so anecdotally. We have projects that are we have a fair number of projects in our independent sales network that are that are in queue, but they are being changed modified.

Kind of reevaluated those sorts of things, which is frankly normal it's not it's not abnormal.

But but it doesn't make it clear exactly what the market size is going to be which is why again, we're taking it we're taking it quarter by quarter and we're focused on kind of layering in margin delivering cash flow.

Got it very helpful. Thank you.

Our next question comes from the line of Chris Snyder with UBS.

Okay.

Hello.

Hi, Chris.

Okay, sorry about that I had a little phone trouble. So the last couple of quarters, we've seen very significant 300 basis points gross margin expansion, but also pretty steep volume declines.

And I know, there's there's destocking headwinds.

Is there a negative volume impact in response to the company's increased focus on margins.

And Neil I would just be interested in hearing about how you think about that trade off and why the focus on margins is the right one for acuity. Thank you.

Yes, so I'll happily address that.

And.

From our perspective.

Very clear with our company on how we create value we grow net sales, we turned profits into cash and we don't grow the balance sheet as fast and so as we look out strategically.

Around around price volume et cetera.

Our objective with the lighting and lighting control business is to be predictable repeatable and scalable.

And we're delivering on that so so in the current environment, you're you're right and Karen has indicated this on other calls that we have we have had more price than volume over the course of this year, So and Thats a combination of kind of all of the factors we've talked about before.

Sure.

And that is delivering the.

The result that we are seeing we.

I've said this ability to be more predictable repeatable and scalable in this business. So we do think these are the right choices that is how we will create value will grow net sales will turn profit into cash and we won't grow the balance sheet as fast and we're demonstrating that we can do that in a number of different market environments. We succeeded.

Through through the challenge of the pandemic when it was when things fell off we succeeded when they shot up and now I believe we're succeeding as as we try and returned to some normalized.

Marketing our market environment.

I appreciate that thank you I wanted to follow up on the commentary around share gains.

Which is very impressive considering great gross margin on taking share I guess, what gives you confidence that the company is taking share.

Because I think investors see construction markets.

<unk> percents on the non res side, and obviously ABL down seven.

So how do we obviously a big lag there how should we think about or how do you guys think about the impacts from the destock within that.

Versus the potential share shifts.

Which are maybe more structural in nature. Thank you.

Yes, sure and so this is a.

This could be this could be a soliloquy, along kind of Phd level soliloquy, but let me just kind of summarize it.

Is that.

That with the benefit of a lot of the data work that we've done there is not a like for like correlation between the lighting industry and a specific same quarter.

External macro number that we can point to.

Theyre requires a basket.

Two to have any kind of correlation in the correlations we've gotten are kind of <unk> like <unk>.

Eight so we're in the we're in the good not great range on the on the predictability of that it takes multiples too.

The second is that our our research has shown that generally we are performing ahead of the general macro macroeconomic cycle both for the good.

For the for the not as good.

We're working through that now.

Now so the direct answer to your question is there is it is not a surprise to us that that that those numbers would would diverged. The way you described it the second thing that I would highlight there is is the difference between nominal and real.

On the on the construction data so that also to the last question is consistent with our with our our performance as well so.

So there is.

Wish there were a a more algebraic kind of tied to external market data that would predict our results.

There is it's a it's a basket and we're not surprised by the relationship between those numbers that you described.

Appreciate all that color really helpful. Thank you.

Our next.

Question comes from the line of.

Brian Lee with Goldman Sachs.

Hey, everyone. Good morning, Thanks for taking the question.

Hey, Brian .

I might've missed this but and I hate to kind of beat a dead horse, but the lead time issue could you.

I will elaborate a bit more maybe in quantitative terms, just sort of where they are where you want them to be the sort of trajectory from here is it a purely destocking issue at the moment just maybe.

Give us a frame of reference with puts some of the quantification to that that'd be helpful.

Yes, Brian we covered this in some detail in the last quarter call. So.

I'll summarize it now which is that.

Kind of at the end of last fiscal year are our lead times and days where in the <unk> range.

And now they're in the twenties range, so basically we've reduced.

We've reduced lead times by about 30 days, so that resulted in a buildup of backlog.

Just kind of towards the end of last fiscal year that we've been working through this year.

And correspondingly a.

