Q4 2023 Acuity Brands Inc Earnings Call
Speaker 1: Good morning and welcome to the Acuity Brands fiscal 2023 fourth quarter and full year earnings call. At this time all participants are...
Good morning, and welcome to the acuity brands fiscal 2023 fourth quarter and full year earnings call.
At this time all participants are in a listen only mode.
Speaker 1: After the speaker's presentation, the company will conduct a question and answer session. Please be advised at today's conference.
After the Speakers' presentation, the company will conduct a question and answer session.
Please be advised that today's conference is being recorded.
Speaker 1: I would now like to hand the conference over to Charlotte McMaughlin, Vice President of Investor Relations. Charlotte, please go ahead.
I would now like to hand, the conference over to Charlotte Mclaughlin, Vice President of Investor Relations Charlotte. Please go ahead.
Thank you Liz.
Speaker 2: Good morning and welcome to the QT Brands fiscal 2023 fourth quarter and full year earnings call.
Good morning, and welcome to the acuity brands fiscal 2023 fourth quarter and full year earnings call.
Speaker 2: As a reminder, some of our comments today may be forward-looking statements based on our management's beliefs and assumptions, and information currently available to our management at this time. Please believe so subject to known...
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.
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.
Speaker 2: many of which may be beyond our control, including those detailed in our periodic SEC file.
Speaker 2: Please note that our company's actual results may differ materially from those anticipated.
Please note that our company's actual results may differ materially from those anticipated.
Speaker 2: And we undertake undertake no obligation to update these.
We undertake undertake no obligation to update these statements.
Speaker 2: Reconciliation of certain non- GAAP financial metrics with their corresponding GAAP measures are available in our 2023 full-scorter and full-year earnings release.
Reconciliations of certain non-GAAP financial metrics with our corresponding GAAP measures are available in our 2023 fourth quarter and full year earnings release, which is available on our Investor Relations website at Www dot investors that acuity brands dotcom.
Speaker 2: is available on our investor relations website at www.investors.acuitybrand.com.
Speaker 2: With me this morning is Neil Ash, our chairman, president and chief of the
With me. This morning is Neil Ash, our chairman President and Chief Executive Officer, who will provide an update on our strategy and gives another view of our full year highlights.
Speaker 2: who will provide an update on our strategy and give an overview of our full year.
Speaker 2: and also Karen Holcomb, our Senior Vice President and Chief Financial Officer.
And also Karen Hawken, our senior Vice President and Chief Financial Officer.
Speaker 2: to walk us through our fourth quarter performance and full financial year performance, as well as provide an outlook for our full year fiscal 2024.
He will walk us through our fourth quarter performance and full financial year performance as well as provide an outlook for our full year fiscal 2024.
There will be an opportunity for Q&A at the end of this call.
Speaker 2: For those participating, please limit your remarks to one question. And one follow up, it's necessary. We are.
For those participating please limit your remarks to one question and one follow up if necessary.
We are webcasting today's conference call live.
Speaker 2: Thank you for your interest in the QG brands. I will now turn the call over to Neal.
Thank you for your interest in acuity brands I will now turn the call over to Neil Ash. Thank.
Speaker 3: Thank you, Charlotte, and good morning to all of you joining us. Our fiscal fourth, excuse me, our fiscal fourth quarter performance demonstrated excellent execution. Our focus on margin and cash generation led to increase adjusted operating profit margin and higher adjusted diluted earnings per share, despite a decline in sales in the lighting business.
Thank you Charlotte and good morning to all of you joining us our fiscal fourth excuse me our fiscal fourth quarter performance.
Demonstrated excellent execution, our focus on margin and cash generation led to increased adjusted operating profit margin and higher adjusted diluted earnings per share. Despite a decline in sales in the lighting business.
Speaker 3: This quarter concluded a successful year. We delivered strong financial performance, we continued to improve our businesses, and we allocated capital effectively.
This quarter concluded a successful year.
We delivered strong financial performance.
We continue to improve our businesses and we allocated capital effectively.
Speaker 3: Throughout fiscal 2023, both our lighting and spaces teams made meaningful progress driving our business forward.
Throughout fiscal 2023, both our lighting and spaces teams made meaningful progress driving our business forward.
Speaker 3: In our Acuity Brands lighting and lighting controls business, our strategy is to increase product vitality, improve service levels, use technology to improve and differentiate both our products and our services, and to drive productivity.
In our acuity brands lighting and lighting controls business. Our strategy is to increase product vitality improved service level use technology to improve and differentiate both our products and our services and to drive productivity.
Speaker 3: In 2023, we realigned our product portfolio through the introduction of Design Select. We now have three defined ways in which we go to market. Contractor Select, Design Select, and Made to Order.
In 2023, we realigned our product portfolio through the introduction of design select.
We now have three years to find ways in which we go to market contractor select design select and made to order.
Speaker 3: By combining a high product vitality and improved service levels, Design Select allows us to better serve lighting specifiers, distributors, and electrical contractors.
By combining a high product vitality and improved service levels designed select allows us to better serve lighting specifier distributors and electrical contractors.
The realignment of our portfolio together with our ongoing product vitality efforts has allowed us to strategically manage price in a dynamic environment, while the ongoing productivity improvements in our supply chain continue to improve our processes and manage our costs.
Speaker 3: The realignment of our portfolio, together with our ongoing product vitality efforts, has allowed us to strategically manage price in a dynamic environment, while the ongoing productivity improvements in our supply chain continue to improve our processes and manage our costs.
Speaker 3: We also continuously evaluate our portfolio. This year, that evaluation resulted in the divestiture of our SunOptics Day lighting business and the decision to exit Winona Custom Architectural Lighting Solutions.
We also continuously evaluate our portfolio. This year that evaluation resulted in the divestiture of our Sun optics, Daylighting business and the decision to exit Winona custom architectural lighting solutions.
Speaker 3: There's a bit of noise in the numbers this quarter resulting from a series of actions. The first is the result of our ongoing transformation efforts. We have redefined our work, where and how it is done, resulting in organizational changes that will lead to more efficiency.
There is a bit of noise in the numbers this quarter, resulting from a series of actions.
First as a result of our ongoing transformation efforts, we have redefined our work where and how it is done resulting in organizational changes that will lead to more efficiencies.
Speaker 3: The second are charges primarily for impairments of trade names related to prior acquisition.
The second are charges, primarily for impairment of trade names related to prior acquisitions.
Speaker 3: The third charge resulted from the collectability of a supplier warranty obligation owed to us for components we used in products manufactured and sold between 2017 and 2019. Karen will cover each of the
The third charge resulted from the Collectability of our supplier warranty obligation owed to us for components, we used in products manufactured and sold between 2017 and 2019.
Karen will cover each of these in more detail.
Speaker 3: This year, our teams have refreshed approximately 20% of our product portfolio and have introduced many new product families.
This year, our teams have refreshed approximately 20% of our product portfolio and have introduced many new product families.
Speaker 3: I'd like to highlight our American Electric Lighting brand, where we launched Auto Connect, which is a durable, value-driven solution for outdoor infrastructure lighting that includes connected luminaires for roadway, industrial, and commercial applications.
I'd like to highlight our American electric lighting brand, where we launched auto connect which is a durable value driven solution for outdoor infrastructure lighting that includes connected luminaries for roadway industrial and commercial applications.
The rollout was targeted to coincide with the anticipated increase of infrastructure investment and positions us well for continued success.
Speaker 3: The rollout was targeted to coincide with the anticipated increase of infrastructure investment and positions us well for continued success.
Operator: Good morning, and welcome to the Acuity Brands' fiscal 2023 fourth quarter and full year earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, the company will conduct a question and answer session. Please be advised that today's conference is being recorded.
Speaker 3: In August of this year, the City of Philadelphia announced it has selected our American Electric Lighting outdoor lighting product as a major supplier for the Philadelphia Street Light Improvement Project.
In August of this year the city of Philadelphia announced it has selected our American electric lighting outdoor lighting product as a major supplier for the Philadelphia Street Light improvement project.
Speaker 3: The city wide project will replace and connect approximately 130,000 street lights into a network of more efficient, longer lasting, remotely controlled LED lights, which is expected to reduce street lighting energy usage by more than 50%. And is expected to reduce municipal carbon emissions by more than 9%.
The citywide project will replace and connect approximately 130000 streetlights into our network up more efficient longer lasting remotely controlled led lights, which is expected to reduce street like lighting energy usage by more than 50% and is expected to reduce municipal carbon emissions by more than 9%.
Charlotte Mclaughlin: I would now like to hand the conference over to Charlotte McLaughlin, Vice President of Investor Relations. Charlotte, please go ahead. Thank you, Liz.
Charlotte Mclaughlin: Good morning, and welcome to the Acuity Brands' fiscal 2023 fourth quarter and full year earnings call. As a reminder, some of our comments today may be forward-looking statements based on our management's release and assumptions and information currently available to our management at this time. These beliefs are subject to none in their own risks and uncertainties, many of which may be 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, and we undertake no obligation to update these statements. Reconciliation of certain non-gap financial metrics with their corresponding gap measures are available in our 2023 fourth quarter and full year earnings release, which is available on our investor relations website at www.investors.qtbrands.com.
Our team continued to be recognized for our innovation and the value that our products bring to our customers.
Speaker 3: Our team continue to be recognized for our innovation and the value that our products bring to our customers.
Speaker 3: In the fourth quarter, six of our lighting solutions were selected for the 2023 Illuminating Engineering Society Progress Report, which showcases the year's most significant advancements in the art and science of lighting, including our warm dim technology from aculux, emergency battery backup cylinders from Gotham, and flame lighting technique from Hydral.
In the fourth quarter six of our lighting solutions were selected for the 2023 Illuminating Engineering Society progress report, which showcases the year's most significant advancement in the art and science of lighting, including our warm dim technology from <unk> emergency battery backup cylinders from Gotham and flame lighting Tech.
Nick from Hydrogel.
Speaker 3: Our marketing team was also announced as a winner of the Best of the Best Marketing Award for 2023 by The Electrical Distributor magazine.
Our marketing team was also announced as the winner of the best of the Best Marketing Awards for 2023 by the electrical distributor magazine.
Speaker 3: Now, moving to spaces, where we had another great year.
Now moving to spaces, where we had another great year there.
Speaker 3: The strategy for our Intelligent Spaces business is to make spaces smarter, safer, and greener by connecting the edge to the cloud.
The strategy for our intelligent spaces business is to make space, a smarter safer and greener by connecting the edge to the cloud.
Neil Ashe: With me this morning is Neil Ash, our chairman, President and Chief Executive Officer, to provide an update on our strategy and give an overview of our full year highlights.
Speaker 3: This tech has the best edge control devices on the market, and atrease will be the best in cloud application.
<unk> is the best edge control devices on the market and <unk> will be the best in cloud applications.
Speaker 3: Our strategic priority for DISTEC is to expand our addressable market in two ways.
Our strategic priority for <unk> is to expand our addressable market in two ways.
Charlotte Mclaughlin: And also, Karen Halton, our Senior Vice President and Chief Financial Officer, who will walk us through our fourth quarter performance and full financial year performance, as well as providing outlets for our full year fiscal 2024. 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 is necessary. We are forecasting today's conference call live.
Speaker 3: The first is geographic and the second is increasing what we control in a built space.
The first is geographic and the second is increasing what we control and have built space.
Speaker 3: In 2023, we continued to drive this strategy forward by establishing a presence in the UK market and through the acquisition of Key2Therm, which added commercial refrigeration controls to our portfolio.
In 2023, we continue to drive this strategy forward by establishing a presence in the UK market and through the acquisition of <unk>, which added commercial refrigeration controls to our portfolio.
