Q2 2024 Acuity Brands Inc Earnings Call

Okay.

None: Good morning, and welcome to the acuity brands fiscal 'twenty fourth quarter earnings call.

None: 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.

None: Please be advised that today's conference is being recorded.

None: I would now like to hand, the conference over to Charlotte Mclaughlin, Vice President of Investor Relations Charlotte. Please go ahead.

Charlotte McLaughlin: Good morning, and welcome to the acuity brands fiscal 2024 second quarter earnings call.

Charlotte McLaughlin: On the call with me this morning is Neil Ash.

Neil M. Ashe: Chairman, President and Chief Executive Officer.

Neil M. Ashe: Terry Hogan, our senior Vice President and Chief Financial Officer.

Charlotte McLaughlin: Today's call will include updates on our strategic progress.

Charlotte McLaughlin: And our fiscal 2020 full second quarter performance.

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

Charlotte McLaughlin: As a reminder, some of our comments today may be forward looking statements.

Charlotte McLaughlin: We intend these forward looking statements to be covered by the safe Harbor provisions of the private Securities Litigation Reform Act of 1985.

Charlotte McLaughlin: As detailed on slide two of the accompanying presentation.

Charlotte McLaughlin: Reconciliations of certain non-GAAP financial metrics with.

Charlotte McLaughlin: With that corresponding GAAP measures.

Charlotte McLaughlin: Global in our 2024 second quarter earnings release and supplemental presentation.

Charlotte McLaughlin: Both of which are available on our Investor Relations website at Www Dot investors, the Qt brand Dot com.

Charlotte McLaughlin: Thank you for your interest in acuity, Brian I will now turn the call over to Neil Ash.

Neil M. Ashe: Charlotte and thank you all for joining us this morning.

Neil M. Ashe: Our fiscal 2024 second quarter was another quarter of solid execution.

Neil M. Ashe: We increased our adjusted operating profit adjusted operating profit margin and adjusted diluted earnings per share.

Neil M. Ashe: <unk> strong cash flow that we allocated capital effectively to drive value.

Neil M. Ashe: Both our lighting and our intelligent spaces businesses delivered strong financial performance.

Neil M. Ashe: And ABL, we increased adjusted operating profit by $3 million on $47 million less sales and increase the adjusted operating profit margin 120 basis points to 16, 2%.

Neil M. Ashe: This performance is the cumulative result of the changes that we've made to the business over the last four years.

Neil M. Ashe: We have made the business more predictable repeatable and scalable by executing on our strategy to increase product vitality elevated service levels used technology to improve and differentiate both our product and how we operate the business and by driving productivity.

Neil M. Ashe: During the second quarter, we continue to make progress on our strategy.

Neil M. Ashe: By focusing on the needs of our customers we are elevating our service through our differentiated portfolio.

Neil M. Ashe: Contractor select is about 300 of our most popular products that are used in common everyday lighting applications.

Neil M. Ashe: These products are designed to be resolved at our in stock at retailers and electrical distributors.

Neil M. Ashe: Through high levels of product vitality, we have been able to create a portfolio that offers quality products our customers want at competitive prices, while at the same time, allowing our distributor partners to carry less inventory.

Neil M. Ashe: Design <unk> is comprised of products that are configurable and allow customers to easily select the products needed for their projects.

Neil M. Ashe: We are less than a year into launching the first wave of industrial energy and we.

Neil M. Ashe: We're continuing to expand the product families and configurations available.

Neil M. Ashe: The reception so far has been positive.

Neil M. Ashe: A recent project in California is a great example.

Neil M. Ashe: Where our customer needs as indoor fixtures outdoor fixtures and lighting controls.

Neil M. Ashe: Using options from the design select portfolio, we were able to meet unique product combination of the project.

None: Sure. It was there when the customer needed it and then it was easy for a contractor to install.

The remainder of our product portfolio is made to order.

None: These are specialty products, our solutions made for specific applications, such as national accounts to satisfy all of the wants and needs of the lighting design community.

None: At the same time, we continue to make investments for future growth.

None: In the second quarter, we expanded our horticulture product solutions.

None: We added the Orion family of products to our existing bridge airline in order to take advantage of a growing market.

None: Our eyes as a collection of professional grade led horticulture luminaries that are compatible with our in light air wireless controls in our Houston commercial greenhouses.

None: <unk> and vertical farming.

None: This all invest accelerates our product portfolio efforts in this attractive.

None: This approach to investment in ABL is the right one as evidenced by the value being realized in our <unk> driver and component is that.

None: We acquired <unk> in 2021 in order to control more of the technology and <unk> to expand our OEM channel and to take greater control of our electronic supply chain.

None: Today, we are one of the top driver suppliers to the lighting industry and to ourselves as we manufacture the majority of our drivers for our own products.

None: This control not only offers us a financial benefit but also offers us greater engineering flexibility during the design and development process that is core to our product vitality efforts.