Obviously, a little bit of an order drought as as projects have been and needs have been pulled forward. So that's the that's the big picture view of that and why and also why we've identified that we're starting to come back into balance and that basically we shipped less ordered over kind of a basically a 60 day period.

Yes, Brian the only thing I would add is that last year. If you recall, we had several price increases as well and that resulted in some of that.

Forward that Neil described in addition to the lead time.

Okay fair enough I appreciate that.

That clarification, and then I guess.

Second question I had and thanks for bringing it up Karen just around the price I know you guys.

Have gone away from talking specifics on price, but as you alluded to last year price was a meaningful tailwind.

Historically prices generally been I think maybe.

Plus or minus kind of low single digit type of number for you. All is that kind of where we are in terms of back to being toward a more normal and then.

In relation to that you had a decent amount of product vitality you introduced some new stuff.

The design select as well so maybe any high level sense, you can provide as to the impact.

On mix and price just as Youre, introducing a lot of these new products as well. Thank you.

Yes, Brian I would just go back to our posture on strategic pricing that we talked about earlier, we have really focused on this discipline over the past couple of years, we've talked about it with our contractor select portfolio, which is really a combination of 300 everyday lighting products that we're able to compete with the right product the right place at the right.

So that gives us the ability to compete in a certain part of the market that.

While ago, we werent able to compete in and then if you look on the project side of the business. Our strategic approach. There is that we're able to pick the projects that we want.

Just being more disciplined about our pricing overall, so that's really what's driving the pricing that we're seeing today.

Alright fair enough I'll take the rest offline. Thank you.

As a reminder to ask a question that is star one one.

Our next question comes from the line of Jeffrey Sprague with vertical research.

Thank you and good morning, everyone.

Hey, Jeff.

Hey, good morning, Hey, a lot of ground covered I wanted to go a little bit further back just into what youre seeing and kind of the renovation markets in general you're obviously address kind of what you see in corporate account level, but anything you can kind of add there on.

Kind of the vertical markets within that.

You think this is mostly kind of a function of rates squeezing out.

Marginal projects or any other color there would be interesting.

Sure Jeff at ABL, the sales decreases by vertical or really what you would expect to see we had declines in industrial if you recall last year, we had a lot of warehouse and logistics project that were taking place and then also we're seeing declines in healthcare and commercial office due to the impact of the wider macro.

So really nothing.

Nothing surprising on the vertical front.

And on the renovation front, Jeff I would say that change for us is good so.

We've got a lot of questions about kind of what happens if the.

In the commercial office space or or the commercial around the broader lending environment valuations et cetera. So I would just use I think everybody saw the Wall Street Journal article about.

The building on market Street in San Francisco that had a $300 million valuation in 2019, and then was sold for $60 million recently, so while it's unpleasant experience for the for the capital side of that trade. The reality without building is that it will now be reset at a.

Different rates, new tenants will move in and they will need to customize the space to what they want and so theyre going to need lighting and lighting controls. So that's kind of that so that's the anecdotally how renovation will play out for us over the over the next foreseeable future.

Yeah, and I guess that could be two or three year process, though right.

Kind of work from home and everything resettled.

Great visibility on that I would think.

Could you just address a little bit more on.

Also just on the price side.

We're pretty explicit about managing the algorithm right. So there's a couple of times.

Gross margin line.

And growth in the balance sheet to kind of leverage the capital base.

But do you see an environment.

Emerging where and in fact would makes sense in that algorithm to just kind of overtly seed share.

Aim of protecting margins and cash flow I mean, do you see that sort of competitive pressure brewing are starting to emerge anywhere.

Yes, Jeff.

The reason, we talk a lot about contractor select is that we have we have fundamentally changed our posture on product vitality. So we now have a product portfolio on a relatively consistent basis.

That is able to compete with all comers.

And it allows us to deliver a to deliver a margin at a price. That's that's competitive in the marketplace. So that's a I think about the strategy around contractor select as as really like what Kirkland is to Costco contractor select as to the electrical distribution into.

History in other words doesn't necessarily have to be the lowest price product out there, but it is the highest value price and as competitive very competitive.

That's allowed us to to be in a very interesting position and so we've tested this on on price and whether we we drive volume with price.

And the and we've had really good results from that so a little bit can go a long way, there, which which allows us to manage that and to your ultimate question about which one which would we choose I don't think we will I don't think we will unnecessarily chase share.

If it if we think it's going to impact us negatively on our on our value creation algorithm. So we are we are.