Speaker 3: The integration of fee-to-therments progressing well, and we rounded out a successful year with them, being awarded a 2023 dealer design award.
The integration of <unk> is progressing well and we rounded out a successful year with them being awarded a 2023 dealer design Award.
Operator: Thank you for your interest in a Q&A brand.
Neil Ashe: I will now turn the call over to Neil Ash. Thank you, Charlotte, and good morning to all of you joining us. Our fiscal fourth quarter performance demonstrated excellent execution. Our focus on margin and cash generation led to increase adjusted operating profit margin, and higher adjusted deluded earnings per share, despite a decline in sales and the lighting business.
Speaker 3: Earlier this year, we launched Atrius Datalab, the intersection point between the edge devices in DisTech and the applications in the cloud.
Earlier this year, we launched atreus data lab, the intersection point between the edge devices, <unk> Tec and the applications in the cloud.
Speaker 3: HRIA STATALAB is a foundational to our ability to automate the environment of a built space and help ensure that our partners achieve their specific energy and sustainability goals.
<unk> lab is a foundational to our ability to automate the environment of a build space and help ensure that our partners achieve their specific energy and sustainability goals.
During the quarter <unk> was named as the sustainability leadership Award winner in the 2023 Sustainability Awards program.
Speaker 3: During the quarter, Atreus was named as the Sustainability Leadership Award winner in the 2023 Sustainability Awards Program.
Neil Ashe: This quarter concluded a successful year. We delivered strong financial performance, we continued to improve our businesses, and we allocated capital effectively. Throughout fiscal 2023, both our lighting and spaces teams made meaningful progress driving our business forward. In our Q&A brand's lighting and lighting controls business, our strategy is to increase product vitality, improve service level, use technology to improve and differentiate both our products and our services, and to drive productivity. In 2023, we re-aligned our product portfolio through the introduction of design select.
Speaker 3: The program honors people, teams and organizations who have made sustainability an integral part of their business practice or overall mission.
The program honors people teams and organizations, who have made sustainability, an integral part of their business practice or overall mission.
Speaker 3: I am pleased with the progress we've made as a team in 2023.
I am pleased with the progress we've made as a team in 2023.
Speaker 3: We have successfully positioned our company at the intersection of sustainability and technology, setting ourselves up for long-term growth by taking advantage of two of the most important megatrends, minimizing the impacts of climate change and maximizing the impacts of technology.
We have successfully positioned our company at the intersection of sustainability and technology setting ourselves up for long term growth by taking advantage of two of the most important mega trends.
<unk> the impact of climate change and maximizing the impact of technology.
Neil Ashe: We now have three defined ways in which we go to market. Contractors select, design select, and made to order. By combining a high product vitality and improved service levels, design select allows us to better serve lighting specifiers, distributors, and electrical contract. The realignment of our portfolio, together with our ongoing product vitality efforts, has allowed us to strategically manage price in a dynamic environment, while the ongoing productivity improvements in our supply chain continue to improve our processes and manage our costs.
Speaker 3: Our AVL business continue to lead as the largest lighting and lighting controls company in North America. And we have made the business more predictable, repeatable, and scalable by focusing on product vitality, improving service levels, the use of technology throughout the business, and driving productivity.
Our ABL business continue to lead as the largest lighting and lighting controls company in North America.
And we have made the business more predictable repeatable and scalable by focusing on product vitality, improving service levels the use of technology throughout the business and driving productivity.
Speaker 3: Our Spaces business continue to grow as an attractive technology business that connects the edge to the cloud for built spaces.
Our space business continued to grow as an attractive technology business that connects the edge to the cloud for built spaces.
Speaker 3: GISTEC has a significant technology advantage that we can continue to expand as the mechanical and analog controls of today become digital over time.
<unk> has a significant technology advantage that we can continue to expand as the mechanical and analog controls are today become digital over time.
Neil Ashe: We also continuously evaluate our portfolio. This year, that evaluation resulted in the There's a bit of noise in the numbers this quarter, resulting from a series of actions. The first is the result of our ongoing transformation efforts. We have redefined our work where and how it is done, resulting in organizational changes that will lead to more efficiencies. The second are charges primarily for impairments of trade names related to prior acquisitions. The third charge resulted from the collectibility of a supplier warranty obligation owed to us for components we used in products manufactured and sold between 2017 and 2019.
Speaker 3: and atrius has introduced new applications in the cloud that are already making a difference for our customers.
And atria has introduced new applications in the cloud that are already making a difference for our customers.
Speaker 3: We have changed how the company works through our better, smarter, faster operating system.
We have changed how the company works through a better smarter faster operating system.
Speaker 3: Better, smarter, faster is the combination of processes, tools, and ways of working that spans from strategy to people to operating rhythms to problem solving.
Better smarter faster is the combination of processes tools and ways of working that spans from strategy to people to operating rhythms to problem solving.
Speaker 3: It is unique to our organization and allows us to drive strategic alignment, manage change, and deliver results.
It is unique to our organization and allows us to drive strategic alignment manage change and deliver results.
Speaker 3: Our values are at the core of our culture and help create a shared purpose for achieving our company's strategic goals.
Our values are at the core of our culture and help create a shared purpose for achieving our company's strategic goals.
Speaker 3: We make decisions based on our values, and these values impact how we treat each other and how we serve our customers.
We can make decisions based on our values and these values impact how we treat each other and how we serve our customers.
The combination of better smarter faster and our values allows us to operate more efficiently with greater distribution of responsibility and accountability throughout the company it.
Speaker 3: The combination of better, smarter, faster, and our values allows us to operate more efficiently with greater distribution of responsibility and accountability throughout the company.
Neil Ashe: Karen will cover each of these in more detail. This year, our teams have refreshed approximately 20% of our product portfolio and have introduced many new product families. I'd like to highlight our American Electric Lighting brand, where we launched AutoConnect, which is a durable, value-driven solution for outdoor infrastructure lighting that includes connected luminaires for roadway, industrial, and commercial applications. The rollout was targeted to coincide with the anticipated increase of infrastructure investment and positions us well for continued success.
Speaker 3: It is how we continue to improve our businesses and respond quickly and effectively to changing economic environments.
It is how we continue to improve our businesses and respond quickly and effectively to changing economic environment.
Speaker 3: The alignment of everyone in our organization to our value creation model through our total rewards framework compounds that responsibility and accountability.
The alignment of everyone in our organization to our value creation model through our total rewards framework compounds that responsibility and accountability.
Speaker 3: Our associates understand how they contribute to our overall strategy. If you stop people in our company and ask them how we create value, they will answer we grow net sales, we turn those profits into cash, and we don't grow the balance sheet as fast.
Our associates understand how they contribute to our overall strategy.
<unk> stopped people at our company and asked them, how we create value. They won't answer we grow net sales we turned those profits into cash and we don't grow the balance sheet as fast.
Neil Ashe: In August of this year, the City of Philadelphia announced it is selected our American Electric Lighting Outdoor Lighting product as a major supplier for the Philadelphia Street Light Improvement Project. The Citywide Project will replace and connect approximately 130,000 streetlights into a network of more efficient, longer-lasting, remotely-controlled LED lights, which is expected to reduce streetlight lighting energy usage by more than 50% and is expected to reduce municipal carbon emissions by more than 9%.
Speaker 3: This year, we have continued to demonstrate that we are effective capital allocators.
This year, we have continued to demonstrate that we are effective capital allocators.
Speaker 3: We have invested for growth in our current businesses through R&D and capital expenditures.
We have invested for growth in our current businesses through R&D and capital expenditures.
Speaker 3: We've enhanced our portfolio through the Exodus Sun Optics and the acquisition of Keyto Thurbs.
We've enhanced our portfolio through the exit of sudden optics and the acquisition of <unk>.
Speaker 3: We've maintained our dividend, and we've created a permanent shareholder value with approximately $1.3 billion in share repurchases since the beginning of the fourth quarter of fiscal 2020, which amounts to about 23% of the then shares outstanding.
We've maintained our dividend and we've created a permanent shareholder value with approximately $1 3 billion in share repurchases since the beginning of the fourth quarter of fiscal 2020.
Which amounts to about 23% of the den shares outstanding.
Neil Ashe: Our team continue to be recognized for our innovation and the value that our products bring to our customers. In the fourth quarter, six of our lighting solutions were selected for the 2023 Illuminating Engineering Society Progress Report, which showcases the year's most significant advancements in the art and science of lighting, including our warm-dim technology from Aculux, emergency battery backup cylinders from Gotham, and flame lighting technique from Hydral. Our marketing team was also announced as a winner of the Best Marketing Awards for 2023 by the Electrical Distributor Magazine.
Speaker 3: As we turn to our fiscal 2024, our strategic priorities remain the same.
As we turn to our fiscal 2024, our strategic priorities remain the same.
Speaker 3: In our lighting business, we will continue to drive margin and cash flow.
And our lighting business, we will continue to drive margin and cash flow.
Speaker 3: We expect roughly the same market conditions and lighting for the remainder of this calendar year with a potential for some improvement in the next calendar year.
We expect roughly the same market conditions and lighting for the remainder of this calendar year with a potential for some improvement in the next calendar year.
Speaker 3: We will continue to grow our intelligence spaces group in three ways. Geographically, biotic control plane, and by delivering applications that make a difference in built space.
We will continue to grow our intelligent spaces group in three ways geographically by adding control plane and by delivering applications that make us different and built basis.
Speaker 3: We will continue the development of our better smarter, faster operating system in order to improve our current businesses and those that we acquire in the future. And we will continue to allocate capital consistent with our priority.
We will continue the development of our better smarter faster operating system in order to improve our current businesses and those that we acquire in the future and we will continue to allocate capital consistent with our priorities.
Neil Ashe: Now, moving to spaces where we had another great year. The strategy for our intelligence spaces business is to make spaces smarter, safer, and greener by connecting the edge to the cloud. This tech has the best edge control devices on the market, and atreas will be the best in cloud applications. Our strategic priority for this tech is to expand our addressable market in two ways. The first is geographic, and the second is increasing what we control in a built space.
Now I'll turn the call over to Karen who will update you on our 2023 performance and provide more details about 2024.
Speaker 4: Now, I'll turn the call over to Karen, who will update you on our 2023 performance and provide more details about 2024. Thank you, Neil, and good morning to everyone on the call.
Thank you Neal and good morning to everyone on the call.
We executed well throughout fiscal 2023.
Speaker 4: and a challenging sales environment in the lighting business. We improved our adjusted operating profit by $9 million a year over year and generated cash flow from operations of $578 million.
In a challenging sales environment in the lighting business, we improved our adjusted operating profit by $9 million year over year and generated cash flow from operations of $578 million.
Neil Ashe: In 2023, we continue to drive this strategy forward by establishing a presence in the UK market and through the acquisition of key to terms, which add a commercial refrigeration controls to our portfolio. The integration of feature thermos progressing well and we rounded out a successful year with them being awarded a 2023 dealer design award. Earlier this year, we launched Atreus Data Lab, the intersection point between the edge devices in DISTEC and the applications in the cloud.
Speaker 4: We continue to improve our businesses and allocated capital effects.
We continued to improve our businesses and allocated capital effectively.
Speaker 4: For total AYI, we generated net sales in the fourth quarter of approximately $1 billion, which was $100 million, or 9% lower than the prior year, as a result of the decline in net sales in our ABL bid.
For total a yi, we generated net sales in the fourth quarter of approximately $1 billion.
Which was $100 million or 9% lower than the prior year as a result of the decline in net sales and our ABL business.
Neil Ashe: Atreus Data Lab is a foundational to our ability to automate the environment of a built space and help ensure that our partners achieve their specific energy and sustainability goals. During the quarter, Atreus was named as the Sustainability Leadership Award winner in the 2023 Sustainability Awards program. The program honors people, teams and organizations who have made sustainability and integral part of their business practice or overall mission.