None: This quarter, we introduced the <unk> family of shallow resets downloads from Gaza.

None: Which is a new platform of indoor downloads that have a compact design for use in confined spaces that replace the traditional canned recessed lighting fixtures.

None: Ivo can be used in most nonresidential settings in both new construction and renovation.

None: The compact design and high efficiency options deliver real value for our customers, while the use of less steel less aluminum and less plastic drive margin for us.

None: Finally, this quarter several of our brands were recognized by the industry.

None: <unk> Eureka Hydro luminous and Peerless brands were awarded nine good design awards from the Chicago Athenian Museum of architecture and design.

None: We were awarded 11 2023 product innovation awards by architectural products magazine for impressive innovation in terms of form functionality and sustainability.

None: And 14 of our luminaries were selected across multiple product categories by the lift design awards for exemplifying outstanding creativity and innovation.

None: Now moving to our intelligence basis group.

None: Our mission and our intelligence basis business is to make space, a smarter safer and greener through our strategy of connecting the edge to the cloud.

None: <unk> has the best edge control devices on the market, while atreus will be the best in cloud applications.

None: At <unk>, we are focused on expanding our addressable market in two ways the.

None: The first is geographic and second is increasing what we can control and have built space.

None: As part of our geographic expansion this quarter, we added additional systems integrator capacity in Australia, and we released atria sustainability and Atreus energy in France.

None: Our independent <unk> are key to the organic expansion of our spaces business.

None: We partner with the best SaaS in specific geographies to sell our full suite of <unk> and <unk> product portfolios.

None: Our <unk> applications are making a difference for our customers.

None: Atria sustainability and automation tools captures categorized and reports on carbon emissions, while atreus energy facilitates the reduction of energy and carbon usage by allowing facilities.

None: To benchmark their usage and prepare for upcoming reporting obligations.

None: Our <unk> energy and sustainability applications are gaining recognition.

None: Personal property Executive magazine named atrium, and innovative technology, where it's at.

None: Annual influence awards.

None: In CRE Tech select atreus as a finalist in its real estate towards that our technology vendors that are advancing solutions for commercial buildings.

None: Now turning to the outlook for the remainder of the year.

None: We are performing well.

None: We are satisfying customers expanding margins generating strong free cash flow.

None: The order rates in both our lighting business.

None: And our space business are growing year over year.

None: In our lighting business, we are back to typical lead times and after the impact of sales from excess backlog last year, we would be experiencing sales growth.

None: And our lighting and lighting controls business, our strategy drive strong execution and we are focused on returning the business growth in a normalized environment.

None: While leveraging our fixed cost and generating strong cash flow.

None: And our base business, we will continue to grow geographically and by adding to what we can control and have built space.

None: Carol outlined what that means for our second half outlook after giving you update on our second quarter performance.

None: Sarah.

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

Sarah: As Neil said, we continued to execute well.

Sarah: In our fiscal second quarter, we increased our adjusted operating profit.

Sarah: Improved our adjusted operating profit margin and increased our adjusted diluted earnings per share, while generating strong cash flow.

None: We continue to ask.

None: Okay capital effectively while making progress on our strategic priorities.

None: For total NOI, we generated net sales in the second quarter with $906 million.

None: Which was $38 million or 4% lower than the prior year as a result of the lower net sales and our ABL business.

None: This was partially offset by continued growth in the ISP business of 17% in the quarter.

None: We continue.

None: To deliver year over year margin improvement.

None: During the quarter, our adjusted operating profit increased by $8 million on lower net sales and we expanded adjusted operating profit margin to 15, 5%.

None: An increase of approximately 150 basis points from the prior year.

None: This increase was driven largely by the significant year over year improvement in our gross.

None: But margin as we continue to execute our strategy and drive margin through product vitality and management of price and cost and productivity improvements.

None: During the quarter, our adjusted diluted earnings per share of $3 38.

None: Increased 32.

None: Or 11% over the prior year.

None: Primarily a result of higher net income and to a lesser extent lower shares outstanding due to share repurchases.

None: And ABL net sales were $844 million in the quarter.

None: A decrease of around 5% compared with prior year.

None: By declines across all of our channels.

None: And you mentioned previously our order rate in ABL continues to grow year over year, meaning absent the sale of last year from the excess backlog.

None: I would've experienced sales growth.

None: <unk> adjusted operating profit increased 2% to $136 million on lower net sales.

None: While we delivered adjusted operating profit margin of 16, 2%.

None: A 120 basis point improvement over the prior year.

None: ISG net sales for the second quarter were $68 million.

None: An increase of 17%.

None: <unk> continued to grow in key too darn performed as we expected.

None: Isc's adjusted operating profit was $14 million with the adjusted operating profit margin at 21% or 240 basis point improvement over the prior year.

None: Now turning to our year to date cash flow performance.

None: We generated $293 million.