We're very competitive we're comfortable with our positioning on.

In the marketplace from a from a competitive perspective, because of all the vitality and productivity improvements.

Demonstrated and so now we're really want to we want to make the lighting and lighting control business as predictable and repeatable and scalable as we can for for a longer period of time.

Which will deliver.

Deliver value for a lot of us.

And then I don't want to I don't want to answer this question without also highlighting the Intel.

Importance of the intelligent spaces group in our portfolio. So as you saw this quarter. We continue to grow at this tech we continue to grow the atreus. We continue to find we're finding ways, where we can put capital to work to make that business better. So then the whole company hopefully look different going forward the lighting business.

More predictable repeatable and scalable with an obvious value creation algorithm and where we're growing the technology business at ISG.

Great. Thanks for that very complete answer I appreciate it.

Thanks, Jeff.

Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Neil Ash for any closing remarks.

Thank you Liz I would like to thank all of you for joining US today, we appreciate the engagement and the questions. We had a solid quarter, we delivered margin and.

And cash flow despite a decline in sales, we allocated capital effectively and we continue to improve our underlying businesses. So thank you for your interest in acuity brands and we will look forward to seeing you again next quarter.

Okay.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Good morning, and welcome to <unk>.

Acuity brands fiscal 2023 third quarter earnings call.

At this time all participants are in a listen only mode.

After the Speakers' presentation, the company will conduct a question and answer session.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to Charlotte Mclaughlin, Vice President of Investor Relations Charlotte. Please go ahead.

Thank you Liz.

Good morning, and welcome to the acuity brands fiscal 2023 third quarter earnings call.

As a reminder, some of our comments today may be forward looking statements based on management's beliefs and assumptions and information currently available to management at this time.

These beliefs are subject to known and unknown risks and uncertainties.

Many of which maybe beyond our control, including those detailed in our periodic SEC filings.

Please note that our company's actual results may differ materially from those anticipated.

We undertake no obligation to update these statements.

Reconciliations of certain non-GAAP financial metrics with our corresponding GAAP measures are available in our 2023 third quarter earnings release, which.

Which is available on our Investor Relations website at Www Dot investors, the Qt brand Dot com.

With me this morning is Neil Ash.

Annan, President and Chief Executive Officer.

We will provide an update on our strategy and our third quarter highlights.

And Karen <unk>, our senior Vice President and Chief Financial Officer.

I'll walk you through our fiscal third quarter financial performance.

There will be an opportunity for Q&A at the end of this call.

For those participating please limit your remarks to one question and one follow up if necessary.

A webcast of today's conference call lines.

Thank you for your interest in acuity brands I will now turn the call over to Neil.

Thank you Charlotte and welcome to all of you joining us this morning.

In the third quarter of fiscal 2023, we expanded adjusted operating profit margin, both sequentially and year over year.

We continue to grow adjusted diluted EPS, and we generated strong cash flow from operations. Despite a decline in net sales.

We completed the acquisition of Keytruda therapy, and we continue to repurchase our shares.

We are making meaningful progress in both our lighting and space businesses.

The acuity brands lighting and lighting controls business our strategy is clear increase.

Increased product vitality increased service levels and use technology to improve and differentiate both our products and our services.

This quarter, we launched design select.

We develop design select to elevate our service for the specification community by making it easy for them to choose superior solutions with dependable service.

Designed select consists of 3000 configurable products that meet important specification needs from some of our core families of lighting and lighting control brands, including <unk>.

Gotham Lithonia lighting and light and sensor switch does.

<unk> select is an important addition to our service strategy.

ABL lighting and lighting control products are now organized into three clear categories.

Contractor select is 300 of the most important everyday lighting and lighting control products available in stock at retailers and electrical distributors.

Design select is 3000 configurable products that meet the key choices of lighting specifier with dependable service.

And the remainder is made to order.

We also continued to introduce new products during the quarter.

Our luminous brand launched the inline family of exterior luminaries for use in plaza and arenas.

Each slot each light module can rotate 355 degrees and can be individually controlled allowing installers to position the luminaire onsite for improved flexibility to create optimal illumination solutions.

The Eureka Pangram trace was awarded a red Dot best of the best distinction for its groundbreaking design.

Other winners in this category included products from Apple IBM, and stone us and spend categories from VR headset to first responder drove.

We're proud to be in this company of innovators.