Speaker 4: This is partially offset by continued growth in the ISG business of 17% in the quarter. We continued to deliver.
This was partially offset by continued growth in the ISG business of 17% in the quarter.
We continued to deliver year over year margin improvement during.
Speaker 4: During the quarter, our adjusted operating profit was down year over year on lower sales, while we expanded adjusted operating profit margin to 16.1%. An increase of approximately 80 basis points from the prior year.
During the quarter, our adjusted operating profit was down year over year on lower sales, while we expanded adjusted operating profit margin to 16, 1% an increase of approximately 80 basis points from the prior year.
Speaker 4: The increase was driven largely by the significant improvement in our gross profit margin as we continue to strategically manage price and cost.
The increase was driven largely by the significant improvement in our gross profit margin as we continue to strategically manage price and cost.
Neil Ashe: I am pleased with the progress we have made as a team in 2023. We have successfully positioned our company at the intersection of sustainability and technology, setting ourselves up for long term growth by taking advantage of two of the most important megatrends, minimizing the impact of climate change and maximizing the impacts of technology. Our AVL business continue to lead as the largest lighting and lighting controls company in North America. And we have made the business more predictable, repeatable and scalable by focusing on product vitality, improving service levels, the use of technology throughout the business and driving productivity.
Speaker 4: During the quarter, our adjusted deluded earnings per share of $3.97 increased 2 cents or 1% over the prior year.
During the quarter, our adjusted diluted earnings per share of $3 97.
Increased <unk> or 1% over the prior year.
Speaker 4: In ABL, net sales were $944 million in the quarter, a decrease of 11% compared with the prior year, driven by declines across most of our channels, offset slightly by continued strong performance and our retail chance.
And ABL net sales were $944 million in the quarter, a decrease of 11% compared with the prior year driven by declines across most of our channels offset slightly by continued strong performance in our retail channel.
Speaker 4: ABL's adjusted operating profit decreased 2% to $159 million on lower net sales. And we delivered adjusted operating profit margin of 16.8%, a 150 basis point improvement over the prior year, as we strategically managed price and input costs improved, particularly steel and embalm freight.
<unk> adjusted operating profit decreased 2% to $159 million on lower net sales and we delivered adjusted operating profit margin of 16, 8%, a 150 basis point improvement over the prior year as we strategically managed price and input costs improved particularly.
Neil Ashe: Our spaces business continue to grow as an attractive technology business that connects the edge to the cloud for built spaces. Just as a significant technology advantage that we can continue to expand as the mechanical and analog controls of today become digital over time. And Atreus introduced new applications in the cloud that are already making a difference for our customers.
Steel and inbound freight.
Speaker 4: As Neil mentioned at the beginning of the call, we also took several charges during the quarter that primarily related to ABL.
As Neil mentioned at the beginning of the call. We also took several charges during the quarter that primarily related to ABL take.
Speaker 4: Taken together, these amounted to $35.5 million in non-recurring pre-tax charges for 87 cents in deluded earnings per share.
Taken together these amounted to $35 $5 million in nonrecurring pre tax charges or <unk> 87, and diluted earnings per share.
Neil Ashe: We have changed how the company works through our better smarter faster operating system. Better smarter faster is the combination of processes, tools and ways of working that spans from strategy to people to operating rhythms to problem solving. It is unique to our organization and allows us to drive strategic alignment, manage change and deliver results. Our values are at the core of our culture and help create a shared purpose for achieving our company's strategic goals.
Speaker 4: First, as a result of our ongoing transformation effort and includes the charge of $6 million in severance as we re-aligned how we were.
The first is a result of our ongoing transformation effort and includes a charge of $6 million in severance as we realigned how we work.
Speaker 4: The second is a $16.5 million non cash and payment charge for a small investment and for certain trade names related to prior acquisition.
The second is a $16 $5 million noncash impairment charge for a small investment and for certain trade names related to prior acquisitions.
Speaker 4: In addition, we transitioned several of those trade names from indefinite to definite lives to more accurately reflect their value.
In addition, we transitioned several of those trade names from indefinite to definite lives to more accurately reflect their value.
Neil Ashe: We make decisions based on our values and these values impact how we treat each other and how we serve our customers. The combination of better smarter faster and our values allows us to operate more efficiently with greater distribution of responsibility and accountability throughout the company. It is how we continue to improve our businesses and respond quickly and effectively to changing economic environments. The alignment of everyone in our organization to our value creation model to our total rewards framework compounds that responsibility and accountability.
Speaker 4: The third is a $13 million pre-tax non-cash charge for the impairment of a receivable based on its collectibility.
The third is a $13 million pre tax noncash charge for the impairment of a receivable based on its collectibility.
Speaker 4: The receivable is from a supplier who owes us a warranty obligation related to the recovery of quality costs we have incurred for certain ABL outdoor lighting products manufactured in sold between 2017 and 2019. We are pursuing recovery.
The receivable is from a supplier who owes us a warranty obligation related to the recovery of quality cost we have incurred for certain ABL outdoor lighting products manufactured and sold between 2017 in 2019.
We are pursuing recovery from the supplier.
Neil Ashe: Our associates understand how they contribute to our overall strategy. If you stop people in our company and ask them how we create value, they will answer we grow net sales, we turn those profits into cash and we don't grow the balance sheet as fast. This year we have continued to demonstrate that we are effective capital allocators. We have invested for growth in our current businesses through R&D and capital expenditures. We have enhanced our portfolio through the Exodus Sun Optics and the acquisition of P2 Thurbs.
Isg's net sales for the fourth quarter were $72 million.
Speaker 4: ISD's net sales for the fourth quarter for $72 million, an increase of 17 percent, as this tech continued to win business across new and existing customers.
An increase of 17%.
<unk> continued to win business across new and existing customers.
Speaker 4: This quarter, we also had a modest benefit from the acquisition of P2 therm.
This quarter, we also had a modest benefit from the acquisition of key to turn.
Speaker 4: IST's adjusted operating profit was $14 million, which was a decline of approximately 3% over the prior year as we continued to invest in the business for long-term growth.
<unk> adjusted operating profit was $14 million.
Which was a decline of approximately 3% over the prior year as we continued to invest in the business for long term growth.
Now turning to our cash flow performance.
Neil Ashe: We've maintained our dividend and we've created a permanent shareholder value with approximately $1.3 billion in share purchases since the beginning of the fourth quarter of fiscal 2020, which amounts to about 23% of the then shares outstanding. We will continue to grow our intelligence basis group in three ways, geographically, by adding control planes and by delivering applications that make a difference in built spaces. We will continue the development of our better smarter faster operating system in order to improve our current businesses and those that we acquire in the future. And we will continue to allocate capital consistent with our priorities.
Speaker 4: We generated $578 million of cash flow from operating activities for the full year of fiscal 2023, an increase of $262 million over the prior year, driven largely by improvements in working capital.
We generated $578 million of cash flow from operating activities for the full year of fiscal 2023.
An increase of $262 million over the prior year, driven largely by improvements in working capital.
Speaker 4: We've improved both days of inventory and accounts receivable compared to the end of fiscal 2022.
We've improved both days of inventory and accounts receivable compared to the end of fiscal 2022.
Speaker 4: In fiscal 2023, we invested $67 million in capital expenditures and allocated $269 million to repartus approximately 1.6 million shares.
In fiscal 2023, we invested $67 million in capital expenditures and allocated $269 million to repurchase approximately one 6 million shares.
Speaker 4: Since the beginning of the fourth quarter of fiscal 2020, we have repurchased over nine million shares at an average price of approximately $143 per share, which was funded by organic cashflow.
Since the beginning of the fourth quarter of fiscal 2020, we have repurchased over 9 million shares at an average price of approximately $143 per share, which was funded by organic cash flow.
Speaker 4: I now want to spend a few minutes expanding on our outlook for 2024.
I now want to spend a few minutes expanding on our outlook for 2024.
Speaker 4: Consistent with our 2023 guidance, we are going to provide annual guidance, anchored around net sales, and adjusted deluded EPS.
Consistent with our 2023 guidance, we're going to provide annual guidance anchored around net sales and adjusted diluted EPS.
Karen Halton: Now, I'll turn the call over to Karen who will update you on our 2023 performance and provide more details about 2024. Thank you, Neil, and good morning to everyone on the call. We executed well throughout fiscal 2023 and a challenging sales environment in the lighting business. We improved our adjusted operating profit by $9 million year over year and generated cash flow from operations of $578 million. We continue to improve our businesses and allocated capital effectively.
Speaker 4: We will also provide you with certain assumptions which you can find in the supplemental presentation, available on our website after the conclusion of this call.
We will also provide you with certain assumptions, which you can find in the supplemental presentation available on our website. After the conclusion of this call.
Speaker 4: For full year fiscal 2024, our expectation is that net sales will be within the range of $3.7 billion and $4 billion for total AYF.
For full year fiscal 2024, our expectation is that net sales will be within the range of $3 7 billion and $4 billion for total AI.
Speaker 4: This is based on the assumptions that ABL will deliver sales down low to mid-single digits as a result of conditions in the lighting macro-environment.
This is based on the assumptions that ABL will deliver sales down low to mid single digits as a result of conditions in the lighting macro environment.
Karen Halton: For total AYI, we generated net sales in the fourth quarter of approximately $1 billion, which was $100 million for 9% lower than the prior year. As a result of the decline in net sales in our ABL business, this is partially offset by continued growth in the ISG business of 17% in the quarter. We continued to deliver year over year margin improvement during the quarter are adjusted operating profit was down year over year on lower sales while we expanded adjusted operating profit margin to 16.1%.
Speaker 4: And ISG will continue to generate sales growth in the mid-teens as we continue to take share and expand geographically and into new control.
In ISG will continue to generate sales growth in the mid teens as we continue to take share and expand geographically and into new control planes.
Speaker 4: We expect to deliver adjusted deluded earnings for share within the range of $13 to $14.50 for total AYF.
We expect to deliver adjusted diluted earnings per share within the range of $13 to $14 50 for total yi.
Speaker 4: Our capital allocation priorities in 2024 are unchanged, and we will continue to focus on delivering margins in cash flow.
Our capital allocation and priority our capital allocation priorities in 2024 are unchanged and we will continue to focus on delivering margin and cash flow.
Speaker 4: In conclusion, we strategically managed price and cost and delivered margin growth at ABL. We continued to grow the intelligent spaces group.
In conclusion, we strategically managed price and costs and delivered margin growth at ABL, we continued to grow the intelligence basis group.
Karen Halton: An increase of approximately 80 basis points from the prior year. The increase was driven largely by the significant improvement in our growth profit margin as we continue to strategically manage price and cost. During the quarter are adjusted deluded earnings per share of $3.97 increase to cents or 1% over the prior year. In ABL, net sales were $944 million in the quarter a decrease of 11% compared with the prior year driven by declines across most of our channels offset slightly by continued strong performance in our retail channel.
Speaker 4: We generated strong cash flow from operations and allocated capital effects.
We generated strong cash flow from operations and allocated capital effectively.
Speaker 4: We continue to improve the business through product and productivity improvements. And we continue to take the steps necessary to drive our transformation goals.
We continue to improve the business through product and productivity improvements and we continue to take the steps necessary to drive our transformation forward. Thank.
Speaker 4: Thank you for joining us today. I will now pass you over to the operator to take your question.
Thank you for joining us today I will now pass you over to the operator to take your questions.
Speaker 1: As a reminder to ask a question, you'll need to press star 1-1 on your telephone. And wait for your name to be announced.
As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again.
Speaker 1: to withdraw your question, please press star 1, 1 again. Please stand by. Please stand by.