None: Cash flow from operating activities in the first half of the year.

None: Down slightly from the same period last year.

None: We continue to allocate capital consistent with our priorities.

None: Year to date, we invested $29 million in capital expenditures.

None: We acquired the assets of arrive horticulture lighting.

None: We increased our dividend per share, 15% and allocated approximately $68 million to repurchase over 370000 shares.

None: In January our board of directors authorized the additional repurchase of up to 3 million shares of common stock.

None: The outstanding authorization to approximately 4 million shares.

None: Since the beginning of the fourth quarter of fiscal 2020.

We repurchased approximately $9 5 million shares at an average price of about $145 per share, which was funded by organic cash flow.

This amounts to about 24% of the <unk> shares outstanding.

None: We had a strong first half performance.

None: We delivered improved margins and increased adjusted diluted earnings per share with.

None: We generated strong cash flow from operations and continue to allocate capital effectively.

None: While it is not our practice to address our outlook during the year.

None: Our performance in the first half was very strong.

None: And we are raising our full year expectations for EPS.

None: We now expect our 2024 adjusted diluted earnings per share range to be between $14 and 75.

And $15.50.

None: Thank you for joining us today I will now pass you over to the operator to take your questions.

Operator: Thank you Tessa a question. Please press star one of your telephone and wait for your name to be announced.

Operator: To withdraw your question Please press star.

Operator: One again.

Operator: Please standby will compile the Q&A roster.

Our first question comes from the line of Joe O'dea with Wells Fargo. Your line is now open.

Joe O'dea: Hi, good morning.

Joe O'dea: Hey, good morning, gentlemen.

Joe O'dea: So first.

Joe O'dea: Our first question.

Joe O'dea: So group kind of two in one but wanted to ask about sort of infrastructure.

Joe O'dea: D&A and really the angle is.

Joe O'dea: Are you seeing evidence that some of the changes in the commissions that you implemented last year are translating to better wins at this point you can talk about the infrastructure explain a little bit is as well as just when you see where SG&A as a percent of sales opportunities that you see there.

Joe O'dea: Either volume leverage your costs down.

Joe O'dea: Alright.

None: Okay, Great Joe Thank you.

Joe O'dea: First of all on infrastructure were feeling good about our positioning for the larger projects that are coming down the pike.

None: <unk> recognizing that there are coming down on a on a longer term basis than than anyone would like wed like them to be here today, but orders are strong, but shipments and sales will be spread out over the next year or two so there will be.

None: There will be a continued impact from infrastructure.

None: We're confident we will get at least our fair share and we're working to get a disproportionate share. So we feel like that's a that's a good opportunity for us going forward. We also feel the quest.

None: Question, we positioned ourselves well from an execution perspective, so first around products for that are necessary to to win those those projects and then the combination at the interrelationship between our direct sales network and our independent sales network as we approach those so so we feel good about those.

None: As it relates to specific DNA spending obviously, we're in a position this year, where we are where we are.

None: Performance is appears than it would normally and the reason for that is the excess sales from backlog in last year.

So we're confident that number one we will return the lighting business and growth in that number too when we do that the combination of the increase.

None: In performance, we've demonstrated at the gross margin level as well as our ability to two.

None: To leverage.

None: SG&A costs going forward, we will continue to expand margins in that business. So no.

None: It's not it's not an insignificant achievement to expand margins on lower sales, obviously and so so we're looking forward to that.

None: Returning to normalized crop.

None: I appreciate it and then also just wanted to touch on cash and deployment cash balance at this point is approaching $600 million.

None: And how how youre thinking.

None: King about.

None: Repurchase activity.

None: The revisions to that within the guidance framework as well as.

None: The higher cash balance.

None: We should interpret within that.

And perhaps the strength of the M&A pipeline, if youre seeing more opportunities out there.

Yes, Joe Thanks for that overall, we are really pleased with our cash flow performance.

Joe O'dea: Quarter or this year to date period, we generated $263 million of free cash flow, so really strong cash flow performance.

Joe O'dea: Driven a lot by our margin performance, which is contributing to the.

Joe O'dea: The higher net income versus <unk>.

Joe O'dea: The lower sales. So overall really pleased with that when we look at our capital allocation priorities. We've been really clear over time that is first to invest in the business for growth.

Joe O'dea: Second to invest in M&A, which we've done over the past few years, we've made some small but relatively small but strategic acquisitions with up to connex with key environmental with the arise.

Joe O'dea: Horticulture assets, so really pleased with the progress we've made there.

Joe O'dea: Maybe noticed we did increase our dividend by 15% this quarter. So excited to see that increase and then finally share repurchases.

Joe O'dea: We've demonstrated when the share price is high we buy last and when the share price is low we buy a lot more.

Joe O'dea: So.

This quarter, we repurchased.

Joe O'dea: Cumulative 24% of our shares outstanding and this year to date period, it's been at about $180 a share so feel really good about where we are from our capital allocation priorities.