Now moving to our intelligent spaces group. This was a big quarter for our spaces team, both the detect and at atrium.

First on this tech our strategic priority is to expand our addressable market, which we are doing it two ways. The first is geographic which continues to progress successfully.

The second is by increasing what we control and have built space.

During the quarter, we announced the completion of the acquisition of <unk>, which allows us to expand <unk> addressable market by entering the commercial refrigeration controls space.

By controlling commercial refrigeration, we are able to more effectively sell the entire <unk> portfolio in verticals like retail restaurants and schools.

The timing is significant as the refrigeration industry response to the need for ultra low global warming potential refrigerant technologies.

I now want to spend a few minutes on <unk>.

Our strategy with atria has been to build a data layer that connects the edge to the cloud and use that data to develop applications that make a difference and built basis.

Earlier this month, we showcased our products at the IV Con 2023 conference in Las Vegas.

This is the largest smart building conference for commercial real estate and facilities companies.

At <unk>, we launched Atreus data lab, a powerful data layer that support that portfolio of <unk> applications that is foundational to our ability to automate the environment of adult space.

Patriots day to lab captures data from a building management system and organizes it in the cloud.

From there it harmonizes the data for accessibility and usefulness and creates a digital twin.

Applications are built on top of that digital twin, allowing users to analyze historic scenarios get live updates of the current building environment and model other scenarios.

This service is important because every building is different.

Our atreus applications have been built to ensure that our partners achieve their specific energy and sustainability goals through the collection measurement and management of data in each of their spaces.

Atria sustainability and <unk> energy our lives and we're built on the foundation of Hs building insights ACI.

<unk> sustainability is an automation tool that captures categorizes and reports on carbon emissions. We then built spaces.

Patriots energy facilitates the reduction of energy and carbon usage by allowing facilities teams to benchmark their usage against science based target.

Later this year, our team will be rolling out atreus facilities and <unk> resolved.

Now looking to the remainder of fiscal 2023.

Our third quarter played out as we expected with sales being impacted by both lead time normalization in the macro environment.

Entering our fourth quarter, we believe that there will be a continuation of these trends.

While our order rates and our shipment rates are returning into closer alignment with each other we have not yet return to normal sequential seasonality.

And ABL, we're going to focus on strategic pricing continued productivity improvement and managing material cost.

And ISG, we're going to focus on the continued growth of <unk> in Hs and the successful integration of <unk>.

We will continue to prioritize managing margin generating strong cash flow and allocating capital effectively.

Now I'll turn the call over to Karen who will update you on our third quarter performance.

Thank you Neal and good morning to everyone on the call in.

In the third quarter of 2023, we delivered sequential and year over year adjusted operating profit margin improvement. Despite a decline in net sales.

We grew adjusted diluted earnings per share and generated strong cash flow from operations.

For total <unk> Yi, we generated net sales of $1 billion.

Which was 6% lower than the prior year as a result of the decline in net sales and our ABL business.

Neil described this was the result of lower volume consistent with lead time normalization trends and the impact of the wider macro environment.

As we made clear on our last call our focus is on delivering margin and operating cash flow.

During the quarter, both operating profit and adjusted operating profit were flat on lower sales.

During the quarter, our adjusted diluted earnings per share of $3 75.

Increased 23 or 7% over the prior year.

Moving to our segment performance review.

ABL net sales were $941 million in the quarter.

This decrease of 7% compared with the prior year was largely driven by declines in the independent sales network and lower OEM sales.

This was partially offset by infrastructure projects and the direct sales network and continued strong performance in our retail channel.

Cost improves, particularly steel and inbound freight.

The space. This segment continued to perform well with another good quarter.

Sales were $66 million, an increase of 13% as both <unk> and atria continued to grow.

Basis operating profit was $9 million and adjusted operating profit was $13 million as we continued to invest in the business for longer term growth.

Now moving to our cash flow performance.

We have improved that days of inventory and accounts receivable compared to the end of the year.

As we've discussed on prior calls we've continued to bring inventory down by 22 inventory days from the peak in February 2022.

And we've also brought inventory levels down by over $36 million sequentially from the second quarter of fiscal 2023.

Year to date, we invested $48 million in capital expenditures and allocated $219 million to repurchase approximately one 3 million shares.

Our capital allocation priorities remain the same we have invested for growth in our current businesses through R&D and Capex.

We've expanded our platform through acquisition as evidenced by the purchase of <unk> in our lighting business and keeps it arm in our space business.