Karen Halton: ABL's adjusted operating profit decreased 2% to $159 million on lower net sales and we delivered adjusted operating profit margin of 16.8%. A 150 basis point improvement over the prior year as we strategically managed price and input cost improved particularly steel and inbound freight. As Neil mentioned at the beginning of the call, we also took several charges during the quarter that primarily related to ABL. Take in together these amounted to $35.5 million in non-recurring pre-tax charges or 87 cents in deluded earnings per share.
Please standby, while we compile the Q&A roster.
Speaker 1: Our first question comes from a line of Kim Wo's with Beard.
Our first question comes from the line of Tim <unk> with Baird.
Good morning.
Speaker 5: Maybe Neil just to start, you know, anything, you know, from an environment perspective, just any color that you could maybe provide on kind of what you're seeing kind of in the end market demand environment, maybe the quoting environment today. And your comments may be about calendar year 24, maybe being a bit better, is that just kind of starting to cycle easier comparisons, or is there something that you're kind of seeing from a visibility perspective that you call.
Karen Halton: The first is a result of our ongoing transformation efforts and includes the charge of $6 million in severance as we re-aligned how we work. The second is a $16.5 million non-cash impairment charge for a small investment and for certain trade names related to prior acquisitions. In addition, we transition several of those trade names from indefinite to definite lives to more accurately reflect their value. The third is a $13 million pre-tax non-cash charge for the impairment of a receivable based on its collectibility.
Maybe Neil just to start anything from an environment perspective, just just any color that you could maybe provide on kind of what youre seeing kind of in the end market demand environment, maybe the quoting environment today and.
And your comments, maybe about calendar year 'twenty for maybe being a bit better or is that just kind of starting to cycle easier comparisons or is there something that youre kind of seeing from a visibility perspective.
That you'd call out.
Speaker 3: Yeah, good morning, Tim. Thanks for the question. So.
Yeah, Good morning, Tim.
Thanks for the question so.
Speaker 3: You know, first of all, we're really proud with our performance. We've obviously demonstrated that we can execute in this environment. And I wish the economy would line up with our fiscal year, but it doesn't. So.
First of all we're really proud of with our performance. We've obviously demonstrated that we can execute in this environment and.
I wish the economy with lineup with our fiscal year, but a dozen so.
Speaker 3: As we're looking forward to our fiscal first quarter and the rest of this year, while the business is relatively consistent, it's pretty much choppy all over. So we feel good about where we guided for the year given that.
The as we as we're looking forward to kind of the our fiscal first quarter in and the rest of this year.
While the business is relatively consistent.
Karen Halton: The receivable is from a supplier who owes us a warranty obligation related to the recovery of quality costs we have incurred for certain ABL outdoor lighting products manufactured and sold between 2017 and 2019. We are pursuing recovery from the supplier. ISG's net sales for the fourth quarter for $72 million an increase of 17% as this tech continued to win business across new and existing customers. This quarter we also had a modest benefit from the acquisition of key to terms. ISG's adjusted operating profit was $14 million which was a decline of approximately 3% over the prior year as we continued to invest in the business for long-term growth.
It's pretty much choppy.
All over so so we feel good about kind of where we guided for the year given that and we also feel like there is still strong kind of volume in each of our network. So that the C&I network, obviously is about 60% of the business as Karen pointed out the.
Speaker 3: And we also feel like there's still strong kind of volume in the each of our network. So that the C&I network obviously is about 60% of the business is care pointed out. The retail business has remained strong for us. The direct business has been comparatively strong for us.
The retail business remained strong for us direct.
Direct business has been has been comparatively strong for us and as you can see in our in our channel.
Speaker 3: And, you know, as you can see in our channel, the OEM businesses down, which is our sales to other lighting manufacturers. So, taking together then, we feel like we're comfortable operating in this environment, and we feel like we've got a responsible plan for 2024.
The OEM business is down which is our sales to other lighting manufacturers. So taken together then we feel like we're comfortable operating in this environment and and we we feel like we've got a responsible plan for for 2024.
Karen Halton: Now turning to our cash flow performance. We generated $578 million of cash flow from operating activities for the full year of fiscal 2023 an increase of $262 million over the prior year driven largely by improvements in working capital. We've improved both days of inventory and accounts receivable compared to the end of fiscal 2022. In fiscal 2023 we invested $67 million in capital expenditures and allocated $269 million to repurchase approximately 1.6 million shares. Since beginning of the fourth quarter of fiscal 2020 we have repurchased over 9 million shares at an average price of approximately $143 per share which was funded by organic cash flow.
Speaker 5: Okay, okay, good. And then just, you know, Karen, just when you think about guidance and I guess high level, you know, sales down kind of low to mid-single digits, it's at least in the ABL business, I think it's down 3% overall. And I think that the midpoint of EPS range winds up being down 2%. Could you just maybe give us kind of the puts and takes or what to think about in terms of kind of managing, you know, maybe a down volume environment versus kind of keeping margins, you know, what appears to be pretty stable.
Okay. Okay. Good and then just.
Karen just when you think about guidance and I guess high level sales down kind of low to mid single digits.
At least in the ABL business I think it's down 3% overall and I think that the midpoint of the EPS range winds up being down 2% could you just maybe give us kind of the puts and takes or what to think about in terms of kind of managing maybe a down volume environment versus kind of keeping margins.
Appears to be pretty stable.
Speaker 4: Yeah, sure, thanks Tim. You know, so the guidance just to reiterate the guidance for the net sales range is 3.7 billion to 4 billion. And you'll see all this in the presentation. That does anticipate that lighting would be downloading mid-single digits as we discussed kind of the continuation of the trends that Neil talked about just a moment ago. When we look at
Yes sure Thanks, Tim.
The guidance just to reiterate the guidance for the net sales range is $3 7 billion to $4 billion and Youll see all of this in the presentation.
It does anticipate that lighting would be downloading mid single digits as we discussed kind of the continuation of the trends that Neil talked about just a moment ago.
When we look at the.
Speaker 4: the margin that we expect to maintain. It's a solid plan and we don't expect to stay kind of at the high levels that we are now, but we still expect to be able to strategically manage.
Karen Halton: I now want to spend a few minutes expanding on our outlook for 2024. Consistent with our 2023 guidance we are going to provide annual guidance anchored around net sales and adjusted deluded EPS. We will also provide you a certain assumptions which you can find in the supplemental presentation available on our website after the conclusion of this call. For full year fiscal 2024 our expectation is that net sales will be within the range of $3.7 billion and $4 billion for total AYI.
The margin that we expect to maintain our it's a solid plan and we don't expect to stay kind of at the high levels that we are now, but we still expect to be able to strategically manage.
Speaker 4: our products, vitality, our service levels, our technology and productivity to continue to deliver strong performance that would land us in the EPS range of $13 and $14 and 50 cents for the year. I would just call out, you know, ISG, we're still predicting, you know, up to mid-teens in that business, so that's still gonna continue to grow next year. The acquisition of K2 Thurm will be a benefit as well. So really, really pleased with the performance overall. Okay, okay. Okay. Okay.
Our product vitality, our service levels, our technology and productivity to continue deliver strong performance that would land us in the EPS range of $13 and $14 50 for the year I would just call out.
ISG, we're still predicting IL up to mid teens in that business. So that's still going to continue to grow next year. The acquisition of <unk> will be a benefit as well so really really pleased with the performance overall.
Karen Halton: This is based on the assumptions that ABL will deliver sales down low to mid-single digits as a result of conditions in the lighting macro environment. And ISG will continue to generate sales growth in the mid-teens as we continue to take share and expand geographically and into new control. We expect to deliver adjusted deluded earnings per share within the range of $13 to $14.50 for total AYI. Our capital allocation priorities in 2024 are unchanged and we will continue to focus on delivering margin and cash flow.
Okay, Okay, great I'll hop back in queue. Good luck on everything guys.
Speaker 6: baby
Thanks, Dave.
Our next question comes from the line of Ryan Merkel with William Blair.
Speaker 1: Our next question comes from a line of Ryan Merkel with William Blair.
Brian Your line is now open.
Speaker 1: Our next question will come from Joe O'Day with Wells Fargo.
Our next question will come from Joe O'dea with Wells Fargo.
Karen Halton: In conclusion, we strategically manage price and cost and delivered margin growth at ABL. We continue to grow the intelligent spaces groups. We generated strong cash flow from operations and allocated capital effectively. We continue to improve the business through product and productivity improvements and we continue to take the steps necessary to drive our transformation forward.
Hi, good morning.
Hey, Joe how are you doing.
Doing well thanks.
Speaker 7: I guess first question is just the sort of combination of sort of channel inventory management and then the macro. And so...
I guess first question is just sort of a combination of.
Channel inventory management, and then the macro and so what you've seen over the course of the past few months whats youre anticipating through kind of the rest of this year in terms of any additional headwinds related to destock or is there a little bit of a transition where macro has gotten a little bit choppy ear Bud piece that gets a little bit less.
Speaker 7: months. What you're anticipating through kind of the rest of this year in terms of any additional headwinds related to D-stock or is there a little bit of a traffic?
Karen Halton: Thank you for joining us today.
Operator: I will now pass you over to the operator to take your questions. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
<unk>.
Speaker 3: Yeah, so just for just a little bit of historical context as we kind of recreate FY23, obviously we burned through backlog through the first half of our fiscal 2023. We talked extensively through the remainder of the year how lead times have compressed and that led to the de-stocking you refer to.
Yes so.
So just for just a little bit of historical context, as we kind of re create FY2023 obviously, we burn through backlog through the first half of our fiscal 2023.
We've talked extensively through through the remainder of the year.
How lead times have have compressed and that led to the to the.
Tim Wojs: Our first question comes from the line of Tim Woes with Baird. Good morning.
The Destocking you referred to we're now getting to a more normal.
Speaker 3: We're now getting to a more normal relationship between order rate and shipment rates. So we're starting to, and that's what I was alluding to, and the answer to Tim's question, we're comfortable operating in this environment. So.
Relationship between order rate at shipment rates, so we're starting to and Thats, what I was alluding to in the answer to Tim's question, we still.
Neil Ashe: Maybe Neil just to start, you know, anything from an environment perspective, just any color that you can maybe provide on kind of what you're seeing kind of in the end market demand environment, maybe the quoting environment today and your comments maybe about calendar year 24 maybe being a bit better is that just kind of starting to cycle easier comparisons or is there something that you're kind of seeing from a visibility perspective that you'd call out? Yeah.
We're comfortable operating in this environment. So I think what we are experiencing now are macro lighting trends.
Speaker 3: I think what we are experiencing now are macro lighting trends. And unfortunately, we're in a period where people are just by less lighting and lighting controls. I'll also highlight though that as Karen pointed out, the intelligence basis group continues to grow mid-teens. So the portfolio of the business is expanding. At the same time, in both the lighting business and the space business.
And unfortunately, we're in a period, where people are just buying less lighting lighting controls.
I'll also highlight though that as Karen pointed out the intelligence basis group continues to grow mid.
Neil Ashe: Good morning, Tim. Thanks for the question. First of all, we're really proud with our performance. We've obviously demonstrated that we can execute in this environment and I wish the economy would line up with our fiscal year but it doesn't. As we're looking forward to kind of the our fiscal first quarter and the rest of this year, while the business is relatively consistent, it's pretty much choppy all over. So we feel good about kind of where we guided for the year given that.
Mid teens, so so that the portfolio of businesses is expanding at the same time in both the lighting business and this base business.
Speaker 3: We've been able to layer in margin despite the decline in sales at ABL.
We've been able to layer in margin despite the decline in sales.
At at ABL.