None: Karen I'll build on that just for a second so we feel really good about our ability to generate value through capital allocation. So.

Karen: So first on the on the M&A pipeline, we our focus continues to be on expanding the intelligence basis group, we have a good pipeline of both.

Karen: Small medium and large sized acquisitions.

Karen: As Karen mentioned, we've done really well with the acquisitions that we've that we've made to date and.

Karen: And we're patient so we don't feel an obligation to.

To move until we find the right opportunity that it's going to have the right impact at the at the right valuation.

Karen: Second as Karen mentioned, we increased the dividend we did that because we can we can continue to we can afford to pay the dividend at a higher rate and achieved the strategic opportunities that we that we perceive and.

Karen: And finally, we've demonstrated in our repurchase of almost a quarter of the company at <unk>.

Karen: Very attractive prices as Karen mentioned that when the stock price is lower will buy more and when the stock price does less well by higher so when you put it all back together, we view capital allocation as a as a strategic.

Karen: Jake lever for us to to generate value and and we feel real good about our progress on that so far.

None: Thank you.

Thank you.

None: Our next question comes from the line of Ryan Merkel with William Blair. Your line is now open.

Ryan James Merkel: Hey, everyone. Thanks nice quarter.

Ryan James Merkel: Good morning, Brian I wanted to ask first on.

Ryan James Merkel: The new EPS guide what does it assume per sales for the full year. Neil you mentioned orders are growing and you expect to return the lighting business to growth in the second half.

Ryan James Merkel: Just talk about that a little bit more.

Ryan James Merkel: Sure.

Neil M. Ashe: So first of all we're really pleased with our performance so far this year.

None: As you know, it's not our practice to address guidance.

None: Other than in the beginning of the year, it's our preference to define an outlook at the beginning of the year and then two to execute against our.

None: Our first quarter performance, obviously that was really strong largely driven by the by merchant performance.

As we look forward for the remainder of the year. We obviously, we planned conservatively given all of the uncertainties going on in the world. So we were appropriately conservative in our plan and we're adjusting our performance ads as we performed for the rest of the year.

None: The lighting business will will perform as we expect going forward I would extend that line to be more than just the back half of the year, but but as we return that to growth over a normalized period. So breadth of this year next year and.

None: And beyond so feel really good about how how we're going to do that as well it will take a minute for us to continue to work through kind of the.

None: The inflated sales from last year, but.

None: When you look at the performance over a longer period of time on a multiyear stack or are where we are unloading business, we feel really good about that so.

None: We did not change the the.

None: The revenue guidance.

None: So we feel confident we're within that range and and we're really pleased with our performance from a profitability perspective.

None: Got it alright.

None: And then I wanted to ask on the ISG really nice growth.

None: High level are you seeing a lot more interest in controls and are there any drivers of that that may be new.

Yeah. So thanks for that question and I'm going to use it as an opportunity to kind of explain two things. If you. If you'll allow me Ryan first is that we have a very strong controls business in.

None: The lighting business. So acuity is a brands lighting is one of the largest if not the largest control player for lighting controls specifically at this second OEM provider to two of acuity brands lighting or those controls.

None: Specifically now as it relates to our performance on ISG, we feel really good about our strategy there of growth.

None: We're expanding the addressable market for for this tech and we're seeing disproportionate demand there for two reasons one is.

None: I think it's fair to say are our.

None: <unk> in our sensors at this tech are perceived to be the highest quality in the marketplace. So they are very attractive to <unk>.

None: Building owners and facilities managers, because it gives them.

More flexibility than many other solutions so they have because their own protocol and because we have open open side distribution to have the opportunity to.

None: To be confident that that investment will carry them forward in an attractive way.

None: We also feel really good about our ability to add more things that we can't control. So key to them is a great example, where we acquired effectively products, which fit into the <unk> portfolio work within the broader <unk> ecosystem and open up additional verticals like retail convenience stores et cetera that have high refrigeration needs.

None: So we feel good about that strategy going forward. So this tech has been taking share in each of the markets, which it compete then and now we have the opportunity to expand the markets. It competes and number one and expand the number of things that you can control.

None: And then finally, when you connect the edge to the cloud, which is the atrium data layer that we have.

<unk> been building.

None: It allows us to take the data that all of those sensors and controls generate excuse me and presented to the cloud in a manner, which applications can be built which make a difference in those built basis. So.

None: So we feel really good about the about.

None: The business that we're building there we think we're building a really valuable technology business.

None: Super helpful I'll pass it on thanks.

None: Thanks.

None: Thank you.

Our next question comes from line of Christopher Glynn with Oppenheimer <unk> Company. Your line is now open.

Christopher D. Glynn: Thanks, Good morning, I wanted to dive into some of the implications for contractor select.

Christopher D. Glynn: Designed select.