To summarize our performance for the quarter, we delivered strong margin and cash flow despite sales being down year over year.

Based on year to date results and our expectations for the fourth quarter. We now expect full year net sales to be between $3 9 billion and $4 billion.

Our expectations for full year adjusted diluted earnings per share have not changed.

Our focus continues to be on meeting the needs of our customers and delivering margin and cash flow. Thank.

Thank you for joining us today I will now pass you over the operator to take your questions.

If you'd like to ask a question at this time. Please press star one one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Our first question comes from Tim <unk> with Baird.

Maybe just to start out on the market.

I appreciate kind of the color around kind of order rates and shipment rates and kind of how.

Those are normalizing I was curious if there was any way to kind of break that out by by channel of segmentation, whether it's kind of a project business or what youre seeing on the stock and flow side and then maybe some of your more direct accounts.

Yeah, Good morning, Tim.

The timing of renovations at at our big customers on the corporate account side and then second on the on the OEM side Theres, probably some continued destocking going down in the driver market.

And then as you kind of get to our direct sales network and our.

And our project business.

Where the C&I order rate as is relatively stable at this point, so and our direct sales.

Is is also consistent so there they are finding a level here, where they are they're relatively consistent and then finally, we've had continued strong performance in retail so.

Can you blow it all back together I think it's a continuation of the trends we've seen from from this quarter and looking out to what we can see right in front of us.

Okay, Okay, and I guess as you.

Mentioned in your prepared remarks that youre, not really quite back to normal revenue seasonality, yet I mean is there any kind of expectation or thought when you might be back to that kind of normal seasonality.

Period that looks like this one we don't have a perfect proxy for where that is so we're at this point going to take it one quarter at a time.

Okay. Okay makes sense and then just the last one and this is maybe more of a bigger picture question, just with how Youre pocketing sales, which just ended the contractor select the design select and kind of the MTO products.

I guess could you talk about what is different with that segmentation versus before.

You are aligning it this way does that have more of a top line sales impactful use of easier order or is that more of a benefit to margins because maybe it eliminates a lot of like cats and dogs.

On some of the products.

Yes, so so I think the delineation the clarity of the delineation is powerful on a number of levels.

First is.

As you know we've had a lot of success with contractor select so building a product of 300.

SKU product line Thats, that's built for stocking and resale in retail in electrical distribution provides us the ability to be very.

Our expectations arent that this creates a new line of revenue, but it is that our expectations are that will create a lot more efficiency for them as well as as well as for US and then finally, we can isolate made to order. So when we isolate made to order then we can treat it as such which is made to order and we can.

Price. It accordingly, we can and we can service. It accordingly, so that's the import of creating those different buckets is is ultimately that we're trying to make the lighting lighting control business more predictable repeatable and scalable.

Okay. Okay very good I appreciate the commentary thanks, guys. Good luck on that.

Thanks, Tim.

Okay.

Our next question comes from Joe O'dea with Wells Fargo.

Joe Your line is now open.

Hi, good morning, Thanks for taking my questions.

Wanted to start on the margin front.

Really strong gross margins during the quarter I think.

Just sort of if you could unpack a little bit on the price cost dynamic and maybe if we go back a couple of years you were talking about a gross margin target of around 42%.

It looks like you should be north of 43%. This year. So how do we think about the sustainability of that and then what you might be seeing on the price side any sort of incoming pressure youre seeing there.

Gross margin that you see in the third quarter and that's going to continue to be our focus and the other thing I would add is that we're having continued growth at ISG and so that's helping us as well.

Yeah, and I would only build on that a little bit Karen I think you summarized it well to say that.

Joe I think we have made an improvement from where we were when we were targeting the 42%. So so clearly we've improved the business since then.

We're significantly more strategic about about how we're pricing second is that we are we're really working hard and our teams have done a nice job on the combination of productivity improvements and material material cost savings that's a combination of.

Our product vitality efforts and the and the work that we're doing in our supply chain too.

To level load and then finally I would emphasize that the continued growth of ISG is.

Is growth accretive margin accretive and and returns accretive.

Thank you and then.

Just a question related to the outlook both both this year and next I think this year that the earnings outlook.

It sounds like maintaining that but it's $1 50 range and so any anything that you would talk to in terms of what's most likely within a narrowing of that band and then as you think about it.