Speaker 7: And then on the on the cash side, think another, you know, your solid cash generation, you did less on the buy-back.
Got it.
And then on the.
On the cash side.
Year solid cash generation you did less on the buyback side you ended with cash.
And a pretty strong position in so just any commentary around.
What you might be seeing on the M&A pipeline side of things or is it kind of as you're monitoring may be a little bit choppy, our environment to bias to hold a little bit more cash.
Neil Ashe: And we also feel like there's still strong kind of volume in each of our networks. So that the the C&I network obviously is with about 60% of the business is current pointed out. The retail business has remained strong for us. The direct business has been has been comparatively strong for us. And you know, as you can see in our and our channel, the OEM business is down, which is our sales to other lighting manufacturers. So taken together than we feel like we're comfortable operating in this environment and and we we feel like we've got a responsible plan for for 2024.
Speaker 7: shop your environment to buy us to hold a little bit more cash. How we should think about bye-back possible.
Tim Wojs: Okay. Okay, good.
How we should think about buyback posture in 2024.
Speaker 4: Yep, thank you, Joe. You'll see in the presentation that we'll post, we've talked about some of the assumptions that reflect our cash priorities for next year. So our capital allocation priority is gonna be the same. You know, first to invest in our current businesses for growth, second to invest in M&A, third to maintain our dividend and fourth will be share repercussions.
Yeah. Thank you Joe you'll see in the presentation that we'll post.
We've talked about some of the assumptions that reflect our cash priorities for next year. So our cash our capital allocation priorities going to be the same first to invest in our current businesses for growth second to invest in M&A third to maintain our dividend and fourth will be share repurchases. So at this point, we've repurchased about 23% of our.
Speaker 4: So at this point, we've re-purchased about 23% of our shares since we started at the beginning of fiscal, fourth quarter of fiscal 2020. And so we're looking at this upcoming year about 40 to $60 million in share repercussions.
Sure since we started at the beginning of fiscal <unk>.
Karen Halton: And then just you know, Karen, just when when you think about guidance and I guess high level, you know, sales down kind of low to mid single digits, it's at least in the ABL business, I think it's down 3% overall. And I think that the midpoint at EPS range winds up being down 2%. Could you just maybe give us kind of the puts and takes or what to think about and in terms of kind of managing, you know, maybe a down volume environment versus kind of keeping margins, you know, what appears to be pretty stable.
Fourth quarter of fiscal 2020, and so we're looking this upcoming year about $40 million to $60 million in share repurchases is what we would expect and youll see that in the presentation and then Neel do you want to comment on I would just add a couple of things. Joe first is obviously, we have done I think a very at outstanding job.
Speaker 3: is what we would expect and you'll see that in the presentation. And then Neil, do you want to comment on? I just add a couple things, Joe. First is obviously we have done, I think, a very outstanding job of generating cash. So through layering in margin and aggressive management of our balance sheet and working capital, especially on the lighting side, we've demonstrated the ability to generate a significant amount of cash.
Rob of generating cash so through layering in margin and aggressive management of our balance sheet and working capital, especially on the lighting side, we've demonstrated the ability to generate a significant amount of cash.
Karen Halton: Yeah, sure. Thanks, Tim. You know, so the guidance just to reiterate the guidance for the net sales range is 3.7 billion to 4 billion and you'll see all this in the presentation. That does anticipate that lighting would be downloading mid single digits as we discussed kind of the continuation of the trends that Neil talked about just a moment ago. When we look at the margin that we expect to maintain, you know, it's a solid plan.
Speaker 3: Our priorities as Karen outlined are remain the same. We want to grow our business. And so, but when the market presents us with opportunities, we will take advantage of those opportunities to repurchase shares.
Our priorities as Karen outlined are remain the same we want to grow we want to grow our business and so but when the market presents us with opportunities. We will take advantage of those opportunities to repurchase shares we've demonstrated since we've been here over the last two and a half years that when the stock goes down we buy.
Speaker 3: We've demonstrated since we've been here over the last two and a half years that when the stock goes down, we buy more and when the stock goes up, we buy less. But our focus in our priorities are in the order in Karen mentioned them. We want to grow our current business and we want to grow the platform through acquisition.
Karen Halton: And we don't expect to stay kind of at the high levels that we are now, but we still expect to be able to strategically manage our product vitality, our service levels, our technology and productivity to continue to deliver strong performance that would land us in the EPS range of $13 and $14.50 for the year.
More and when the stock goes up we buy less and.
But our focus in our priorities are in the order and Karen mentioned them, we want to grow our current business and we want to grow the platform through acquisitions and and we feel good about our opportunities in all of those on the acquisition side. Our priority is the has to continue to add to our intelligence spaces group. We think that there are there are.
Speaker 3: and we feel good about our opportunities and all of those. On the acquisition side, our priority is to continue to add to our intelligence basis group. We think that there are very interesting and in some cases meaningful opportunities to expand there.
Karen Halton: I would just call out, you know, ISG. We're still predicting, you know, up to midteens in that business. So that's still going to continue to grow next year. The acquisition of Ketu Tharm will be a benefit as well. So really, really pleased with the performance overall.
Very interesting and in some cases meaningful opportunities to expand there and so that's where that's where we're spending the most of our time, but.
Speaker 3: And so that's where we're spending the most of our time. But we are also, we are also open for business on the lighting side to other specific opportunities.
But we are also we are also open for business on on the lighting side too to other specific opportunities.
Tim Wojs: Okay, okay, good. A hot thank you. Good luck on everything guys. Thanks, too.
Great. Thanks very much.
Ryan Merkel: Our next question comes from a line of Ryan Merkel with William Blair.
Speaker 1: Our next question comes from a line of Chris Snyder with UBS.
Our next question comes from the line of Chris Snyder with UBS.
Speaker 8: Thank you. I wanted to ask about the ABL guide for 20
Thank you I wanted to ask you about the ABL guide for 2024.
Operator: Ryan Airlines is now open.
Speaker 8: And specifically what we should expect in first half, first second half. So down low to mid single for the year, I think Neil talked about pressure in the market through the...
And specifically, what we should expect in first half versus second half so down low to mid single for the year I think Neil talked about pressure in the market through the end of this calendar year, So I would assume.
Joe O'Day: Our next question will come from Joe O'Day with Wells Fargo. Hi, good morning. Hey, Joe, how you doing? Doing well, thanks. I guess first question is just the sort of combination of sort of channel inventory management and then the macro. And so, you know, what you've seen over the course of the past few months, what you're anticipating through kind of the rest of this year in terms of any additional headwinds related to D stock, or is there a little bit of a transition where macros got a little bit choppy or but these buckets a little bit less challenging?
Speaker 8: So it's seen that the declines are steeper in the first half and then moderate in the back half. Is there any color about how we should be thinking about the slope?
The declines are steeper in the first half and then moderate in the Bakken or is there any color about how we should be thinking about the slope of ABL in 'twenty for us, we're kind of working towards that low to mid single digit decline. Thank you.
Speaker 3: Yeah, so Chris, thanks for the question. I would guide you back to kind of historical sequential trends where obviously on a sequential basis we drop off from fourth quarter to first quarter and from first quarter to second quarter.
Yes.
Chris Thanks for the question I would guide you back to kind of historical sequential trends. There obviously on a sequential basis, we drop off from fourth quarter to first quarter and for the first quarter to second quarter.
Speaker 3: And last year in those same periods, we were still at inflated levels of backlog as we were burning through backlog. So then we get you to a more normal, in our assumptions gets you to a more normal cadence in the back half of the year.
And last year in those same periods, we were still at inflated levels of backlog as we were burning through backlog. So so then we get you to a more normal in our assumptions gets you to a more normal cadence in the in the back half of the year.
Joe O'Day: Yeah, so, so just for just a little bit of historical context as we kind of recreate FY23, obviously we burned through backlog through the first half of our fiscal 2023. We talked extensively through the remainder of the year, how lead times have compressed and that's led to the de-stocking you refer to. We're now getting to a more normal relationship between order rate and shipment rates. So, we're starting to and that's what I was alluding to and the answer to Tim's question, we're comfortable operating in this environment.
Speaker 8: Thank you, I appreciate that. So it sounds like maybe high single digit type the quines in the first half, if I run that seasonality. And certainly we see how the comps in the back half get easier. And is the upliftment growth really just kind of a function of the comps getting a lot easier into the back half? Or is there also an assumption that the macro will become more supportive into the back half?
Thank you I appreciate that so it sounds like maybe high single digit type declines in the first half if I run that seasonality and certainly we see how the comps in the back half get easier.
The uplift in growth really just kind of a function of the comps getting easier into the Boston or is there also an assumption that the macro will become more supportive into the back half. Thank you.
Speaker 3: So our assumptions aren't relying on significant improvement on the from a macro environment. As I mentioned, we have returned to a more normal relationship between order intake and shipment rates. So we are, and as I mentioned, we're comfortable executing in this environment. So I think what we are ultimately suggesting through fiscal 2024 is that by the back half of the year, we end up kind of clearing all of the legacy impacts of the increased backlogs and all of the other supply chain things. And so we end up with a more normal year. I think if you were, you know, if the economy matched up with our fiscal year, which it has no interest in what our fiscal year is, then, you know, you would say you wouldn't notice the third and fourth quarters of fiscal 2023 and the and the first and second quarters of fiscal 2024 on a calendar basis. But, but that gets us to, you know, gets us to where we are, which is kind of where you suggest, which is, we'll be down in ABL in the first half of the year and it will normalize a little bit in the back.
So our assumptions aren't relying on significant improvement on from a macro environment. As I mentioned, we have we have returned to a more normal relationship between order intake and shipment rates. So we are.
Joe O'Day: So, I think what we are experiencing now are macro lighting trends. And, you know, unfortunately, we're in a period where people are just buying less lighting and lighting controls. I'll also highlight though that as Karen pointed out, the intelligence basis group continues to grow mid-teens. So, the portfolio of the business is expanding. At the same time in both the lighting business and the spaces business. We've been able to layer in margin despite the decline in sales at ABL.
And as I mentioned, we're comfortable executing in this in this environment. So.
I think what we are ultimately suggesting for first fiscal 2024 is that by the back half of the year, we end up kind of clearing all of the all of the.
Legacy impacts of the increased backlogs in all of the other supply chain things and so we end up with a more normal year I think if you were at.
Karen Halton: Got it. And then on the cash side, I think another, you know, your solid cash generation, you did less on the buy-back side, you ended with cash in a pretty strong position. And so, you know, just have any commentary around what you might be seeing on the M&A pipeline side of things or, you know, is it kind of as your monitoring, maybe a little bit chop your environment to buy us to hold a little bit more cash, how we should think about buy-back posture in 2024.
The economy matched up with our fiscal year, which it has no interest in what our fiscal year is then.
You would say you would notice the third and fourth quarters of fiscal 2023 and the end.
And the first and second quarters of fiscal 2024 on a calendar basis, but but that gets us to guess as to where we are which is kind of where you suggest switches will be down.
<unk> in the first half of the year and it will normalize a little bit in the back.
Speaker 9: Thank you, appreciate it.
Thank you I appreciate that.
Karen Halton: Yeah, thank you, Joe. You'll see in the presentation that we'll post, we've talked about some of the assumptions that reflect our cash priorities for next year. So our cash, our capital allocation prior to going to be the same, you know, first to invest in our current businesses for growth, second to invest in M&A, third to maintain our dividend, and fourth will be share repurchases. So, at this point, we've repurchased about 23% of our shares since we started at the beginning of fiscal, fourth quarter of fiscal 2020.
Our next question comes from the line of Brian Lee with Goldman Sachs.
Speaker 1: Our next question comes from a line of Brian Lee with Goldman Sachs.