Christopher D. Glynn: That manner.

Christopher D. Glynn: Product.

None: <unk> counter categorization internally.

None: Sure.

None: Backbone.

None: Productivity momentum.

None: I think it's a big part of it Chris So.

To spend another minute on contractor select so our strategy with contractor select is to make it the brand of choice for retail and electrical distribution with high product vitality at.

None: At appropriate prices with high service levels, largely for distributors and as I mentioned.

None: It's built B <unk>.

None: It's supposed to be stock and results. So it's designed to Stockton results.

None: And we it's a very constrained number of Skus.

None: What that's allowed us to do is to build a very consistent relationship with the distribution and retail community.

None: That is done is provide us provide us with a foundation and an easy easy for them to choose and it's worth noting that there is a lot in them too because we've created a portfolio that allows them to to have less inventory on hand, and satisfy the needs of their customers.

None: At an appropriate price they are able to drive significantly higher returns on investment in the execution of their business. So at the same margins, they're making a significantly more money as a result, so yes. It's been a it's been a really important part of that product portfolio. The second thing is we've raised the margin portfolio of.

None: That we've raised the margin of that portfolio excuse me too much.

None: A much more consistent levels with where we are now so that's driven some of our margin performance.

None: We did not collect we're really just getting started so.

None: Our contractor select is designed to be resold contract or a design select is designed such that options can be chosen. So that you can a specifier has the opportunity to choose from options to configure the products and the project that they that they need.

None: As we mentioned in the script, where we are at the early days of this so this will be a multi year multi year process, but it is changing how both specifier is think about our portfolio and.

And how we think about the execution of that portfolio. The majority of our business, though remains made to order and so that made to order made to order for a reason so thats best fires can make the choices that they need so that they can buy large projects, we can satisfy national accounts as we can.

There are a lot of.

None: Different pieces of that puzzle.

None: We asked Joe asked about infrastructure earlier, we won the rewrite of the city of Philadelphia. That's a good example of a made to order projects.

None: We made some changes to our product portfolio to satisfy some of their specific needs and we can roll those out. So when you take those all together then we're up everything is operating at a higher margin profile and it's that and it's doing a much better job of satisfying very specific end user needs in the market.

Yes.

None: Thanks.

None: Tension of that question.

None: Talked a lot about.

None: <unk> to choose and select the problem.

None: Considering all the productivity youre generating.

None: Elaborated on.

None: Do you see.

None: Consistent widening the aperture.

None: Moving ahead in terms of.

None: What's attractive to you.

None: Just select within the overall lighting market.

None: Okay.

None: We feel very good about how we're positioned competitively so.

None: Obviously, we pay excuse me close attention to our competitors to the two and we generally think about this from a windshield perspective, as you indicated like which projects we want to want to select so we're obviously competitive on the contractor select side, we're doing really well there.

None: We have been competitive on the project side so.

There are there are a handful of examples where we pass on projects because we don't like the margin profile and we're happy for our competitors to execute on those at a lower margin profile.

None: And especially given that their margin profiles are already lower than ours. So.

None: So when we when we do not select those projects that mean someone else has delay those projects and theyre executing them at a lower at their lower at a lower margin that we have and at a lower margin that we would accept so.

None: So as we look going forward, we still see the opportunity then to build on that to grow both on the business that we already have as well as when we add.

None: And we add new verticals. So horticulture is a great example.

None: As you know there was.

None: Two or three years ago, there was a.

None: There was a rush to invest in that vertical.

None: And peaceful invested eight.

None: Significant amounts of money mobile companies did to try and pursue that vertical.

None: We identified that vertical then is an attractive vertical.

None: Didn't think it was with the level of investment that would that the market was asking for it at that time. So we will get instead was we started organically we build a product portfolio from scratch or gateway designed from scratch built from the ground up.

None: And now we've started to be arrived portfolio to add to that and to add to the distribution of that which gives us a green light opportunity to grow in a vertical that over the long term, we think will be attractive and with a measured level of investment. So when you put that altogether.

None: We're choosing where we want to compete in the marketplace. We are demonstrating the ability to do that through product and service innovation as well as.

None: As well as through our our management pricing and margin.

None: Thanks Neil.

Neil M. Ashe: Thank you.

Neil M. Ashe: Our next question comes from the line of Jeffrey Sprague with vertical research. Your line is now open.

Neil M. Ashe: Okay.

Jeffrey Todd Sprague: Thank you good morning, everyone.

Jeffrey Todd Sprague: Hey, Neil maybe.

Jeffrey Todd Sprague: Just to address a little bit more kind of a geographically.

Jeffrey Todd Sprague: The expansion.

Jeffrey Todd Sprague: How you are.

Jeffrey Todd Sprague: Which geographies, you're choosing to target the bandwidth of the company to kind of execute on that.

None: This is something where we could see higher level of activity from this point forward.

None: Yes, Thanks, Jeff.