24 guide in a few months Neil just whats what are sort of the most important watch items for you over over the next few months to sort of inform how you how you would be thinking about that outlook.

Yes, So let me contextualize first and then I'll dig into answer the specifics of your question.

We.

As we've said consistently our plan is to provide annual guidance and not update that guidance through the year. We felt it important to identify for you that we werent going to meet the lower end of our net sales guidance for the year, but we still are in the.

The adjusted EPS range that we gave at the beginning of the year.

Transparent we're proud of that so this has been our teams have done really hard work to deliver the results that we're delivering this year or two to maintain dollars profit margin on lower sales to increase margins et cetera. So we feel really good about that.

As we look forward to 224 as.

As I said, where we're going to take US one quarter at a time for right now so we're not going to get.

Too far ahead of ourselves on predicting 24.

Our general indications are that the rest of this calendar year feels like it's going to be similar trends that we're having now that could change.

And we're confident in our ability to continue to grow the ISG business and then some of the growth initiatives that we're planning for for ABL going forward. So.

Our priority as we've said through through this environment is to is to layer in margin, which we've demonstrated that we're doing well.

Thank you.

Okay.

Our next question.

Comes from Ryan Merkel with William Blair.

Okay.

Hey, Thanks, Good morning, everyone I wanted to pick up on the orders again, just so we're clear it sounds like orders are tracking.

Down mid single digits, and you mentioned lead times in the macro.

Can you just unpack those a little bit more is it distributor destocking is a tighter credit what are some of the factors that are impacting the order rate accelerating a little bit here.

Yes, I will.

Ill take a shot at that and Karen fill in any gaps that I leave in the explanation. So first just to reiterate.

The bigger picture here so.

Looking back to last year, we had a combination of longer lead times, and a price increase environment, which basically pulled forward a lot of orders.

So we had a swell backlog and we've been working through that backlog through this year.

And through this quarter, it's starting to be back to about normal.

So which means that in any period, we will basically ship what's ordered so over the long arc of time, obviously, we will but in a normal quarter. We will we will shift generally what's ordered in that quarter and a little bit from the quarter before so we're starting to get to kind of more normalized normalized level there.

Sure.

On a positive side those numbers are relatively consistent absent the volatility of.

The.

Of the corporate accounts than the OEM, which I discussed in the first question.

So that we feel we feel good about kind of where we are on that front.

So as we look forward off of that then.

The quarters is the next one and this is why we're saying we're taking this one quarter time will be impacted by kind of normal macroeconomic trends and.

And I don't think we're looking at the same data you are in and we don't pretend to have a crystal ball. So are our focus there is that and we're going to or can it continue to get every piece of business we can get.

All indications are from all of our data sources that were either holding or taking share and and we'll continue to try and layer and margin and deliver free cash flow and in this environment.

Got it that's helpful. And then another question I had was on project releases I was hearing that tighter credit and shortage of switchgear was delaying the releases of projects are you guys seeing that in any visibility as to why and maybe that gets a little bit better.

Yeah, So I'll take switch gear and then projects first on switch gear.

So thats so thats the switchgear thing those will all those projects will continue to happen and now that our lead times are basically normal our expectation is that they will order their lighting for those projects on a more normal schedule. So that's.

That should play out over a while in terms of new projects, that's really from our perspective, that's the macro environment. So.

So with higher rates I think everyone's going to re look at their projects and so anecdotally. We have projects that are we have a fair number of projects in our independent sales network that are that are in queue, but theyre being changed modified.

Kind of reevaluated those sorts of things, which is frankly normal it's not it's not abnormal.

Got it very helpful. Thank you.

Our next question comes from the line of Chris Snyder with UBS Hello.

Hi, Chris.

Okay, sorry about that I had a little phone trouble. So last couple of quarters, we've seen very significant 300 basis points gross margin expansion, but also pretty steep volume declines.

And I know, there's there's destocking headwinds.

But is there any negative volume impact in response to the company's increased focus on margins and Neil I would just be interested in hearing about how you think about that trade off and why the focus on margins is the right one for acuity. Thank you.

Yes, so I'll happily address that.

And.

From our perspective.

Very clear with our company on how we create value we grow net sales, we turned profits into cash and we don't grow the balance sheet as fast and so as we look out strategically.

Around around price volume et cetera.

Our objective with the lighting and lighting control business is to be predictable repeatable and scalable.

And we're delivering on that so so in the current environment.