Speaker 10: Hi, thanks for taking a question. This is a grace on for a brilliant. I guess my first question just to follow up on the last questions, I think sounds like you're expecting improvement. You caught out the assumption of clearing up all the legacy impact of the increased backlog. Just curious like what gives you the confidence to see that improvement? Are you seeing like sell through improvement from quarter over quarter?
Hi, Thanks for taking the question. This is <unk> on for Brian .
I guess my first question just to follow up on the last questions I It sounds like you're expecting improvement.
You called out desktop.
Joseph clearing up or the legacy impact of the increased backlog.
Just curious like what gives you the confidence to see that improvement are you seeing like sell through.
Karen Halton: And so, we're looking at this upcoming year, about 40 to $60 million in share repurchases, is what we would expect, and you'll see that in the presentation. And then, Neil, do you want to comment on? I just add a couple of things, Joe. First is, obviously, we have done, I think, a very an outstanding job of generating cash. So, through layering in margin and aggressive management of our balance sheet and working capital, especially on the lighting side, we've demonstrated the ability to generate a significant amount of cash.
Improvement from quarter over quarter.
Speaker 3: Yeah, Grace, as I pointed out, we've returned in the lighting business to a more normal relationship between order intake and shipment rate within the quarters. So we are at normal lead times, so our lead times are in the 20 to 30 day range in our lighting business, which translates to a performance where orders and shipments are consistent. As I explained in response to Chris's questions, we were at this point in the last year for our Fritzgull first and second quarters in lighting, we were burning through additional backlogs.
Yeah, Grace as I pointed out we've returned and the lighting business to a more normal relationship between order intake and shipment rate within the quarter. So.
So we are we are at normal lead times, our lead times are in the 20% to 30 day range in our lighting business, which.
Which translates to a performance wear where orders and shipments are are consistent as I explained in response to Chris's question.
Karen Halton: Our priorities, as Karen outlined, are remain the same. We want to grow our business. And so, but when the market presents us with opportunities, we will take advantage of those opportunities to repurchase shares. We've demonstrated, since we've been here, over the last two and a half years, that when the stock goes down, we buy more, and when the stock goes up, we buy less. And, but our focus in our priorities are in the order, and Karen mentioned them.
We were at this at this point in the last year for our fiscal first and second quarters in lighting, we were burning through additional backlog. So we obviously are not burning through additional backlog anymore. So we have we have returned to a more normal correlation between order intake and shipment rate.
Speaker 3: So we obviously are not burning through additional backlog anymore. So we have returned to a more normal correlation between order intake and shipment rate.
Okay. Thank you I'll pass it on.
Karen Halton: We want to grow our current business, and we want to grow the platform through acquisitions. And we feel good about our opportunities and all of those. On the acquisition side, our priority is to continue to add to our intelligence basis group. We think that there are, there are very interesting and in some cases, meaningful opportunities to expand there. And so, that's where we're spending the most of our time, but we are also, we are also open for business on, on the lighting side to, to other specific opportunities.
Thank you.
Neil Ashe: Great.
Joe O'Day: Thanks very much.
Speaker 1: As a reminder, that is star 112. Ask a question. Our next question comes from Jeff.
As a reminder, that is star one one to ask a question.
Our next question comes from Jeff Osborne.
With TD Cowen.
Speaker 11: Good morning. I just knew a few times expanding geographically and control planes on the ISG side. Do you have any organic efforts there? Are you alluded to potentially meaningful M&A activity there? I was just curious how the balance is to come.
Hey, good morning.
You mentioned several times, expanding geographically and control planes on the ISG side do you have any organic efforts there.
<unk> to potentially meaningful M&A activity. There I was just curious how the balances two comments.
Speaker 3: So that is basically all organic. So this tech continues to grow. We've called out the UK where we've had some success in that market and and we'll continue to expand in Asia over the course and Australia over the course of this year and beyond. So that is primarily organic growth.
So that is basically all organic so.
Chris Snyder: Our next question comes from a line of Chris Snyder with UBS. Thank you. I wanted to ask about the ABL guide for 2024. And specifically, what we should expect in first half, first second half. So, down low to mid-single for the year, I think Neil talked about pressure in the market through the end of this calendar year. So, it's in that, you know, the declines are steeper in the first half, and then moderate in the back half. Is there any color about how to be thinking about the slope of ABL in 24 as we're kind of working towards that low-to-mid single digit decline. Thank you.
This tech continues to grow.
Called out the U K, where we've had some success in that market and we will continue to expand in.
In Asia over the course in Australia over the course of this year and beyond so that is primarily organic growth.
Speaker 3: In the acquisition that added to that would be key to theorem, which added refrigeration controls. So those are added. So we're confident in the organic cash, I mean the organic growth at ISG.
The acquisition that added to that would be <unk>, which added refrigeration controls. So so those are at it. So we're confident in the organic cash.
Organic growth at ISG any acquisitions, we make would then be in addition to that and and we see some interesting opportunities there as well.
Speaker 3: Any acquisitions we make would then be in addition to that, and we see some interesting opportunities there as well.
Chris Snyder: Yeah, so Chris, thanks for the question. I would guide you back to kind of historical sequential trends where obviously on a sequential basis, we drop off from fourth quarter to first quarter and from first quarter to second quarter. And last year in those same periods, we were still at inflated levels of backlogs. As we were burning through backlogs. So, so then we get you to a more normal in our assumptions gets you to a more normal cadence in the in the back half of the year.
Speaker 11: Perfect. And then either for you, Neil or Karen, what are the assumptions around price and volume mix as it relates to the revenue guidance for the
Perfect and then either for you Neil or Karen what are the assumptions around price and volume mix as it relates to the revenue guidance for the year.
Speaker 3: Yeah, I'll take that one Jeff. So, so.
Yeah, I'll take that one Jeff so so as Karen has explained through the course of this year volume.
Speaker 3: As Karen has explained through the course of this year, volume was, we had a healthy mix in fiscal 2023, first half of both volume and price.
We had a healthy mix in fiscal 2023 first half of both volume and and price that was again as we were burning through the backlog through the back half of this year that we have.
Speaker 3: That was, again, as we were burning through the backlog. Through the back half of this year, that we have delivered performance largely through price as volumes have moderated.
Chris Snyder: Thank you. I appreciate that. So it sounds like, you know, maybe high single digit tight declines in the first half if I run that seasonality. And certainly we see how the comps in the back half get easier. And is the uplifting growth really just kind of a function of the comps, you know, getting a lot easier into the back half. Or is there also an assumption that the macro will become more supportive into the back half.
We have delivered performance largely through price as volumes have moderated so on a sequential basis, we feel pretty decent on the relationship between volume and price. So so we think we're in a healthy balance of both of those four four in our in our lighting guidance for 2024.
Speaker 3: So on a sequential basis, we feel pretty decent on the relationship between volume and price.
Speaker 3: So we think we're in a healthy balance of both of those for in our lighting guidance for 2024. They are, you know, the volume is impacting and we're comfortable with where we are in price.
They are the volume is impacting and we're comfortable with where we are in price.
Chris Snyder: Thank you. So our assumptions aren't relying on significant improvement on the from a macro environment. As I mentioned, we have we have returned to a more normal relationship between order intake and shipment rates. So we are. And as I mentioned, we're comfortable executing in this in this environment. So, so I think what we are ultimately suggesting for fiscal 2024 is that by the back half of the year, we end up kind of clearing all of the all of the legacy impacts of the increased backlogs and all of the other supply chain things.
Got it thank you.
Thanks, Jeff.
Speaker 12: Our next question comes from the line of Jeff Reesprig with Vertical Research Partners. Thank you. Good morning, everyone.
Our next question comes from the line of Jeffrey Sprague with vertical research partners.
Thanks, <unk> good morning, everyone.
Can we just follow up a little bit.
Speaker 13: to what you just said on on price. So if I understand you're saying most of the most of the revenue decline that we see in the quarter is price. Is that what you meant? Could you just kind of clarify?
Back to what you just said on on price. So if I understand you are saying.
Most of the most of the revenue decline that we see in the quarter as price is that what you meant to could you just kind of clarify no no. That's about yes, yes, sorry, if I if I left with that impression that was not what I intended to say so.
Speaker 3: Yeah, yeah, sorry that if I if I left with that impression that was not what I intended to say so
Chris Snyder: And so we end up with a more normal year. I think if you were, you know, if the economy matched up with our fiscal year, which it has no interest in what our fiscal year is, then, you know, you would say you wouldn't notice the third and fourth quarters of fiscal 2023 and the and the first and second quarters of fiscal 2024 on a calendar basis. But, but that gets us to, you know, gets us to where we are, which is kind of where you suggest, which is, we'll be down in ABL on the first half of the year and it will normalize a little bit in the back. Thank you appreciate that.
Speaker 3: I was talking about fiscal 24 in response to other Jeff's question, which was, and so how we got to our net sales assumptions for the lighting business next year.
I was talking about fiscal 'twenty four in response to other jeffs question, which was and so how we got to the how we got to our net sales assumptions for the lighting business next year.
Yes.
Speaker 13: got it. And then if I recall, you haven't actually made a major pricing move for the better part of a year. Is that correct? And do you have additional pricing actions in the market at this point?
Got it and then.
If I recall, you haven't actually made a major pricing moves for the better part of the year.
Is that correct and do you have.
Additional pricing actions in the market at this point in time.
Speaker 3: So as we've mentioned consistently, Jeff, we have our strategy, the underlying strategy of product vitality, service, technology and productivity has afforded us the opportunity to more strategically manage price.
So.
As we've mentioned consistently Jeff.
Grace: Our next question comes from the line of Brian Lee with Goldman Sachs. Hi, thanks for taking a question. This is a trace on for Brian. I guess my first question just to follow up on the last questions. I sounds like you expecting improvement. You caught out the assumption of clearing up all the legacy impact of the increased backlog. Just curious like what gives you the confidence to see that improvement? Are you seeing like sell through improvement from quarter to quarter?
Our strategy the underlying strategy of product vitality service technology and productivity has afforded us the opportunity to more strategically manage price.
Speaker 3: So while there were a number of broad pricing actions through kind of 22 and 23, we've become significantly more targeted in those actions now. So for example, we're in the market now with we just recently announced that a price increase around certain controls products and this quarter.
So while there were a number of broad pricing actions through kind of 'twenty, two and 'twenty three we have become significantly more targeted in in those actions now so.
So for example, we're in the market now is we just recently announced a price increase around certain certain controls products and.
Neil Ashe: Yeah, Grace, as I pointed out, we've returned in the lighting business to a more normal relationship between order intake and shipment rate within the quarters. So, so we are, we are at normal lead times or lead times are in the 20 to 30 day range in our lighting business, which, which translates to a performance where orders and shipments are consistent. As I explained in response to Chris's questions, we were at this point in the last year for our fiscal first and second quarters in lighting, we were burning through additional backlog.
This quarter.
Speaker 3: We're also strategic about where we choose to invest in price. So that's generally in the contractor select portfolio and it's generally to expand our to our expand our market share in the electrical distribution channel.
<unk>.
We're also strategic about where we choose to invest in price. So thats generally in the contractor select portfolio and its generally to expand our.
<unk> expand our market share in the electrical distribution channel.
Speaker 3: And it's highly targeted. So it's very low dollars comparative investment on a percentage basis. So the strategy has empowered us to more strategically manage price. And so we are no longer really going after broad base, pricing changes like that up and down, but more strategically managing on different categories and for different reasons.
And it's highly targeted so it's very low dollars comparative investment on a percentage basis. So the strategy is empowered us to to more strategically manage price and so we are no longer really going after broad base pricing changes like that up and down but more strategically managed.