None: Our geographic expansion is focused on the intelligent spaces group, so it's worth pointing out that the.

None: That standards are mostly global for the <unk> product portfolio.

None: And the edge to cloud opportunity the applications for atria are global so that gives us.

None: The opportunity to expand without having to create new product portfolios.

None: Exceptions, which are not available to us like Germany for example.

None: As a result, we are building on strength there to.

None: To roll that out so.

None: We have strengthened.

None: North America, obviously, that's our home market, we are probably half penetrated where we think we can be in the U S and so obviously the bigger markets will invest in for growth there.

None: We're also successful in France, I think in the last quarter, we identified we have really high market share in France.

None: We're now expanding into more of Europe. So.

None: Well through the U K.

None: And other markets and then we're focused on markets that look like that so Australia. We added some capacity we will be looking for ways over the course of the next six to 12 months to figure out how to accelerate that that expansion for for ISG geographically.

Our aspiration for that business unit is that it is a it is a global unit that makes space.

None: Spaces smarter safer and greener through a combination of edge to cloud edge controls and sensors devices and the cloud are applications that do something with the data that those.

None: Those sensors and controls generate so so.

None: So yes, you can expect us to be focused on expanding that that business globally and.

None: We're basically in North America, and France at this point, so there's a there's a big opportunity there.

None: Great and then perhaps for for Karen Neil Thank you too of course.

None: We've gotten this far in the Q&A without any real discussion of price I know youre not going to talk about pricing, specifically, but maybe just give us a little bit of update and kind of the tone of the market.

None: What youre doing there.

None: Transportation costs were a big topic to the good last quarter.

None: Are you seeing any significant changes there with kind of the.

Some global shipping everything Thats going on.

None: Payoffs is a good word Karen why don't you ask.

None: Pricing I'll address some of the pricing.

Karen J. Holcom: Jeff overall, we continue to be really pleased with our gross profit performance and that really is resulting from what we've talked about on the call already is the strategic management of pricing and being able to get the value of our products that they deserve in the marketplace.

Karen J. Holcom: At the same time, we are working on input costs with our suppliers and we've seen some benefits this quarter and beyond electronics. So that is helping us and then freight is continuing to benefit year over year. So overall, we feel that the focus on our portfolio segmentation that we talked about with contractor select design <unk>.

Karen J. Holcom: And made the order helps.

Karen J. Holcom: It helps us strategically priced.

Karen J. Holcom: And get the value that they deserve in the marketplace.

None: Great. Thank you.

None: Thank you.

None: Thank you. Our next question comes from the line of Bob <unk> with Baird. Your line is now open.

Bob: Hey, good morning, guys.

Bob: No Ben I think three quarters, now, where you've posted 45% plus gross margins.

Should we think about the sustainability of those margins into the second half here and then looking into 2025.

Bob: Yes, thanks, Bob So as I've mentioned, when we're talking about are.

None: <unk> to our EPS guidance, we feel really good about our performance.

None: And I'll build on parent the answer to Jeff's question about price and margin which is that.

None: We are managing.

None: Our printing such that we are realizing the value for that our products are having in the marketplace.

None: And on the input costs, we're doing two things one is our product vitality efforts are changing the amount of content that is.

None: That is in each of our products and how we ship those products. So more product can be shipped four.

On the St Pallet so.

None: I mentioned, the Idaho in my opening comments that a really innovative product in the marketplace, because it's roughly half the size or less of.

None: What it is replacing number one which obviously means there is a lot less.

None: It also means that we can fit a lot more on a pallet as we ship those.

None: North America.

And then third is deliver significant value to the installers because of significant patented innovation and how the it is constructed at the job site. So the ability to use one housing basically to put it in different lighting. So that's a great example of a product that delivers real value.

None: <unk> to the entire value chain and the.

None: The combination of all those things has gotten us to the margin levels were.

None: We are right now so so yes, we feel good about our margin performance it'll go up a little or up or down a little from quarter to quarter, but we feel really good about kind of the structural improvement of our margin performance.

None: And our team has demonstrated significant dexterity and ability to deliver on that in and all kinds of different market conditions and so.

None: So we feel like we're on a journey here, we're not at a destination and we're we're pleased with our performance.

None: Got it thanks, and then I wanted to ask on data centers. What is your exposure there today and kind of what are you seeing in that market right now.

None: So we have two exposures to data centers. So on a good news front datacenters highlighting so one I think that they could operate in the dark but they don't so so that a very attractive opportunity and continues to be for the lighting business.

None: On the on the controls side.

None: We are <unk> is flat specced into some of the.

None: Largest data failures so as they are.

None: Sure.

None: Their control of choice.

None: There are two different kinds of controls and data centers. So we focus on digital controls and so that does that mean, the not the entire market is addressable for us, but the market that is addressable for us is growing as we build on those.

None: Global scale.

None: We are we had another win.