Youre right and Karen has indicated this on other calls that we have we have had more price than volume over the course of this year, So and Thats a combination of kind of all of the factors we've talked about before.

And that is delivering.

The result of that that we are seeing.

We are also have have all indications from our external sources that we are either maintaining or taking share in the in the process. So we're trying to guide the company to steer the company to two as I said this ability to be more predictable repeatable and scalable in this business. So we do.

Thank these are the right choices that is how we will create value will grow net sales will turn profit into cash and we won't grow the balance sheet as fast and we're demonstrating that we can do that in a number of different market environments. We succeeded through through the challenge of the pandemic. When it was when things fell off we succeeded when they.

Shot up and now I believe we're succeeding as as we try and return to some normalized.

Marketing our market environment.

I appreciate that thank you and I don't want to follow up on the commentary around share gains.

Which is very impressive considering growth and gross margin on taking share I guess, what gives you confidence that the company is taking share.

Because I think investors see construction markets.

<unk> percent on the non res side, and obviously ABL down seven.

So how do we obviously a big lag there how should we think about or how do you guys think about the impacts from the destock within that.

Versus the potential share shifts.

Which are maybe more structural in nature. Thank you.

Yes, sure and so this is a.

This could be this could be a soliloquy, along kind of Phd level soliloquy, but let me just kind of summarize it.

Is that.

That with the benefit of a lot of the data work that we've done there is not a like for like correlation between the lighting industry and a specific same quarter.

External macro number that we can point to.

There requires a basket.

Too soon to have any kind of correlation in the correlations we have gotten our kind of our squares of like <unk>.

Eight so we're in the.

We're in the good not great range on the on the predictability of that it takes multiples too.

Those.

The second is that R. R.

<unk> has shown that generally we are performing ahead of the general macro macroeconomic cycle, both for the good and for the for the not as good.

We're working through that now so the direct answer to your question is there is it is not a surprise to us that that that those numbers would would diverged. The way you described it the second thing that I would highlight there is is the difference between nominal and real.

On the on the construction data so that also to the last question is consistent with our with our our performance as well so.

There is.

I wish there were.

More algebraic kind of tied to external market data that would predict our results.

But there isn't.

It is a basket and we're not surprised by the relationship between those numbers that you described.

Appreciate all that color really helpful. Thank you.

Okay.

Our next question comes from the line.

Brian Lee with Goldman Sachs.

Hey, everyone. Good morning, Thanks for taking the question.

Hey, Brian .

I might've missed this but and I hate to kind of beat a dead horse, but the lead time issue could you.

Elaborate a bit more maybe in quantitative terms, just sort of where they are where you want them to be the sort of trajectory from here is it a purely destocking issue at the moment just maybe.

Give us a frame of reference with puts some of the quantification that that'd be helpful.

Yes, Brian we covered this in some detail in the last quarter call. So ill.

I'll summarize it now which is that.

Kind of at the end of last fiscal year are our lead times and days where in the <unk> range.

And now they're in the twenties range, so basically we've reduced.

We've reduced lead times by about 30 days, so that resulted in a buildup of backlog.

Just kind of towards the end of last fiscal year that we've been working through this year.

And correspondingly a.

Obviously, a little bit of an order drought as as projects have been and needs have been pulled forward. So that's that's the big picture view of that and why and also why we've identified that we're starting to come back into balance and that basically we shipped less ordered over kind of a basically a 60 day period.

Brian the only thing I would add is that last year. If you recall, we had several price increases as well and that resulted in some of that.

All forward that Neil described in addition to the lead time.

Okay fair enough I appreciate that.

That clarification, and then I guess.

Second question I had.

Thanks for bringing it up Karen just around the price I know you guys.

Have gone away from talking specifics on price, but as you alluded to last year price was a meaningful tailwind.

Historically prices generally been I think maybe.

Plus or minus kind of low single digit type of number for you all.

Is that kind of where we are in terms of back to being toward a more normal and then.

In relation to that you have had a decent amount of product vitality you introduced some new stuff and the design select as well so maybe any high level sense, you can provide as to the impact.

On mix and price.

As you are introducing a lot of these new products as well. Thank you.

Yes, Brian I would just go back to our posture on strategic pricing that we talked about earlier, we are really focused on this discipline over the past couple of years, we talked about it with our contractor select portfolio, which is really a combination of 300 everyday lighting products that we're able to compete with the right product the right place at the right.