Neil Ashe: So, we obviously are not burning through additional backlog anymore. So, we have returned to a more normal correlation between order intake and shipment rate. Thank you. As a reminder, that is star one, one, to ask a question.
<unk> on different categories and for different reasons.
And then maybe just one last one so the cash flow was solid and 23 by my math the inventory days are actually now fair amount below normal.
Speaker 13: And then maybe just one last one. So the cash flow was solid in 23. By my math, the inventory days are actually now, fair amount below normal. Can you do more on inventory or working capital at this point? Maybe just a little some thought on cash outlook for 2024.
Can you do more on inventory or working capital at this point.
Maybe just a little some thought on cash outlook for 2024.
Jeff Osborne: Our next question comes from Jeff Osborne with Kitty Cowan.
Speaker 4: I think as we look ahead Jeff, I agree we had a really good performance this year with our cash flow generation and we were able to improve our days.
Yes, I think as we look ahead, Jeff I agree we had a really good performance this year with our cash flow generation and we were able to improve our days.
Neil Ashe: Good morning, Neil. You mentioned several times, expanding geographically and control planes on the ISG side. Do you have any organic efforts there? You alluded to potentially meaningful M&A activity there. I was just curious how the balance is to come. So that is basically all organic. So this tech continues to grow. We've called out the UK where we've had some success in that market and we'll continue to expand in Asia over the course and Australia over the course of this year and beyond.
Speaker 4: I think there's still some opportunity as we look ahead, probably not to the magnitude of what you see in, or what we saw in 2023. So for example, if you think about where we were in 22, you know, we had high levels of inventory because of lead time from our suppliers, we were able to bring that down to a little bit better than our normal levels of inventory. But I think as we continue to drive the strategy, particularly at ABL around product vitality service,
I think theres still some opportunity as we look ahead, probably not to the magnitude of what you see and what we saw in 2023. So for example, if you think about where we were in 2002, we had high levels of inventory because of lead times from our suppliers, we were able to bring that down to a little bit better than our <unk>.
Normal levels of inventory, but I think as we continue to drive the strategy, particularly at ABL around product vitality service.
Speaker 4: technology and productivity, there is still room for some improvement as we kind of drive that strategy throughout the bit.
Neil Ashe: So that is primarily organic growth in the acquisition that added to that would be key to them, which added refrigeration controls. So those are added. So we're confident in the organic cash. I mean, the organic growth at ISG any acquisitions we make would then be in addition to that and we see some interesting opportunities there as well. So we'll try some volume mix as it relates to the revenue guidance for the year.
Technology and productivity there is still room for some improvement as we kind.
Kind of drive that strategy throughout the business.
Speaker 3: And Jeff, I'd love to take this opportunity to summarize kind of where I think we are from a performance perspective. Obviously, it's hard to increase margins when sales are declining and we've demonstrated that we can do that. It's also hard to make the kind of improvements that we've demonstrated and you highlighted from a working capital perspective.
And Jeff I'd Love to take this opportunity to summarize kind of where I think we are from a performance perspective, obviously, it's hard to increase margins when sales are declining and we've demonstrated that we can do that it's also hard to to make the kind of improvements that we've demonstrated and you highlighted from a working capital perspective, we've struck.
Speaker 3: We've structurally improved the business. The strategy as Karen outlined has changed both where we, how we operate and how successfully we can operate. So.
Surely improve the business the strategy as Karen outlined has has changed both where we how we operate and how successfully we can operate so that makes us very comfortable with our continuing performance around margin and cash generation.
Karen Halton: Yeah, I'll take that one Jeff. So so as Karen has explained through the course of this year, volume was we had a healthy mix in fiscal 2023 first half of both volume and and price. That was again as we were burning through the backlog. Through the back half of this year that we have delivered performance largely through price as volumes have moderated. So on a sequential basis, we feel pretty decent on the relationship between volume and price.
Karen Halton: So we think we're in a healthy balance of both of those for in our in our lighting guidance for for 2024. They are, you know, the volume is impacting and we're comfortable with where we are in price.
Speaker 3: That makes us very comfortable with our continuing performance around margin and cash generation.
Great. Thank you.
Thanks.
Speaker 1: Our next question comes from a line of Joe O'Day with Wells Fargo.
Our next question comes from the line of Joe O'dea with Wells Fargo.
Okay.
Sir Your line is now open.
Speaker 7: Hi, thanks for taking a follow up. I just want to circle back to the kind of sequential commentary. So it seems like if we run normal seasonality out of the fourth quarter, kind of revenue rate, we'd get roughly to the midpoint. I guess that also would...
Hi, Thanks for taking the follow up I, just wanted to circle back to the kind of sequential commentary. So it seems like if we if we run sort of normal seasonality out of the fourth quarter kind of revenue rate.
We get roughly to the midpoint.
I guess that also would seem to imply that youre going from an environment, where you were dealing with channel inventory rationalization.
Neil Ashe: Thank you. Thanks Jeff. Yeah.
Jeffrey Sprague: Our next question comes from the line of Jeffrey sprig with vertical research partners. Thank you.
And so arguably there should be an uplift in may be that the.
The incremental pressures that the macro is a little bit more challenging and so just just wanted to sort of touch on that dynamic again, a little bit more.
Neil Ashe: Good morning, everyone. If we just follow up a little bit back to what you just said on on price. So if I understand you're saying most of the most of the revenue decline that we see in the quarter is price. Is that what you meant? Could you just kind of clarify? Yeah, sorry that if I if I left with that impression that was not what I intended to say so. I was talking about fiscal 24 in response to other Jeff's question, which was and so how we got to the how we got to our net sales assumptions for the lighting business next year.
And then within that.
A tremendous amount of focus on sort of verticals within non res and so in any additional comp commentary sort of on thoughts that you have around kind of verticals that would be stronger where you're maybe paying a little bit closer attention to any potential softness.
Speaker 3: Yeah, Joe, thanks for the fall-up. So again, we would like to provide you as much of a read through the macro as we can, but we can only kind of comment really on our performance. And so as it relates to that, is just to reiterate, in the first half of fiscal 2023, we were burning through backlogs.
Yes, Joe Thanks for the follow up so so.
Again, we.
We would like to provide you as much of a read through the macro as we can but we can only kind of comment really on our performance and so as it relates to that is just to kind of reiterate in the first half of fiscal 2023, we were burning through backlog. We have now returned to a more normal order and relationship between.
Speaker 3: We have now returned to a more normal order and relationship between order and shipment rates, where our order rate is drives basically the shipments within the quarter and we're at a, you know, kind of a 20 to 30 day lead time. So, average lead time in the lighting business. So, things are relatively back to normal. So, on a sequential basis, that's how, you know, you see the, you know, more traditional sequential seasonality play out.
Neil Ashe: Got it. And then if if I recall, you haven't actually made a major pricing move for the better part of a year. Is that correct and do you have, you know, additional pricing actions in the market at this point? So as we've mentioned consistently Jeff, we have our strategy, underlying strategy of product vitality, service, technology and productivity has afforded us the opportunity to more strategically manage price. So while there were a number of broad pricing actions through kind of 22 and 23, we've become significantly more targeted in those actions now.
Order and shipment rates, where our order rate is.
Drives basically the shipments within the within the quarter and were at.
Kind of about 20% to 30 day lead time, so average lead time and the lighting business. So so things are relatively back to normal so on a sequential basis. That's how you see the more traditional sequential seasonality play out so as the as we look forward.
Neil Ashe: So, for example, we're in the market now with we just recently announced a price increase around certain controls products and this quarter. We're also strategic about where we choose to invest in price, so that's generally in the contractor select portfolio and it's generally to expand our market share in the Electrical Distribution Channel and it's highly targeted, so it's very low dollars comparative investment on a percentage basis. So the strategy has empowered us to more strategically manage price and so we are no longer really going after broad-based pricing changes like that up and down, but more strategically managing on different categories and for different reasons.
Speaker 3: So as we look forward, I'd like to say we know more about the macro environment than others. The advantage, but I don't think we do. The advantage we have is that our portfolio on the lighting side really addresses the wherever there can be growth in the marketplace. So the product vitality efforts that we have undertaken, the service levels we have undertaken, allows us to be strong in retail, strong in electrical distribution, strong in each of the categories, well positioned for infrastructure. So we are in the places where we can benefit from any changes in the lighting market. In the meantime, we're comfortable operating at these levels of market activity and continuing to deliver the margins and the cash flow that Karen has. Effectively highlighted through the guidance.
I'd like to say, we know more about the macro environment than others. The advantaged, but I don't think we do the advantage. We have is that our portfolio on the lighting side really addresses the wherever there can be growth in the marketplace. So.
The product vitality efforts that we have we have undertaken the service levels. We have undertaken allows us to be strong in retail strong in electrical distribution strong in.
And each of the category is well positioned for infrastructure. So so we are in the places where where we can benefit from any any changes in the lighting market in the meantime, we're comfortable operating at.
These kind of levels of of market activity and continuing to deliver the margins and the cash flow that Karen that Karen effectively highlighted through the guidance.
Speaker 14: Thanks for listening.
Thanks for those details.
Yes.
Speaker 1: Our next question comes from a line of Chris Snyder with UBS.
Our next.
Question comes from the line of Chris Snyder with UBS.
Karen Halton: And then maybe just one last one. So the cash flow was solid in 23. By my math, the inventory days are actually now, you know, fair amount below normal. Can you do more on inventory or working capital at this point? Maybe just a little some thought on cash outlook for 2024. I think as we look ahead Jeff, I agree we had a really good performance this year with our cash flow generation and we were able to improve our days.
Chris Your line is now open.
Speaker 8: Oh, hey, sorry I was just head out of some mute. I thank you guys for letting me hop back in here.
Oh, Hey, sorry, I was on mute I think you guys sort of relating you hop back in here.
Speaker 8: I just wanted to ask I'm gross margin. I don't believe this has come up. I'm keen to talk about what level of gross margin is implied in the guide next year as we're going from 37 to 4 billion of revenue to that 13.
I just wanted to ask on gross margin I don't believe this has come up on can you just talk about what level of gross margin is implied in the guide next year as we're going from three $7 billion to $4 billion of revenue to that $13 $14 50 of earnings. Thank you.
Karen Halton: I think there's still some opportunity as we look ahead, probably not to the magnitude of what you see in or what we saw in 2023. So for example, if you think about where we were in 22, you know, we had high levels of inventory because of lead time from our suppliers, we were able to bring that down to a little bit better than our normal levels of inventory. But I think as we continue to drive the strategy, particularly at ABL around product vitality, service, technology and productivity, there is still room for some improvement as we kind of drive that strategy throughout the business.
No.
Speaker 3: Yes, Chris, I'll take that. The, as Karen pointed out, all we are guiding to is net sales and adjusted EPS. I'm confident in your mask ill, so you'll quickly realize that that implies that we are, we don't need to be at the levels of margin we were in the fourth quarter to, for the full year next year to deliver that range.
Yes, sure Chris I'll take that.
As Karen pointed out.
All we are guiding to as net sales and adjusted EPS.
I am confident in your math skills. So you'll quickly realize that that implies that we are we don't need to be at the levels of margin. We were in the fourth quarter two for the full year next year or two to deliver that.
To deliver that range what it does say, though is that as I was responding to Jeff Sprague earlier, we have structurally improved this business, which allows us to operate at higher margins than the company has operated in the past, it's worth saying that the fourth quarter. Our gross profit margins are the highest in the history of the company. So.
Speaker 3: What it does say, though, is that as I was responding to Jeff Sprig earlier, we have structurally improved this business, which allows us to operate at higher margins than the company has operated in the past. It's worth saying that the fourth quarter of Gross Proper margins are the highest in the history of the company.