None: On that front, where over the course of the quarter, where we converted a large Asian datacenter operator to to our way of our control and so that'll be a multiyear opportunity for us going forward. So we're close to the data center opportunity in both of our segments, but the lighting segment as well as the.

None: Basic segment.

None: Awesome, Thanks, guys I'll leave it there.

None: Thank you.

Our next question comes from the line of Chris Snyder with UBS. Your line is now open.

Thanks.

Christopher M. Snyder: I wanted to ask you about the back half guidance. It seems to me that it calls for gross margin to be kind of similar maybe a slightly lower than what we just saw in fiscal Q2 about $45. Five. So I guess is that right. The right interpretation and then what are some of the puts and takes on that because.

Christopher M. Snyder: It does seem like there is some volume leverage here from second quarter to the back half. Thank you.

None: Yes, Thanks, Chris Thanks, Chris.

None: I can help you in the after call on building your model, but ill talk qualitatively about how we're thinking about the back half of the year and build on some of my comments earlier.

None: Our lighting business is strong.

None: Competing effectively in the marketplace, we are demonstrating that.

The market is valuing what we are selling from up from a product perspective.

None: We're demonstrating that we can innovate on our product portfolio and deliver.

None: What is.

None: Our innovative products to the marketplace that are more valuable to the marketplace and more profitable for us and we've demonstrated that we're managing input costs material costs in a rapidly changing environment, whether it's electronics or freight or steel or any of the different things. So we feel really good about.

The continued performance.

None: Our.

None: Our continued margin performance excuse me. So so as you look to the half of the year and more importantly Q.

None: Two the year after and the year after that and the year after that.

None: We're on a we're on a mission to continue to make a much more.

None: Much more predictable repeatable scalable business on the lighting side.

None: And a growth business on the intelligence side and to use capital then to expand that that portfolio. So yes, we feel fine about the feel good about the guidance for the remainder of the year and we feel even better about the year after and the year after that.

None: I appreciate that and maybe just following up on the market competition.

None: Points do you feel like the lighting industry.

None: Competitive from a price standpoint than it was five years ago or is that acuity is being more selective in shying away from the most competitive opex of the market and then what you guys have done with palm chocolate select kind of raising the gross.

None: The gross margin floor, just kind of any thoughts on that.

None: Yes, so I wasn't here five years ago, So I can't address that but I will address kind of how we've how we've performed over the last four years, which is.

None: I would say that.

None: Obviously, we're the largest in the industry, we have the highest margins in the industry. We have the highest product vitality in the industry. We have raised the floor on margins with contractor select we are innovating with the down select and our new portfolio. So our performance is is objectively very strong.

None: The.

None: That makes us a much more formidable competitor to the marketplace no matter, who you are whether you're a large competitor competitor youre a small competitor what are your house in North America, or somewhere else, where just a significantly stronger competitor than we were four years ago, and so that puts us in a position to have significantly more control over.

None: Over our destiny, and we're demonstrating that control and in our performance and so.

None: And we think this is a good point to to build on so so we will continue to.

None: To press our advantage on the on the lighting side so.

None: So I would I would answer your question by saying something that we said.

None: When the market was really choppy, which is that we control what we can control we are controlling more of what's happening in the marketplace. As a result of our strategy and the execution of that strategy and the cumulative performance and the impact of that.

None: Appreciate it if I can just squeeze one last one and I know, it's hard to call a cycle, but I'd be interested in.

None: Do you think we are in.

None: Residential construction activity is still pretty healthy a lot of the leading indicators are I won't say terribly negative but on the more negative side do you feel like that cycle pressure on the horizon or that maybe you've already dealt with a lot of the destock.

None: Any thoughts on.

None: Thank you.

None: Yes, sure Chris I think the cycle question is has been a really hard one because.

None: We collectively and by that I mean, the economy industry et cetera has been thrown so many curve balls over the course of the last three years.

None: So I feel like we can.

None: Multiple years in a single year or a single peers.

None: Period, so it's hard to call it as a as a normal historical cycle.

So obviously, we had the <unk>.

None: <unk> down then we had the bullwhip.

None: Projects and activity that was waiting to be executed, which led to increased backlogs, which we.

None: Accelerated to two to satisfy which happened last year and you see a little bit of the hangover impact on.

None: On our sales growth this year.

None: We've been looking at the market on a multiyear basis, though so when you look at first.

None: Market.

None: On a multiyear basis. It really does start to normalize it doesn't look like there is a any kind of boom and bust cycle. It looks like there was just a fair amount of business that got executed last year that maybe would have normally been executed this year. So.

None: As we look forward we are.

I've mentioned this on the call before we do a fair amount of data analysis.

None: We're pretty good at it and we are outperforming the regression analysis. So.

None: What we would expect to do so we are our performance as a contributor to two to where we are as we think about the cycle going forward, we strived for normalcy we.