Right.

That gives us the ability to compete in a certain part of the market that.

While ago, we weren't able to compete in and then if you look on the project side of the business. Our strategic approach. There is that we're able to pick the projects that we want.

Just being more disciplined about our pricing overall, so that's really what's driving the pricing that we're seeing today.

Alright fair enough I'll take the rest offline. Thank you.

As a reminder to ask a question that is star one one.

Our next question comes from the line of Jeffrey Sprague with vertical research.

Thank you and good morning, everyone.

Hey, good morning, Hey, a lot of ground covered I wanted to go a little bit further back just into what youre seeing and kind of the renovation markets in general you're obviously address kind of what you are seeing corporate account level, but anything you could kind of add there on.

The vertical markets within that.

You think this is mostly kind of a function of rates squeezing out.

Marginal projects or any other color there would be interesting.

So really nothing kind.

Nothing surprising on the vertical front.

And on the renovation front, Jeff I would say that change for US is good. So so we've got a lot of questions about kind of what happens if the.

In the commercial office space or or the commercial around the broader lending environment valuations et cetera, and so I would just use I think everybody saw the Wall Street Journal article about.

The building on market Street in San Francisco that had a $300 million valuation of 2019, and then was sold for $60 million recently, so while it's unpleasant experience for the for the capital side of that trade. The reality without building is that it will now be reset at <unk>.

Different rates, new tenants will move in and they will need to customize the space to what they want and so theyre going to need lighting and lighting controls. So that's kind of that so so that anecdotally how renovation will play out for us over the over the next foreseeable future.

Yes, I guess that could be two or three year process, though writers.

Kind of work from home and everything resettled.

Great visibility on that I would think.

Could you just address a little bit more on.

Also just on the price side.

We're pretty explicit about managing the algorithm right.

Couple of times.

Gross margin.

And growth in the balance sheet to kind of leverage the capital base.

But do you see an environment.

Emerging where.

In fact would make sense in that algorithm to just kind of overtly seed share.

The aim of protecting margins and cash flow I mean, do you see that sort of competitive pressure brewing are starting to emerge anywhere.

Yes, Jeff.

Part of the reason, we we've talked a lot about contractor select is that we have.

We have fundamentally changed our posture on product vitality. So we now have a product portfolio on a relatively consistent basis.

That is able to compete with all comers and it allows us to deliver.

Deliver a to deliver a margin at a price that's that's competitive in the marketplace.

So.

That's a I think about the strategy around contractor select as as really like what Kirkland is to Costco contractor select as to the electrical distribution industry in other words, it doesn't necessarily have to be the lowest price product out there, but it is the highest value price and as competitive very competitive.

It's allowed us to to be in a very interesting position and so we've tested this on on price and whether we we drive volume with price.

And the and we've had really good results from that so a little bit can go a long way, there, which which allows us to manage that and to your ultimate question about which one which would we choose.

Don't think we will I don't think we will unnecessarily chase share.

If we think it is going to impact us negatively on our on our value creation algorithm.

So we are we are very competitive we're comfortable with our positioning on.

In the marketplace from a from a competitive perspective, because of all the vitality and productivity improvements.

Demonstrated and so now we're really want to we want to make the lighting and lighting control business as predictable and repeatable and scalable as we can for for a longer period of time.

Which will deliver.

Silver value for a lot of us.

And then I don't want to I don't want to answer this question without also highlighting the Intel.

The importance of the intelligent spaces group in our portfolio. So as you saw this quarter. We continue to grow at this tech we continue to grow. They are curious we continue to find we're finding ways, where we can put capital to work to make that business better.

Then the whole company, hopefully looks different going forward, the lighting business more predictable repeatable and scalable with an obvious value creation algorithm and where we're growing the technology business at ISG.

Great. Thanks for that very complete answer I appreciate it.

Yes, Jeff.

Thank you and I'm showing no further questions in the queue at this time I'd like to turn the call back to Neil Ash for any closing remarks.

Thank you Liz I would like to thank all of you for joining US today. We appreciate the engagement of the questions. We had a solid quarter, we delivered margin and <unk>.

And cash flow despite a decline in sales.

We allocated capital effectively and we continue to improve our underlying businesses.

Thank you for your interest in acuity brands and we'll look forward to seeing you again next quarter.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q3 2023 Acuity Brands Inc Earnings Call

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