Neil Ashe: And Jeff, I'd love to take this opportunity to summarize kind of where I think we are from a performance perspective. Obviously, it's hard to increase margins when sales are declining and we've demonstrated that we can do that. It's also hard to make the kind of improvements that we've demonstrated and you highlighted from a working capital perspective. We've structurally improved the business. The strategy as Karen outlined has changed both where we, how we operate and how successfully we can operate. So that makes us very comfortable with our continuing performance around margin and cash generation.
Neil Ashe: Great, thank you. Thanks.
Speaker 3: So we don't have to maintain those levels to continue to deliver what we consider to be outstanding performance.
So we don't have to maintain those levels to continue to deliver what we consider to be outstanding performance and further.
Speaker 3: And further, as I have pointed out repeatedly, the on our value creation model is about growing up sales, turning profits into cash and not growing the balance sheet as fast. So we've made structural changes, which allow us to operate at these higher margin level and to turn those margins into cash. So we feel really good about kind of the permanence of the changes that we've made in the lighting business and the continued opportunity we have to improve that. At the same time, we can continue to grow the portfolio through ISG and then through adding additional businesses to the portfolio.
Pointed out repeatedly.
Our value creation model is about growing net sales turning profits into cash and not growing the balance sheet as SaaS. So.
So we've made structural changes, which allow us to operate at these higher margin levels and to turn those margins into into cash. So we feel really good about kind of the permanence of the changes that we've made in the lighting business and and the continued opportunity we have to improve that at the same time, we can continue to grow the portfolio.
Through ISG and then through adding additional.
Joe O'Day: Our next question comes from a line of Joe O'Day with Wells Farg. Go.
Additional businesses to the portfolio.
Speaker 8: I really appreciate that. If I could follow up with one more, it's probably the biggest question.
Yeah.
I really appreciate John if I could follow up with one more and it's probably the biggest question.
Speaker 8: You know, when we look at this growth smart, I mean, it's pretty incredible. You know, 340 basis points first the start of the year, but at the same time, volumes have roles and understand that, you know, there's the backlog dynamic, I understand, you know, maybe the macro is a bit softer. But do you guys think that there is, you know, any negative volume impact from this, you know, big uplifting growth smart and
Joe O'Day: Joey, your line is now open. Hi, thanks for taking the follow up. I just want to circle back to the kind of sequential commentary, so it seems like if we run sort of normal seasonality out of the fourth quarter in a revenue rate, we'd get roughly to the midpoint. I guess that also would seem to imply that you're going from an environment where you were dealing with channel inventory rationalization that ends, and so arguably there should be an uplift and maybe the incremental pressures at the macro is a little bit more challenging.
Got it.
<unk> is when we look at this gross margin I mean, it's pretty incredible up 340 basis points versus the start of the year, but at the same time volumes have roles I understand that there is.
The backlog dynamics I understand maybe the macro was a bit softer.
Do you guys think that there is any negative volume impact from this.
The lift in gross margin and and how does the company think about balancing that it feels like there's a bit of maybe a sliding scale dynamic. Thank you I appreciate it.
Speaker 8: And how does the company think about balancing that? It feels like there's a bit of maybe a sliding scale.
Joe O'Day: I just wanted to touch on that dynamic again a little bit more. Within that, I think a tremendous amount of focus on verticals within non-res and any additional commentary on thoughts that you have around verticals that would be stronger where you're maybe paying a little bit closer attention to any potential softness.
Speaker 3: Yeah, no, I appreciate you asking the question given us the opportunity to address. We talked a bit about this in the third quarter call, but I want to reflect on it some more, which is.
Yes, no I appreciate you asking the question and given us the opportunity to to address it we talked a bit about this in the in the third quarter call, but but I want to reflect on it's more which is.
Speaker 3: Most importantly, our strategy in the lighting business around product vitality, service, technology and productivity has put us in a position to manage price and to manage margins in a in a step function better way than we have in the past. So we feel really good about that.
Most importantly, our strategy in the lighting business around product vitality service technology and productivity has put us in a position to manage price and to manage margins.
Neil Ashe: Yeah, Joe, thanks for the follow up. Again, we would like to provide you as much of a read through the macro as we can, but we can only comment really on our performance. As it relates to that, just to reiterate, in the first half of fiscal 2023, we were burning through backlog. We have now returned to a more normal order and relationship between order and shipment rates, where order rate is drives basically the shipments within the quarter, and we're at a 20 to 30-day lead time, so average lead time back to normal.
And a and a step function better way than we have in the past and so we feel really good about that.
Speaker 3: as we have evaluated volumes and I was addressing this with just questions, we strategically manage price where we choose to, where we think we can drive volume. We realize that at these margin levels, we've created a significant amount of value and so we have a lot of incentives to continue to operate at these at these margin levels.
As we have evaluated volumes and I was addressing this with Jeff's question, we strategically manage price, where we choose to where we think we can drive volume.
We realize that at these margin levels, we've created a significant amount of value and so we have a lot of incentive to continue to operate at these at these margin levels all.
Speaker 3: All of the data that we are looking at across vertical says that we are appropriately pricing for the volume that's available in the market. And that's our goal over time. So, so we will, that's why we continue to layer in margin and cash flow during this low volume period and why we believe we're well positioned for the inevitable return of volume growth at some point in the future.
All of the data that we are looking at across vertical says that.
Says that we are appropriately pricing for the volume that's available in the market and that's our goal over time. So so we will.
Neil Ashe: On a sequential basis, that's how you see the more traditional sequential seasonality play out. As we look forward, I'd like to say we know more about the macro environment than others. The advantage, but I don't think we do. The advantage we have is that our portfolio on the lighting side really addresses the wherever there can be growth in the marketplace. The product vitality efforts that we have undertaken, the service levels we have undertaken, allows us to be strong in retail, strong in electrical distribution, strong in each of the categories, well positioned for infrastructure.
Why we've continued to layer in margin and cash flow. During these this low volume period and why we believe we're well positioned for the inevitable return of volume growth at some point in the future.
Thank you Neil really appreciate that.
Thanks, Chris.
Speaker 1: Thank you. And I'm showing no further questions in Q with this time. I'd like to turn the call back to Neil Ash for any closing remarks.
Thank you and I'm showing no further questions in queue at this time I'd like to turn the call back to Neil Ash for any closing remarks.
Speaker 3: First of all, thank you all for spending some time with us this morning. We are, we're really proud of our financial performance as we've talked about through the call. We had a great year. We delivered strong financial performance. We can continue to structurally improve both the lighting business and we continue to grow the intelligence bases group and we can allocate a capital effectively.
First of all thank you all for spending some time with US. This morning, we are we're really proud of our financial performance as we've talked about through the call. We had a great year, we delivered strong financial performance, we continue to structurally improve both the lighting business and we continue to grow the intelligence space group and we allocated capital effectively.
Neil Ashe: We are in the places where we can benefit from any changes in the lighting market. In the meantime, we're comfortable operating at these levels of market activity and continuing to deliver the margins and the cash flow that Karen effectively highlighted through the guidance. Thanks for those details. Yep.
Speaker 3: Our priorities for next year remain the same. We're gonna continue to focus on operating excellence in the lighting business and making it more predictable, repeatable, and scalable. We'll continue to grow the space is business and we will be consistent with our capital allocation priorities. So we look forward to being back together with you and at the end of the quarter and hope you have a good rest of your day. Thank you for your interest in the Q&A.
Our priorities for next year remain the same we're going to continue to focus on.
On operating excellence, and the lighting business and making it more predictable repeatable and scalable will continue to grow the space business and we will be consistent with our capital allocation priority. So we look forward to we will look forward to being back together with you in at the end of the quarter end and hope you have a good rest of your day. Thank you for your interest in acuity brands.
Chris Snyder: Our next question comes from a line of Chris Snyder with UBS. Chris, your line is now open. Oh, hey, sorry I was just head out as I'm mute. Thank you guys for letting me hop back in here. I just wanted to ask on gross margin. I don't believe this has come up. Can you just talk about what level of gross margin is implied in the guy next year as we're going from 37 to 4 billion of revenue to that 13.
This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.
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Chris Snyder: 1450 of earnings. Thank you. Yeah, sure. Chris, I'll take that. The, as Karen pointed out, the all we are guiding to is, is net sales and, and adjusted EPS. I'm confident in your masculine, so you'll quickly realize that that implies that we are, we don't need to be at the levels of margin we were in the fourth quarter to, for the full year next year to deliver that, to deliver that range.
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Chris Snyder: What it does say, though, is that, as I was responding to Jeff Sprague earlier, we have structurally improved this business, which allows us to operate at higher margins than the company has operated in the past. It's worth saying that the fourth quarter gross profit margins are the highest in the history of the company. So, so we don't have to maintain those levels to continue to deliver what we consider to be outstanding performance.
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Chris Snyder: And further, as I, you know, have pointed out repeatedly, the, on our value creation model is about growing net sales, turning profits into cash and not growing the balance sheet as fast. So, so we've made structural changes, which allow us to operate at these higher margin levels and to turn those margins into, into cash. So, we feel really good about kind of the permanence of the changes that we've, we've made in the, the lighting business and, and the continued opportunity we have to improve that.
Chris Snyder: At the same time, we can continue to grow the portfolio through ISP and then through adding additional, additional businesses to the portfolio. I, I really appreciate that. If I could follow up with one more, it's probably, you know, the biggest question that that I get is, you know, when we look at this gross margin, I mean, it's pretty incredible, you know, 340 basis points versus the start of the year. But at the same time, volumes have rolled and understand that, you know, there's, you know, the backlog dynamic, I understand, you know, maybe the macros a bit softer.
Chris Snyder: But do you guys think that there is, you know, any negative volume impact from this, you know, big uplifting, gross margin? And, and, and, and how does the company think about balancing that? It feels like there's a, there's a bit of maybe a sliding scale dynamic. Thank you. I appreciate it. Yeah, no, I appreciate you asking a question and giving us the opportunity to, to address. We talked a bit about this in the, in the third quarter call, but, but I want to reflect on it more, which is most importantly, our strategy in the lighting business around product vitality, service, technology and productivity has put us in a position to manage, price and to manage margins in a, in a, in a step function better way than we have in the past.
Chris Snyder: And so we feel really good about that. As we have evaluated volumes and I was addressing this with just questions, we strategically manage price where we, we choose to where we think we can drive volume. We, we realized that at these margin levels, we've created a significant amount of value. And so we have a lot of incentives to continue to operate at these, at these margin levels. All of the data that we are, are looking at across vertical says that, um, says that we are appropriately pricing for the volume that's available in the market.
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Chris Snyder: And that's our goal over time. So, um, so we will, that's, you know, why we've continued to layer in margin and, and cash flow during these, this low volume period and why we believe we're well positioned for the inevitable return of volume growth at some point in the future. Thank you Neil, I really appreciate that. Thanks Chris. Thank you and I'm showing no further questions in queue at this time.
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Neil Ashe: I'd like to turn the call back to Neil Ashe for any closing remarks. First of all, thank you all for spending some time with us this morning. We are, we're really proud of our financial performance as we've talked about through the call. We had a great year. We delivered strong financial performance. We can continue to structurally improve both the lighting business and we continue to grow the intelligence bases group and we can allocate a capital effectively.
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Neil Ashe: Our priorities for next year remain the same. We're going to continue to focus on operating excellence in the lighting business and making it more predictable, repeatable and scalable. We'll continue to grow the the spaces business and we will be consistent with our capital allocation priorities. So we look forward to, we look forward to being back together with you and at the end of the quarter and hope you have a good rest of your day. Thank you for your interest in Acuity Brands. This concludes today's conference call. Thank you for participating. You may now disconnect. [inaudible] you very much, thank you very much,[inaudible]
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Speaker 15: Really.