None: Don't feel like we need a really super hot environment or <unk>.

None: And we demonstrated we can execute in a relatively cool environment. So.

None: So kind of where are we on the on the cycle front I would say that our data indicate that lighting moves earlier then.

And then the other parts of the industry. There are reasons for that to happen, but that has.

None: That has borne out in other People's performance.

None: And and we feel good about kind of where we are from a from an order rate perspective.

We've seen that that relationship between lighting and other industries between.

None: Between ABL in the spaces group with with this tech so.

None: And <unk>, we're also outperforming what the market's expectations are so we're outperforming where our size.

None: To be which means we're taking share there also so.

None: So as we look forward, what we what we strive for as a as a more normalized environment.

None: Confident in calling a cycle because I don't think this is a this is a normal cycle or it doesn't look like cycle that.

None: That we've had in the past.

None: Now three steps back our lighting lighting controls business grow consistently over time on a compounded annual growth rate or in our faces group is.

None: Is taking share and we're building something pretty special there. So so net net.

None: We feel like we can execute in any environment.

None: I don't want to kind.

None: Kind of a fed governor and try and figure out where we are from a cycle perspective other than to say, we're going to control what we can control.

None: We feel really good about where we are from the lighting and lighting controls business. We feel really good about where we are from the base business and we've got a lot of capital to grow our platform.

None: Thank you really appreciate all that color.

None: Thank you.

None: Our next question comes from the line of Jeff Osborne with TD Cowen. Your line is now open.

Jeffrey David Osborne: Hey, good morning, Neil maybe just a follow up on the prior question and.

Jeffrey David Osborne: In terms of I think last call you touched on a rebound in larger projects visible in 2025, I'm just curious what the CRM system showing for the larger projects.

Jeffrey David Osborne: And then historically I think larger projects were considerably more profitable.

Then the contractor select and some of the more commoditized projects that greatly improve the profitability of what would you expect as the potential rebound at those larger projects flows through that.

Jeffrey David Osborne: Disproportionate.

Jeffrey David Osborne: Mix shift in profitability.

None: Yes. Thanks.

None: As I said, so if we focus on the large project is a big bucket. So let's talk about kind of infrastructure on the one hand, and then we'll talk about kind of the traditional larger projects on the other so on.

None: On the infrastructure side, there's obviously still a significant amount of capital that's going to run through what others are calling the mega projects.

None: And we're confident we'll get our fair share of.

And hopefully a disproportionate share and from a mix perspective that is an attractive piece of business.

None: We we.

None: We priced fairly there so we're delivering value to basically the citizens who are funding those so we feel good about.

None: About that at the same time, we can operate in the margin portfolio that that we expect.

None: And then within kind of larger projects there are a number of other kind of private sector.

None: Impact that also so.

None: Impacts of the chip back and our ability to do to light fabs to light data centers.

None: To deliver control obviously those are all consistently.

None: Consistently.

None: Attractive margin pieces of business for us.

None: We're scaling in industrial as as.

There's a lot of re shoring is happening in the U S and so.

None: So the.

None: The mix of our portfolio is however, tighter from a margin perspective, as we indicated earlier that effectively the floor has been raised on the contractor select portfolio and we will.

None: Early to the four citizens that are funding the the infrastructure and we will continue to deliver that.

None: Performance that we're demonstrating.

None: Got it and then for Karen on the contractor select and design select portfolios.

By definition sort of required more investment and inventory that you might have had in years past.

None: So for contractor in slack contractor select and design select when we look at the inventory level.

None: First on contractor select.

None: The 300 of the most.

None: Common everyday lighting products, we stopped those.

Here, but then also our distributors that but given the high turnover with that portfolio. It allows our distributors to carry less inventory and also for us to carry less inventory so that doesn't really have a higher requirement.

None: Design select.

None: We are able to manage those inventory levels effectively.

None: Improve our turns so neither of those should have a negative impact on our working capital inventory going forward and in fact, if you look at our inventory days over the course of time.

None: We've improved our inventory turns versus last year and versus.

None: Kind of over.

None: From our high point and certainly over last year, when we reduced it and then continue to have room to improve so feel really good about where we are on our inventory and don't believe that that should happen to get a impact and if anything.

None: Some of that should improve our ability around our raw materials going forward.

None: Thank you and I'm showing no further questions in the queue. At this time I would like to turn the call back to Neil asked for any closing remarks.

Neil M. Ashe: Thank you. Thank you all for joining us. This morning, we are as we said in our comments and then questions. We're really pleased with our performance. Our team is executing really well, we feel confident in where the lighting lighting controls businesses for this year and beyond we feel like our growth opportunity on the space side is clear.

And we're executing against it and we have demonstrated that we can create real value with the capital allocation and so we will keep doing that and we'll look forward to seeing you next quarter.

None: Thank you for today's conference call. Thank you for your participation you may now disconnect.

None: [music].